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FTI ConsultingUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2020.
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period
from to .
Commission file number: 001-33626
GENPACT LIMITED
(Exact name of registrant as specified in its charter)
Bermuda
(State or other jurisdiction of incorporation or organization)
98-0533350
(I.R.S. Employer Identification No.)
Victoria Place, 5th Floor
31 Victoria Street
Hamilton HM 10
Bermuda
(441) 294-8000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares, par value $0.01 per share
Trading Symbol(s)
G
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No☒
As of June 30, 2020, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was $6,941,276,604, based on the closing price of the registrant’s
common shares, par value $0.01 per share, reported on the New York Stock Exchange on such date of $36.52 per share. Directors, executive officers and significant shareholders of Genpact Limited are
considered affiliates for purposes of this calculation but should not necessarily be deemed affiliates for any other purpose.
As of February 25, 2021, there were 188,136,982 common shares of the registrant outstanding.
Documents incorporated by reference:
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2020. Portions of the proxy statement are
incorporated herein by reference to the following parts of this Annual Report on Form 10-K:
Part III, Item 10, Directors, Executive Officers and Corporate Governance;
Part III, Item 11, Executive Compensation;
Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters;
Part III, Item 13, Certain Relationships and Related Transactions, and Director Independence; and
Part III, Item 14, Principal Accountant Fees and Services.
TABLE OF CONTENTS
Page No.
PART I
Item No.
1. Business
1A. Risk Factors
1B. Unresolved Staff Comments
2. Properties
3. Legal Proceedings
4. Mine Safety Disclosures
PART II
PART III
PART IV
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
6. Selected Financial Data
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
15. Exhibits and Financial Statement Schedules
16. Form 10-K Summary
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
SIGNATURES
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Special Note Regarding Forward-Looking Statements
We have made statements in this Annual Report on Form 10-K (the “Annual Report”) in, among other sections, Item 1—“Business,”
Item 1A—“Risk Factors,” and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are
forward-looking statements. In some cases, you can identify these statements by forward-looking terms such as “expect,” “anticipate,”
“intend,” “plan,” “believe,” “seek,” “estimate,” “could,” “may,” “shall,” “will,” “would” and variations of such words and similar expressions, or
the negative of such words or similar expressions. These forward-looking statements, which are subject to risks, uncertainties and
assumptions about us, may include projections of our future financial performance, which in some cases may be based on our growth
strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections
about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ
materially from those expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks outlined
under the heading “Summary of Risk Factors” and Item 1A—“Risk Factors” in this Annual Report. These forward-looking statements include,
but are not limited to, statements relating to:
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our ability to retain existing clients and contracts;
our ability to win new clients and engagements;
the expected value of the statements of work under our master service agreements;
our beliefs about future trends in the markets in which we operate;
political, economic or business conditions in countries where we have operations or where our clients operate, including related to
the withdrawal of the United Kingdom from the European Union, commonly known as Brexit, and heightened economic and
political uncertainty within and among other European Union member states;
expected spending on business process outsourcing, information technology and digital transformation services by clients;
foreign currency exchange rates;
our ability to convert bookings to revenue;
our rate of employee attrition;
our effective tax rate; and
competition in our industry.
Factors that may cause actual results to differ from expected results include, among others:
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the impact of the COVID-19 pandemic and related response measures on our business, results of operations and financial
condition;
our ability to develop and successfully execute our business strategies;
our ability to grow our business and effectively manage growth and international operations while maintaining effective internal
controls;
our ability to comply with data protection laws and regulations and to maintain the security and confidentiality of personal and
other sensitive data of our clients, employees or others;
telecommunications or technology disruptions or breaches, natural or other disasters, or medical epidemics or pandemics,
including the COVID-19 pandemic;
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our dependence on favorable policies and tax laws that may be changed or amended in a manner adverse to us or be unavailable to
us in the future, including as a result of tax policy changes in India, and our ability to effectively execute our tax planning strategies;
our dependence on revenues derived from clients in the United States and Europe and clients that operate in certain industries,
such as the financial services industry;
our ability to successfully consummate or integrate strategic acquisitions;
our ability to maintain pricing and employee utilization rates;
our ability to hire and retain enough qualified employees to support our operations;
increases in wages in locations in which we have operations;
our ability to service our defined contribution and benefit plans payment obligations;
clarification as to the possible retrospective application of a judicial pronouncement in India regarding our defined contribution
and benefit plans payment obligations;
our relative dependence on the General Electric Company, or GE, and our ability to maintain our relationships with divested GE
businesses;
financing terms, including, but not limited to, changes in the London Interbank Offered rate, or LIBOR, including the pending
global phase-out of LIBOR, the development of alternative rates, including the Secured Overnight Financing Rate, and changes to
our credit ratings;
our ability to meet our corporate funding needs, pay dividends and service debt, including our ability to comply with the
restrictions that apply to our indebtedness that may limit our business activities and investment opportunities;
restrictions on visas for our employees traveling to North America and Europe;
fluctuations in currency exchange rates between the currencies in which we transact business;
our ability to retain senior management;
the selling cycle for our client relationships;
our ability to attract and retain clients and our ability to develop and maintain client relationships on attractive terms;
legislation in the United States or elsewhere that restricts or adversely affects demand for business process outsourcing,
information technology and digital transformation services offshore;
increasing competition in our industry;
our ability to protect our intellectual property and the intellectual property of others;
deterioration in the global economic environment and its impact on our clients, including the bankruptcy of our clients;
regulatory, legislative and judicial developments, including the withdrawal of governmental fiscal incentives;
the international nature of our business;
technological innovation;
our ability to derive revenues from new service offerings; and
unionization of any of our employees.
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Although we believe the expectations reflected in the forward-looking statements are reasonable at the time they are made, we cannot
guarantee future results, level of activity, performance or achievements. Achievement of future results is subject to risks, uncertainties, and
potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind
as you consider forward-looking statements. We undertake no obligation to update any of these forward-looking statements after the date of
this filing to conform our prior statements to actual results or revised expectations. You are advised, however, to consult any further
disclosures we make on related subjects in our Forms 10-Q and Form 8-K reports to the SEC.
In this Annual Report on Form 10-K, we use the terms “Genpact,” “Company,” “we” and “us” to refer to Genpact Limited and its
subsidiaries. Our registered office is located at Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda.
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SUMMARY OF RISK FACTORS
Below is a summary of the principal risk factors that make an investment in our common shares risky or speculative. Additional risks and
uncertainties not known to us or that we deem less significant may also impair our business. Additional discussion of the risks that we face can
be found in Item 1A—“Risk Factors” of this Annual Report on Form 10-K, and should be carefully considered, together with other information
in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission, before making an investment
decision regarding our common shares.
Risks Related to our Business and Operations
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Our business and results of operations have been adversely impacted and may in the future be adversely impacted by the COVID-19
pandemic.
Our success largely depends on our ability to achieve our business strategies, and our results of operations and financial condition may
suffer if we are unable to continually develop and successfully execute our strategies.
We could be liable to our clients or others for damages, subject to criminal liability, fines or penalties, and our reputation could be
damaged, if our information systems are breached or confidential or sensitive client or employee data is compromised.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our
clients’ businesses and levels of business activity.
Our business depends on generating and maintaining ongoing, profitable client demand for our services and solutions, and a significant
reduction in such demand or an inability to respond to the evolving technological environment could materially affect our results of
operations.
Tax matters may have an adverse effect on our business, results of operations, effective tax rate and financial condition.
Wage increases in the countries where we operate may prevent us from sustaining our competitive advantage and may reduce our profit
margin.
We may be subject to claims and lawsuits for substantial damages, including by our clients arising out of disruptions to their businesses
or our inadequate performance of services.
Future legislation or executive action in the United States and other jurisdictions could significantly affect the ability or willingness of
our clients and prospective clients to utilize our services.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations of these laws
and regulations could harm our business.
GE accounts for a significant portion of our revenues and any material loss of business from, or change in our relationship with, GE
could have a material adverse effect on our business, results of operations and financial condition.
Our revenues are highly dependent on clients located in the United States and Europe, as well as on clients that operate in certain
industries.
We may face difficulties in providing end-to-end business solutions or delivering complex, large or unique projects for our clients that
could cause clients to discontinue their work with us, which in turn could harm our business and our reputation.
Our partnerships, alliances and relationships with third-party suppliers and contractors and other third parties with whom we do
business expose us to a variety of risks that could have a material adverse effect on our business.
We may fail to attract and retain enough qualified employees to support our operations.
Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the euro and the U.S.
dollar, could have a material adverse effect on our business, results of operations and financial condition.
Restrictions on entry visas may affect our ability to compete for and provide services to clients, which could have a material adverse
effect on our business and financial results.
Our senior leadership team is critical to our continued success and the loss of such personnel could harm our business.
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We may be unable to service our debt or obtain additional financing on competitive terms.
We often face a long selling cycle to secure a new contract as well as long implementation periods that require significant resource
commitments, which result in a long lead time before we receive revenues from new relationships.
Our profitability will suffer if we are not able to price appropriately, maintain employee and asset utilization levels and control our costs.
Our results of operations and share price could be adversely affected if we are unable to maintain effective internal controls.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to
those estimates and assumptions could adversely affect our financial results.
Our operating results may experience significant fluctuations.
We enter into long-term contracts and fixed price contracts with our clients. Our failure to price these contracts correctly may negatively
affect our profitability.
If we are unable to collect our receivables, our results of operations, financial condition and cash flows could be adversely affected.
Some of our contracts contain provisions which, if triggered, could result in lower future revenues and have a material adverse effect on
our business, results of operation and financial condition.
Our industry is highly competitive, and we may not be able to compete effectively.
Our business could be materially and adversely affected if we do not protect our intellectual property or if our services are found to
infringe on the intellectual property of others.
A substantial portion of our assets, employees and operations are located in India and we are subject to regulatory, economic, social and
political uncertainties in India.
We may face difficulties as we expand our operations into countries in which we have no prior operating experience.
Terrorist attacks and other acts of violence involving any of the countries in which we or our clients have operations could adversely
affect our operations and client confidence.
If more stringent labor laws become applicable to us or if our employees unionize, our profitability may be adversely affected.
We may engage in strategic transactions that could create risks.
We may become subject to taxation as a result of our incorporation in Bermuda or place of management, which could have a material
adverse effect on our business, results of operations and financial condition.
Economic substance requirements in Bermuda could adversely affect us.
We may not be able to realize the entire book value of goodwill and other intangible assets from acquisitions.
Risks Related to our Shares
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The issuance of additional common shares by us or the sale of our common shares by our employees could dilute our shareholders’
ownership interest in the Company and could significantly reduce the market price of our common shares.
There can be no assurance that we will continue to declare and pay dividends on our common shares, and future determinations to pay
dividends will be at the discretion of our board of directors.
We are organized under the laws of Bermuda, and Bermuda law differs from the laws in effect in the United States and may afford less
protection to shareholders.
The market price for our common shares has been and may continue to be volatile.
You may be unable to effect service of process or enforce judgments obtained in the United States or Bermuda against us or our assets in
the jurisdictions in which we or our executive officers operate.
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The trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective
owners. We have omitted the ® and ™ designations, as applicable, for the trademarks named in this Annual Report on Form 10-K after their
first reference in this Annual Report on Form 10-K.
USE OF TRADEMARKS
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PART I
Item 1. Business
Genpact is a global professional services firm that makes business transformation real. We drive digital-led innovation and run
digitally-enabled intelligent operations for our clients, guided by our experience over time running thousands of processes for hundreds of
Fortune Global 500 companies. We have approximately 96,500 employees serving clients in key industry verticals from more than 30
countries. Our 2020 total net revenues were $3.7 billion.
In 2020, our agility and culture of embracing change allowed us to rapidly adapt to meet client needs and pivot to new ways of
working. We believe we demonstrated the strength and resilience of our business model and provided predominantly non-discretionary
solutions and services to our clients. We continued to follow a strategy focused on delivering differentiated, domain-led solutions in a focused
set of geographies, industry verticals and service lines. During the year we made acquisitions in two focus areas – experience-led
transformation and data and analytics – and continued to invest in our existing digital capabilities and domain expertise, all in an effort to
accelerate the business outcomes we can drive for our clients.
Our approach
Many of our client solutions are embedded with our Digital Smart Enterprise ProcessesSM (Digital SEPs), a patented and
highly granular approach to dramatically improving the performance of business processes to help drive client outcomes. Our Digital SEPs
combine Lean Six Sigma methodologies – which reduce inefficiency and improve process quality – with advanced domain-specific digital
technologies, drawing on our industry acumen, our expertise in Artificial Intelligence (AI) and experience-centric principles, and our deep
understanding of how businesses run. Digital SEPs test the effectiveness of client processes using best-in-class benchmarks developed by
mapping and analyzing millions of client transactions across thousands of end-to-end business processes. In this way, we identify
opportunities for improving clients’ operations by applying our deep process knowledge and process-centric technologies to transform them.
Genpact Cora has the ability to integrate our proprietary automation, analytics and AI technologies with those of our strategic
partners into a unified offering. It draws insights from our deep domain and operations expertise in our target industries and service lines to
create data- and analytics-based solutions that are focused on improving customer and user experience to accelerate clients’ digital
transformations.
Domain-led digital transformation
Industry disruption is pervasive, driven by an explosion in digital technologies, new competitors, and shifting market dynamics. In
this environment, companies need industry-tailored solutions to reimagine their business models end-to-end and adapt to rapid change.
These organizations seek partners that can improve productivity while creating competitive advantages and driving business
outcomes, such as expanded market share, seamless customer experiences, increased revenue, working capital improvement, increased
profitability, and minimized risk and loss. We believe our approach to business transformation, enabled through combining our deep industry
and process expertise with our advanced skills in digital and analytics, differentiates us from our competitors.
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We partner with clients to show them how new digital solutions can drive business outcomes. We apply design thinking to make
the most of human capabilities, domain expertise and innovative technology, and create solutions designed to quickly and aptly meet client
objectives. The results can include quick-turnaround prototypes that clients can install and test in their own environments.
We enable domain-led digital transformation for our clients primarily in two ways: designing and running Intelligent
OperationsSM and providing digital-led Transformation Services.
Intelligent Operations
Our Intelligent Operations embed digital, advanced analytics and cloud-based offerings into our business process outsourcing
solutions to automate and transform our clients’ operations. This allows enterprises to be more flexible and helps them focus on high-value
work to better compete in their industries. Our solutions also include our IT services that provide end-user computing support, infrastructure
management (including cloud, service integration and management and cybersecurity), application production support and database
management.
Transformation Services
Our transformation services include our digital solutions, consulting services, and analytics offerings.
Digital: We help our clients harness the power of digital technologies. Our Genpact Cora platform helps us design and implement
digital solutions, making use of advanced technologies, AI, cloud-based software-as-a-service (SaaS) offerings, robotic process
automation and dynamic workflow.
Consulting: Our consulting practice, which includes digital, AI and cloud experts, helps clients:
• Get a complete picture of how they run their operations across their organization in our areas of focus;
• Measure how their operating processes compare to industry best practices;
• Create custom roadmaps to help them deliver business outcomes; and
• Train client teams to execute on our recommendations.
Analytics: We use data and advanced analytics to help our clients make timely, informed and insight-based decisions. We offer
analytics services and solutions in areas where we have domain expertise, both on a standalone basis and embedded in our other
service offerings. We use quantitative and qualitative methods to analyze a client’s data to help them assess new business
opportunities, manage risk, and make better business decisions. We have recently expanded our capabilities in providing
foundational data engineering and cloud-based data and analytics advisory services through our acquisition of Enquero, Inc.
We are also building and driving solutions around experience-led transformation. Using human-centric design, we help clients
build new products and services, create digital workspaces, and drive customer, client, employee and partner engagement. We have
significantly expanded our capabilities in experience, commerce and mobile application development in the past two years with the
acquisitions of SomethingDigital.Com LLC in 2020, which added significant capabilities in digital commerce, and Rightpoint Consulting, LLC
in 2019, which built on existing capabilities gained from our previous acquisitions of TandemSeven, Inc. and Endeavour Software
Technologies Private Limited. Combined with our domain expertise, these acquisitions enhance our ability to bring end-to-end digital
commerce solutions to the marketplace.
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Our service offerings
We offer the following professional services to our clients:
• Core industry operations specific to our chosen industry verticals; and
• Enterprise Services: Finance and accounting, supply chain, sourcing and procurement, and sales and commercial services.
Core industry operations
We help our clients design, transform and run core enterprise operations specific to their industries. On the foundation of domain
expertise embedded in our Digital SEP frameworks, we use our Lean Digital approach to leverage digital technologies and specialized analytics
to power Intelligent Operations. We provide core operations support in all of our chosen industry verticals.
Enterprise services
Finance and accounting services
We believe we are one of the world’s premier providers of financial and accounting services. Our services in this area include:
Accounts payable: document management, invoice processing, approval and resolution management, and travel and expense
processing;
Invoice-to-cash: customer master data management, credit and contract management, fulfillment, billing, collections, and
dispute management services;
Record-to-report: accounting, treasury, tax services, product cost accounting, and closing and reporting, including SEC and
regulatory reporting;
Financial planning and analysis: budgeting, forecasting, and business performance reporting; and
Enterprise risk and compliance: operational risk and controls across a wide range of regulatory environments.
Supply chain, sourcing and procurement and sales and commercial services
Supply chain: we use our expertise in this area to help clients transform and run supply chain design, planning, inventory
optimization, transportation and logistics management and after-sales services.
Sourcing and procurement: We offer direct and indirect strategic sourcing, category management, spend analytics,
procurement operations, master data management, and other procurement and supply chain advisory services.
Sales and commercial: Our integrated services in this area are focused in three areas:
• Lead-to-quote – customer relationship management, sales volume, pricing and promotion optimization, and contract and
master data management;
• Quote-to-order – order capture, validation and fulfillment; and
• Customer service (B2B) – service management and experience, deduction and dispute management.
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Industries we serve
We work with clients across our chosen industry verticals, which are areas in which we believe we have deep industry acumen. Our
chosen industry verticals, which are also our three reportable segments, are: (1) Banking, Capital Markets and Insurance, or BCMI, (2)
Consumer Goods, Retail, Life Sciences and Healthcare, or CGRLH, and (3) High Tech, Manufacturing and Services, or HMS.
Organizing our business by industry verticals allows us to leverage our deep domain knowledge specific to our chosen industries
and create, replicate and standardize innovative solutions for clients in the same industries. In addition to our professional services, such as
finance and accounting and supply chain and procurement, that are available to clients across our verticals, we offer core industry-specific
services to clients in select verticals. These services are embedded where possible with industry-relevant digital and analytics tools that use AI
and automation modules designed to drive enhanced benefits and customer experience.
Banking, Capital Markets and Insurance
Our banking and capital markets clients include retail, investment and commercial banks, mortgage lenders, equipment and lease
financing providers, fintech companies, payment providers, wealth and asset management firms, broker/dealers, exchanges, clearing and
settlement organizations and other financial services companies. Our core operations services for these clients include application processing,
collections and customer services, equipment and auto loan servicing, mortgage origination and servicing, risk management and compliance
services, reporting and monitoring services, wealth management operations support, end-to-end information technology services, application
development and maintenance, managed services, financial crimes support and consulting.
Our insurance clients include global property and casualty insurance carriers, reinsurers, insurance brokers, and life, annuity,
disability and employee benefits insurance providers. Our core operations services for these clients include multi-channel support for
underwriting services, policy administration, customer service, end-to-end claims management services, including adjudication, litigation
support and payment disbursements, and actuarial services, including agency management, risk analytics, catastrophe modeling and
operations analytics.
Consumer Goods, Retail, Life Sciences and Healthcare
Our consumer goods and retail clients include companies in the food and beverage, household goods, consumer health and beauty
and apparel industries, as well as grocery chains and general and specialty retailers. The core operations services we provide to these clients
include supply chain management, pricing and trade promotion management, order management, digital commerce, customer experience and
risk management.
Our life sciences and healthcare clients include pharmaceutical, medical technology, medical device and biotechnology companies
as well as retail pharmacies, distributors, diagnostic labs, healthcare payers (health insurers) and providers, and pharmacy benefit
managers. Our core operations services for life sciences clients include regulatory affairs services, such as lifecycle management, regulatory
operations, Chemistry Manufacturing Controls compliance, safety and pharmacovigilance, and regulatory information management. Our
services for healthcare clients include managing the end-to-end lifecycle of a claim, from claims processing and adjudication to claims
recovery and payment integrity.
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High Tech, Manufacturing and Services
Our clients in the high tech industry vertical include companies in the information and digital technology, electronics, software,
fintech, and e-commerce sectors. The core operations services we provide to these clients include industry-specific solutions for the Industrial
Internet of Things (IIoT), user experience, order and supply chain management, data engineering, digital content management and risk
management.
Our manufacturing and services clients include companies in the automotive, chemicals, energy, hospitality, manufacturing, media
and entertainment, transportation and logistics, and travel sectors. Our core operations solutions for these clients include industry-specific
solutions for the IIoT, supply chain management, direct procurement and logistics services, aftermarket services support, industrial asset
optimization and engineering services.
Our clients
We serve more than 700 clients across many industries and geographies. Our clients include some of the biggest brands in the
world, many of which are leaders in their industries.
GE
GE has been our largest client since our inception and accounted for $459 million, or 12%, of our total net revenues in 2020. We
serve several of GE’s business units, including Aviation, Corporate, Healthcare, Industrial Finance, Power and Renewables.
We provide broad services to GE across all of our service offerings. Commitments with respect to services we may perform for GE
are set forth in statements of work, or SOWs, purchase orders and business services agreements, or BSAs, that we may enter into with
individual GE business units from time to time. These SOWs, purchase orders and BSAs cover in more detail the type of work to be performed
and the associated amounts to be billed. In general, each GE business unit decides whether to enter into a SOW, purchase order or BSA with
us and on what terms it will do so. Therefore, although some decisions may be made centrally at GE, our revenues from GE come from many
different businesses, each with its own leader who makes decisions about our services.
Global clients
We serve about one fourth of the Fortune Global 500. Our clients include industry leaders such as Aon, AstraZeneca, AXA, Bayer,
Dentsu, Heineken, Hitachi, Konica Minolta, Novartis, Santander, Synchrony Financial and Sysco.
Our net revenues from our clients other than GE, which we refer to as our Global Clients, have grown from $2.0 billion in 2015 to
$3.3 billion in 2020, representing a compound annual growth rate of 10%. Our net revenues from Global Clients as a percentage of total net
revenues increased from 81% in 2015 to 88% in 2020. See Item 7—“Management’s Discussion and Analysis of Financial Condition and
Results of Operations— Overview—Net Revenues—Classification of Certain Net Revenues.”
Our contracts with clients for Intelligent Operations services often take the form of a master services agreement, or MSA, which is a
framework agreement that we then supplement with SOWs. For transformation services, we typically enter into software-as-a-service and/or
consulting agreements with our clients depending on the scope of the services to be performed. For more about our contracting frameworks,
see Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Net Revenues.”
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Our people
As of December 31, 2020, we had approximately 96,500 employees working in more than 30 countries. Our people are critical to
the success of our business. We have created, and constantly reinforce, a culture that emphasizes collaboration, innovation, process
improvement, and dedication to our clients. We seek to foster a culture that wins clients, develops leaders and attracts and retains talent who
exhibit our core values – curiosity, incisiveness and courage – and who uphold our dedication to integrity consistent with our Code of
Conduct, Integrity@Genpact.
Rewarding and recognizing our talent
We aim to create a work environment where every person is inspired to achieve, driven to perform and rewarded for their
contributions. We strive to engage and competitively compensate our high-performing talent by providing performance-based promotions
and merit-based compensation increases. We also regularly monitor employee retention levels and continue to enhance our pay-for-
performance approach in an effort to retain our top talent.
Diversity, equity and inclusion
We believe that a culture of diversity, equity and inclusion is critical to our business. We believe in equal opportunity for each
individual, irrespective of their gender, age, ethnicity, cultural background, race or sexual orientation. Understanding each other’s uniqueness,
recognizing our differences, respecting varied opinions and accepting various points of view is at the heart of our organization’s culture. We
promote these values by seeking to maintain inclusive hiring and management practices and ensure that opportunities are equally open to all.
We are committed to:
•
•
•
Increasing diversity, including gender, racial and ethnic diversity, across all levels of the organization;
Recruiting, retaining and advancing talent, including from diverse ethnic and racial backgrounds; and
Creating and fostering an inclusive culture where everybody, including our LGBTQ+ employees, feels safe and empowered.
Employee development and engagement
We are committed to the career development of our employees and making them future-ready, and we strive to engage them with
challenging and rewarding career opportunities. Our performance management approach supports our career philosophy by encouraging
employees to reflect on their performance, set challenging goals, receive feedback, identify their development needs and find relevant learning
and training opportunities. We have also developed a number of leadership development and mentoring programs, including our Global
Operations Leadership Development and our Leadership Direct programs for high potential talent and our programs designed to increase
gender diversity in our leadership ranks, such as our Pay it Forward and Women’s Leadership initiatives.
We have also developed a learning framework called Genome that enables our employees to acquire new skills and evolve quickly
as industries and technologies change, equipping them with skills that are relevant to their current roles and future aspirations. Genome was
designed to shape an adaptive workforce, and its learning strategy was formulated to “reskill at scale” and be integrated throughout the
enterprise.
TalentMatch is our talent transformation initiative to match the skills and job aspirations of our employees with existing and
future job opportunities we have available. By enabling employees to prepare for their future career aspirations by upskilling and reskilling
through Genome, TalentMatch has allowed us to identify talent available for redeployment from one part of our business to another as the
needs of our clients change. It improves our employee utilization globally by providing the right talent at the right time for our client
engagements. TalentMatch also gives our employees the opportunity to take their careers in
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their desired directions, thus increasing employee satisfaction, and bolstering our ability to scale the “work from anywhere” model.
Amber, our engagement AI chatbot and employee experience platform, enables transformation of our employee engagement
strategy. Amber provides an outlet for unbiased and judgment free conversations for our employees and live predictive people analytics for
business and HR leaders. By digitizing how we engage with our employees through Amber, we have increased the scope and frequency of
employee feedback and have gained the ability to assess employee engagement and identify trends in employee engagement and satisfaction
across the company.
Corporate social responsibility
Genpact’s approach to corporate social responsibility focuses on three pillars that reflect our strengths, core expertise, and causes
that our employees care about:
• Education and employability
• Diversity, equity and inclusion
• Sustainability
We foster a culture of giving and volunteering through several global platforms, projects, and social initiatives. Our more than
40,000 employee volunteers have, among other things, helped underprivileged children get better access to education, assisted unemployed
women in developing job skills, and worked on projects to help improve infrastructure and education in the communities in which we work
and live. For example, in 2020, in an effort to combat pandemic-induced hunger, we launched our Feed 20 Million initiative, setting a goal
to serve 20 million meals to people in need. Our volunteers enabled us to surpass our goals with nearly 25 million meals served.
Additionally, more than 10,000 of our employees participate in our payroll-based charitable donation programs, and in 2020,
many of our employee volunteers participated in micro-volunteering initiatives such as composting, planting saplings, or eliminating single-
use plastic. We are also passionate about working collectively to reduce our carbon footprint and have set targets to reduce our
environmental impact at regional or global levels.
Partnerships and alliances
We continue to invest in and expand our strategic alliances with companies whose services and solutions complement ours.
Together, we work to enhance our existing solutions or create new offerings to meet market needs.
Our alliances generally fall into one of the following categories:
Strategic, go-to-market partnerships
•
• Deal-specific relationships to jointly solve a specific issue for a client
• Reseller arrangements to provide third party partner software and cloud solutions
• Digital and other “white label” embedded technology-based relationships
We have three primary types of partners: consulting partners, digital partners, and solution partners. Our digital and solution
partnerships aim to nurture relationships with established and emerging players. These potential partners specialize in leading-edge
disruptive digital technologies and solutions that we can embed into our offerings or jointly bring to market.
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Sales and marketing
We market our services to both existing and potential clients through our business development team and our lead client partners
and global relationship managers. Members of this team are based around the globe, including in the United States, United Kingdom, Europe,
Australia and Asia, and dedicate their time to expanding the services we provide to our existing clients as well as acquiring new clients.
We have designated lead client partners and global relationship managers for each of our strategic client relationships. The client
partners and global relationship managers are supported by transformation partners as well as digital and analytics, process improvement,
quality, transition, finance, human resources, information technology and industry/product subject matter expert teams to ensure we can best
understand and address the needs of our clients. We constantly monitor our client satisfaction levels to ensure that we maintain high service
levels for each client, using measures such as the Net Promoter Score. Our sales force is primarily organized by industry vertical teams that are
supported by vertical-specific and horizontal service offerings.
The length of our selling cycle varies depending on the type of engagement. The sales cycle for our advisory and project work is
typically much shorter than the sales cycle for a large business process engagement. Our efforts may begin through an existing engagement
with a client or in response to our lead generation program, a perceived opportunity, a reference by an existing client, a request for proposal or
otherwise. Our teams seek to understand the needs and priorities of our clients as well as the business outcomes our clients desire, and we
leverage our combination of digital and industry expertise to devise differentiated client solutions. We may expend substantial time and
resources in engaging with prospective clients to secure new business. See Item 7—“Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Overview—Net Revenues.”
As our relationship with a client deepens, the time required to win an engagement for additional services often gradually declines.
In addition, during an engagement as we better understand and experience a client’s business and processes, our ability to identify
opportunities and deliver greater value for the client, including by leveraging Genpact Cora and our expanding portfolio of digital capabilities
to transform our clients’ operations, typically increases.
We also strive to foster relationships between our senior leadership team and our clients’ senior management. These “C-level”
relationships ensure that both parties are focused on establishing priorities, aligning objectives and driving client value from the top down.
High-level executive relationships present significant opportunities to increase business from our existing clients. These relationships also
provide a forum for addressing client concerns. Our governance methodology is designed to ensure that we are well connected at all levels of
our clients’ organizations (executive, management, technology and operations).
Significant new business opportunities are reviewed by business leaders, lead client partners and global relationship managers
from the applicable industry vertical along with operations personnel and members of our finance department. If they determine that the new
business is aligned with our strategic objectives and a good use of our resources, then our business development team is authorized to pursue
the opportunity.
Global delivery
We serve our clients using our global network of 86 delivery centers in 20 countries. We have delivery centers in Australia, Brazil,
China, Costa Rica, Egypt, Germany, Guatemala, Hungary, India, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, the Philippines,
Poland, Romania, the United Kingdom and the United States. We also have many employees in these and additional countries, such as
Canada, Ireland, Portugal, Singapore, Spain and Turkey, who work with our clients either onsite or virtually, which offers flexibility for both
clients and employees.
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With this global network, we are able to manage complex processes around the world. We use different locations for different types
of services depending on client needs and the mix of skills and cost of employees at each location.
Our global delivery model gives us:
• multilingual capabilities;
•
•
•
access to a larger talent pool;
“near-shoring” as well as off-shoring capabilities to take advantage of time zones; and
proximity to our clients through a significant onshore presence.
We also regularly look for new places to open delivery centers and offices, both in new countries or new cities in countries where we
already have a presence. Before we choose a new location, we consider several factors, such as the talent pool, infrastructure, government
support, operating costs, and client demand.
Service delivery model
We seek to be a seamless extension of our clients’ operations. To that end, we developed the Genpact Virtual CaptiveSM service
delivery model, in which we create a virtual extension of our clients’ teams and environments. Our clients get dedicated employees and
management, as well as dedicated infrastructure at our delivery centers. We also train our teams in our clients’ cultures, processes, and
business environments.
Intellectual Property
The solutions we offer our clients often include a range of proprietary methodologies, software, and reusable knowledge capital. We
also develop intellectual property in the course of our business and our agreements with our clients regulate the ownership of such intellectual
property. We seek to protect our intellectual property and our brand through various means, including by agreement and applications for
patents, trademarks, service marks, copyrights and domain names. Some of our intellectual property rights are trade secrets and relate to
proprietary business process enhancements.
We often use third-party and client software platforms and systems to provide our services. Our agreements with our clients
normally include a license to use the client’s proprietary systems to provide our services. Clients authorize us to access and use third party
software licenses held by the client so that we may provide our services.
It is our practice to enter into agreements with our employees and independent contractors that:
•
•
•
ensure that all new intellectual property developed by our employees or independent contractors in the course of their
employment or engagement is assigned to us;
provide for employees’ and independent contractors’ cooperation in intellectual property protection matters even if they no
longer work for us; and
include a confidentiality undertaking by our employees and independent contractors.
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Competition
We operate in a highly competitive and rapidly evolving global market. We have a number of competitors offering services that are
the same as or similar to ours. Our competitors include:
•
•
•
•
large multinational service providers, primarily accounting and consulting firms, that provide consulting and other professional
services;
companies that are primarily business process service providers operating from low-cost countries, most commonly India;
companies that are primarily information technology service providers with some business process service capabilities; and
smaller, niche service providers that provide services in a specific geographic market, industry or service area, including digital.
We may also face losses or potential losses of business when in-house departments of companies use their own resources rather
than engage an outside firm for the types of services and solutions we provide.
Our revenues are derived primarily from Fortune Global 500 and Fortune 1000 companies. We believe that the principal
competitive factors in our industry include:
•
•
•
•
•
•
•
•
•
•
deep expertise in industry-specific domains and processes;
ability to advise clients on how to transform their processes and deliver transformation that drives business value;
ability to provide innovative services and products, including digital offerings;
ability to consistently add value through digital transformation and continuous process improvement;
reputation and client references;
contractual terms, including competitive pricing;
scope of services;
quality of products, services and solutions;
ability to sustain long-term client relationships; and
global reach and scale.
Our clients typically retain us on a non-exclusive basis.
Regulation
We are subject to regulation in many jurisdictions around the world as a result of the complexity of our operations and services,
particularly in the countries where we have operations and where we deliver services. We are also subject to regulation by regional bodies such
as the European Union, or EU.
In addition, the terms of our service contracts typically require that we comply with applicable laws and regulations. In some of our
service contracts, we are contractually required to comply even if such laws and regulations apply to our clients, but not to us, and sometimes
our clients require us to take specific steps intended to make it easier for them to comply with applicable requirements. In some of our service
contracts, our clients undertake the responsibility to inform us about laws and regulations that may apply to us in jurisdictions in which they
are located.
17
If we fail to comply with any applicable laws and regulations, we may face restrictions on our ability to provide services, and may
also be the subject of civil or criminal actions involving penalties, any of which could have a material adverse effect on our operations. Our
clients generally have the right to terminate our contracts for cause in the event of regulatory failures, subject in some cases to notice periods.
See Item 1A—“Risk Factors—Risks Related to our Business and Operations—Our global operations expose us to numerous and sometimes
conflicting legal and regulatory requirements, and violations of these laws and regulations could harm our business.” If we fail to comply with
contractual commitments to facilitate our clients’ compliance, we may be liable for contractual damages, and clients in regulated industries
may be less willing to use our services.
We are affected by laws and regulations in the United States, the United Kingdom, the EU and its member states, and other
countries in which we do business that are intended to limit the impact of outsourcing on employees in those jurisdictions, and occasional
changes to laws and regulations in such jurisdictions may impose changes that further restrict or discourage offshore outsourcing or otherwise
harm our business. See Item 1A—“Risk Factors—Risks Related to our Business and Operations—Future legislation or executive action in the
United States and other jurisdictions could significantly affect the ability or willingness of our clients and prospective clients to utilize our
services.”
Our collection, use, disclosure and retention of personal health-related and other information is subject to an array of privacy, data
security, and data breach notification laws and regulations that change frequently, are inconsistent across the jurisdictions in which we do
business, and impose significant compliance costs. In the United States, personal information is subject to numerous federal and state laws
and regulations relating to privacy, data security, and breach notification, including, for example, the Financial Modernization Act (sometimes
referred to as the Gramm-Leach-Bliley Act), Health Insurance Portability and Accountability Act, Federal Trade Commission Act, Family
Educational Rights and Privacy Act, Communications Act, Electronic Communications Privacy Act, and the California Consumer Privacy Act.
All fifty U.S. states and the District of Columbia have implemented separate data security and breach notification laws with which we must
comply; in addition, some states have strengthened their existing laws. Some courts have become more willing to allow individuals to pursue
claims in data breach cases, indicating that it may become easier for consumers to sue companies for data breaches. Related laws and
regulations govern our direct marketing activities and our use of personal information for direct marketing, including the Telemarketing and
Consumer Fraud and Abuse Prevention Act, Telemarketing Sales Rule, Telephone Consumer Protection Act and rules promulgated by the
Federal Communications Commission, and CAN-SPAM Act. In 2018, the Clarifying Lawful Overseas Use of Data, or CLOUD, Act established
new required processes and procedures for handling U.S. law enforcement requests for data that we may store outside of the U.S. In the EU,
the General Data Protection Regulation, or the GDPR, went into effect in May 2018. The GDPR imposes privacy and data security compliance
obligations and increased penalties for noncompliance. In particular, the GDPR has introduced numerous privacy-related changes for
companies operating in the EU, including greater control for data subjects, increased data portability for EU consumers, data breach
notification requirements and increased fines for violations. Additionally, foreign governments outside of the EU are also taking steps to
fortify their data privacy laws and regulations. For example, India, as well as some countries in Africa, Asia and Latin America, have either
passed data privacy legislation or are considering data protection laws that affect or may affect Genpact. Evolving laws and regulations in
India protecting the use of personal information could also impact our engagements with clients, vendors and employees in India. As privacy
laws and regulations around the world continue to evolve, these changes could adversely affect our business operations, websites and mobile
applications that are accessed by residents in the applicable countries.
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In the United States, we are either directly subject to, or contractually required to comply or facilitate our clients’ compliance with,
laws and regulations arising out of our work for clients operating there, especially in the area of banking, financial services and insurance,
such as the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Right to Financial
Privacy Act, the Bank Secrecy Act, the USA PATRIOT Act, the Bank Service Company Act, the Home Owners Loan Act, the Electronic Funds
Transfer Act, the Equal Credit Opportunity Act, and regulation by U.S. agencies such as the SEC, the Federal Reserve, the Federal Deposit
Insurance Corporation, the National Credit Union Administration, the Commodity Futures Trading Commission, the Federal Financial
Institutions Examination Council, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau.
Because of our debt collections work in the United States, we are also regulated by laws such as the Truth in Lending Act, the Fair
Credit Billing Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act and related regulations. We are currently
licensed to engage in debt collection activities in all jurisdictions in the United States where licensing is required. U.S. banking and debt
collection laws and their implementing regulations are occasionally amended, and these changes may impose new obligations on us or may
change existing obligations.
Because of our insurance processing activities in the United States, we are currently licensed as a third-party administrator in 41
states and are regulated by the department of insurance in each such state. In two other states, we qualify for regulatory exemption from
licensing based on the insurance processing activities we provide. We also hold entity adjuster licenses in 22 states that require licensing.
In the United States, we are subject to laws and regulations governing foreign trade, such as export control, customs and sanctions
regulations maintained by government bodies such as the Commerce Department’s Bureau of Industry and Security, the Treasury
Department’s Office of Foreign Assets Control, and the Homeland Security Department’s Bureau of Customs and Border Protection. Other
jurisdictions, such as the EU, also maintain similar laws and regulations that apply to some of our operations.
Several of our service delivery centers, primarily located in India, China, the Philippines and Guatemala, benefit from tax incentives
or concessional rates provided by local laws and regulations. The Indian Special Economic Zones Act of 2005, or SEZ legislation, introduced a
tax holiday in certain situations for operations established in designated “special economic zones,” or SEZs. The SEZ tax benefits are available
only for new business operations that are conducted at qualifying SEZ locations. We cannot predict what percentage of our operations or
income in India or other jurisdictions in future years will be eligible for a tax holiday. See Item 7—“Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Overview—Net Revenues—Income Taxes.” In addition to the tax holidays described above,
certain benefits are also available to us as an information technology enabled service (ITES) company under certain Indian state and central
laws. These benefits include rebates and waivers in relation to payments for the transfer or registration of property (including for the purchase
or lease of premises), waivers of conversion fees for land, exemption from state pollution control requirements, entry tax exemptions, labor
law exemptions, commercial usage of electricity and incentives related to the export of qualified services.
Our hedging activities and currency transfer are restricted by regulations in certain countries, including China, India, the
Philippines and Romania.
Certain Bermuda Law Considerations
As a Bermuda company, we are also subject to regulation in Bermuda. Among other things, we must comply with the provisions of
the Companies Act 1981 of Bermuda as amended, or the Companies Act, regulating the declaration and payment of dividends and the making
of distributions from contributed surplus.
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We are classified as a non-resident of Bermuda for exchange control purposes by the Bermuda Monetary Authority. Pursuant to
our non-resident status, we may engage in transactions in currencies other than Bermuda dollars. There are no restrictions on our ability to
transfer funds in and out of Bermuda or to pay dividends to United States residents that are holders of our common shares.
Under Bermuda law, “exempted” companies are companies formed for the purpose of conducting business outside Bermuda. As an
exempted company, we may not, without a license granted by the Minister of Finance, participate in certain business transactions, including
transactions involving Bermuda landholding rights and the carrying on of business of any kind, for which we are not licensed in Bermuda.
Bermuda has economic substance requirements pursuant to the Economic Substance Act 2018, as amended, and the regulations
proffered thereunder, which require us to have adequate economic substance in Bermuda in relation to certain of our activities.
Available Information
We file current and periodic reports, proxy statements, and other information with the SEC. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at
www.sec.gov. We make available free of charge on our website, www.genpact.com, our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to,
the SEC. The contents of our website are not incorporated by reference into this Annual Report.
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Information about our executive officers
The following table sets forth information concerning our executive officers as of March 1, 2021:
Name
N.V. Tyagarajan
Edward Fitzpatrick
Patrick Cogny
Balkrishan Kalra
Piyush Mehta
Darren Saumur
Kathryn Stein
Heather White
Age
59
54
54
51
52
53
43
48
Position(s)
President, Chief Executive Officer and Director
Senior Vice President, Chief Financial Officer
Senior Vice President, High Tech, Manufacturing and Services
Senior Vice President, Banking, Capital Markets, Consumer Goods, Retail, Life Sciences and
Healthcare
Senior Vice President, Chief Human Resources Officer
Senior Vice President, Global Operating Officer
Senior Vice President, Chief Strategy Officer and Business Leader, Enterprise Services
Senior Vice President, Chief Legal Officer and Corporate Secretary
N.V. Tyagarajan has served as our President and Chief Executive Officer since June 2011. From February 2009 to June 2011, he
was our Chief Operating Officer. From February 2005 to February 2009, he was our Executive Vice President and Head of Sales, Marketing
and Business Development. From October 2002 to January 2005, he was Senior Vice President, Quality and Global Operations, for GE’s
Commercial Equipment Finance division.
Edward Fitzpatrick has served as our Senior Vice President, Chief Financial Officer since July 2014. Prior to joining Genpact, he
spent 13 years at Motorola Solutions Inc. and its predecessor company Motorola Inc., most recently serving as executive vice president and
Chief Financial Officer. Prior to Motorola, he worked at General Instrument Corporation, which was acquired by Motorola Inc., and Price
Waterhouse, LLP. Mr. Fitzpatrick also currently serves as a director of CBOE Global Markets, Inc.
Patrick Cogny has served as our Senior Vice President, Manufacturing and Services since September 2011 and has also been
responsible for our High Tech business since January 2017. From 2005 to August 2011, he was the Chief Executive Officer of Genpact Europe.
Prior to this, he spent 15 years working for GE in the Healthcare business and in the GE Europe corporate headquarters, in France, the United
States and Belgium.
Balkrishan Kalra has served as our Senior Vice President, Consumer Goods, Retail and Life Sciences since 2008, has led our
Healthcare business since 2016 and in 2020 assumed responsibility for our Banking and Capital Markets business. Prior to his current role,
he held various roles at Genpact since joining us in 1999.
Piyush Mehta has served as our Senior Vice President, Chief Human Resources Officer since March 2005. He has worked for us
since 2001, initially as Vice President of Human Resources.
Darren Saumur has served as our Senior Vice President, Global Operating Officer since April 2018. Prior to joining Genpact, he was
an executive vice president responsible for the services business at Infor from 2014 to 2018. From 2005 to 2014, he worked at SAP where he
ran SAP’s global consulting businesses. Mr. Saumur began his career at Ernst & Young, where he worked from 1991 to 2005.
Kathryn Stein has served as our Senior Vice President, Chief Strategy Officer since December 2016 and has also been responsible for
our Enterprise Services business since February 2019. Prior to joining Genpact, Ms. Stein was at Mercer for six years, most recently as a
Partner and Market Business Leader. Before Mercer, she worked with Boston Consulting Group, the Center for Strategic and International
Studies and MarketBridge Consulting.
Heather White has served as our Senior Vice President, Chief Legal Officer and Corporate Secretary since April 2018. Ms. White has
been with Genpact since 2005, and served most recently as our Senior Vice President and Deputy General Counsel. Prior to joining Genpact,
she was a corporate attorney in the New York and London offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP.
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Item 1A. Risk Factors
Risks Related to our Business and Operations
Our business and results of operations have been adversely impacted and may in the future be adversely
impacted by the COVID-19 pandemic.
The COVID-19 pandemic has had a widespread and detrimental effect on the global economy and has adversely impacted our business
and results of operations. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are highly
uncertain, rapidly changing and difficult to predict, the ultimate impact of the pandemic on our business, financial condition and results of
operations is currently unknown.
The extent to which the COVID-19 pandemic will continue to adversely impact our business and results of operations will depend on
future developments that are currently difficult to predict and outside of our control, including: the distribution and effectiveness of vaccines;
future mutations of the COVID-19 virus and any resulting impact on the effectiveness of vaccines; the ultimate duration and scope of the
pandemic; actions taken by governments and other parties, such as our clients, in response to the pandemic, including any future actions to
contain, treat or prevent the virus; the impact of the pandemic on economic activity and actions taken in response; the effect of the pandemic
on our clients and client demand for our services and solutions; the ability of our clients to pay for our services and solutions on time or at all;
our ability to sell and provide our services and solutions to clients and prospects; and the ability of our employees to continue to be productive
and maintain morale while working remotely.
In the interest of the health and safety of our employees and due in part to restrictions imposed by national or local governments in
places where we operate, we have enabled most of our employees to work remotely. This effort has posed, and continues to pose, numerous
operational risks and logistical challenges, and has created new costs, diverted management attention and corporate resources, and amplified
certain risks to our business, including increased: (a) demand on our information technology resources and systems that were initially
designed for use in our delivery centers only, (b) phishing, ransomware and other cybersecurity attacks, and (c) data privacy and security risks
as our employees are working from environments that may be less secure than those of our delivery centers. Any failure to effectively manage
these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.
As a result of the COVID-19 pandemic, in early 2020 our existing and prospective clients slowed decision-making and planned work,
including discretionary consulting services and other transformation services. These factors and an overall decline in economic activity had an
adverse impact on our total bookings for 2020, which were lower than in 2019. If the pandemic worsens, we could again see reduced demand
or delayed client decision-making, which could negatively impact our bookings in 2021.
In addition, we took a series of actions during 2020 to address the challenges being placed on our operations by the pandemic and the
potential impact to our business in the near term and to protect the long-term health of our business. For additional information, see Note 29
—“Restructuring” to our consolidated financial statements under Part IV, Item 15 —“Exhibits and Financial Statement Schedules.” Our efforts
to mitigate the negative impact of the COVID-19 pandemic on our business may not be effective, and we may be required to take additional
actions to protect the long-term health of our business. We may also be affected by a protracted economic downturn.
Additionally, a significant worsening of the pandemic could materially impair our ability to deliver services to clients and could in
turn have a material adverse impact on our business, cash flows, financial condition and results of operations. Even after the COVID-19
pandemic has subsided, we may continue to experience negative impacts to our business as a result of the pandemic’s global economic impact.
Further, as this pandemic is unprecedented and continuously evolving, it may also affect our operating and financial results in a manner that
is not presently known to us or in a manner that we currently do not consider will present significant risks to us or our operations.
The COVID-19 pandemic has led to significant volatility in financial markets, and has at times impacted, and may again impact, our
share price and trading in our common shares. The overall uncertainty regarding the future economic impact of the COVID-19 pandemic and
the impact on our revenue growth
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could also impact our cash flows from operations and liquidity. Material changes to our cash flows, liquidity and the volatility of the stock
market and our share price could impact our capital allocation strategy, including our quarterly dividend and our share repurchase program.
Asset impairment charges, extreme currency exchange-rate fluctuations and an inability to recover costs or lost revenues or profits from
insurance carriers could all adversely affect us, our financial condition and our results of operations. Additionally, future disruptions and
volatility in global and domestic capital markets could increase the cost of capital and limit our ability to access capital.
Any of the foregoing could amplify the risks and uncertainties outlined in this Annual Report on Form 10-K and could have a material
adverse effect on our business, financial condition, results of operations and/or share price.
Our success largely depends on our ability to achieve our business strategies, and our results of operations and
financial condition may suffer if we are unable to continually develop and successfully execute our strategies.
Our future growth, profitability and cash flows largely depend upon our ability to continually develop and successfully execute our
business strategies. While we have confidence that our strategic plans reflect opportunities that are appropriate and achievable, the execution
of our strategy may not result in long-term growth in revenue or profitability due to a number of factors, including incorrect assumptions,
global or local economic conditions, competition, changes in the industries in which we operate, sub-optimal resource allocation or any of the
other risks described in this “Risk Factors” section. In pursuit of our growth strategy, we may also invest significant time and resources into
new product or service offerings, and these offerings may fail to yield sufficient return to cover our investments in them. The failure to
continually develop and execute optimally on our business strategies could have a material adverse effect on our business, financial condition
and results of operations.
We could be liable to our clients or others for damages, subject to criminal liability, fines or penalties, and our
reputation could be damaged, if our information systems are breached or confidential or sensitive client or employee
data is compromised.
We are often required to collect, process and store proprietary, personally identifying or other sensitive or confidential client data in
the operation of our business or in connection with the services we provide under our contracts, including, for example, names, addresses,
social security numbers, personal health information, credit card account numbers, payment history records, and checking and savings
account numbers. In addition, we collect, process and store data regarding our employees and contractors. As a result, we are subject to
numerous data protection and privacy laws and regulations designed to protect this information in the countries in which we operate as well
as the countries of residence of the persons whose data we process. Data may be accessed, disclosed or modified improperly as a result of theft,
error or malfeasance by our employees, contractors or other third parties, and others may attempt to fraudulently induce our employees,
clients or other third parties into disclosing sensitive information such as user names, passwords or other information in order to gain access
to our data or IT systems or our clients', contractors’ or other third parties' data or IT systems. If any person, including any of our current or
former employees or contractors, negligently disregards or intentionally breaches our or our clients’ established controls with respect to
sensitive data or if we do not adapt to changes in data protection legislation, we could be subject to significant litigation, monetary damages,
regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.
In addition, the products, services and software that we provide to our clients, or the third-party components we use to provide such
products, services and software, may contain or introduce cybersecurity threats or vulnerabilities to our clients’ information technology
networks, intentionally or unintentionally. Our clients may maintain their own proprietary, sensitive, or confidential information that could be
compromised in a cybersecurity attack, or their systems may be disabled or disrupted as a result of such an attack. Our clients, regulators, or
other third parties may attempt to hold us liable, through contractual indemnification clauses or directly, for any such losses or damages
resulting from such an attack.
The threat of incursion into our information systems and technology infrastructure has increased and evolved in recent years with the
increasing number and sophistication of third parties who have hacked, attacked, disrupted or otherwise invaded information systems of other
companies and misappropriated or disclosed data. Because the techniques used to obtain unauthorized access, disable or degrade service, or
sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until
launched against a target, we may be unable to anticipate these
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techniques, detect when an incursion has occurred or implement adequate preventative and responsive measures. The steps we have taken to
protect our information systems and data security may be inadequate. If an actual or perceived breach of our security occurs, whether through
breach of our computer systems, systems failure (including due to aged IT systems or infrastructure) or otherwise, the market perception of
the effectiveness of our security measures and our reputation could be harmed and we could lose existing or potential clients. Media or other
reports of perceived breaches or weaknesses in our systems, products or networks, even if nothing has actually been attempted or occurred,
could also adversely impact our brand and reputation and materially affect our business.
In addition, we may not be able to prevent others from using our data and proprietary information to compete with us. Existing trade
secret, copyright and trademark laws offer only limited protection. Further, the laws of some foreign countries may not protect our data and
proprietary information at all. For example, doing business in certain jurisdictions poses risks, including but not limited to theft of intellectual
property and data and potentially different treatment of foreign owned intellectual property rights and data than intellectual property or data
that is owned or developed in such jurisdictions. If we have to resort to legal proceedings to enforce our rights, the proceedings could be
burdensome, protracted, distracting to management and expensive and could involve a high degree of risk and be unsuccessful.
Our clients, suppliers, subcontractors, and other third parties with whom we do business, including in particular cloud service
providers and software vendors, generally face similar cybersecurity threats, and we must rely on the safeguards adopted by these parties. If
these third parties do not have adequate safeguards or their safeguards fail, it might result in breaches of our systems or applications and
unauthorized access to or disclosure of our and our clients’ confidential data. In addition, we are regularly alerted to vulnerabilities in third-
party technology components we use in our business that create vulnerabilities in our environments. We typically are not aware of such
vulnerabilities until we receive notice from the third parties who have created the exposure, and our responses to such vulnerabilities may not
be adequate or prompt enough to prevent their exploitation.
We may also be liable to our clients or others for damages caused by disclosure of confidential information or system failures. Many of
our contracts do not limit our potential liability for breaches of confidentiality. We may also be subject to civil actions and criminal
prosecution by governments or government agencies for breaches relating to such data. Our insurance coverage or indemnification
protections for breaches or mismanagement of such data may not be adequate to cover all costs related to data loss, cybersecurity attacks, or
disruptions resulting from such events, or they may not continue to be available on reasonable terms or in sufficient amounts to cover one or
more large claims against us and our insurers may disclaim coverage as to any future claims. The impact of these cybersecurity attacks, data
losses, and other security breaches cannot be predicted, but any such attack, loss or breach could disrupt our operations, or the operations of
our clients, suppliers, subcontractors, or other third parties. Incidents of this type could require significant management attention and
resources, could result in the loss of business, regulatory enforcement and financial liability, and could harm our reputation among our clients
and the public, any of which could have a material adverse impact on our financial condition, results of operations, or liquidity.
While we have developed and implemented security measures and internal controls designed to prevent, detect and respond to cyber
and other security threats and incidents, such measures cannot guarantee security and may not be successful in preventing security breaches.
In the ordinary course of business, we are subject to regular incursion attempts from a variety of sources, and we have experienced data
security incidents such as inadvertent or unauthorized disclosures of data, including as a result of phishing or malware, and other
unauthorized access to or use of our systems or those of third parties. To date such incidents have not had a material impact on our operations
or financial results; however, there is no assurance that such impacts will not be material in the future.
Additionally, due to the COVID-19 pandemic, the majority of our employees are now working from home in environments that may
not be as controlled or secure as our offices and delivery centers, which increases the risk of data breaches, incursions into our IT systems or
other cyber incidents. Measures we have taken during the pandemic to implement suitable additional controls and educate our employees on
the importance of cybersecurity and related best practices may not prevent data breaches or other incursions, any of which could have a
material adverse impact on our business, reputation, financial condition, and results of operations.
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Business disruptions could seriously harm our future revenue and financial condition and increase our costs and
expenses.
We have employees in more than 30 countries and significant operations in 20 countries, and these global operations could be
disrupted at any time by natural or other disasters, telecommunications failures, power or water shortages, extreme weather conditions
(whether as a result of climate change or otherwise), medical epidemics or pandemics (such as the COVID-19 pandemic) and other natural or
manmade disasters or catastrophic events. The occurrence of any of these business disruptions could result in significant losses, seriously
harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require
substantial expenditures and recovery time in order to fully resume operations. In addition, global climate change may result in certain
natural disasters occurring more frequently or with greater intensity, such as earthquakes, tsunamis, cyclones, drought, wildfires, sea-level
rise, heavy rains and flooding, and any such disaster or series of disasters in areas where we have a concentration of employees, such as India,
could significantly disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.
Our operations could also be disrupted as a result of technological failures, such as electricity or infrastructure breakdowns, including
damage to telecommunications cables, computer glitches and electronic viruses, or human-caused events such as protests, riots, labor unrest
and cyberattacks. Such events, or any natural or weather-related disaster, could lead to the disruption of information systems and
telecommunication services for sustained periods. Damage or destruction that interrupts our provision of services could adversely affect our
reputation, our relationships with our clients, our leadership team’s ability to administer and supervise our business or it may cause us to
incur substantial additional expenditure to repair or replace damaged equipment or delivery centers. Our operations and those of our
significant suppliers and distributors could be adversely affected if manufacturing, logistics or other operations in these locations are
disrupted for any reason, such as those listed above. Even if our operations are unaffected or recover quickly from any such events, if our
clients cannot timely resume their own operations due to a catastrophic event, they may reduce or terminate our services, which may
adversely affect our results of operations. We may also be liable to our clients for disruption in service resulting from such damage or
destruction.
Our business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of any of the foregoing
business disruptions, particularly in the case of a catastrophic event. Prolonged disruption of our services would also entitle our clients to
terminate their contracts with us. While we currently have commercial liability insurance, our insurance coverage may not be sufficient.
Furthermore, we may be unable to secure such insurance coverage at premiums acceptable to us in the future or at all. Any of the above
factors may have a material adverse effect on our business, results of operations and financial condition.
Our results of operations could be adversely affected by economic and political conditions and the effects of these
conditions on our clients’ businesses and levels of business activity.
Global macroeconomic conditions affect our clients’ businesses and the markets they serve. Volatile, negative or uncertain economic
conditions in our significant markets have in the past undermined and could in the future undermine business confidence in our significant
markets or in other markets, which are increasingly interdependent, and cause our clients to reduce or defer their spending on new initiatives,
or may result in clients reducing, delaying or eliminating spending under existing contracts with us, which would negatively affect our
business. Growth in the markets we serve could be at a slow rate, or could stagnate or contract, in each case, for an extended period of time.
Differing economic conditions and patterns of economic growth and contraction in the geographical regions in which we operate and the
industries we serve have affected and may in the future affect demand for our services.
A material portion of our revenues and profitability is derived from our clients in North America and Europe. Weak demand in these
markets could have a material adverse effect on our results of operations. Additionally, major political events, including the United Kingdom’s
withdrawal from the European Union, or Brexit, create uncertainty for businesses such as ours that operate in these markets. While the
United Kingdom and EU have concluded a trade agreement, effective December 31, 2020, the trade agreement does not adequately address a
number of topics that are relevant to our operations in Europe, such as privacy regulations, immigration laws and employment laws.
Accordingly, we continue to face uncertainty
25
in our operations as to the impact of Brexit on, among other things, the free movement of our employees between the United Kingdom and EU
member states and the movement of data between the United Kingdom and EU member states. Additionally, uncertainty as to the future trade
terms between the United Kingdom and the EU could negatively impact our clients who are based or have operations in the United Kingdom
or the EU, including clients in the financial services sector, and as a consequence could adversely impact our financial condition and results of
operations. Furthermore, a significant portion of our revenues from clients in the United Kingdom is generated in British pounds. As a result,
we are exposed to the risk that revenues from clients based in the United Kingdom will be affected by adverse movements in foreign currency
exchange rates. We continue to examine the various possible impacts Brexit may have on our business and operating model. Any of these
factors, or the final terms of the trade agreement between the United Kingdom and the EU, could adversely affect global economic conditions
and the stability of global financial markets, which, in turn, could have a material adverse effect on our business, financial condition and
results of operations.
Ongoing economic volatility and uncertainty and changing demand patterns, including as a result of the COVID-19 pandemic, affect
our business in a number of other ways, including making it more difficult to accurately forecast client demand and effectively build our
revenue and resource plans. Economic volatility and uncertainty are particularly challenging because it may take some time for the effects and
changes in demand patterns resulting from these and other factors to manifest themselves in our business and results of operations. Changing
demand patterns from economic volatility and uncertainty could have a significant negative impact on our results of operations.
Our business depends on generating and maintaining ongoing, profitable client demand for our services and
solutions, and a significant reduction in such demand or an inability to respond to the evolving technological
environment could materially affect our results of operations.
Our revenue and profitability depend on the demand for our services and solutions with favorable margins, which could be negatively
affected by numerous factors, many of which are beyond our control and unrelated to our work product. Our success depends, in part, on our
ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology
and offerings to serve the evolving needs of our clients. Examples of areas of significant change include digital- and cloud-related offerings,
which are continually evolving as developments such as AI, automation, Internet of Things and as-a-service solutions are commercialized.
Technological developments such as these may materially affect the cost and use of technology by our clients and, in the case of as-a-service
solutions, could affect the nature of how we generate revenue. Some of these technologies, such as cloud-based services, AI and automation,
and others that may emerge, have reduced and replaced some of our historical services and solutions and may continue to do so in the future.
This has caused, and may in the future cause, clients to delay spending under existing contracts and engagements and to delay entering into
new contracts while they evaluate new technologies. Such delays can negatively impact our results of operations if the pace and level of
spending on new technologies is not sufficient to make up any shortfall.
Developments in the industries we serve, which may be rapid, also could shift demand to new services and solutions. If, as a result of
new technologies or changes in the industries we serve, our clients demand new services and solutions, we may be less competitive in these
new areas or need to make significant investment to meet that demand. Our growth strategy focuses on responding to these types of
developments by driving innovation that will enable us to expand our business into new growth areas. If we do not sufficiently invest in new
technology and adapt to industry developments, or evolve and expand our business at sufficient speed and scale, or if we do not make the right
strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our results of
operations, and our ability to develop and maintain a competitive advantage and to execute on our growth strategy could be negatively
affected.
Companies in the industries we serve sometimes seek to achieve economies of scale and other synergies by combining with or
acquiring other companies. If one of our current clients merges or consolidates with a company that relies on another provider for the services
and solutions we offer, we may lose work from that client or lose the opportunity to gain additional work if we are not successful in generating
new opportunities from the merger or consolidation.
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Tax matters may have an adverse effect on our business, results of operations, effective tax rate and financial
condition.
We are subject to income taxes in the United States and in numerous foreign jurisdictions, notably in India where we have
substantial operations. Our provision for income taxes, actual tax expense and tax liability could be adversely affected by a variety of factors
including, but not limited to, lower income before taxes generated in countries with lower tax rates; higher income generated in countries with
higher tax rates; changes in tax laws and regulations or interpretations thereof; changes in applicable income tax treaties; changes in
accounting principles or interpretations thereof or in the valuation of deferred tax assets and liabilities; the elimination or expiration of certain
tax concessions, exemptions or holidays that had reduced our tax liability; and adverse outcomes of tax examinations or tax-related litigation,
including a determination by any tax authority that our transfer prices are not appropriate. Additionally, the results of the 2020 U.S.
presidential election could lead to changes in tax laws that could negatively impact our effective tax rate. Any of these factors could have a
material adverse effect on our business, results of operations, effective tax rate and financial condition.
We are subject to examination of our income tax returns by the U.S. Internal Revenue Service and tax authorities around the world,
notably in India where we have substantial operations. Negative outcomes from those examinations or any appeals therefrom may adversely
affect our provision for income taxes and tax liability, which in turn could have a material adverse effect on our business, results of operations,
effective tax rate and financial condition. For example, the Government of India has appealed a 2011 ruling by the Delhi High Court that
Genpact India Private Limited (one of our subsidiaries) cannot be held to be a representative assessee of GE in connection with an assertion
that GE has tax liability in India by reason of a 2004 transfer of shares of our predecessor company. We believe that, if the Government of
India is successful in its appeal, GE would be obligated to indemnify us for any resulting tax, though there can be no assurance as to the
outcome of this matter.
In addition, the Government of India issued assessment orders to us in 2014, 2016 and 2019 seeking to assess tax on certain
transactions that occurred in 2009, 2013 and 2015. We have received demands for potential tax claims related to these orders in an aggregate
amount of $150 million, including interest through the date of the orders. We do not believe that the transactions should be subject to tax in
India under applicable law and have accordingly not provided a reserve for such exposure and have filed the necessary appeals. We have
received favorable orders from appellate authorities relating to demands of $135 million and are pursuing refunds of $55 million we
previously paid toward these demands. The tax authorities may appeal these orders in a higher court. In the event we do not prevail in these
matters, the total amounts owed in connection with these demands would be subject to additional interest accrued over the period since the
demands were made, and the amount of this additional interest could be material. There is no assurance that we will prevail in these matters
or similar transactions, and a final determination of tax in the amounts claimed could have a material adverse effect on our business, results of
operations, effective tax rate and financial condition. See Note 28—“Commitments and contingencies” to our consolidated financial
statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules” for additional information relating to these matters.
Additionally, the Indian tax authorities may claim that Indian tax is owed with respect to certain of our transactions, such as our
acquisitions (including our subsidiaries organized under Indian law or owning assets located in India), internal reorganizations and the sale of
our shares in public offerings or otherwise by our existing significant shareholders, in which indirect transfers of Indian subsidiaries or assets
are involved. Those authorities may seek to impose tax on us directly or as a withholding agent or representative assessee of the seller in these
or other transactions.
Effective July 1, 2017, a Goods and Services Tax (“GST”) was introduced in India, replacing an existing service tax regime and
multiple similar indirect taxes. The implementation of the GST continues to evolve, with the Government of India introducing regular
amendments and issuing clarifications. In the second quarter of 2020, Indian tax authorities began challenging or rejecting certain of our GST
and service tax refunds. We had requested these refunds pursuant to the tax exemption available for exports under service tax and GST
regimes in respect of services performed by us in India for affiliates and clients outside of India. In denying the refunds, the taxing authorities
have taken the position that the services we provided are local services, which interpretation, if correct, would make the GST exemption on
exports unavailable to us in respect of such services. We believe that the denial of the GST exemption is incorrect, and we are
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pursuing appeals before relevant appellate authorities. The Government of India may issue further clarifications on the matter. However,
there is no assurance that we will prevail in this matter. Further, if it is finally determined that we do not qualify for the service tax/GST
exemption on the services we provide in India for clients located outside of India, we could be subject to additional tax on all of such services
at a rate of 18%. The imposition of this additional tax on a significant percentage of the services we perform or have performed in India would
likely have a material adverse effect on our profitability and cash flows and could also have a material adverse effect on our business, financial
condition and results of operations.
Furthermore, there is growing pressure in many jurisdictions, including the United States, and from multinational organizations
such as the Organization for Economic Cooperation and Development, or the OECD, and the EU to amend existing international tax rules in
order to render them more responsive to current global business practices. For example, the OECD has published a package of measures for
reform of the international tax rules as a product of its Base Erosion and Profit Shifting, or the BEPS, initiative, which was endorsed by the
G20 finance ministers. Many of the initiatives in the BEPS package require amendments to the domestic tax legislation of various
jurisdictions. Separately, the EU is asserting that a number of country-specific favorable tax regimes and rulings in certain member states may
violate, or have violated, EU law, and may require rebates of some or all of the associated tax benefits to be paid by benefitted taxpayers in
particular cases. In 2016, the EU adopted the Anti-Tax Avoidance Directive which requires EU member states to implement measures to
prohibit tax avoidance practices.
In addition, in December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) became law in the U.S., bringing about far-ranging changes
to the existing corporate tax system. The Tax Act requires complex computations not previously required and requires us to make assumptions
and judgments in the interpretation of the law where sufficient guidance is not available. As regulations and guidance evolve with respect to
the Tax Act, our results may differ from previous estimates and our tax liabilities may materially increase. See “Future legislation or executive
action in the United States and other jurisdictions could significantly affect the ability or willingness of our clients and prospective clients to
utilize our services” below in this “Risk Factors” section.
Although we monitor these developments, it is very difficult to assess to what extent changes and other proposals, if enacted, may be
implemented in the United States and other jurisdictions in which we conduct our business or may impact the way in which we conduct our
business or our effective tax rate due to their unpredictability and interdependency. As these and other tax laws and related regulations and
practices change, those changes could have a material adverse effect on our business, results of operations, effective tax rate and financial
condition.
Wage increases in the countries where we operate may prevent us from sustaining our competitive advantage
and may reduce our profit margin.
Salaries and related benefits of our employees are our most significant costs. Most of our employees are based in India and other
countries in which wage levels have historically been significantly lower than wage levels in the United States and Western Europe for
comparably skilled professionals, which has been one of our competitive advantages. However, wage levels for comparably skilled employees
in most of the countries in which we operate have increased and further increases are expected at a faster rate than in the United States and
Western Europe because of, among other reasons, faster economic growth, increased competition for skilled employees and increased demand
for business process services. We will lose this competitive advantage to the extent that we are not able to control or share wage increases with
our clients. Sharing wage increases may cause our clients to be less willing to utilize our services. In addition, wage increases may reduce our
profitability. We will attempt to control such costs by our efforts to add capacity in locations where we consider wage levels of skilled
personnel to be satisfactory, but we may not be successful in doing so. We may need to increase our wage levels significantly and rapidly in
order to attract the quantity and quality of employees that are necessary for us to remain competitive, which may have a material adverse
effect on our business, results of operations and financial condition.
28
In addition, in early 2019, the Supreme Court of India clarified that certain allowances paid by an employer to an employee should be
included for purposes of calculating provident fund contributions in addition to contributions based on basic wages alone. If this decision is
implemented with retrospective application, the amount of the payments that we are required to make at that time to or for the benefit of our
employees could be substantial and could have a material adverse effect on our business, results of operations and financial condition.
We have also increased, and expect to further increase, the number of employees we have in the United States from the levels that we
have had historically, and this could have a negative effect on our profitability. In addition, we engage independent contractors in various U.S.
states in the ordinary course of business. A handful of U.S. states have enacted legislation that requires businesses to consider individuals to
be employees who, under current law in most other U.S. states, would be considered independent contractors. The U.S. Congress may seek to
pass similar legislation at a national level across all 50 U.S. states. If additional states or the U.S. federal government pass similar legislation,
we may be required to modify our hiring plans and associated business model, which may increase our cost of doing business.
In 2021, the Government of India is expected to make effective new labor codes, which, among other things, change the definition of
wages for purposes of determining employer contributions under the provident fund and other statutory benefit schemes, including the Indian
gratuity plan. As a result of this pending legislation, our compensation cost in India may increase, which could adversely affect our
profitability, results of operations and financial condition.
We may be subject to claims and lawsuits for substantial damages, including by our clients arising out of
disruptions to their businesses or our inadequate performance of services.
We depend in large part on our relationships with clients and our reputation for high-quality services to generate revenue and secure
future engagements. Most of our service contracts with clients contain service level and performance requirements, including requirements
relating to the quality of our services. Failure to consistently meet service requirements of a client, whether due to: (a) natural or other
disasters, telecommunications failures, power or water shortages, extreme weather conditions (whether as a result of climate change or
otherwise), medical epidemics, pandemics or other contagious diseases (such as COVID-19) or other natural or manmade disasters or
catastrophic events; (b) breach of or incursion into our computer systems (for example, through a ransomware attack); (c) other systems
failure, including due to aged IT systems or infrastructure; or (d) errors made by our employees in the course of delivering services to our
clients could disrupt the client’s business and result in a reduction in our revenues, clients terminating their business relationships with us
and/or a claim for damages against us. Additionally, we could incur liability if a process we manage for a client were to result in internal
control failures or impair our client’s ability to comply with its own internal control requirements.
We are also subject to actual and potential claims, lawsuits, investigations and proceedings outside of errors and omissions claims. For
example, we engage in trust and safety services on behalf of clients, including content moderation, which could have a negative impact on our
employees performing such services due to the nature of the materials they review. These types of services have been the subject of negative
media coverage as well as litigation, and we may face adverse judgments or settlements or damage to our brand or reputation as a result of our
provision of these services.
Under our MSAs with our clients, our liability for breach of our obligations is generally limited to actual damages suffered by the client
and is typically capped at an agreed amount. These limitations and caps on liability may be unenforceable or otherwise may not protect us
from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients
or liability for breaches of confidentiality, are generally not limited under those agreements. Our MSAs are governed by laws of multiple
jurisdictions, therefore the interpretation of such provisions, and the availability of defenses to us, may vary, which may contribute to the
uncertainty as to the scope of our potential liability. Although we have commercial general liability insurance coverage, the coverage may not
continue to be available on acceptable terms or in sufficient amounts to cover one or more large claims and our insurers may disclaim
coverage as to any future claims.
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The successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance
policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have a material adverse
effect on our reputation, business, results of operations and financial condition. It is also possible that future results of operations or cash
flows for any particular quarterly or annual period could be materially adversely affected by an unfavorable resolution of these matters. In
addition, these matters divert management and personnel resources away from operating our business. Even if we do not experience
significant monetary costs, there may be adverse publicity or social media attention associated with these matters that could result in
reputational harm, either to us directly or to the industries or geographies we operate in, that may materially adversely affect our business,
client or employee relationships. Further, defending against these claims can involve potentially significant costs, including legal defense
costs.
Future legislation or executive action in the United States and other jurisdictions could significantly affect the
ability or willingness of our clients and prospective clients to utilize our services.
In the United States, federal and state measures aimed at limiting or restricting, or requiring disclosure of offshore outsourcing have
been occasionally proposed and enacted. In addition, public figures in the United States continue to suggest that U.S. businesses be subjected
to tax or other adverse consequences for outsourcing, with incentives for returning outsourced operations to the United States, although it is
not known what specific measures might be proposed or how they would be implemented and enforced, or whether emerging or enacted tax
reform or other near-term Congressional action will affect companies’ outsourcing practices. For example, in 2020, the Coronavirus Aid,
Relief, and Economic Security Act authorized a short-lived business loan program that prohibited loan recipients from outsourcing or
offshoring jobs for the term of the loan and two years after completing repayment of the loan. One pending legislative proposal in the U.S.
Congress would extend export control regulations and licensing requirements to certain exports of personal information. In January 2021, the
new U.S. President established a national Made in America policy to use the terms and conditions of Federal financial assistance awards and
Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States. It is not
yet known how this policy will be implemented and whether its impact will extend beyond Federal financial assistance and procurement.
There can be no assurance that pending or future legislation or executive action in the United States that would significantly adversely affect
our business, results of operations, and financial condition will not be enacted.
Legislation enacted in certain European jurisdictions and any future legislation in Europe, Japan or any other country in which we
have clients restricting the performance of business process services from an offshore location or imposing burdens on companies that
outsource data processing functions could also have a material adverse effect on our business, results of operations and financial condition.
For example, evolving EU cloud computing standards and regulations and proposed taxes on outsourced data center activities or new EU and
Japanese regulations on international transfers of personal data may limit or restrict our operations, or make them more costly. Moreover,
legislation enacted in the United Kingdom and by many EU countries provides that if a company outsources all or part of its business to a
service provider or changes its current service provider, the affected employees of the company or of the previous service provider are entitled
to become employees of the new service provider, generally on the same terms and conditions as their original employment. In addition,
dismissals of employees who were employed by the company or the previous service provider immediately prior to that outsourcing, if the
dismissals resulted solely or principally from the outsourcing, are automatically considered unfair dismissals that entitle such employees to
compensation. As a result, in order to avoid unfair dismissal claims we may have to offer, and become liable for, voluntary redundancy
payments to the employees of our clients in the United Kingdom and other EU countries who have adopted similar laws who transfer business
to us. Additionally, the United Kingdom’s exit from the EU and the associated changes in trade relations could result in increased costs,
delays, and regulatory complexity in our business involving the United Kingdom.
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Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and
violations of these laws and regulations could harm our business.
We are subject to, or subject to contractual requirements to comply with or facilitate our clients’ compliance with, numerous, and
sometimes conflicting, legal regimes on matters such as anticorruption, import/export controls, trade restrictions, taxation, immigration,
internal and disclosure control obligations, securities regulation, anti-competition, data privacy and protection, wage-and-hour standards, and
employment and labor relations. Our clients’ business operations are also subject to numerous regulations, and our clients may require that
we perform our services in compliance with regulations applicable to them or in a manner that will enable them to comply with such
regulations.
The global nature of our operations increases the difficulty of compliance. Compliance with diverse legal requirements is costly, time-
consuming and requires significant resources. Violations of one or more of these regulations in the conduct of our business could result in
significant fines, criminal sanctions against us and/or our employees, prohibitions on doing business, breach of contract damages and harm to
our reputation. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may not be well
developed or provide sufficiently clear guidance and may be insufficient to protect our rights.
In particular, our collection, use, disclosure, and retention of personal health-related and other information is subject to an array of
privacy, data security, and data breach notification laws and regulations that change frequently, are inconsistent across the jurisdictions in
which we do business, and impose significant compliance costs. Changes in these laws and regulations and inconsistencies in the standards
that apply to our business in different jurisdictions may impose significant compliance costs, reduce the efficiency of our operations, and
expose us to enforcement risks.
In the United States, all 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands have enacted legislation
requiring notice to individuals of security breaches of information involving personally identifiable information. In addition, the California
Consumer Privacy Act, or the CCPA, went into effect in January 2020. The CCPA imposes privacy and data security obligations on companies
and provides California consumers with certain rights as data subjects. Several other U.S. states have proposed data privacy laws that impose
similar but non-identical obligations. In addition, some states have passed laws imposing increased data security and breach notification
obligations on companies operating in the U.S. In the EU, the General Data Protection Regulation, or the GDPR, imposes privacy and data
security compliance obligations and significant penalties for noncompliance. The GDPR presents numerous privacy-related changes for
companies operating in the EU, including rights guaranteed to data subjects, requirements for data portability for EU consumers, data breach
notification requirements and significant fines for noncompliance. In GDPR enforcement matters, companies have faced fines for violations of
certain provisions. Fines can reach as high as 4% of a company’s annual total revenue, potentially including the revenue of a company’s
international affiliates. Additionally, foreign governments outside of the EU are also taking steps to fortify their data privacy laws and
regulations. For example, some countries in Africa, Asia and Latin America, including Brazil and Egypt, where we have operations, are
implementing or considering GDPR-like data protection laws. Evolving laws and regulations in India protecting the use of personal
information could also impact our engagements with clients, vendors and employees in India. One proposal currently being considered in
India relates to the regulation of cross-border transfers of sensitive personal information and has potentially broad-reaching implications in
the backdrop of cloud computing. Given the size and scope of our operations in India, the costs of compliance with Indian data privacy laws,
and any fines or penalties for breaches thereof, could be significant and could have a material adverse effect on our business, financial
condition and results of operations. As privacy laws and regulations around the world continue to evolve, these changes and others could
adversely affect our business operations, websites and mobile applications that are accessed by residents in the applicable countries.
In addition, in many parts of the world, including countries in which we operate and/or seek to expand, common practices in the local
business community might not conform to international business standards and could violate anticorruption laws or regulations, including
the U.S. Foreign Corrupt Practices Act and the UK Bribery Act 2010. Our employees, subcontractors, agents, joint venture partners, the
companies we acquire and their employees, subcontractors and agents, and other third parties with which we associate, could take actions that
violate policies or procedures designed to promote legal and regulatory compliance or applicable anticorruption laws or regulations. Violations
of these laws or regulations by us, our employees or any of these third parties could subject us to criminal or civil enforcement actions
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(whether or not we participated or knew about the actions leading to the violations), including fines or penalties, disgorgement of profits and
suspension or disqualification from work, any of which could materially adversely affect our business, including our results of operations and
our reputation.
GE accounts for a significant portion of our revenues and any material loss of business from, or change in our
relationship with, GE could have a material adverse effect on our business, results of operations and financial
condition.
Historically, we have derived a significant portion of our revenues from GE. In 2018, 2019 and 2020, GE accounted for 9%, 14% and
12% of our revenues, respectively. In the past, GE has divested businesses we served, including a significant portion of its GE Capital business.
We expect that our services for GE will decline in the future if GE pursues further divestitures. We intend to continue to make efforts to
procure contracts with respect to GE’s divested businesses and have entered into contracts with several divested GE businesses; however,
there can be no assurance that we will be able to continue to procure any such contracts following any future divestitures or that such
contracts would be on favorable terms. GE is not obligated to provide us with any exclusivity or opportunity to work on GE projects and GE is
not required to purchase a minimum amount of services from us. In addition, GE has the right to terminate our services in whole or in part
for any reason by providing us with a short period of advance notice. Any material loss of business from, or change in relationship with, GE
could have a material adverse effect on our business, results of operations and financial condition. Further, our revenues from GE may be
more volatile in the future and this volatility could have a material adverse effect on our business and results of operations. See Item 7
—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Net Revenues” for further
information regarding our relationship with GE.
We expect that our business with GE will continue to come from a variety of GE’s businesses and that, in general, GE’s decisions to use
our services will continue to be made by a number of people within GE. Therefore, although some decisions may be made centrally at GE, we
expect that the total level of business we receive will continue to depend on the decisions of the various operating managers of such
businesses. Any of the foregoing events could have a material adverse effect on our business, results of operations and financial condition.
Our revenues are highly dependent on clients located in the United States and Europe, as well as on clients that
operate in certain industries.
In 2020, more than 70% of our revenues were derived from clients based in North America and more than 15% of our revenues were
derived from clients based in Europe. Additionally, in 2020, more than 25% of our revenues were derived from clients in the financial services
industry, which includes insurance.
The COVID-19 pandemic has adversely affected economic activity in the United States and Europe and activity in certain industries in
which our clients operate. In addition, a number of other factors could adversely affect our ability to do business in the United States or
Europe, which could in turn have a material adverse effect on our business, results of operations and financial condition. For example, Brexit
has created, and continues to create, political and economic uncertainty about the future relationship between the United Kingdom and the
EU and as to whether any other European countries may similarly seek to exit the EU. We have operations in the United Kingdom and a
number of countries in the EU and our global operations serve clients with operations in these regions, and as a result our business, financial
condition and results of operations may be impacted by such uncertainty and by the terms of the United Kingdom’s withdrawal from the EU.
Any further deterioration in economic activity in the United States or Europe, or in industries in which our clients operate, could
adversely affect demand for our services, thus reducing our revenue. Increased regulation, changes in existing regulation or increased
government intervention in the industries in which our clients operate may adversely affect growth in such industries and therefore have an
adverse impact on our revenues. Any of the foregoing factors could have a material adverse effect on our business, results of operations and
financial condition.
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We may face difficulties in providing end-to-end business solutions or delivering complex, large or unique
projects for our clients that could cause clients to discontinue their work with us, which in turn could harm our business
and our reputation.
We continue to expand the nature and scope of our engagements, including by incorporating digital solutions that use social, mobility,
big data and cloud-based technologies. Our ability to effectively offer a wide range of business solutions depends on our ability to attract
existing or new clients to new service offerings, and the market for our solutions is highly competitive. We cannot be certain that our new
service offerings, particularly our digital offerings, will effectively meet client needs or that we will be able to attract clients to these service
offerings. The complexity of our new service offerings, our inexperience in developing or implementing them, and significant competition in
the markets for these services may affect our ability to market these services successfully. In addition, the breadth of our existing service
offerings continues to result in larger and more complex projects with our clients, which have risks associated with their scope and
complexities. Our failure to deliver services that meet the requirements specified by our clients could result in termination of client contracts,
and we could be liable to our clients for significant penalties or damages or suffer reputational harm. Larger projects may involve multiple
engagements or stages, and there is a risk that a client may choose not to retain us for additional stages or may cancel or delay additional
planned engagements. These terminations, cancellations or delays may result from factors that have little or nothing to do with the quality of
our services, such as the business or financial condition of our clients or the economy generally. Such cancellations or delays make it difficult
to plan for project resource requirements and inaccuracies in such resource planning and allocation may have a negative impact on our
profitability.
From time to time we also enter into agreements that include unique service level delivery requirements or novel pricing arrangements
with which we have no experience and that may be unique in the industry. These projects can include performance targets that become more
rigorous over the term of the contracts and service delivery components that are partially subjective by design, and we may be unable achieve
such targets or to satisfy our clients’ expectations in delivering such services. Our failure to deliver such engagements to our clients’
expectations could result in termination of client contracts, and we could be liable to our clients for penalties or damages or suffer reputational
harm. We may also discover that we have not priced such engagements appropriately, which could adversely affect our profitability and
results of operations.
Our partnerships, alliances and relationships with third-party suppliers and contractors and other third parties
with whom we do business expose us to a variety of risks that could have a material adverse effect on our business.
Our partnerships and alliances and our relationships with a variety of third parties, including suppliers, contractors and others, expose
us to a variety of risks that could have a material adverse effect on our business, and we may not be successful in mitigating such risks. Our
operations depend on our ability to anticipate our needs for products and services, as well as our suppliers’ ability to deliver sufficient
quantities and quality of products and services at reasonable prices and in time for us to meet commitments for the delivery of our own
services. In addition, we must adequately address quality issues associated with our services, including with respect to any third-party
components to our services. Any performance failure on the part of our partners or the third parties with whom we do business could delay
our performance of client deliverables, which could deprive us of potential revenue. Additionally, our partners, third-party suppliers and
contractors and other third parties with whom we do business may not be able to comply with current good business practices or applicable
laws or regulatory requirements. Our failure, or the failure of such third parties, to comply with applicable laws and regulations could result in
sanctions being imposed on us, including fines, injunctions, civil penalties and criminal prosecutions, any of which could significantly and
adversely affect our business.
We may have limited control over the amount and timing of resources that our partners and third parties with whom we do business
dedicate to their arrangements with us. Our ability to generate revenues from these arrangements will depend on our partners’ or other third
parties’ desire and ability to successfully perform the functions assigned to them in these arrangements. Further, certain of our suppliers,
partners and other contractors may decide to discontinue conducting business with us.
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In addition, we are a party to a number of license agreements with third parties and expect to enter into additional licenses in the
future. Our existing licenses impose, and we expect that future licenses will impose, various obligations and restrictions on us. If we fail to
comply with these obligations and restrictions, the licensor may have the right to terminate the license, in which event we might not be able to
market any product or service that is covered by these agreements, which could materially adversely affect our business. Termination of these
license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less
favorable terms, or cause us to lose rights in important intellectual property or technology.
Any of the foregoing may prevent us from working with our partners or third parties with whom we do business and could subject us to
losses, affect our ability to bring products and services to market, cause us to fail to satisfy our client obligations and harm our reputation.
We may fail to attract and retain enough qualified employees to support our operations.
Our industry relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient
number of qualified employees. Historically, high employee attrition has been common in our industry. In 2020, our attrition rate for all
employees who were employed for a day or more was 20%, down from 28% in 2019. This reduction was primarily due to the COVID-19
pandemic. We cannot assure you that we will be able to reduce our level of attrition further or maintain our attrition rate at the 2020 level. If
our attrition rate increases, our operating efficiency and productivity may decrease.
Competition for qualified employees, particularly in India and the United States, remains high and we expect such competition to
continue. We compete for employees not only with other companies in our industry but also with companies in other industries, such as
software services, engineering services and financial services companies. In many locations in which we operate, there is a limited pool of
employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to
hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through innovative recruiting and
retention policies. Significant competition for employees could have an adverse effect on our ability to expand our business and service our
clients, as well as cause us to incur greater personnel expenses and training costs.
Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee,
the euro and the U.S. dollar, could have a material adverse effect on our business, results of operations and financial
condition.
Most of our revenues are denominated in U.S. dollars, with the remaining amounts largely in euros, UK pounds sterling, the Australian
dollar, the Japanese yen and the Indian rupee. Most of our expenses are incurred and paid in Indian rupees, with the remaining amounts
largely in U.S. dollars, Chinese renminbi, Romanian lei, euros, UK pounds sterling, Philippine pesos, Japanese yen, Polish zloty, Mexican
pesos, Guatemalan quetzals, Hungarian forint and the Australian dollar. As we expand our operations to new countries, we will incur expenses
in other currencies. We report our financial results in U.S. dollars. The exchange rates between the Indian rupee, the euro and other
currencies in which we incur costs or receive revenues, on the one hand, and the U.S. dollar, on the other hand, have changed substantially in
recent years and may fluctuate substantially in the future. See Item 7A—“Quantitative and Qualitative Disclosures about Market Risk.”
Our results of operations could be adversely affected over time by certain movements in exchange rates, particularly if the Indian rupee
or other currencies in which we incur expenses appreciate against the U.S. dollar or if the currencies in which we receive revenues, such as the
euro, depreciate against the U.S. dollar. Although we take steps to hedge a substantial portion of our foreign currency exposures, there is no
assurance that our hedging strategy will be successful or that the hedging markets will have sufficient liquidity or depth for us to implement
our strategy in a cost effective manner. In addition, in some countries, such as India, China, Romania and the Philippines, we are subject to
legal restrictions on hedging activities, as well as convertibility of currencies, which could limit our ability to use cash generated in one country
in another country and could limit our ability to hedge our exposures. Finally, our hedging policies only
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provide near term protection from exchange rate fluctuations. If the Indian rupee or other currencies in which we incur expenses appreciate
against the U.S. dollar, we may have to consider additional means of maintaining profitability, including by increasing pricing, which may or
may not be achievable. See also Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview
—Net Revenues—Foreign exchange gains (losses), net.”
Restrictions on entry visas may affect our ability to compete for and provide services to clients, which could have
a material adverse effect on our business and financial results.
A portion of our business depends on the ability of our employees to obtain the necessary visas and entry permits to do business in the
countries where our clients and, in some cases, our delivery centers, are located. In recent years, in response to terrorist attacks, the COVID-19
pandemic and related border controls, global unrest and political rhetoric, immigration authorities generally, and those in the United States in
particular, have increased the level of scrutiny in granting visas. If the COVID-19 pandemic persists for an extended period, further terrorist
attacks occur, global unrest intensifies, or nationalistic political trends continue, then obtaining visas for our personnel may become even
more difficult. Local immigration laws may also require us to meet certain other legal requirements as a condition to obtaining or maintaining
entry visas. Countries where our clients may be located, including the United States, may through legislation or regulation restrict the number
of visas or entry permits available. In general, immigration laws are subject to legislative change and varying standards of application and
enforcement due to political forces, economic conditions, terrorist attacks or other events. In addition, there is currently uncertainty with
respect to immigration laws and standards in the United States as the current U.S. President pursues legislation and policy changes to reform
U.S. immigration laws and to reverse some immigration policies of the prior administration. Recent U.S. actions to reduce the number of
first-time and renewal H-1B and H-4 temporary, or non-immigrant, visas could result in fewer employees eligible to work for us in the United
States under those programs, as could executive actions that prohibit citizens of designated countries from emigrating to and/or working in
the United States. In recent years, the United States has broadly prohibited immigrant visas from several designated countries, and it is not
currently known what, if any, visa restrictions might be proposed in the future or how they would be implemented or enforced.
Our senior leadership team is critical to our continued success and the loss of such personnel could harm our
business.
Our future success substantially depends on the continued service and performance of the members of our senior leadership team.
These personnel possess business and technical capabilities that are difficult to replace. Our employment agreement with our Chief Executive
Officer does not obligate him to work for us for any specified period. In early 2020, one of our executive officers who had a long tenure with
the Company resigned to take a leadership role at another company. If we lose other key members of our senior leadership team, we may not
be able to effectively manage our current operations or meet ongoing and future business challenges, and this may have a material adverse
effect on our business, results of operations and financial condition.
We may be unable to service our debt or obtain additional financing on competitive terms.
On August 9, 2018, we entered into an amended and restated five-year credit agreement with certain financial institutions as lenders
which replaced our prior credit facility. The amended and restated credit agreement provides for a $680 million term credit facility and a
$500 million revolving credit facility, each of which may be increased subject to certain conditions. The credit agreement obligations are
unsecured, and guaranteed by certain subsidiaries. As of December 31, 2020, the total amount due under the credit facility, including the
amount utilized under the revolving facility, was $846 million. The credit agreement contains covenants that require maintenance of certain
financial ratios, including consolidated leverage and interest coverage ratios, and also, under certain conditions, restrict our ability to incur
additional indebtedness, create liens, make certain investments, pay dividends or make certain other restricted payments, repurchase
common shares, undertake certain liquidations, mergers, consolidations and acquisitions and dispose of certain assets or subsidiaries, among
other things. If we breach any of these restrictions and do not obtain a waiver from the lenders, subject to applicable cure periods the
outstanding
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indebtedness (and any other indebtedness with cross-default provisions) could be declared immediately due and payable, which could
adversely affect our liquidity and financial condition.
On March 27, 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes, or the 2022 notes, in a private
offering. On July 24, 2018, an exchange offer was completed and all outstanding unregistered 2022 notes were exchanged for freely tradable
2022 notes registered under the Securities Act of 1933, as amended. As of December 31, 2020, the amount outstanding under the registered
2022 notes, net of debt expense of $0.7 million, was $349.3 million, which is payable on April 1, 2022 when the 2022 notes mature. We are
required to pay interest on the 2022 notes semi-annually in arrears on April 1 and October 1 of each year, ending on the maturity date.
On November 18, 2019, we issued $400 million aggregate principal amount of 3.375% senior notes, or the 2024 notes, in an
underwritten public offering. As of December 31, 2020, the amount outstanding under the 2024 notes, net of debt amortization expense of
$2.3 million, was $397.7 million, which is payable on December 1, 2024 when the notes mature. We are required to pay interest on the 2024
notes semi-annually in arrears on June 1 and December 1 of each year, ending on the maturity date.
The 2022 notes and 2024 notes were issued by, and are senior unsecured indebtedness of, Genpact Luxembourg S.à r.l., our indirect
wholly owned subsidiary, and are guaranteed on a senior unsecured basis by Genpact Limited. The 2022 notes and 2024 notes are subject to
certain customary covenants set forth in their respective governing indentures, including limitations on our ability to incur debt secured by
liens, engage in certain sale and leaseback transactions and consolidate, merge, convey or transfer our assets. Upon certain change of control
transactions, we would be required to make an offer to repurchase the 2022 notes and the 2024 notes, as applicable, at a price equal to 101%
of the aggregate principal amount of such notes, plus accrued and unpaid interest. The interest rate payable on the 2022 notes and the 2024
notes is subject to adjustment if the credit rating of the 2022 notes or 2024 notes, as applicable, is downgraded up to a maximum increase of
2.0%. We may redeem the 2022 notes and 2024 notes at any time in whole or in part, at a redemption price equal to 100% of the principal
amount of the notes redeemed, together with accrued and unpaid interest or, if redemption occurs prior to, in the case of the 2022 notes
March 1, 2022 and, in the case of the 2024 notes, November 1, 2024, a specified “make-whole” premium. The 2022 notes and 2024 notes are
our senior unsecured obligations and rank equally with all our other senior unsecured indebtedness outstanding from time to time.
Our indebtedness and related debt service obligations can have negative consequences, requiring us to dedicate significant cash flow
from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes such as
acquisitions and capital investment; limiting our ability to obtain additional financing and limiting our ability to undertake strategic
acquisitions; increasing our vulnerability to adverse economic and industry conditions, including by reducing our flexibility in planning for or
reacting to changes in our business and market conditions; and exposing us to interest rate risk since a portion of our debt obligations are at
variable rates. We may incur more debt in the future, and there can be no assurance that our cost of funding will not substantially increase.
A portion of our indebtedness, including borrowings under our credit facility, bears interest at variable interest rates primarily based
on LIBOR. The U.K. Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that it will no longer compel banks to
submit rates for the calculation of LIBOR after 2021. Accordingly, there is considerable uncertainty regarding the publication of such rates
beyond 2021. The full impact of such reforms and actions, together with any transition away from LIBOR, including the discontinuance of
LIBOR publication, remains unclear, and at this time it is not possible to predict the effect any discontinuance of LIBOR as a reference rate
will have on us. These changes may have an adverse impact on the availability and costs of borrowings by us since we have LIBOR-based debt
obligations.
We often face a long selling cycle to secure a new contract as well as long implementation periods that require
significant resource commitments, which result in a long lead time before we receive revenues from new relationships.
We often face a long selling cycle to secure a new contract. If we are successful in obtaining an engagement, that is generally followed
by a long implementation period in which the services are planned in detail and we demonstrate to a client that we can successfully integrate
our processes and resources with their operations. During this time a contract is also negotiated and agreed. There is then a long ramping up
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period in order to commence providing the services. We typically incur significant business development expenses during the selling cycle. We
may not succeed in winning a new client’s business, in which case we receive no revenues and may receive no reimbursement for such
expenses. Even if we succeed in developing a relationship with a potential new client and begin to plan the services in detail, a potential client
may choose a competitor or decide to retain the work in-house prior to the time a final contract is signed. If we enter into a contract with a
client, we will typically receive no revenues until implementation actually begins. Our clients may also experience delays in obtaining internal
approvals or delays associated with technology or system implementations, thereby further lengthening the implementation cycle. We
generally hire new employees to provide services to a new client once a contract is signed. We may face significant difficulties in hiring such
employees and incur significant costs associated with these hires before we receive corresponding revenues. If we are not successful in
obtaining contractual commitments after the selling cycle, in maintaining contractual commitments after the implementation cycle or in
maintaining or reducing the duration of unprofitable initial periods in our contracts, it may have a material adverse effect on our business,
results of operations and financial condition.
Our profitability will suffer if we are not able to price appropriately, maintain employee and asset utilization
levels and control our costs.
Our profitability is largely a function of the efficiency with which we utilize our assets, and in particular our people and delivery
centers, and the pricing that we are able to obtain for our services. Our utilization rates are affected by a number of factors, including our
ability to transition employees from completed projects to new assignments, hire and assimilate new employees, forecast demand for our
services and thereby maintain an appropriate headcount in each of our geographies and workforce and manage attrition, and our need to
devote time and resources to training, professional development and other typically non-chargeable activities. The prices we are able to charge
for our services are affected by a number of factors, including our clients’ perceptions of our ability to add value through our services,
competition, introduction of new services or products by us or our competitors, our ability to accurately estimate, attain and sustain revenues
from client engagements, margins and cash flows over increasingly longer contract periods and general economic and political conditions.
Therefore, if we are unable to price appropriately or manage our asset utilization levels, there could be a material adverse effect on our
business, results of operations and financial condition. Our profitability is also a function of our ability to control our costs and improve our
efficiency. As we increase the number of our employees and grow our business, we may not be able to manage the significantly larger and
more geographically diverse workforce that may result and our profitability may not improve. New taxes may also be imposed on our services
such as sales taxes or service taxes which could affect our competitiveness as well as our profitability. Additionally, we may fail to
appropriately estimate our costs in agreeing to provide new or novel services with unique pricing arrangements or service delivery
requirements.
Our results of operations and share price could be adversely affected if we are unable to maintain effective
internal controls.
The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. We are required to provide a report
from management to our shareholders on our internal control over financial reporting that includes an assessment of the effectiveness of these
controls. Internal control over financial reporting has inherent limitations, including human error, sample-based testing, the possibility that
controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations,
internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate
internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability
of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our
public reporting requirements on a timely basis, be unable to properly report on our business and our results of operations, or be required to
restate our financial statements, and our results of operations, the market price of our common shares and our ability to obtain new business
could be materially adversely affected.
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We make estimates and assumptions in connection with the preparation of our consolidated financial statements,
and any changes to those estimates and assumptions could adversely affect our financial results.
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The application of
generally accepted accounting principles requires us to make estimates and assumptions about certain items and future events that affect our
reported financial condition, and our accompanying disclosure with respect to, among other things, revenue recognition and income taxes. We
base our estimates on historical experience, contractual commitments and on various other assumptions that we believe to be reasonable
under the circumstances and at the time they are made. These estimates and assumptions involve the use of judgment and are subject to
significant uncertainties, some of which are beyond our control. If our estimates, or the assumptions underlying such estimates, are not
correct, actual results may differ materially from our estimates, and we may need to, among other things, adjust revenues or accrue additional
charges that could adversely affect our results of operations.
Our operating results may experience significant fluctuations.
Our operating results may fluctuate significantly from period to period. The long selling cycle for many of our services as well as the
time required to complete the implementation phases of new contracts makes it difficult to accurately predict the timing of revenues from new
clients or new SOWs as well as our costs. In addition, our future revenues, operating margins and profitability may fluctuate as a result of:
lower demand for our services; lower win rates versus our competition; changes in pricing in response to client demands and competitive
pressures; changes to the financial condition of our clients; employee wage levels and utilization rates; changes in foreign exchange rates,
including the Indian rupee versus the U.S. dollar and the euro versus the U.S. dollar; the timing of collection of accounts receivable; enactment
of new taxes; changes in domestic and international income tax rates and regulations; and changes to levels and types of share-based
compensation awards and assumptions used to determine the fair value of such awards. As a result of these factors, it is possible that in some
future periods, our revenues and operating results may be significantly below the expectations of public market analysts and investors. In such
an event, the price of our common shares would likely be materially and adversely affected.
We enter into long-term contracts and fixed price contracts with our clients. Our failure to price these contracts
correctly may negatively affect our profitability.
The pricing of our services is usually included in SOWs entered into with our clients, many of which are for terms of two to five years.
In certain cases, we have committed to pricing over this period with only limited sharing of risk regarding inflation and currency exchange
rates. In addition, we are obligated under some of our contracts to deliver productivity benefits to our clients. If we fail to estimate accurately
future wage inflation rates, currency exchange rates or our costs, or if we fail to accurately estimate the productivity benefits we can achieve
under a contract, it could have a material adverse effect on our business, results of operations and financial condition.
A portion of our SOWs are currently billed on a fixed price basis rather than on a time and materials basis. We may increase the
number of fixed price contracts we perform in the future. Any failure to accurately estimate the resources or time required to complete a fixed
price engagement or to maintain the required quality levels or any unexpected increase in the cost to us of employees, office space or
technology could expose us to risks associated with cost overruns and could have a material adverse effect on our business, results of
operations and financial conditions.
If we are unable to collect our receivables, our results of operations, financial condition and cash flows could be
adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed.
We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We have established allowances for
losses of receivables and unbilled services. Actual losses on client balances could differ from those that we currently anticipate, and, as a
result, we might need to adjust our allowances. We might not accurately assess the creditworthiness of our clients. Macroeconomic conditions,
including the impact of the COVID-19 pandemic, could also result in financial difficulties for our clients, including bankruptcy and insolvency.
Additionally, cyberattacks on any
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of our clients could disrupt their internal systems and capability to make payments. The occurrence of such events could cause clients to delay
payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment
obligations to us. If we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected.
Some of our contracts contain provisions which, if triggered, could result in lower future revenues and have a
material adverse effect on our business, results of operation and financial condition.
Some of our contracts allow a client, in certain limited circumstances, to request a benchmark study comparing our pricing and
performance with that of an agreed list of other service providers for comparable services. Based on the results of the study and depending on
the reasons for any unfavorable variance, we may be required to make improvements in the services we provide or to reduce the pricing for
services on a prospective basis to be performed under the remaining term of the contract, which could have an adverse effect on our business,
results of operations and financial condition.
Some of our contracts contain provisions that would require us to pay penalties to our clients and/or provide our clients with the right
to terminate the contract if we do not meet pre-agreed service level requirements. Failure to meet these requirements could result in the
payment of significant penalties by us to our clients which in turn could have a material adverse effect on our business, results of operations
and financial condition.
A few of our MSAs provide that during the term of the MSA and under specified circumstances, we may not provide similar services to
the competitors of our client. Some of our contracts also provide that, during the term of the contract and for a certain period thereafter
ranging from six to 12 months, we may not provide similar services to certain or any of our client’s competitors using the same personnel.
These restrictions may hamper our ability to compete for and provide services to other clients in the same industry, which may inhibit growth
and result in lower future revenues and profitability.
Some of our contracts with clients specify that if a change of control of our company occurs during the term of the contract, the client
has the right to terminate the contract. These provisions may result in our contracts being terminated if there is such a change in control,
resulting in a potential loss of revenues. In addition, these provisions may act as a deterrent to any attempt by a third party to acquire our
company.
Some of our contracts with clients require that we bear the cost of any sales or withholding taxes or unreimbursed value-added taxes
imposed on payments made under those contracts. While the imposition of these taxes is generally minimized under our contracts, changes in
law or the interpretation thereof and changes in our internal structure may result in the imposition of these taxes and a reduction in our net
revenues.
Our industry is highly competitive, and we may not be able to compete effectively.
Our industry is highly competitive, highly fragmented and subject to rapid change. We believe that the principal competitive factors in
our markets are breadth and depth of process, technology and domain expertise, service quality, the ability to attract, train and retain
qualified people, compliance rigor, global delivery capabilities, price and marketing and sales capabilities. We compete for business with a
variety of companies, including large multinational firms that provide consulting, technology and/or business process services, off-shore
business process service providers in low-cost locations like India, in-house captives of potential clients, software services companies that also
provide business process services and accounting firms that also provide consulting or outsourcing services.
Some of our competitors have greater financial, marketing, technological or other resources and larger client bases than we do, and
may expand their service offerings and compete more effectively for clients and employees than we do. Some of our competitors have more
established reputations and client relationships in our markets than we do. In addition, some of our competitors who do not have global
delivery capabilities may expand their delivery centers to the countries in which we are located which could result in increased competition for
employees and could reduce our competitive advantage. There could also be new competitors that are more powerful as a result of strategic
consolidation of smaller competitors or of companies that each provide different services or service different industries.
39
Increased competition may result in lower prices and volumes, higher costs for resources, especially people, and lower profitability. We
may not be able to supply clients with services that they deem superior and at competitive prices and we may lose business to our competitors.
Any inability to compete effectively would adversely affect our business, results of operations and financial condition.
Our business could be materially and adversely affected if we do not protect our intellectual property or if our
services are found to infringe on the intellectual property of others.
Our success depends in part on certain methodologies, practices, tools and technical expertise we utilize in designing, developing,
implementing and maintaining applications and other proprietary intellectual property rights. In order to protect our rights in these various
intellectual properties, we rely upon a combination of nondisclosure and other contractual arrangements as well as patent, trade secret,
copyright and trademark laws. We also generally enter into confidentiality agreements with our employees, consultants, clients and potential
clients and limit access to and distribution of our proprietary information. India is a member of the Berne Convention, an international
intellectual property treaty, and has agreed to recognize protections on intellectual property rights conferred under the laws of other foreign
countries, including the laws of the United States. There can be no assurance that the laws, rules, regulations and treaties in effect in the
United States, India and the other jurisdictions in which we operate and the contractual and other protective measures we take, are adequate
to protect us from misappropriation or unauthorized use of our intellectual property, or that such laws will not change. We may not be able to
detect unauthorized use and take appropriate steps to enforce our rights, and any such steps may not be successful. Infringement by others of
our intellectual property, including the costs of enforcing our intellectual property rights, may have a material adverse effect on our business,
results of operations and financial condition.
Although we believe that we are not infringing on the intellectual property rights of others, claims may nonetheless be successfully
asserted against us in the future. The costs of defending any such claims could be significant, and any successful claim may require us to
modify, discontinue or rename any of our services. Any such changes may have a material adverse effect on our business, results of operations
and financial condition.
A substantial portion of our assets, employees and operations are located in India and we are subject to
regulatory, economic, social and political uncertainties in India.
We are subject to several risks associated with having a substantial portion of our assets, employees and operations located in India.
We have benefited from many policies of the Government of India and the Indian state governments in the states in which we operate
which are designed to promote foreign investment generally and the business process services industry in particular, including significant
fiscal incentives, relaxation of regulatory restrictions, liberalized import and export duties and preferential rules on foreign investment and
repatriation. In the past, policies we have benefited from have lapsed or are no longer available to us, and there is no assurance that policies
from which we benefit will be available to us in the future. Various factors, such as changes in the central or state governments, could trigger
significant changes in India’s economic liberalization and deregulation policies and disrupt business and economic conditions in India
generally and our business in particular.
In addition, our financial performance and the market price of our common shares may be adversely affected by general economic
conditions and economic and fiscal policy in India, including changes in exchange rates and controls, interest rates and taxation policies, as
well as social stability and political, economic or diplomatic developments affecting India in the future. In particular, India has experienced
significant economic growth over the last several years, but faces major challenges in sustaining that growth in the years ahead. These
challenges include the need for substantial infrastructure development and improving access to healthcare and education. Recent economic
reform efforts have been disruptive and may increase the level of economic uncertainty in India. Our ability to recruit, train and retain
qualified employees, develop and operate our delivery centers, and attract and retain clients could be adversely affected if India does not
successfully meet these challenges.
40
We may face difficulties as we expand our operations into countries in which we have no prior operating
experience.
We intend to continue to expand our global footprint in order to maintain an appropriate cost structure and meet our clients’ delivery
needs. This may involve expanding into countries other than those in which we currently operate. It may involve expanding into less
developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. As we
expand our business into new countries we may encounter regulatory, personnel, technological and other difficulties that increase our
expenses or delay our ability to start up our operations or become profitable in such countries. This may affect our relationships with our
clients and could have an adverse effect on our business, results of operations and financial condition.
Terrorist attacks and other acts of violence involving any of the countries in which we or our clients have
operations could adversely affect our operations and client confidence.
Terrorist attacks and other acts of violence or war may adversely affect worldwide financial markets and could potentially lead to
economic recession, which could adversely affect our business, results of operations, financial condition and cash flows. These events could
adversely affect our clients’ levels of business activity and precipitate sudden significant changes in regional and global economic conditions
and cycles. These events also pose significant risks to our people and to our delivery centers and operations around the world.
Southern Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including India
and Pakistan. In recent years, military confrontations between India and Pakistan have occurred in the region of Kashmir and along the
India/Pakistan border. There have also been incidents in and near India, such as continued terrorist activity around the northern border of
India, troop mobilizations along the India/Pakistan border and an aggravated geopolitical situation in the region. In addition, in 2020, there
was a series of conflicts between India and China along their shared border, and although both countries are making efforts to de-escalate
these conflicts, there can be no assurance that tensions in the area will diminish in the near future. Such military activity or terrorist attacks in
the future could influence the Indian economy by disrupting communications and making travel more difficult. Resulting political tensions
could create a greater perception that investments in companies with Indian operations involve a high degree of risk, and that there is a risk of
disruption of services provided by companies with Indian operations, which could have a material adverse effect on our share price and/or the
market for our services. Furthermore, if India or bordering countries were to become engaged in armed hostilities, particularly hostilities that
were protracted or involved the threat or use of nuclear weapons, we might not be able to continue our operations. We generally do not have
insurance for losses and interruptions caused by terrorist attacks, military conflicts and wars.
If more stringent labor laws become applicable to us or if our employees unionize, our profitability may be
adversely affected.
India has stringent labor legislation that protects employee interests, including legislation that sets forth detailed procedures for
dispute resolution and employee removal and legislation that imposes financial obligations on employers upon retrenchment. Though we are
exempt from some of these labor laws at present under exceptions in some states for providers of IT-enabled services, there can be no
assurance that such laws will not become applicable to us in the future. If these labor laws become applicable to our employees, it may become
difficult for us to maintain flexible human resource policies and attract and employ the numbers of sufficiently qualified candidates that we
need or discharge employees, and our compensation expenses may increase significantly.
In addition, our employees may in the future form unions. If employees at any of our delivery centers become eligible for union
membership, we may be required to raise wage levels or grant other benefits that could result in an increase in our compensation expenses, in
which case our profitability may be adversely affected.
41
We may engage in strategic transactions that could create risks.
As part of our business strategy, we regularly review potential strategic transactions, including potential acquisitions, dispositions,
consolidations, joint ventures or similar transactions, some of which may be material. Through the acquisitions we pursue, we may seek
opportunities to add to or enhance the services we provide, to enter new industries or expand our client base, or to strengthen our global
presence and scale of operations. We have completed numerous acquisitions since our inception. There can be no assurance that we will find
suitable candidates in the future for strategic transactions at acceptable prices, have sufficient capital resources to accomplish our strategy, or
be successful in entering into agreements for desired transactions.
Acquisitions, including completed acquisitions, also pose the risk that any business we acquire may lose clients or employees or could
under-perform relative to expectations. We could also experience financial or other setbacks if transactions encounter unanticipated
problems, including problems related to execution, integration or unknown liabilities. Although we conduct due diligence in connection with
our acquisitions, there could be liabilities that we fail to discover, that we inadequately assess or that are not properly disclosed to us. Any
material liabilities associated with our acquisitions could harm our business, results of operations and financial condition. Following the
completion of an acquisition, we may have to rely on the seller to provide administrative and other support, including financial reporting and
internal controls, to the acquired business for a period of time. There can be no assurance that the seller will do so in a manner that is
acceptable to us.
We may become subject to taxation as a result of our incorporation in Bermuda or place of management, which
could have a material adverse effect on our business, results of operations and financial condition.
We have received a written assurance from the Bermuda Minister of Finance under The Exempted Undertaking Tax Protection Act
1966 of Bermuda to the effect that if there is enacted in Bermuda any legislation imposing tax computed on profits or income, or computed on
any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax shall not
be applicable to us or to any of our operations or common shares, debentures or other obligations or securities until March 31, 2035, except
insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in
Bermuda. We cannot assure you that after such date we would not be subject to any such tax. If we were to become subject to taxation in
Bermuda or any other jurisdiction as a result of our incorporation in Bermuda, it could have a material adverse effect on our business, results
of operations and financial condition.
Economic substance requirements in Bermuda could adversely affect us.
Harmful tax practices have become the focus of increased scrutiny from the EU. Following a 2017 assessment by the Code of Conduct
Group (Business Taxation), or the COCG, which included Bermuda in a list of jurisdictions required by the EU to address the COCG’s concerns
relating to the demonstration of economic substance, the Bermuda Government implemented legislation which brought certain substance
requirements into force in 2019 for currently existing Bermuda entities. The introduction of the substance regime in Bermuda may present
difficulties for us. Pursuant to the economic substance requirements, core income generating activities carried out by Bermuda companies
must be undertaken in Bermuda. To satisfy these requirements, we may be required to conduct additional activities in Bermuda. The
substance requirements could be difficult to manage or implement, and compliance with the requirements could be difficult or costly and
could have a material adverse effect on us or our operations.
We may not be able to realize the entire book value of goodwill and other intangible assets from acquisitions.
As of December 31, 2020, we had $1,695.7 million of goodwill and $236.7 million of intangible assets. We periodically assess these
assets to determine if they are impaired and we monitor for impairment of goodwill relating to all acquisitions and our formation in 2004.
Goodwill is not amortized but is tested for impairment at least on an annual basis as of December 31 of each year, based on a number of
factors including macro-economic conditions, industry and market considerations, overall financial performance, business plans and expected
future cash flows. Impairment testing of goodwill may also be performed between annual tests if an event occurs or circumstances change that
would more likely than not reduce the
42
fair value of goodwill below its carrying amount. We perform 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 results of the qualitative assessment, the Company performs the 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 the book value of our goodwill and other
intangible assets is impaired, any such impairment would be charged to earnings in the period of impairment. We cannot assure you that any
future impairment of goodwill and other intangible assets will not have a material adverse effect on our business, financial condition or results
of operations.
Risks Related to our Shares
The issuance of additional common shares by us or the sale of our common shares by our employees could dilute
our shareholders’ ownership interest in the Company and could significantly reduce the market price of our common
shares.
Sales of a substantial number of our common shares in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common shares.
We have issued a significant number of equity awards under our equity compensation plans. The shares underlying these awards are
or, with respect to certain option grants, will be registered on a Form S-8 registration statement. As a result, upon vesting these shares can be
freely exercised and sold in the public market upon issuance, subject to volume limitations applicable to affiliates. The exercise of options and
the subsequent sale of the underlying common shares or the sale of common shares upon vesting of other equity awards could cause a decline
in our share price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate.
Certain of our employees, executive officers and directors have entered or may enter into Rule 10b5-1 plans providing for sales of our
common shares from time to time. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the employee,
director or officer when entering into the plan, without further direction from the employee, officer or director. A Rule 10b5-1 plan may be
amended or terminated in some circumstances. Our employees, executive officers and directors may also buy or sell additional shares outside
of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.
In addition, we may in the future engage in strategic transactions that could dilute our shareholders’ ownership and cause our share
price to decline. Sales of substantial amounts of our common shares or other securities by us could also dilute our shareholders’ interests,
lower the market price of our common shares and impair our ability to raise capital through the sale of equity securities.
There can be no assurance that we will continue to declare and pay dividends on our common shares, and future
determinations to pay dividends will be at the discretion of our board of directors.
Prior to 2017, we did not declare regular dividends. In February 2017, we announced the declaration of the first quarterly cash
dividend on our common shares and have paid a quarterly cash dividend each quarter since that date. Any determination to pay dividends to
holders of our common shares in the future, including future payment of a regular quarterly cash dividend, will be at the discretion of our
board of directors and will depend on many factors, including our financial condition, results of operations, general business conditions,
statutory requirements under Bermuda law and any other factors our board of directors deems relevant. Our ability to pay dividends will also
continue to be subject to restrictive covenants contained in credit facility agreements governing indebtedness we and our subsidiaries have
incurred or may incur in the future. In addition, statutory requirements under Bermuda law could require us to defer making a dividend
payment on a declared dividend date until such time as we can meet statutory requirements under Bermuda law. A reduction in, delay of, or
elimination of our dividend payments could have a negative effect on our share price.
43
We are organized under the laws of Bermuda, and Bermuda law differs from the laws in effect in the United States
and may afford less protection to shareholders.
Our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a state
of the United States. As a Bermuda company, we are governed by, in particular, the Companies Act. The Companies Act differs in some
material respects from laws generally applicable to U.S. corporations and shareholders, including the provisions relating to interested
directors, mergers, amalgamations, takeovers and indemnification of directors.
Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda
companies generally do not have the right to take action against directors or officers of the company except in limited circumstances. Directors
of a Bermuda company must, in exercising their powers and performing their duties, act honestly and in good faith with a view to the best
interests of the company, exercising the care and skill that a reasonably prudent person would exercise in comparable circumstances.
Directors have a duty not to put themselves in a position in which their duties to the company and their personal interests may conflict and
also are under a duty to disclose any personal interest in any material contract or arrangement with the company or any of its subsidiaries. If a
director of a Bermuda company is found to have breached his or her duties to that company, he may be held personally liable to the company
in respect of that breach of duty. A director may be liable jointly and severally with other directors if it is shown that the director knowingly
engaged in fraud or dishonesty (with such unlimited liability as the courts shall direct). In cases not involving fraud or dishonesty, the liability
of the director will be determined by the Supreme Court of Bermuda or other Bermuda court (with such liability as the Bermuda court thinks
just) who may take into account the percentage of responsibility of the director for the matter in question, in light of the nature of the conduct
of the director and the extent of the causal relationship between his or her conduct and the loss suffered.
In addition, our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our
behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or
director to take any action, in the performance of his or her duties, except with respect to any matter involving or arising out of any fraud or
dishonesty on the part of the officer or director or to matters which would render it void pursuant to the Companies Act. This waiver limits the
rights of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty. Therefore,
our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a state within
the United States.
The market price for our common shares has been and may continue to be volatile.
The market price for our common shares has been and may continue to be volatile and subject to price and volume fluctuations in
response to market and other factors, some of which are beyond our control. Among the factors that could affect our share price are:
•
•
•
•
•
•
•
terrorist attacks, natural disasters, epidemics or pandemics (including the COVID-19 pandemic), or other such events impacting
countries where we or our clients have operations;
actual or anticipated fluctuations in our quarterly and annual operating results;
changes in financial estimates by securities research analysts;
changes in the economic performance or market valuations of other companies engaged in providing business process and
information technology services;
loss of one or more significant clients;
addition or loss of executive officers or key employees;
regulatory developments in our target markets affecting us, our clients or our competitors;
44
•
•
•
•
announcements of technological developments;
limited liquidity in our trading market;
sales or expected sales of additional common shares, either by us, our employees, or any of our shareholders, or purchases or
expected purchases of common shares, including by us under existing or future share repurchase programs, which purchases are at
the discretion of our board of directors and may not continue in the future; and
actions or announcements by activist shareholders or others.
In addition, securities markets generally and from time to time experience significant price and volume fluctuations that are not
related to the operating performance of particular companies. These market fluctuations may have a material adverse effect on the market
price of our common shares.
You may be unable to effect service of process or enforce judgments obtained in the United States or Bermuda
against us or our assets in the jurisdictions in which we or our executive officers operate.
We are incorporated and organized under the laws of Bermuda, and a significant portion of our assets are located outside the United
States. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda or in countries, other than the
United States, where we have assets based on the civil liability or penal provisions of the federal or state securities laws of the United States. In
addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of United States
courts obtained against us or our directors or officers based on the civil liability or penal provisions of the federal or state securities laws of the
United States or would hear actions against us or those persons based on those laws. We have been advised by Appleby (Bermuda) Limited,
our Bermuda counsel, that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and
enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or
state court in the United States based on civil liability, whether or not based solely on United States federal or state securities laws, would not
automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries, other than the United States, where
we have assets.
45
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We have delivery centers in 20 countries. We have a mixture of owned and leased properties and substantially all of our leased
properties are leased under long-term leases with varying expiration dates. We believe that our properties and facilities are suitable and
adequate for our present purposes and are well-maintained.
Item 3. Legal Proceedings
There are no legal proceedings pending against us that we believe are likely to have a material adverse effect on our business, results of
operations and financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
46
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Price Information and Stockholders
The principal market on which the Company’s common shares are traded is the New York Stock Exchange under the symbol “G.” As of
January 31, 2021, there were 36 holders of record of our common shares.
The following graph and table compare the performance of an investment in our common shares (measured as the cumulative total
shareholder return) with investments in the S&P 500 Index (market capitalization weighted) and a peer group of companies for the period
from January 1, 2016 to December 31, 2020. The selected peer group for the period presented is comprised of six companies that we believe
are our closest reporting issuer competitors: Accenture plc, Cognizant Technology Solutions Corp., ExlService Holdings, Inc., Infosys
Technologies Limited, Wipro Technologies Limited, and WNS (Holdings) Limited. The returns of the component entities of our peer group
index are weighted according to the market capitalization of each company as of the end of each period for which a return is presented. The
returns assume that $100 was invested on December 31, 2015 and that all dividends were reinvested. The performance shown in the graph
and table below is historical and should not be considered indicative of future price performance.
47
Genpact
Peer Group
S&P 500
Genpact
Peer Group
S&P 500
Genpact
Peer Group
S&P 500
Genpact
Peer Group
S&P 500
3/31/16
108.85
109.66
101.35
6/30/17
111.93
108.93
122.42
9/30/18
124.51
141.80
150.81
12/31/19
173.55
156.21
171.49
6/30/16
107.45
105.51
103.84
9/30/17
115.88
116.42
127.90
12/31/18
110.08
123.10
130.42
3/31/20
120.47
121.82
137.88
9/30/16
95.88
99.80
107.84
12/31/17
128.17
125.78
136.40
3/31/19
143.84
145.82
148.22
6/30/20
151.07
153.57
166.20
12/31/16
97.44
100.22
111.96
3/31/18
129.49
131.04
135.37
6/30/19
156.10
148.09
154.60
9/30/20
161.53
180.18
181.05
3/31/17
99.37
104.59
118.75
6/30/18
117.39
137.32
140.02
9/30/19
159.14
149.50
157.23
12/31/20
171.94
213.51
203.04
This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should
not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
Dividends
In February 2020, our board of directors approved a 15% increase in our quarterly cash dividend to $0.0975 per common share,
representing an annual dividend of $0.39 per common share. In 2020, dividends were declared in February, May, July and October and paid
in March, June, September and December. In February 2021, our board of directors approved a 10% increase in our quarterly cash dividend to
$0.1075 per common share, representing a planned annual dividend of $0.43 per common share for 2021. Any future dividends will be at the
discretion of the board of directors and subject to Bermuda and other applicable laws.
Unregistered Sales of Equity Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended December 31, 2020 was as follows:
Period
October 1-October
31, 2020
November 1-
November 30, 2020
December 1-
December 31, 2020
Total
Total Number of
Shares
Purchased
1,105,000
354,992
170,323
1,630,315
Average Price Paid per
Share ($)
Total Number of Shares
Purchased as
Part of Publicly
Announced Plan or Program
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plan or Program ($)
38.41
39.30
41.64
38.94
1,105,000
354,992
170,323
1,630,315
48
158,042,605
144,090,154
136,998,231
In February 2021, our board of directors authorized a $500 million increase to our existing $1.25 billion share repurchase program,
first announced in February 2015, bringing the total authorization under our existing program to $1.75 billion. This repurchase program does
not obligate us to acquire any specific number of shares and does not specify an expiration date. All shares repurchased under the plan have
been cancelled. See Note 19—“Capital stock” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial
Statement Schedules” for additional information.
Item 6. Selected Financial Data
The table below presents selected historical financial data.
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
Financial data as of December 31, 2019 and 2020 and for the three-year period ended December 31, 2020 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Financial data as of December 31, 2016, 2017 and
2018 and for the years ended December 31, 2016 and 2017 have been derived from our audited consolidated financial statements not included
in this Annual Report on Form 10-K.
You should read the selected financial data below together with the financial statements included herein and Item 7—“Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Statement of income data:
Total net revenues
Income from operations
Net income available to Genpact
Limited common shareholders
Earnings per common share
Basic
Diluted
Weighted average number of common
shares used in computing earnings per
common share
$
$
$
$
$
Basic
Diluted
Cash dividend per common share
$
2016
2017
2018
2019
2020
(dollars and share count in millions, except per share data)
Year ended December 31,
2,570.8 $
341.2 $
2,736.9 $
331.3 $
3,000.9 $
348.2 $
269.7 $
263.1 $
282.0 $
1.30 $
1.28 $
1.36 $
1.34 $
1.48 $
1.45 $
3,520.5 $
429.4 $
304.9 $
1.60 $
1.56 $
3,709.4
438.7
308.3
1.62
1.57
206.9
210.1
— $
193.9
197.0
0.24 $
190.7
194.0
0.30 $
190.1
195.2
0.34 $
190.4
195.8
0.39
2016
2017
2018
2019
2020
(dollars in millions)
As of December 31,
Balance sheet data:
Cash and cash equivalents
Total assets(1)
Operating lease liabilities(2)
Long-term debt, including current
portion
Genpact Limited shareholders’
equity
$
422.6 $
2,885.9
-
504.5 $
3,449.6
-
737.3
1,045.9
$
1,286.6 $
1,424.0 $
368.4 $
3,529.4
-
1,009.1
1,404.2 $
467.1 $
4,454.2
359.8
680.4
4,873.5
345.8
1,373.3
1,340.9
1,698.2 $
1,834.2
49
(1) On January 1, 2020, we adopted Accounting Standard Update No. 2016-13, Financial Instruments- Credit Losses (Topic 326). Prior
period amounts have not been adjusted under the modified retrospective method.
(2) On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842). Prior period amounts have not been
adjusted under the modified retrospective method.
50
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that
appear elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion includes forward-looking
information that involves risks and assumptions, which could cause actual results to differ materially from management’s expectations. See
“Special Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.
COVID-19 Update
The impact of the COVID-19 pandemic, including changes in consumer behavior, pandemic fears and market downturns, and
restrictions on business activities, has created significant volatility in the global economy and led to reduced economic activity. There have
been various actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the
outbreak and spread of the COVID-19 pandemic in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders,
and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal
operations. Although restrictions have been eased in many locations, some areas that had previously eased restrictions have reverted to
certain limitations on daily activities. This section provides a brief overview of how we are responding to known and anticipated impacts of the
COVID-19 pandemic on our business, financial condition and results of operations. We also provide additional information about the effects of
the COVID-19 pandemic on our business and results of operations in other relevant sections of this Annual Report on Form 10-K.
The safety and well-being of our employees have been and will continue to be a top priority during this global crisis, followed
immediately by continuing to deliver high-quality services to our clients. The remote work arrangements that we implemented in 2020 remain
in place in most locations. For the limited number of employees who have returned to our offices, we have implemented new safety, cleaning
and medical screening procedures in our offices.
We have also created a response team, which includes members of our Global Leadership Council, to coordinate and oversee our
actions in response to the COVID-19 pandemic, including with respect to business continuity planning, revenue and profitability,
transformation service offerings to address new and developing client needs, and human resource policies. We believe that this coordinated
effort will maximize our flexibility and allow us to quickly implement necessary protocols for devising unique solutions to the problems we and
our clients are facing and may face in the future in relation to the pandemic.
In addition, we took a series of actions during 2020 to address the challenges being placed on our operations by the pandemic and the
potential impact to our business in the near term and to protect the long-term health of our business. For additional information, see Note 29
—“Restructuring” to our consolidated financial statements under Part IV, Item 15 —“Exhibits and Financial Statement Schedules.”
We continue to evaluate market conditions and are taking precautionary measures to strengthen our financial position, including
reevaluating the pace of our investment plans, hiring practices, investments in capital assets, use of our real estate and facilities, and
discretionary spending, including marketing and travel expenses. We maintained a strong liquidity position in 2020, ending the year with
$680.4 million of consolidated cash and cash equivalents.
The pandemic had an adverse impact on our 2020 financial results, including total bookings for 2020 that were lower than 2019.
Despite the uncertain environment, total net revenue increased 5.4% year-over-year, or 5.6% on a constant currency basis.1 Global Client
revenue, which represented 87.6% of total net revenue, increased 6.8% year-over-year, or 7.0% on a constant currency basis.1 This
performance was largely driven by transformation services, bolstered by strong growth in our analytics services. While we are
1 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period’s foreign currency
exchange rates adjusted for hedging gains/losses in such period.
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expecting revenue growth to improve as we progress through 2021, we are still anticipating that many of the impacts we experienced in 2020
related to demand, profitability and cash flows may continue into future periods depending on the severity and duration of the pandemic.
We continue to actively monitor the COVID-19 pandemic and may take further actions that alter our business operations as may be
required by any regulatory authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
For additional information about the risks we face in relation to the pandemic, see “Our business and results of operations have been
adversely impacted and may in the future be adversely impacted by the COVID-19 pandemic” and the other risks set forth under Part I, Item
1A—“Risk Factors” in this Annual Report on Form 10-K.
Overview
Our 2020 revenues were $3.709 billion, an increase of 5.4% year-over-year, or 5.6% on a constant currency basis.2
Net Revenues
Revenue by top clients. The table below sets forth the percentage of our total net revenues derived from our largest clients, including
the General Electric Company, or GE, in the years ended December 31, 2019 and 2020:
Top five clients
Top ten clients
Top fifteen clients
Top twenty clients
Percentage of Total Net Revenues
Year ended December 31,
2019
28.4 %
37.2 %
43.1 %
47.7 %
2020
29.0 %
38.5 %
45.1 %
49.9%
We earn revenues pursuant to contracts that generally take the form of a master service agreement, or MSA, which is a framework
agreement that is then supplemented by statements of work, or SOWs. Our MSAs specify the general terms applicable to the services we will
provide. Our MSAs are generally for terms of three to seven years, although they may also have an indefinite term or be for terms of less than
three years. In most cases they do not specify pricing terms or obligate the client to purchase a particular amount of services. We then enter
into SOWs under an MSA, which specify particular services to be provided and the pricing terms. Most of our revenues are from SOWs with
terms of two to five years. We typically have multiple SOWs under any given MSA, and the terms of our SOWs vary depending on the nature of
the services to be provided. We seek to develop long-term relationships with our clients. We believe that these relationships best serve our
clients as they create opportunities for us to provide a variety of services using the full range of our capabilities and to deliver continuous
process improvement.
New business proposals are reviewed in line with our strategy to target specific industry verticals and geographical markets. We begin
each year with a set of named accounts, including prospective clients with operations in our target areas, and all opportunities during the year
are reviewed by business leaders from the applicable industry vertical, operations personnel, and members of our finance team. In this way,
we try to ensure that contract terms meet our pricing, cash and service objectives. See Item 1—“Business—Sales and marketing” for additional
information.
Many factors affect how we price our contracts. Under some of our MSAs, we are able to share a limited amount of inflation and
currency exchange risk for engagements lasting longer than 12 months. Many of our MSAs also provide that, under transaction-based and
fixed-price SOWs, we are entitled to retain a portion of certain productivity benefits we achieve. However, some of our MSAs and SOWs
require
2 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period’s foreign currency
exchange rates adjusted for hedging gains/losses in such period.
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certain minimum productivity benefits to be passed on to our clients. Once an MSA and the related SOWs are signed and production of
services commences, our revenues and expenses increase as services are ramped up to the agreed upon level. In many cases, we may have
opportunities to increase our margins over the life of an MSA or SOW, driven by a number of factors. Our revenues include gains or losses
arising upon the maturity of qualified cash flow hedges.
Under our services agreements with GE, GE has the right to terminate the MSA or any SOW in whole or in part for any reason by
providing us with a short period of advance notice, subject to early termination charges where applicable. GE is not obligated to provide us
with any exclusivity or opportunity to work on GE projects and GE is not required to purchase a minimum amount of services from us.
Although some decisions about our services may be made centrally at GE, the total level of business we receive from GE generally
depends on the decisions of the various operating managers of the GE businesses we serve. Because our business from GE is derived from a
variety of businesses within GE, our exposure to GE is diversified in terms of industry risk. See Item 1A—“Risk Factors— GE accounts for a
significant portion of our revenues and any material loss of business from, or change in our relationship with, GE could have a material
adverse effect on our business, results of operations and financial condition.”
Classification of certain net revenues. We classify our net revenues in two categories: net revenues from Global Clients and net
revenues from GE. Net revenues from Global Clients consist of revenues from services provided to all clients other than GE and the companies
in which GE owns 20% or less of the outstanding equity interest. If GE ceases to own at least 20% of a business we serve and that business
enters into a new agreement with us, we reclassify the revenues from such business as Global Client revenues from the date of divestiture. The
impact of the reclassification of revenue from divested GE businesses to Global Client revenue in 2019 and 2020 was immaterial.
In many cases, we have continued to perform services for GE-divested businesses following their divestiture by GE even though they
were not obligated by the GE MSA to continue to use our services. In such cases, we have either entered into new MSAs with respect to such
businesses following their divestiture by GE or agreed with such businesses to continue to work pursuant to the terms agreed to by GE. We are
currently undertaking efforts, and plan to continue efforts, to procure engagements with the businesses that GE divests as part of its GE
Capital divestitures.
Expenses. Personnel expenses are a major component of both our cost of revenue and our selling, general and administrative
expenses. Personnel expenses include salaries and benefits (including stock-based compensation) as well as costs related to recruitment and
training. Personnel expenses are allocated between cost of revenue and selling, general and administrative expenses based on the classification
of the employee. Stock-based compensation and depreciation and amortization expense are allocated between cost of revenue and selling,
general and administrative expenses using an appropriate allocation basis.
Our industry is labor-intensive. Wage levels in the countries in which our delivery centers are located have historically increased on a
year-over-year basis. We attempt to address the impact of wage increases, and pressures to increase wages, in a number of ways, which
include seeking to control entry-level wages, managing our attrition rate, delivering productivity and “right-skilling,” which refers to ensuring
that positions are not filled by overqualified employees. We try to control increases in entry-level wages by implementing innovative
recruitment policies, utilizing continuous training techniques, emphasizing promotion opportunities, and maintaining an attractive work
atmosphere and culture.
In planning capacity expansion, we look for locations that help us ensure global delivery capability while helping us control average
salary levels. In India and in other countries where we may open multiple offices or delivery centers, we try to expand into cities where
competition for personnel and wage levels may be lower than in more developed cities. In addition, under some of our contracts we can share
with our clients a portion of any increase in costs due to inflation. Nevertheless, despite these steps, we expect general increases in wage levels
in the future, which could adversely affect our margins. A significant increase in attrition rates would also increase our recruitment and
training costs and decrease our operating efficiency, productivity and profit margins. Increased attrition rates or increased pricing may also
cause some clients to be less willing to use our services. See Item 1A—“Risk Factors—Wage increases in the countries where we operate may
prevent us from sustaining our competitive advantage and may reduce our profit margin.”
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Our operational expenses include facilities maintenance expenses, travel and living expenses, IT expenses, and consulting and certain
other expenses. Consulting charges, consisting of the cost of consultants and contract employees with specialized skills who are directly
responsible for the performance of services for clients, are included in cost of revenue. Facilities maintenance expenses and certain other
expenses are allocated between cost of revenue and selling, general and administrative expenses based on the employee’s function.
Cost of revenue. The principal component of cost of revenue is personnel expenses. We include in cost of revenue all personnel
expenses for employees who are directly responsible for the performance of services for clients, their supervisors and certain support
personnel who may be dedicated to a particular client or a set of processes. Travel and living expenses are included in cost of revenue if the
personnel expense for the employee incurring such expense is included in cost of revenue.
The ratio of cost of revenue to revenues for any particular SOW or for all SOWs under an MSA is typically higher in the early periods of
the contract or client relationship than in later periods. This is because the number of supervisory and direct support personnel relative to the
number of employees who are performing services declines. It is also because we may retain a portion of the benefit of productivity increases
realized over time.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses are primarily comprised of
personnel expenses for senior management and other support personnel in enabling functions, such as human resources, finance, legal,
marketing, sales and sales support, and other non-billable support personnel. The operational costs component of SG&A expenses also
includes travel and living costs for such personnel. Additionally, the operational costs component of SG&A expenses includes acquisition
related costs, legal and professional fees (which represent the costs of third-party legal, tax, accounting and other advisors), investments in
research and development, digital technology, advanced automation and robotics, and an allowance for credit losses.
Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of amortization expenses relating to
intangible assets acquired through acquisitions.
Other operating (income) expense, net. Other operating (income) expense, net primarily consists of the impact of the change in the
fair value of earn-out consideration and deferred consideration relating to business acquisitions, certain operating losses resulting from the
write-down of operating lease right-of-use assets, property, plant and equipment and intangible assets and certain operating gains upon the
disposition of property, plant and equipment, including a 2019 transfer of land pursuant to a co-development agreement under which we will
acquire an interest in commercial property being developed on the land.
Foreign exchange gains (losses), net. Foreign exchange gains (losses), net, primarily consists of gains or losses on the re-
measurement of non-functional currency assets and liabilities. In addition, it includes gains or losses from derivative contracts entered into to
offset the impact of the re-measurement of non-functional currency assets and liabilities. It also includes the realized and unrealized gains or
losses on derivative contracts that do not qualify for hedge accounting.
We also enter into derivative contracts to offset the impact of the re-measurement of non-functional currency expenditures and
income. The gains or losses on derivative contracts that qualify for hedge accounting are deferred and included under other comprehensive
income (loss) until the derivative contracts mature, at which time the gains or losses on such cash flow hedges are classified as net revenues,
cost of revenue or selling, general and administrative expenses based on the underlying risk being hedged. See Note 2—“Summary of
significant accounting policies” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement
Schedules’’ and Item 7A—“Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk.”
79% of our fiscal 2020 revenues were earned in U.S. dollars. We also received payments in euros, U.K. pounds sterling, Australian
dollars, Japanese yen and Indian rupees. Our costs are primarily incurred in Indian rupees, as well as in U.S. dollars, Chinese renminbi, euros,
and the currencies of the other countries in which we have operations. While some of our contracts provide for limited sharing of the risk of
inflation and fluctuations in currency exchange rates, we bear a substantial portion of this risk, and therefore our operating results could be
negatively affected by adverse changes in wage inflation rates and foreign
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currency exchange rates. See our discussion of wage inflation under “Expenses” above. We enter into forward currency contracts, which are
generally designed to qualify for hedge accounting, in order to hedge most of our net cost currency exposure between the U.S. dollar and the
Indian rupee and Mexican peso, and between the euro and the Romanian leu, and our revenue currency exposure between the U.S. dollar and
the U.K. pound sterling, Australian dollar, Philippine peso, Hungarian forint and euro, and between the Chinese renminbi and the Japanese
yen. However, our ability to hedge such risks is limited by local law, the liquidity of the market for such hedges and other practical
considerations. Thus, our results of operations may be adversely affected if we are not able to enter into the desired hedging arrangements or
if our hedging strategies are not successful. See Note 2—“Summary of significant accounting policies” to our consolidated financial statements
under Part IV, Item 15—“Exhibits and Financial Statement Schedules” for additional information.
Interest income (expense), net. Interest income (expense), net consists primarily of interest expense on indebtedness, including
resulting from interest rate swaps, capital/finance lease obligations, interest adjustments relating to earn-out consideration in connection with
certain acquisitions, certain items related to debt restructuring, and interest income on certain deposits. We manage a portion of our interest
rate risk related to floating rate indebtedness by entering into interest rate swaps under which we receive floating rate payments based on the
greater of LIBOR and the floor rate under our term loan and make payments based on a fixed rate.
Other income (expense), net. Other income (expense), net primarily includes changes in the fair value of deferred compensation plan
assets, gains or losses on divestitures of certain businesses and certain government incentives received by our subsidiaries.
Income taxes. We are incorporated in Bermuda and have operations in many countries. Our effective tax rate has historically varied
and will continue to vary from year to year based on the tax rate in the jurisdiction of our organization, the geographical sources of our
earnings and the tax rates in those countries, the tax relief and incentives available to us, the financing and tax planning strategies employed
by us, changes in tax laws or the interpretation thereof, and movements in our tax reserves, if any.
Bermuda taxes. We are organized in Bermuda. Bermuda does not impose any income tax on us.
Indian taxes. Indian SEZ legislation provides for a 15-year tax holiday scheme for operations established in designated special
economic zones, or SEZs. Under the SEZ legislation, qualifying operations are eligible for a deduction from taxable income equal to (i) 100%
of their profits or gains derived from the export of services for a period of five years from the commencement of operations; (ii) 50% of such
profits or gains for the next five years; and (iii) 50% of such profits or gains for an additional period of five years, subject to the creation of a
“Special Economic Zone Re-investment Reserve Account,” to be utilized only for acquiring new plant or machinery or for other business
purposes, not including the distribution of dividends. This holiday is available only for new business operations that are conducted at
qualifying SEZ locations (for units which commenced operations on or before September 30, 2020) and is not available to operations formed
by splitting up or reconstructing existing operations or transferring existing plant and equipment (beyond prescribed limits) to new locations.
During the last thirteen years, we established new delivery centers that we believe are eligible for the SEZ benefits. However, we cannot
forecast what percentage of our operations or income in India will in the future be eligible for SEZ benefits, as this will depend on how much
of our business can be conducted at the qualifying locations and how much of that business can be considered to meet the restrictive
conditions described above.
Our tax expense is expected to increase as a result of the expiration of our tax holidays, and our after-tax profitability is expected to be
reduced, unless we can obtain comparable benefits under new legislation or otherwise reduce our tax liability. The Indian government recently
enacted a law that allows companies to elect to pay reduced tax rate on all of their income provided they do not take advantage of any tax
holidays or other exemptions. In response to this law, the Company currently expects to cease taking advantage of tax holidays and thereby
benefit from the reduced tax rate after March 31, 2021.
Additionally, the governments of foreign jurisdictions where we deliver services may assert that certain of our clients have a
“permanent establishment” in such jurisdictions by reason of the activities we perform on their behalf, particularly those clients that exercise
control over or have substantial dependency
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on our services. Such an assertion could affect the size and scope of the services requested by such clients in the future.
Transfer pricing. We have transfer pricing arrangements among our subsidiaries involved in various aspects of our business,
including operations, marketing, sales and delivery functions. U.S., U.K. and Indian transfer pricing regulations, as well as the regulations
applicable in the other countries in which we operate, require that any international transaction involving affiliated enterprises be made on
arm’s-length terms. We consider the transactions among our subsidiaries to be substantially on arm’s-length pricing terms. If, however, a tax
authority in any jurisdiction reviews any of our tax returns and determines that the transfer prices we have applied are not appropriate, or that
other income of our affiliates should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and
penalties, which would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows.
Other taxes. We have operating subsidiaries or branches in other countries, including Australia, Brazil, Canada, China, Costa Rica,
the Czech Republic, Egypt, Germany, Guatemala, Hungary, Ireland, Israel, Japan, Malaysia, Mexico, the Netherlands, New Zealand,
Philippines, Poland, Romania, Singapore, Slovakia, South Africa, Turkey, United Kingdom and United States, as well as sales and marketing
subsidiaries in certain jurisdictions, including the United States and the United Kingdom, which are subject to tax in such jurisdictions.
In 2009, one of our subsidiaries in China obtained a ruling from the Government of China certifying it to be a Technologically
Advanced Service Enterprise. As a result, that subsidiary was subject to a lower corporate income tax rate of 15%, initially for a three-year
period that began in 2009, which has been extended through December 31, 2020. Our delivery centers also enjoy corporate tax holidays or
concessional tax rates in certain other jurisdictions, including the Philippines, Malaysia and Israel. These tax concessions will expire over the
next few years, possibly increasing our overall tax rate.
Our ability to repatriate surplus earnings from our foreign subsidiaries in a tax-efficient manner is dependent upon interpretations of
local laws, possible changes in such laws and the renegotiation of existing double tax avoidance treaties. Changes to any of these may adversely
affect our overall tax rate.
Tax audits. Our tax liabilities may also increase, including due to accrued interest and penalties, if the applicable income tax
authorities in any jurisdiction, during the course of any audits, were to disagree with any of our tax return positions. We have an indemnity
from GE for any additional taxes attributable to periods prior to December 30, 2004.
Tax losses and other deferred tax assets. Our ability to utilize our tax loss carry-forwards and other deferred tax assets and credits
may be affected if our profitability deteriorates or if new legislation is introduced that changes carry-forward or crediting rules. Additionally,
reductions in enacted tax rates may affect the value of our deferred tax assets and our tax expense.
Certain Acquisitions
From time to time we may make acquisitions or engage in other strategic transactions if suitable opportunities arise, and we may use
cash, securities, other assets or a combination thereof as consideration.
On December 31, 2020, we 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 $148.9
million. This amount represents cash consideration of $137.3 million, net of cash acquired of $11.6 million. This acquisition increases the scale
and depth of our data and analytics capabilities, enhancing our ability to accelerate the digital transformation journeys of our clients through
cloud technologies and advanced data analytics. Goodwill arising from the acquisition amounting to $86.7 million has been allocated among
our three reporting units as follows: Banking, Capital Markets and Insurance (“BCMI”) in the amount of $2.6 million, Consumer Goods,
Retail, Life Sciences and Healthcare (“CGRLH”) in the amount of $22.2 million and High Tech, Manufacturing and Services (“HMS”) in the
amount of $61.9 million, using a relative fair value allocation method. The goodwill arising from this acquisition is not deductible for income
tax purposes. The goodwill represents primarily the acquired capabilities, operating synergies and other benefits expected to result from
combining the acquired operations with our existing operations.
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On October 5, 2020, we 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 $57.5 million. This amount represents cash consideration of $56.1
million, net of cash acquired of $1.4 million. This acquisition supports our strategy to integrate experience and process innovation to help
clients on their digital transformation journeys and expands on our existing experience capabilities to support end-to-end digital commerce
solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expands our capabilities into Magento
Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based-ecommerce platform for high-volume merchants.
Goodwill arising from the acquisition amounting to $36.9 million has been allocated among two of our reporting units as follows: CGRLH in
the amount of $30.4 million and HMS in the amount of $6.5 million, using a relative fair value allocation method. Of the total goodwill arising
from this acquisition, $35.1 million is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities,
operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On November 12, 2019, we acquired 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 $270.7 million. This amount includes cash consideration of $268.2 million, net of cash acquired of $2.5 million.
This acquisition expands our capabilities in improving customer experience and strengthens our reputation as a thought leader in this space.
The securities purchase agreement 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 and receive consideration in cash 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 earnout
consideration with an estimated value of $21.5 million over the three-year rollover period which is included in the purchase consideration. The
amount of deferred consideration ultimately paid to the rollover sellers will be based on the future revenue multiple of the acquired business.
Goodwill arising from the acquisition amounting to $177.2 million has been allocated among our three reporting units as follows: BCMI in the
amount of $17.0 million, CGRLH in the amount of $43.o million and HMS in the amount of $117.2 million. Of the total goodwill arising from
this acquisition, $91.9 million is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities, operating
synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On January 7, 2019, we acquired 100% of the outstanding equity interests in riskCanvas Holdings, LLC, a Delaware limited liability
company, for total purchase consideration of $5.75 million. This amount includes cash consideration of $5.7 million, net of adjustment for
working capital. This acquisition expands our services in the areas of financial institution fraud, anti-money laundering and financial
transaction surveillance and enhances our consulting capabilities for clients in the financial services industry. Goodwill arising from the
acquisition amounted to $2.6 million, which has been allocated to our BCMI reporting unit and is deductible for income tax purposes. The
goodwill represents primarily the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired
operations with our existing operations.
New Bookings
New bookings is an operating or other statistical measure. We define new bookings as the total contract value of new client contracts
and certain changes to existing client contracts to the extent that such contracts represent incremental future revenue. In determining total
contract value for this purpose, we assume the minimum volume to which the client has committed or make a conservative projection where
the client has not made a minimum volume commitment. New bookings attributable to large deals may exclude a portion of the total contract
value above certain thresholds if the services are subject to certain contingencies, such as the establishment of new delivery centers or
regulatory or other approvals. Regular renewals of contracts with no change in scope, which we consider business as usual, are not included as
new bookings. We provide information regarding our new bookings because we believe doing so provides useful trend information regarding
changes in the volume of our new business and may be a useful metric as an indicator of future revenue growth potential. New bookings is also
used by management to measure our sales force productivity.
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The COVID-19 pandemic had an adverse impact on our 2020 total new bookings, leading to total new bookings for 2020 that were
lower than 2019. New bookings in 2020 were $3.1 billion, compared to $3.9 billion in 2019. There was strong momentum in Global Client new
bookings in the fourth quarter of 2020 as client decision cycles appeared to return to more normalized pre-COVID-19 levels. Transformation
services were embedded in 70% of our Global Client bookings in 2020, and deals with embedded transformation services made up the fastest
growing segment of our pipeline. GE bookings declined in 2020 due to the year-over-year impact of the large deals we signed with GE in 2018
and 2019.
New bookings can vary significantly year to year depending in part on the timing of signing of large contracts. The types of services
clients are demanding, the duration of the contract and the pace and level of client spending may impact the conversion of new bookings to
revenues. For example, Intelligent Operations bookings, which are typically multi-year contracts, generally convert to revenue over a longer
period of time compared to transformation services, which may include shorter cycle, project-based work.
Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time.
The calculation of new bookings involves estimates and judgments. There are no third-party standards or requirements governing the
calculation of new bookings. We do not update our new bookings for material subsequent terminations or reductions related to new bookings
originally recorded in prior fiscal years. New bookings are recorded using then-existing foreign currency exchange rates and are not
subsequently adjusted for foreign currency exchange rate fluctuations. Our revenues recognized each year will vary from the new bookings
value since new bookings is a snapshot measurement of a portion of the total client contract value at a given time.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies is included in Note 2—“Summary of significant accounting policies” to our
consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.” An accounting policy is deemed to be
critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate
is made and if changes in the estimate that are reasonably possible could materially impact the financial statements or require a higher degree
of judgment than others in their application. We base our estimates on historical experience, contractual commitments and on various other
assumptions that we believe to be reasonable under the circumstances and at the time they are made. We believe the following critical
accounting policies require a higher level of management judgment and estimates than others in preparing the consolidated financial
statements. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable. Although
these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.
Revenue recognition. We typically face a long selling cycle in securing a new customer. It is not unusual for us to spend twelve to
eighteen months or more from the time we begin actively soliciting a new customer until we begin to recognize revenues.
All costs we incur prior to signing a contract with a customer are expensed as incurred, except for any incremental and direct costs
incurred for acquiring the contracts, such as certain sales commissions to employees or third parties, which are classified as contract cost
assets and are amortized over the expected period of benefit. Contract acquisition fees or other upfront fees paid to a customer are classified as
contract assets which are amortized over the expected period of benefit and recorded as an adjustment to the transaction price.
Once a contract is signed, we defer revenues from the transition of services to our delivery centers, as well as the related cost of revenue
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.
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Our customer contracts sometimes also include incentive payments received for discrete benefits delivered or promised to be delivered
to customers or service level agreements that could result in credits or refunds to the customers. 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.
We include offerings such as sale of licenses in certain contracts, which may be perpetual or subscription-based. We recognize upfront
revenue from distinct perpetual licenses 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 when the license 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.
We price our services under a variety of arrangements, including time and materials, transaction-based and, to a lesser extent, fixed-
price contracts. When services are priced on a time-and-materials basis, we charge the customers based on full-time equivalent, or FTE, rates
for the personnel who will directly perform the services. The FTE rates are determined on a periodic basis, vary by category of service delivery
personnel and are set at levels to reflect all of our costs, including the cost of supervisory personnel, the allocable portion of other costs, and a
margin. In some cases, time-and-materials contracts are based on hourly rates of the personnel providing the services. We recognize revenues
when the promised services are delivered to customers for an amount that reflects the consideration to which we expect to be entitled in
exchange for those services. We accrue for revenue and unbilled receivables for services rendered between the last billing date and the balance
sheet date.
In transaction-based pricing, customers are charged a fixed fee per transaction, with the fee per transaction sometimes linked to the
total number of transactions processed. Some of our contracts give the customer the option to prospectively change from a time-and-materials
model to a transaction-based pricing model. Revenues from services rendered under time-and-material and transaction-based contracts are
recognized as the services are provided.
In the case of fixed-price contracts, including those for application development, maintenance and support services, revenues are
recognized ratably over the terms of the contracts.
We sometimes enter into multiple-element revenue arrangements in which a customer may purchase a combination of our services.
Revenue from multiple-element arrangements is recognized, for each element, based on an allocation of the transaction price to each
performance obligation on a relative standalone basis.
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.
Timing of revenue recognition may differ from the timing of invoicing. If we receive payment in respect of services prior to the delivery
of services, we recognize the payment as an advance from the customer, and it is classified as contract liability. When the related services are
performed, the advance becomes revenue to the extent the services are rendered.
59
Significant judgements involved include (a) determining whether services are considered distinct performance obligations that should
be accounted for separately rather than together where we enter into contracts with clients that include promises to transfer multiple products
and services, (b) determining the standalone selling price for each distinct performance obligation and (c) estimating credits or refunds to our
clients resulting from incentive payments received for discrete benefits delivered to clients or under service level agreements. In instances
where a standalone selling price for a performance obligation is not directly observable, we use information that may include market
conditions and other observable inputs. We estimate credit or refund amounts at contract inception and adjust them 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.
Business combinations. The application of business combination accounting requires the use of significant estimates and
assumptions. We account for business combinations using the acquisition method of accounting, 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. The
measurement of purchase price, including future contingent consideration, if any, and its allocation, requires significant estimates in
determining the fair values of assets acquired and liabilities assumed, including with respect to intangible assets and deferred and contingent
consideration. Significant estimates and assumptions we may make include, but are not limited to, the timing and amount of future revenue
and cash flows based on, among other things, anticipated growth rates, customer attrition rates, and the discount rate reflecting the risk
inherent in future cash flows.
Goodwill and other intangible assets. Goodwill represents the cost of acquired businesses in excess of the fair value of the
identifiable tangible and intangible net assets purchased. Goodwill is tested for impairment at least on an annual basis on December 31, or as
circumstances warrant based on a number of factors, including operating results, business plans and future cash flows. We perform 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 our assessment of events or circumstances, we
perform a quantitative assessment of goodwill impairment if it is determined that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. Based on the results of our assessments of qualitative factors, we determined that the fair values of all of
our reporting units are likely to be higher than their respective carrying amounts as of December 31, 2020 and December 31, 2019.
Prior to the fourth quarter of 2019, we had one reportable segment. To align with how our Chief Operating Decision Maker (CODM)
manages our business, including resource allocation and performance assessment, we realigned our business segments into the following
three reportable segments effective October 1, 2019: BCMI, CGRLH and HMS. See Note 10—“Goodwill and intangible assets” and Note 24
—“Segment reporting” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Goodwill has been allocated based on the relative fair value of each newly identified reporting unit. We tested goodwill for impairment both
prior to the change in reporting units and immediately thereafter for events and conditions identified in accordance with the guidance in ASC
350, “Intangibles—Goodwill and Other.” The fair value of our reporting units was calculated using a discounted cash flow model using
estimated future cash flows. The results of our evaluation demonstrated that the fair value of each reporting unit exceeded its book value as of
the date of the change in reporting units.
60
We capitalize certain software and technology 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) the 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.
We test our intangible assets for impairment whenever events occur or changes in circumstances indicate that the related carrying
amounts may not be recoverable. Determining whether we have incurred an impairment loss requires comparing the carrying amounts of the
assets to the sum of future undiscounted cash flows expected to be generated by the assets. When determining the fair value of our intangible
assets, we utilize various assumptions, including discount rates, estimated growth rates, economic trends and projections of future cash flows.
These projections also take into account factors such as the expected impact of new client contracts, expanded or new business from existing
clients, efficiency initiatives, and the maturity of the markets in which each of our businesses operates. We generally categorize intangible
assets acquired individually or with a group of other assets or in a business combination as customer-related, marketing-related, technology-
related, and other intangible assets. See Note 2—“Summary of significant accounting policies—Business combinations, goodwill and other
intangible assets” and Note 10—“Goodwill and intangible assets” to our consolidated financial statements under Part IV, Item 15—“Exhibits
and Financial Statement Schedules’’ for more information about how we value our intangible assets. Actual results may vary, and may cause
significant adjustments to the valuation of our assets in the future.
Derivative instruments and hedging activities. We enter into forward foreign exchange contracts to mitigate the risk of changes in
foreign exchange rates on intercompany transactions and forecasted transactions denominated in foreign currencies, and we enter into
interest rate swaps to mitigate interest rate fluctuation risk on our indebtedness. Most of these transactions meet the criteria for hedge
accounting as cash flow hedges under the Financial Accounting Standards Board, or FASB, guidance on Derivatives and Hedging.
With respect to derivatives designated as cash flow hedges, we formally document all relationships between hedging instruments and
hedged items, as well as our risk management objectives and strategy for undertaking various hedge transactions. In addition, we formally
assess, both at the inception of a hedge and on a quarterly basis, whether each derivative is highly effective in offsetting changes in fair values
or cash flows of the hedged item. If we determine that a derivative or a portion thereof is not highly effective as a hedge, or if a derivative
ceases to be a highly effective hedge, we prospectively discontinue hedge accounting with respect to that derivative instrument.
We recognize derivative instruments and hedging activities as either assets or liabilities and measure them at fair value in our
consolidated balance sheets. Changes in the fair values of these hedges are deferred and recorded as a component of other comprehensive
income (losses), net of tax, until the hedged transactions occur and are recognized in the Consolidated Statements of Income along with the
underlying hedged item and disclosed as a part of “Total net revenues,” “Cost of revenue,” “Selling, general and administrative expenses” and
“Interest expense,” as applicable.
We value our derivatives based on market observable inputs, including both forward and spot prices for currencies. Derivative assets
and liabilities included in Level 2 of the fair value hierarchy primarily represent foreign currency forward contracts. The quotes are taken from
independent sources and databases.
61
Income taxes. We account for income taxes using the asset and liability method. Under this method, income tax expense is recognized
for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their tax bases
and operating losses carried forward, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates or tax status is recognized in the statement of income in the period that includes the enactment date or the
filing or approval date of the tax status change. Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the
amount recognized to that which is more likely than not to be realized. In assessing the likelihood of realization, we consider estimates of
future taxable income. In the case of an entity that benefits from a corporate tax holiday, deferred tax assets or liabilities for existing
temporary differences are recorded only to the extent such temporary differences are expected to reverse after the expiration of the tax
holiday.
We also evaluate potential exposures related to tax contingencies or claims made by tax authorities in various jurisdictions and
determine if a reserve is required. A reserve is recorded if we believe that a loss is more likely than not to occur and the amount can be
reasonably estimated. Any such reserves are based on estimates and are subject to changing facts and circumstances considering the progress
of ongoing audits, case law and new legislation. We believe that the reserves we have established are adequate.
We apply a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining, based on the technical merits, that the position is more likely than not to be sustained upon examination. The
second step is to measure the tax benefit as the largest amount of the tax benefit that is greater than 50% likely of being realized upon
settlement. We also include interest and penalties related to unrecognized tax benefits within our provision for income tax expense.
We generally plan to indefinitely reinvest the undistributed earnings of foreign subsidiaries, except for those earnings that can be
repatriated in a tax-free manner. Accordingly, we do not currently accrue any material income, distribution or withholding taxes that would
arise if such earnings were repatriated.
Employee benefit plans. We record annual costs relating to defined benefit plans based on calculations that incorporate various
actuarial and other assumptions, including discount rates, mortality, assumed rates of return on plan assets, future compensation increases
and attrition rates. We review these assumptions on an annual basis and modify the assumptions based on current rates and trends when it is
appropriate to do so. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
Leases. At the inception of a contract, we assess whether the contract is, or contains, a lease. Our assessment is based on whether: (1)
the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all the economic benefit from the use of the
asset throughout the term of the contract, and (3) we have 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. The Company
adopted Accounting Standards Codification Topic 842, Leases (“Topic 842”), effective January 1, 2019 and applied Topic 842 using the
modified retrospective adoption approach. Leases entered into prior to January 1, 2019 have been accounted for under ASC 840 and were not
reassessed.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following
criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the
asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present
value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does
not meet any one of the above criteria.
62
For all leases, at the lease commencement date, a ROU asset and a lease liability are recognized. The lease liability represents the
present value of the lease payments under the lease. Lease liabilities are initially measured at the present value of the lease payments not yet
paid, discounted using the discount rate for the lease at lease commencement. The lease liabilities are subsequently measured on an amortized
cost basis. The lease liability is adjusted to reflect interest on the liability and the lease payments made during the period. Interest on the lease
liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability.
The ROU asset represents the right to use the leased asset for the lease term. The ROU asset for each lease initially includes the
amount of the initial measurement of the lease liability adjusted for any lease payments made to the lessor at or before the commencement
date, accrued lease liabilities and any lease incentives received or any initial direct costs incurred by us.
The ROU asset of finance leases is subsequently measured at cost, less accumulated amortization. The ROU asset of operating leases is
subsequently measured from the carrying amount of the lease liability at the end of each reporting period, and is therefore equal to the
carrying amount of lease liabilities adjusted for (1) unamortized initial direct costs, (2) prepaid/(accrued) lease payments and (3) the
unamortized balance of lease incentives received.
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.
We have elected not to separate lease and non-lease components for all of our leases, and leases with a lease term of 12 months or less
from the commencement date that do not contain a purchase option are recognized as an expense on a straight-line basis over the lease term.
Stock-based compensation expense. We recognize and measure compensation expense for all stock-based awards based on the grant
date fair value. For option awards, grant date fair value is determined under the option pricing model (Black-Scholes-Merton model) and, for
stock-based awards other than option awards, grant date fair value is determined on the basis of the fair market value of our shares on the
grant date of such awards. Determining the fair value of stock-based awards requires estimates and assumptions, including estimates of the
period the stock awards will be outstanding before they are exercised, future volatility in the price of our common shares, and the number of
stock-based awards that are likely to be forfeited. The Black-Scholes-Merton option pricing model also involves the use of additional key
assumptions, including dividend yield and risk-free interest rate. For performance share units, we are required to estimate the most probable
outcome of the performance conditions in order to determine the stock-based compensation cost to be recorded over the vesting period. We
periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results differ significantly from our
estimates, stock-based compensation expense and our results of operations could be materially affected.
Due to rounding, the numbers presented in the tables included in this Item 7—“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” may not add up precisely to the totals provided.
63
Results of Operations
For a discussion of our results of operations for the year ended December 31, 2018, including a year-to-year comparison between 2019
and 2018, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the year ended December 31, 2019.
The following table sets forth certain data from our income statement for the years ended December 31, 2019 and 2020:
Year ended December 31,
2019
2020
Percentage
change
Increase/
(Decrease)
2020 vs.
2019
Net revenues—Global Clients
Net revenues—GE
Total net revenues
Cost of revenue
Gross profit
Gross profit margin
Operating expenses
Selling, general and administrative expenses
Amortization of acquired intangible assets
Other operating (income) expense, net
Income from operations
Income from operations as a percentage of net revenues
Foreign exchange gains (losses), net
Interest income (expense), net
Other income (expense), net
Income before equity-method investment activity, net and
income tax expense
Equity-method investment activity, net
Income before income tax expense
Income tax expense
Net income
Net income as a percentage of net revenues
$
3,042.5 $
478.1
3,520.5
2,294.7
1,225.9
34.8%
794.9
32.6
(31.0)
429.4
12.2%
7.7
(43.5)
5.8
399.4
(0.0)
399.4
94.5
304.9
8.7%
3,250.5
458.9
3,709.4
2,418.1
1,291.2
34.8%
789.8
43.3
19.3
438.7
11.8%
7.5
(49.0)
3.2
400.5
-
400.5
92.2
308.3
8.3%
6.8 %
(4.0) %
5.4 %
5.4 %
5.3 %
(0.6) %
32.9 %
(162.3) %
2.2 %
(3.2) %
12.7 %
(44.0) %
0.3
%
(100.0) %
0.3 %
(2.5) %
1.1 %
Fiscal Year Ended December 31, 2020 Compared to the Fiscal Year Ended December 31, 2019
Net revenues. Our net revenues were $3,709.4 million in 2020, up $188.8 million, or 5.4%, from $3,520.5 million in 2019. The
growth in our net revenues was primarily driven by increases in both transformation services and intelligent operations delivered to Global
Clients, primarily in our CGRLH segment, high tech clients within our HMS segment and insurance clients within our BCMI segment. The
impact of the COVID-19 pandemic on our net revenues in 2020 was felt in all our businesses but was most pronounced in our BCMI segment
due to customer delays in approving work-from-home delivery of our services. Our overall business levels were impacted by the uncertain
economic environment, which caused delays or cancellations of new projects and new orders, negatively impacting our growth.
Adjusted for foreign exchange, primarily the impact of changes in the values of the euro, Australian dollar and Indian rupee against the
U.S. dollar, our net revenues grew 5.6% compared to 2019 on a constant currency basis. Revenue growth on a constant currency basis is a non-
GAAP measure. We provide information about our revenue growth on a constant currency basis so that our revenue may be viewed without
the impact of foreign currency exchange rate fluctuations compared to prior fiscal periods, thereby facilitating period-to-period comparisons
of our business performance. Total net revenues on a constant currency basis are calculated by restating current-period activity using the prior
fiscal period’s foreign currency exchange rates and adjusted for hedging gains/losses.
64
Our average headcount increased to approximately 96,700 in 2020 from approximately 91,300 in 2019.
Year ended December 31,
2019
2020
(dollars in millions)
Percentage
Change
Increase/
(Decrease)
2020 vs. 2019
Net revenues – Global Clients
Net revenues – GE
Total net revenues
3,042.5
478.1
3,520.5
3,250.5
458.9
3,709.4
$
$
$
$
6.8 %
(4.0) %
5.4 %
Net revenues from Global Clients in 2020 were $3,250.5 million, up $208.1 million, or 6.8%, from $3,042.5 million in 2019. This
increase was primarily driven by growth in services delivered to our clients in the CGRLH segment, high tech clients within our HMS segment
and insurance clients within our BCMI segment. As a percentage of total net revenues, net revenues from Global Clients increased from 86.4%
in 2019 to 87.6% in 2020.
Net revenues from GE were $458.9 million in 2020, down $19.2 million, or 4.0%, from 2019, mainly due to committed productivity
and the macroeconomic impact of the COVID-19 pandemic on GE’s business.
Revenues by segment were as follows:
BCMI
CGRLH
HMS
Others
Total net revenues
Year ended December 31,
2019
2020
(dollars in millions)
1,078.8
1,107.5
1,348.6
(14.5)
3,520.5
1,079.2
1,264.7
1,388.8
(23.3)
3,709.4
Percentage
Change
Increase/
(decrease)
2020 vs 2019
0.0%
14.2
3.0
-
5.4%
Net revenues from our BCMI segment were flat from 2019 to 2020, primarily due to an increase in revenue associated with the
continued ramp-up of large new deals, largely offset by a decrease in revenue due to delayed approvals from clients to shift to a virtual
operating environment. Net revenues from our CGRLH segment increased by 14.2% in 2020 compared to 2019, primarily driven by an
increase in transformation services revenues, including revenue from Rightpoint, which we acquired in the fourth quarter of 2019, as well as
the impact of new deals that ramped up during the year. Net revenues from our HMS segment increased by 3.0% in 2020 compared to 2019,
primarily driven by an increase in transformation services, including revenue from Rightpoint, partially offset by lower revenues from clients
most significantly impacted by COVID-19 pandemic, including clients in the travel and hospitality sectors. Net revenues from “Others”
primarily represents the impact of foreign exchange fluctuations, which is not allocated to our segments for management’s internal reporting
purposes. For additional information, see Note 24—“Segment reporting” to our consolidated financial statements under Part IV, Item 15
—“Exhibits and Financial Statement Schedules.”
Cost of revenue. Cost of revenue was $2,418.1 million in 2020, up $123.4 million, or 5.4%, from $2,294.7 million in 2019. The increase
in our cost of revenue was primarily due to (i) an increase in our operational headcount to support revenue growth, including in the number of
onshore personnel, related to large new deals and transformation services delivery as well as from the acquisition of Rightpoint, (ii) wage
inflation, (iii) a non-recurring employee severance charge related to our COVID-19 related restructuring plan (net of savings), and (iv) an
increase in depreciation expense due to the expansion of
65
certain existing facilities and the purchase/deployment of new assets, including technology-related intangible assets, and finance leases
entered into in 2020 or in late 2019. This increase was partially offset by (i) improved utilization of transformation services resources and (ii)
lower discretionary spending related to actions we took in response to the impact of the COVID-19 pandemic on our business in 2020
compared to 2019. For additional information, see Note 29—“Restructuring” to our consolidated financial statements under Part IV, Item 15
—“Exhibits and Financial Statement Schedules.”
Gross margin. Our gross margin was 34.8% in 2020, in line with 2019. The offsetting impact to gross margin includes a reduction
driven by (i) the impact of the COVID-19 pandemic resulting in lower utilization of intelligent operations resources due to certain clients
initially not approving work-from-home service delivery, primarily in our BCMI segment, (ii) a non-recurring charge related to retirement
fund assets in India, and (iii) a non-recurring restructuring charge related to employee severance, which was offset by improved operating
leverage in 2020 and a non-recurring charge recorded in 2019 related to a wealth management platform.
Selling, general and administrative (SG&A) expenses. SG&A expenses as a percentage of total net revenues decreased from 22.6% in
2019 to 21.3% in 2020. This decrease was primarily due to cost containment initiatives taken during 2020, including lower travel costs as a
result of the COVID-19 pandemic, and efficient functional spending in 2020 compared to 2019, partially offset by wage inflation in 202o
compared to 2019.
Amortization of acquired intangibles. Non-cash expenditures on account of amortization of acquired intangibles were $43.3 million
in 2020, up $10.7 million, or 32.9%, from $32.6 million in 2019. This increase is primarily due to higher amortization related to intangibles
acquired in relation to the Rightpoint acquisition in the fourth quarter of 2019, partially offset by the completion of the useful lives of
intangibles acquired in prior periods.
Other operating (income) expense, net. Other operating expense (net of income) was $19.3 million in 2020, compared to operating
income (net of expense) of $31.0 million in 2019. The operating expense (net of income) in 2020 was primarily related to a non-recurring
impairment charge of $32.2 million related to the abandonment of certain leased office premises and tangible and intangible assets, primarily
technology- and customer-related, partially offset by a $7.8 million decrease in the fair value of earn-out liabilities in 2020 compared to 2019.
In 2019, we recorded a gain of $31.4 million upon the transfer of land to a real estate developer in exchange for an interest in commercial
property being developed on the land, and no such gain was recorded in 2020.
Income from operations. Income from operations was $438.7 million in 2020, up 2.2%, or $9.3 million, from $429.4 million in
2019. As a result of the foregoing factors, income from operations as a percentage of total net revenues decreased from 12.2% in 2019 to 11.8%
in 2020.
Foreign exchange gains (losses), net. We recorded a net foreign exchange gain of $7.5 million in 2020, compared to a $7.7 million
gain in 2019. The gains in 2020 and 2019 resulted primarily from the depreciation of the Indian rupee against the U.S. dollar.
Interest income (expense), net. Our net interest expense was $49.0 million in 2020, up $5.5 million from $43.5 million in 2019,
primarily due to a $5.5 million increase in interest expense. The increase in interest expense was due to interest expense on our $400 million
aggregate principal amount of 3.375% senior notes issued in November 2019 (the “2019 Senior Notes”). This increase was partially offset by a
lower average London Interbank Offered Rate (“LIBOR”)-based rate on our revolving credit facility and term loan due to a decrease in the
average LIBOR rate in 2020 compared to 2019, reduced by lower gains on interest rate swaps in 2020 compared to 2019, which we discuss in
the section titled “Liquidity and
66
Capital Resources— Financial Condition” below. The weighted average rate of interest on our debt, including the net impact of interest rate
swaps, decreased from 3.3% in 2019 to 3.0% in 2020.
Other income (expense), net. Our other income (net of expense) was $3.2 million in 2020 compared to other income (net of expense)
of $5.8 in 2019. The 2020 gain primarily relates to a change in the fair value of the assets in our deferred compensation plan, while no such
gain was recorded in 2019. In 2019, we recognized $4.0 million of export subsidy income in India, while no such subsidy income was
recognized in 2020. The export subsidy was introduced under the Foreign Trade Policy of India to encourage the export of specified services
from India and was available for eligible export services through March 31, 2019.
Income tax expense. Our income tax expense decreased from $94.5 million in 2019 to $92.2 million in 2020. Our effective tax rate, or
ETR, was 23.0% in 2020, down from 23.7% in 2019. The decrease in our ETR is primarily due to certain discrete tax benefits recorded in 2020
and changes in the jurisdictional mix of our income.
Net income attributable to Genpact Limited common shareholders. As a result of the foregoing factors, net income attributable to
our common shareholders as a percentage of net revenues decreased from 8.7% in 2019 to 8.3% in 2020. Net income attributable to our
common shareholders increased by $3.4 million from $304.9 million in 2019 to $308.3 million in 2020.
Adjusted income from operations. Adjusted income from operations, or AOI, increased by $30.0 million from $558.8 million in 2019
to $588.8 million in 2020. AOI margin was flat at 15.9% in 2020 compared to 2019. The increase in AOI was due to an increase in revenues in
2020 compared to 2019, coupled with improved operating leverage and cost containment initiatives undertaken in 2020. These initiatives
included lower discretionary spending and targeted reductions in our workforce, including in our transformation services, to improve
utilization levels and align overall SG&A spending with revised revenue expectations in the context of the COVID-19 pandemic.
AOI is a non-GAAP measure and is 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 financial
measures used by other companies. We believe that presenting AOI together with our reported results can provide useful supplemental
information to our investors and management regarding financial and business trends relating to our financial condition and results of
operations. A limitation of using AOI versus net income calculated in accordance with GAAP is that AOI excludes certain recurring costs and
certain other charges, namely stock-based compensation and amortization of acquired intangibles. We compensate for this limitation by
providing specific information on the GAAP amounts excluded from AOI.
We calculate AOI as net income, excluding (i) stock-based compensation, (ii) amortization and impairment of acquired intangible
assets, (iii) acquisition-related expenses excluded in the period in which an acquisition is consummated, (iv) foreign exchange (gain)/loss, (v)
restructuring expenses, (vi) interest (income) expense and (vii) income tax expense, as we believe that our results after taking into account
these adjustments more accurately reflect our ongoing operations.
The following table shows the reconciliation of AOI to the most directly comparable GAAP measure for the years ended December 31,
2019 and 2020:
Net income attributable to Genpact Limited shareholders
Foreign exchange (gains) losses, net
Interest (income) expense, net
Income tax expense
Stock-based compensation
Amortization of acquired intangible assets
Acquisition-related expenses
Restructuring expenses
Adjusted income from operations
67
Year ended December 31,
2019
2020
(dollars in millions)
304.9
(7.7)
43.4
94.5
83.9
31.5
8.3
-
558.8
$
$
308.3
(7.5)
49.0
92.2
74.0
43.6
2.7
26.5
588.8
$
$
The following table sets forth our AOI by reportable business segment for the years ended December 31, 2019 and 2020:
BCMI
CGRLH
HMS
Others
Year ended December 31,
2019
2020
(dollars in millions)
116.0
161.5
238.1
43.2
132.9
197.2
244.2
14.5
Percentage Change
Increase/(Decrease)
2020 vs 2019
14.6%
22.1
2.5
(66.4)%
AOI of our BCMI segment increased to $132.9 million in 2020 from $116.0 million in 2019, primarily driven by more efficient
utilization of transformation resources, partially offset by lower revenues in 2020 compared to 2019 due to delayed work-from-home
approvals from certain clients and charges related to a write-down of certain technology assets that we no longer plan to utilize or develop due
to changing economic and operational conditions. AOI of our CGRLH segment increased to $197.2 million in 2020 from $161.5 million in
2019, primarily due to revenue growth in the segment, including the impact of the Rightpoint acquisition, more efficient utilization of
transformation resources and operating leverage. AOI of our HMS segment increased to $244.2 million in 2020 from $238.1 million in 2019,
primarily due to revenue growth in the segment, including the impact of the Rightpoint acquisition. AOI for “Others” in the table above
primarily represents the impact of foreign exchange fluctuations and over-absorption of overhead in 2020 and a gain of $31.4 million upon
the transfer of land in 2019 to a real estate developer in exchange for an interest in commercial property being developed on the land, the
impact of foreign exchange fluctuations, government incentives and over-absorption of overhead in 2019, none of which are allocated to any
individual segment for management’s internal reporting purposes. See Note 24—“Segment reporting” to our consolidated financial statements
under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Seasonality
Our financial results may vary from period to period. As a result of several factors, our revenues are typically higher in the third and
fourth quarters relative to the first two quarters of any given year. We generally find that demand for short-term IT projects, transformation
services and analytics services increases in the fourth quarter as our clients utilize the balance of their budgets for the year. In addition,
contracts for long-term IT Services and BPO engagements are often signed in the first and second quarters as clients begin new budget cycles.
Volumes under such contracts then increase in the latter part of the year as engagements ramp up. Additionally, demand for certain services,
such as collections and transaction processing, is often greater in the second half of the year as our clients’ volumes in such areas increase. In
2020, normal seasonal trends were disrupted beginning in the second quarter due to the COVID-19 pandemic. See the section titled “COVID-
19 Update” for more information.
The tables in Note 30—“Quarterly financial data (unaudited)” to our consolidated financial statements under Part IV, Item 15
—“Exhibits and Financial Statement Schedules” present unaudited quarterly financial information for each of our last eight fiscal quarters on
a historical basis. We believe the quarterly information set forth therein contains all adjustments necessary to fairly present such information.
The comparison of our results for the first quarter of 2020 with the fourth quarter of 2019 reflects the seasonal trends described above. The
results for any interim period are not necessarily indicative of the results that may be expected for the full year.
68
Statement of financial position
Key changes in our financial position during 2020
Set out below are the significant changes in our financial position from December 31, 2020 compared to December 31, 2019:
•
•
•
•
•
•
•
•
Prepaid expenses and other current assets, contract cost assets and other assets increased by $144.2 million
The increase in prepaid expenses and other current assets, contract cost assets and other assets was primarily due to increase in
tax payments, VAT recoverable, deferred billings, right-of-use assets under finance leases, changes in the fair value of deferred
compensation plan assets, and capitalization of fulfillment costs under contract cost assets in 2020 compared to 2019. This
increase was partially offset by lower contract assets and the receipt of an export subsidy in 2020 compared to 2019.
Net accounts receivable decreased by $33.2 million
The decrease in our accounts receivable was primarily driven by a decrease in days sales outstanding (DSO) in 2020 compared to
2019.
Goodwill and intangible assets increased by $127.1 million
Goodwill increased by $121.2 million, primarily due to goodwill arising out of the acquisitions of SomethingDigital.Com LLC and
Enquero, Inc. in 2020. Our intangible assets increased by $5.9 million due to these acquisitions, partially offset by amortization
and impairment expenses. See Note 10—“Goodwill and intangible assets” to our consolidated financial statements under Part IV,
Item 15—“Exhibits and Financial Statement Schedules.”
Operating lease right-of-use assets decreased by $26.1 million
This decrease in operating lease right-of-use assets was primarily due to an amortization expense and impairment charge in 2020,
partially offset by additional leases entered into or acquired in 2020. See Note 12—“Leases” and Note 29—“Restructuring” to our
consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Operating lease liability decreased by $13.9 million
This decrease in operating lease liability was primarily due to payments made toward such liabilities in 2020, partially offset by
additional leases entered into or acquired in 2020.
Accounts payable, accrued expenses other current liabilities and other liabilities increased by $144.3 million
This increase is primarily due to an increase in statutory liabilities, finance lease liability, employee related accruals, contract
liabilities, and higher mark-to-market losses on derivative financial instruments in 2020, partially offset by a decrease in accounts
payable, accrued expenses and earn-out consideration. See Note 6—“Fair Value Measurements” and Note 25—“Net revenues—
Contract balances” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement
Schedules.”
Short-term borrowings increased by $180.0 million
The increase in short-term borrowings was due to the drawdown of funds for acquisitions consummated in 2020. See Note 15
—“Short-term borrowings” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement
Schedules” for additional information.
Long-term debt decreased by $32.4 million
The decrease in long-term debt was due to principal repayments in 2020. For additional information, see Note 14—“Long-term
debt” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
69
•
Net deferred tax assets increased by $19.4 million
Our net deferred tax assets increased by $19.4 million. See Note 23—“Income taxes” to our consolidated financial statements
under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Liquidity and Capital Resources
Overview
Information about our financial position as of December 31, 2019 and 2020 is presented below:
As of December 31,
As of December 31,
2019
2020
Percentage Change
Increase/(Decrease)
2020 vs. 2019
Cash and cash equivalents
Short-term borrowings
Long-term debt due within one year
Long-term debt other than the current
portion
Genpact Limited total shareholders’
equity
Financial Condition
$
(dollars in millions)
467.1
70.0
33.5
$
1,339.8
$
1,689.2
$
680.4
250.0
33.5
1,307.4
1,834.2
45.7 %
257.1
-
(2.4)
8.6 %
We have historically financed our operations and our expansion, including acquisitions, with cash from operations and borrowing
facilities.
As of December 31, 2020, $666.1 million of our $680.4 million in cash and cash equivalents was held by our foreign (non-Bermuda)
subsidiaries. $12.2 million of this cash is held by foreign subsidiaries for which we expect to incur and have accrued a deferred tax liability on
the repatriation of $16.4 million of retained earnings. $653.8 million of the cash and cash equivalents is either held as retained earnings by
foreign subsidiaries in jurisdictions where no tax is expected to be imposed upon repatriation or is being indefinitely reinvested.
In February 2019, our board of directors approved a 13% increase in our quarterly cash dividend from a $0.075 per share quarterly
dividend in 2018 to $0.085 per common share, representing an annual dividend of $0.34 per common share, up from $0.30 per share in
2018. On each of March 20, 2019, June 21, 2019, September 20, 2019 and December 18, 2019, we paid dividends of $0.085 per share,
amounting to $16.1 million, $16.2 million, $16.2 million and $16.2 million in the aggregate, to shareholders of record as of March 8, 2019,
June 12, 2019, September 11, 2019 and December 9, 2019, respectively.
In February 2020, our board of directors approved a 15% increase in our quarterly cash dividend from a $0.085 per share quarterly
dividend in 2019 to $0.0975 per common share, representing an annual dividend of $0.39 per common share, up from $0.34 per share in
2019. On each of March 18, 2020, June 26, 2020, September 23, 2020 and December 23, 2020, we paid dividends of $0.0975 per share,
amounting to $18.5 million, $18.6 million, $18.6 million and $18.4 million in the aggregate, to shareholders of record as of March 9, 2020,
June 11, 2020, September 11, 2020 and December 9, 2020, respectively.
In February 2021, our board of directors approved a 10% increase in our quarterly cash dividend from a $0.0975 per share quarterly
dividend in 2020 to $0.1075 per common share, representing a planned annual dividend of $0.43 per common share for 2021, up from $0.39
per share in 2020. Any future dividends will be at the discretion of our board of directors and subject to Bermuda and other applicable laws.
The total authorization under our existing share repurchase program as of December 31, 2020 was $1,250.0 million, of which $137.0
million remained available as of that date. Since our share repurchase program was initially authorized in February 2015, we have
repurchased 40,809,515 of our common shares
70
at an average price of $27.27 per share, for an aggregate purchase price of $1,113.0 million. This amount includes shares repurchased under
our 2017 accelerated share repurchase program. In February 2021, our board of directors authorized a $500 million increase to our existing
$1,250.0 million share repurchase program, bringing the total authorization under our existing share repurchase program to $1,750.0 million.
During the years ended December 31, 2019 and 2020, we repurchased 766,154 and 3,412,293 of our common shares, respectively, on
the open market at a weighted average price of $39.16 and $40.16 per share, respectively, for an aggregate purchase price of $30.0 million and
$137.0 million, respectively. All repurchased shares have been retired.
For additional information, see Note 19—“Capital stock” to our consolidated financial statements under Part IV, Item 15—“Exhibits
and Financial Statement Schedules.”
We expect that in the future our cash from operations, cash reserves and debt capacity will be sufficient to finance our operations, our
growth and expansion plans, dividend payments and additional share repurchases we may make under our share repurchase program.
However, there is no assurance that the impacts we have experienced to date, and any future impact we may experience, from the COVID-19
pandemic will not have an adverse effect on our cash flows. In addition, we may raise additional funds through public or private debt or equity
financings. Our working capital needs are primarily to finance our payroll and other administrative and information technology expenses in
advance of the receipt of accounts receivable. Our primary capital requirements include opening new delivery centers, expanding existing
operations to support our growth, financing acquisitions and enhancing capabilities, including building digital solutions.
Cash flows from operating, investing and financing activities, as reflected in our consolidated statements of cash flows, are summarized
in the following table:
Net cash provided by (used for)
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and
cash equivalents
$
$
Year ended December 31,
2019
2020
(dollars in millions)
Percentage Change
Increase/(Decrease)
2020 vs. 2019
427.9 $
(357.1)
39.6
584.3
(266.4)
(92.0)
110.4 $
225.9
36.6 %
(25.4)
(332.1)
104.6 %
Cash flows from operating activities. Net cash provided by operating activities was $584.3 million in 2020, compared to $427.9
million in 2019. This increase is primarily due to (i) a $3.4 million increase in net income in 2020 compared to 2019, (ii) an $89.4 million
increase in non-cash expenses, primarily due to the write-down of operating lease right-of-use assets and other assets as part of our
restructuring plan related to the COVID-19 pandemic, higher write-downs of intangible assets and property, plant and equipment, higher
depreciation and amortization, a lower gain on exchange of non-monetary assets and increased unrealized losses on the revaluation of foreign
currency assets/liabilities, partially offset by lower stock-based compensation expenses in 2020 compared to 2019, and (iii) a $63.6 million
decrease in operating assets and liabilities driven by a decrease in days sales outstanding (DSO), an increase in customer advances, higher
employee-related accruals, and lower payments toward statutory liabilities (payroll taxes) in 2020 compared to 2019 due to the Coronavirus
Aid, Relief and Economic Security Act, partially offset by higher annual performance bonus payments, lower realization of subsidies and a tax
deposit made in 2020 in connection with a 2013 Indian tax matter which is discussed in Note 28—“ Commitments and contingencies” to our
consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules” and under Item 1A—“Risk Factors—
Tax matters may have an adverse effect on our business, results of operations, effective tax rate and financial condition.”
Cash flows from investing activities. Our net cash used for investing activities was $266.4 million in 2020, down $90.7 million from
$357.1 million in 2019. We made payments of $186.6 million in the aggregate related to acquisitions in 2020 compared to payments of $252.3
million in 2019. Payments for
71
acquired/internally generated intangible assets and purchases of property, plant and equipment (net of sales proceeds) were $27.2 million
lower in 2020 than in 2019.
Cash flows from financing activities. Our net cash used for financing activities was $92.0 million in 2020, compared to net cash
provided by financing activities of $39.6 million in 2019. In 2019, we issued $400.0 million aggregate principal amount of 3.375% senior
notes in an underwritten public offering. We received proceeds from short-term borrowings (net of repayments) of $180.0 million in 2020
compared to the repayment of short-term borrowings (net of proceeds) of $225.0 million in 2019. For additional information, see Notes 14
—“Long-term debt” and 15—“Short-term borrowings” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial
Statement Schedules.” Additionally, payments in connection with the net settlement of common shares under stock-based compensation
plans were $34.1 million in 2020 compared to $3.9 million in 2019. Payments for share repurchases (including expenses related to
repurchases) were $137.1 million in 2020, compared to $30.0 million in 2019. Payments for dividends were $74.2 million in 2020, compared
to $64.7 million in 2019.
Financing Arrangements (Credit Facility)
In August 2018, we amended our 2015 credit facility, which was comprised of a term loan of $800.0 million and a revolving credit
facility of $350.0 million. The amended facility is comprised of a $680.0 million term loan, which represents the outstanding balance under
the 2015 facility as of the date of amendment, and a $500.0 million revolving credit facility. The amended facility expires on August 8, 2023.
The amendment did not result in a substantial modification of $550.8 million of the outstanding term loan under the 2015 facility. Further, as
a result of the amendment, we extinguished $129.2 million of the outstanding term loan under the 2015 facility and obtained additional
funding of $129.2 million from a different lender, resulting in no change to the outstanding principal of the term loan under the amended
facility. In connection with the amendment, we expensed $2.0 million, representing partial acceleration of the amortization of the existing
unamortized debt issuance costs and an additional fee paid to our lenders related to the term loan.
The overall borrowing capacity under the revolving facility increased from $350.0 million to $500.0 million. The remaining
unamortized costs and an additional third party fee paid in connection with the amendment will be amortized over the term of the amended
facility, which expires on August 8, 2023. For additional information, see Notes 14—“Long-term debt” and 15—“Short-term borrowings” to our
consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Borrowings under the amended facility bear interest at a rate equal to, at our election, either LIBOR plus an applicable margin equal to
1.375% per annum, compared to a margin of 1.50% under the 2015 facility, or a base rate plus an applicable margin equal to 0.375% per
annum, compared to a margin of 0.50% under the 2015 facility, in each case subject to adjustment based on our credit ratings assigned by
Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. Based on our election and current credit rating, the applicable interest
rate is equal to LIBOR plus 1.375% per annum. The amended credit agreement restricts certain payments, including dividend payments, if
there is an event of default under the credit agreement or if we are not, or after making the payment would not be, in compliance with certain
financial covenants contained in the amended credit agreement, including maintenance of a net debt to EBITDA leverage ratio of below 3x
and an interest coverage ratio of more than 3x. During the year ended December 31, 2020, we were in compliance with the terms of the
amended credit agreement, including the financial covenants therein. Our retained earnings are not subject to any restrictions on availability
to make dividend payments to shareholders, subject to compliance with the financial covenants described above.
As of December 31, 2019 and December 31, 2020, our outstanding term loan, net of debt amortization expense of $1.6 million and $1.2
million, respectively, was $627.4 million and $593.9 million, respectively.
We also have fund-based and non-fund based credit facilities with banks, which are available for operational requirements in the form
of overdrafts, letters of credit, guarantees and short-term loans. As of December 31, 2019 and December 31, 2020, the limit available under
such facilities was $14.3 million, of which $7.5 million and $7.8 million, respectively, was utilized, constituting non-funded drawdown. As of
December 31, 2019 and December 31, 2020, a total of $72.1 million and $252.3 million, respectively, of our
72
revolving credit facility was utilized, of which $70.0 million and $250.0 million, respectively, constituted funded drawdown, and $2.1 and
$2.3 million, respectively, constituted non-funded drawdown.
We have entered into interest rate swaps under which we receive floating rate payments based on the greater of LIBOR and the floor
rate under our term loan and make payments based on a fixed rate. As of December 31, 2020, we were party to interest rate swaps covering a
total notional amount of $488.0 million. Under our swap agreements, the rate that we pay to banks in exchange for LIBOR ranges between
0.38% and 2.65%.
In November 2019, we issued $400.0 million aggregate principal amount of 3.375% senior notes (the “2019 Senior Notes”) in an
underwritten public offering, resulting in cash proceeds of $398.3 million after an underwriting fee of $1.6 million, reflecting a $0.1 million
discount. In March 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes (the “2017 Senior Notes” and together
with the 2019 Senior Notes, the “Senior Notes”) in a private offering, resulting in cash proceeds of $348.5 million after an underwriting fee of
$1.5 million. In connection with the Senior Note offerings, there were other debt issuance costs of $1.24 million related to the 2019 Senior
Notes and $1.16 million related to the 2017 Senior Notes. Total debt issuance costs of $2.6 million and $2.9 million incurred in connection
with the 2017 Senior Notes and 2019 Senior Notes, respectively, are being amortized over the lives of the Senior Notes as additional interest
expense. As of December 31, 2019 and 2020, the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of $1.2
million and $0.7 million, respectively, was $348.8 million and $349.3 million, respectively, which is payable on April 1, 2022. As of December
31, 2019 and 2020, the amount outstanding under the 2019 Senior Notes, net of debt amortization expense of $2.9 million and $2.3 million,
was $397.1 million and $397.7 million, respectively, which is payable on December 1, 2024. We will pay interest on the 2017 Senior Notes
semi-annually in arrears on April 1 and October 1 of each year and on the 2019 Senior Notes semi-annually in arrears on June 1 and December
1 of each year, ending on the maturity dates of April 1, 2022 and December 1, 2024, respectively.
In connection with the 2017 Senior Notes, we entered into a registration rights agreement with the initial purchasers of the
outstanding unregistered notes pursuant to which we agreed to complete an exchange offer within 455 days after the date of the private
offering upon terms identical in all material respects to the terms of the outstanding unregistered notes, except that the transfer restrictions,
registration rights and additional interest provisions applicable to the outstanding unregistered notes would not apply to the exchange notes.
On July 24, 2018, the unregistered notes exchange offer was completed and all outstanding unregistered notes were exchanged for freely
tradable notes registered under the Securities Act of 1933, as amended. At our option, we may redeem the Senior Notes at any time in whole or
in part, at a redemption price equal to (i) 100% of the principal amount of the Senior Notes redeemed, together with accrued and unpaid
interest on the redeemed amount, or (ii) if the redemption occurs prior to, in the case of the 2017 Senior Notes, March 1, 2022, and in the case
of the 2019 Senior Notes, November 1, 2024, a specified “make-whole” premium. The Senior Notes are subject to certain customary
covenants, including limitations on our ability and certain of our subsidiaries to incur debt secured by liens, engage in certain sale and
leaseback transactions and consolidate, merge, convey or transfer their assets, and during the year ended December 31, 2020, we and our
applicable subsidiaries were in compliance with the covenants. For additional information, see Notes 14 and 15—“Long-term debt” and “Short-
term borrowings” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement Schedules.”
Goodwill Impairment Testing
Goodwill of a reporting unit is tested for impairment at least annually and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In accordance with ASU 2011-08,
we have an option to perform an assessment of qualitative factors, including but not limited to macro-economic conditions, industry and
market considerations, overall financial performance, business plans and expected future cash flows, to determine whether events or
circumstances exist which lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount.
73
Based on our assessment of such qualitative factors, in accordance with ASU 2011-08, we concluded that as of December 31, 2020 and
December 31, 2019, the fair values of all of our reporting units are likely to be higher than their respective carrying values.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of foreign exchange contracts. For additional information, see Item 1A—“Risk Factors—
Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the euro and the U.S. dollar,
could have a material adverse effect on our business, results of operations and financial condition,” the section titled “Contractual Obligations”
below, and Note 7—“Derivative financial instruments” to our consolidated financial statements under Part IV, Item 15—“Exhibits and
Financial Statement Schedules.”
Contractual Obligations
The following table sets forth our total future contractual obligations as of December 31, 2020:
Total
Less than
1 year
1-3 years
3-5 years
After 5 years
(dollars in millions)
Long-term indebtedness
— Principal payments
— Interest payments*
Short-term borrowings
— Principal payments
— Interest payments**
Finance leases
— Principal payments
— Interest payments
Operating leases
— Principal payments
— Interest payments
Purchase obligations
Capital commitments net of advances
Earn-out consideration
— Reporting date fair value
— Interest
Other liabilities
Total contractual obligations
$
$
1,436.6
1,340.9
95.7
251.2
250.0
1.2
51.8
49.1
2.7
437.6
345.9
91.7
28.7
5.1
9.5
8.3
1.2
112.9
2,333.4
68.9
33.5
35.4
251.2
250.0
1.2
19.6
18.1
1.5
78.2
56.5
21.7
25.5
5.1
3.4
2.7
0.7
53.1
505.0
956.5
909.7
46.8
—
—
—
27.3
26.3
1.0
142.1
114.4
27.7
3.2
—
6.1
5.6
0.5
59.7
1,194.9
411.2
397.7
13.5
—
—
—
4.9
4.7
0.2
99.7
80.3
19.4
—
—
—
—
—
0.1
515.9
—
—
—
—
—
—
—
—
—
117.6
94.7
22.9
—
—
—
—
—
—
117.6
*
**
Our interest payments on long-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of
1.375% per annum as of December 31, 2020, which excludes the impact of interest rate swaps. Interest payments on long-term debt
also include interest on our 2017 and 2019 Senior Notes at a rate of 3.70% per annum and 3.375% per annum, respectively, which is
not based on LIBOR.
Our interest payments on short-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of
1.375% per annum as of December 31, 2020 and our expectation for the repayment of such debt.
74
Supplemental Guarantor Financial Information
As discussed in Note 14, “Long-term debt,” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial
Statement Schedules”, Genpact Luxembourg S.à r.l. (the “Issuer”), a wholly owned subsidiary of Genpact Limited (the “Guarantor”), issued
the Senior Notes. As of December 31, 2020, the outstanding balance for the 2017 Senior Notes and the 2019 Senior Notes was $349.3 million
and $397.7 million, respectively. Each issuance of Senior Notes was fully and unconditionally guaranteed by the Guarantor. The other
subsidiaries of the Guarantor do not guarantee the Senior Notes (such subsidiaries are referred to as the “non-Guarantors”).
The Guarantor has fully and unconditionally guaranteed (i) that the payment of the principal, premium, if any, and interest on the
Senior Notes shall be promptly paid in full when due, whether at stated maturity of the Senior Notes, by acceleration, redemption or
otherwise, and that the payment of interest on the overdue principal and interest on the Senior Notes, if any, if lawful, and all of our other
obligations to the holders of the Senior Notes or the trustee under the Senior Notes shall be promptly paid in full or performed, and (ii) in case
of any extension of time of payment or renewal of any Senior Notes or any of such other obligations, that the same shall be promptly paid in
full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
With respect to the Senior Notes, failing payment by the Issuer when due of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Guarantor shall be obligated to pay the same immediately. The Guarantor has agreed that this is a guarantee of payment
of the Senior Notes and not a guarantee of collection.
The following tables present summarized financial information for the Issuer and the Guarantor on a combined basis after elimination
of (i) intercompany transactions and balances among the Issuer and the Guarantor and (ii) equity in earnings from and investments in any
subsidiary that is a non-Guarantor.
Summarized Statements of Income
Net revenues
Gross profit
Net income
Year ended
December 31,
2019
Year ended
December 31,
2020
(dollars in millions)
$
$
59.7
59.7
44.0
69.5
69.5
672.2
Below is a summary of transactions with non-Guarantors included in the summarized statement of income above:
Royalty income
Interest income (expense), net
Other cost, net
Gain on sale of intellectual property
Year ended
December 31,
2019
Year ended
December 31,
2020
(dollars in millions)
$
$
59.7
54.7
22.0
-
69.5
49.2
31.5
650.0
75
Summarized Balance Sheets
Assets
Current assets
Non-current assets
Liabilities and equity
Current liabilities
Non-current liabilities
As of
December 31,
2019
As of
December 31,
2020
(dollars in millions)
$
$
1,062.9 $
785.2
2,152.5 $
1,333.6
1,039.2
580.0
2,345.8
1,329.6
Below is a summary of the balances with non-Guarantors included in the summarized balance sheets above:
Assets
Current assets
Accounts receivable, net
Loans receivable
Others
Non-current assets
Investment in debentures/bonds
Loans receivable
Others
Liabilities
Current liabilities
Loans payable
Others
Non-Current liabilities
Loans payable
As of
December 31,
2019
(dollars in millions)
As of
December 31,
2020
$
$
$
$
84.8 $
788.4
175.8
595.0 $
100.0
89.5
86.9
674.3
246.7
501.2
-
64.2
1,976.1 $
158.2
2,150.7
175.8
500.0 $
500.0
The Senior Notes and the related guarantees rank pari passu in right of payment with all senior and unsecured debt of the Issuer and
the Guarantor and rank senior in right of payment to all of the Issuer’s and the Guarantor’s future subordinated debt. The Senior Notes are
effectively subordinated to all of the Issuer’s and the Guarantor’s existing and future secured debt to the extent of the value of the assets
securing such debt. The Senior Notes are structurally subordinated to all of the existing and future debt and other liabilities of the Guarantor’s
subsidiaries (other than the Issuer), including the liabilities of certain subsidiaries pursuant to our senior credit facility. The non-Guarantors
are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the Senior Notes or to
make the funds available to pay those amounts, whether by dividend, distribution, loan or other payment. If the Issuer or the Guarantor have
any right to receive any assets of any of the non-Guarantors upon the insolvency, liquidation, reorganization, dissolution or other winding-up
of any non-Guarantor, all of that non-Guarantor’s creditors (including trade creditors) would be entitled to payment in full out of that non-
Guarantor’s assets before the holders of the Senior Notes would be entitled to any payment. Claims of holders of the Senior Notes are
structurally subordinated to the liabilities of certain non-Guarantors pursuant to their liabilities under our senior credit facility.
76
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
For a description of recently adopted accounting pronouncements, see Note 2—“Summary of significant accounting policies—Recently
issued accounting pronouncements” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement
Schedules” and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical
Accounting Policies and Estimates” in this Annual Report on Form 10-K.
For a description of recently issued accounting pronouncements, see Note 2—“Summary of significant accounting policies—Recently
issued accounting pronouncements” to our consolidated financial statements under Part IV, Item 15—“Exhibits and Financial Statement
Schedules” in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign currency risk
Our exposure to market risk arises principally from exchange rate risk. A substantial portion of our revenues (79% in fiscal 2020) is
received in U.S. dollars. We also receive revenues in Japanese yen, euros, U.K. pounds sterling, Australian dollars, Chinese renminbi and
Indian rupees. Our expenses are primarily in Indian rupees and we also incur expenses in U.S. dollars, Chinese renminbi, euros and the
currencies of the other countries in which we have operations. Our exchange rate risk arises from our foreign currency revenues, expenses,
receivables and payables. Based on the results of our European operations for fiscal 2020, and excluding any hedging arrangements that we
had in place during that period, a 5.0% appreciation or depreciation of the euro against the U.S. dollar would have increased or decreased, as
applicable, our revenues in fiscal 2020 by $4 million. Similarly, excluding any hedging arrangements that we had in place during that period, a
5.0% depreciation of the Indian rupee against the U.S. dollar would have decreased our expenses incurred and paid in Indian rupees in fiscal
2020 by $43.0 million. Conversely, a 5.0% appreciation of the Indian rupee against the U.S. dollar would have increased our expenses
incurred and paid in rupees in fiscal 2020 by $48.0 million.
We have sought to reduce the effect of any Indian rupee-U.S. dollar, Philippine Peso-U.S. dollar, Chinese renminbi-Japanese yen,
euro-Romanian leu, Mexican peso-U.S. dollar, Hungarian forint-U.S. dollar and certain other local currency exchange rate fluctuations on our
results of operations by purchasing forward foreign exchange contracts to cover a portion of our expected cash flows and accounts receivable.
These instruments typically have maturities of zero to sixty months. We use these instruments as economic hedges and not for speculative
purposes, and most of them qualify for hedge accounting under the FASB guidance on derivatives and hedging. Our ability to enter into
derivatives that meet our planning objectives is subject to the depth and liquidity of the market for such derivatives. In addition, the laws of
China, India Philippines and Romania limit the duration and amount of such arrangements. We may not be able to purchase contracts
adequate to insulate us from Indian rupee-U.S. dollar, Chinese renminbi-Japanese yen, Philippines peso–U.S. dollar, Romanian leu–euro
foreign exchange currency risks. In addition, any such contracts may not perform adequately as hedging mechanisms. See Item 7
—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Foreign exchange gains (losses), net.”
Interest rate risk
Our exposure to interest rate risk arises principally from interest on our indebtedness. As of December 31, 2020, we had $1,590.9
million of indebtedness, comprised of (a) $593.9 million of indebtedness under our credit facility, comprised of a long-term loan of $595
million, net of $1.1 million in unamortized debt issuance expenses, and a revolving loan of $250 million, (b) $349.3 million in indebtedness
under our 3.70% senior notes issued in March 2017, net of $0.7 million in unamortized bond issuance expenses, and (c) $397.7 million in
indebtedness under our 3.375% senior notes issued in November 2019, net of $2.3 million in unamortized bond issuance expenses. Interest on
indebtedness under our credit facility is variable based on LIBOR, and we are subject to market risk from changes in interest rates.
Borrowings under our credit facility bear interest at floating rates based on LIBOR, but in no event less than the floor rate of 0.0% plus an
applicable margin. Based on our indebtedness as of December 31, 2020, a 1% change in interest rates, including the impact on the cost of our
interest rate
77
swaps, would have had a $4.0 million impact on our net interest expense in fiscal 2020. Additionally, the interest rates on our Senior Notes
are subject to adjustment based on the ratings assigned by Moody’s and S&P to the notes from time to time. A decline in such ratings could
result in an increase of up to 2% in the rate of interest on the Senior Notes. For fiscal 2020, such an increase would have had an impact of up
to $15.0 million on our net interest expense.
We manage a portion of our interest rate risk related to floating rate indebtedness by entering into interest rate swaps under which we
receive floating rate payments based on the greater of LIBOR and the floor rate under our term loan and make payments based on a fixed rate.
As of December 31, 2020, we were party to interest rate swaps covering a total notional amount of $488.0 million. Under our swap
agreements, the rate that we pay to banks in exchange for LIBOR ranges between 0.38% and 2.65%.
Credit risk
As of December 31, 2020, we had accounts receivable, including deferred billings, net of allowance for credit losses, of $906.4 million.
$137.6 million of this amount was owed by GE, and the balance, or $768.8 million, was owed by Global Clients. No single Global Client owed
more than 10% of our accounts receivable balance as of December 31, 2020.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are listed in Part IV, Item 15—“Exhibits and Financial
Statement Schedules” in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
Disclosure controls and procedures are the Company’s controls and other procedures which are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, or the Exchange Act, is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule
13a-15(b). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.
Management’s Report on Internal Control Over Financial Reporting
Genpact’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures
that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
78
(ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance
with the authorization of management and/or our Board of Directors; and
(iii) provide reasonable assurance regarding the prevention or timely detection of any unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Due to its inherent limitations, including that it relies on sample-based testing, internal control over financial reporting may not
prevent or detect misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on
its evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
During the year 2020, we acquired Enquero, Inc. and certain affiliated entities and SomethingDigital.Com LLC, and management
excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020,
Enquero, Inc.’s and certain affiliated entities’ and SomethingDigital.Com LLC’s internal control over financial reporting associated with total
assets of $230,184 thousand (of which $197,394 thousand represents goodwill and intangible assets included within the scope of the
assessment) and total net revenues of $3,933 thousand included in the consolidated financial statements of the Company as of and for the
year ended December 31, 2020.
79
KPMG Assurance and Consulting Services LLP, an independent registered public accounting firm, has audited the consolidated
financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein,
on the effectiveness of our internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” on page
F-5.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the quarterly period ended December 31, 2020 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information about our executive officers is contained in the section titled “Information about our executive officers” in Part I of this
Annual Report on Form 10-K. The other information required by this Item will be included in our Proxy Statement for the 2021 Annual
General Meeting of Shareholders under the captions “Director Nominees,” “Corporate Governance,” and “Delinquent Section 16(a) Reports,”
which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020 and is incorporated by
reference in this report.
Item 11. Executive Compensation
The information required by this Item will be included in our Proxy Statement for the 2021 Annual General Meeting of Shareholders
under the caption “Executive Officer Compensation,” which will be filed with the SEC no later than 120 days after the close of the fiscal year
ended December 31, 2020 and is incorporated by reference in this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be included in our Proxy Statement for the 2021 Annual General Meeting of Shareholders
under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity
Compensation Plans,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020 and is
incorporated by reference in this report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be included in our Proxy Statement for the 2021 Annual General Meeting of Shareholders
under the captions “Certain Relationships and Related Party Transactions” and “Director Independence,” which will be filed with the SEC no
later than 120 days after the close of the fiscal year ended December 31, 2020 and is incorporated by reference in this report.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be included in our Proxy Statement for the 2021 Annual General Meeting of Shareholders
under the caption “Independent Registered Public Accounting Firm Fees and Other Matters,” which will be filed with the SEC no later than
120 days after the close of the fiscal year ended December 31, 2020 and is incorporated by reference in this report.
80
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Documents filed as part of this Annual Report on Form 10-K:
1.
Consolidated Financial Statements
The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1
hereof. The required financial statements appear on pages F-7 through F-74 hereof.
2.
Financial Statement Schedules
Separate financial statement schedules have been omitted either because they are not applicable or because the required
information is included in the consolidated financial statements.
3.
Exhibit Index:
Description
Memorandum of Association of the Registrant (incorporated by reference to Exhibit 3.1 to Amendment No. 2 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-142875) filed with the SEC on July 16, 2007).
Bye-laws of the Registrant (incorporated by reference to Exhibit 3.3 to Amendment No. 4 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-142875) filed with the SEC on August 1, 2007).
Form of specimen certificate for the Registrant’s common shares (incorporated by reference to Exhibit 4.1 to Amendment No. 4
of the Registrant’s Registration Statement on Form S-1 (File No. 333-142875) filed with the SEC on August 1, 2007).
Base Indenture, dated as of March 27, 2017, by and among the Registrant, Genpact Luxembourg S.à r.l. and Wells Fargo
Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-
K (File No. 001-33626) filed with the SEC on March 28, 2017).
First Supplemental Indenture, dated as of March 27, 2017, by and among the Registrant, Genpact Luxembourg S.à r.l. and
Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K (File No. 001-33626) filed with the SEC on March 28, 2017).
Second Supplemental Indenture, dated as of November 18, 2019, by and among the Registrant, Genpact Luxembourg S.à r.l.
and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K (File No. 001-33626) filed with the SEC on November 18, 2019).
Form of 3.700% Senior Note due 2022 (incorporated by reference to Exhibit A to Exhibit 4.3 to the Registrant’s Current
Report on Form 8-K (File No. 001-33626) filed with the SEC on March 28, 2017).
Form of 3.375% Senior Note due 2024 (incorporated by reference to Exhibit A to Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K (File No. 001-33626) filed with the SEC on November 18, 2019).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on Form 10-
K (File No. 001-33626) filed with the SEC on March 2, 2020).
81
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Exhibit
Number
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
Description
Form of Indemnity Agreement for directors and executive officers (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K (File No. 001-33626) filed with the SEC on February 26, 2020).
Amended and Restated U.S. Employee Stock Purchase Plan and Amended and Restated International Employee Stock
Purchase Plan (incorporated by reference to Exhibit 1 to the Registrant’s Proxy Statement on Schedule 14A (File No. 001-
33626) filed with the SEC on April 10, 2018).
Amended and Restated Genpact Limited 2007 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 1
to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 001-33626) filed with the SEC on April 15, 2011).
First Amendment to the Genpact Limited 2007 Omnibus Incentive Compensation Plan (as Amended and Restated April 11,
2012), effective as of August 1, 2012 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K
(File No. 001-33626) filed with the SEC on August 3, 2012).
Form of Share Option Agreement under the Genpact Limited 2007 Omnibus Incentive Compensation Plan (incorporated by
reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-33626) filed with the SEC on March 1,
2019).
Genpact Limited 2017 Omnibus Incentive Compensation Plan (as amended and restated as of April 5, 2019) (incorporated by
reference to Exhibit 1 to the Registrant’s Proxy Statement on Schedule 14A (File No. 001-33626) filed with the SEC on April
10, 2019).
Form of Share Option Agreement under the Genpact Limited 2017 Omnibus Incentive Compensation Plan (incorporated by
reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K (File No. 001-33626) filed with the SEC on March 1,
2019).
Form of Restricted Share Unit Issuance Agreement under the Genpact Limited 2017 Omnibus Incentive Compensation Plan
(incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K (File No. 001-33626) filed with the
SEC on March 1, 2019).
Form of Performance Share Award Agreement under the Genpact Limited 2017 Omnibus Incentive Compensation Plan
(incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K (File No. 001-33626) filed with the
SEC on March 1, 2019).
82
Exhibit
Number
10.10†
10.11†
10.12†*
10.13†*
10.14†
10.15
10.16^*
10.17
21.1*
22.1
23.1*
24.1*
31.1*
Description
Genpact LLC Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K (File No. 001-33626) filed with the SEC on July 6, 2018).
Employment Agreement by and between the Registrant and N.V. Tyagarajan, dated June 15, 2011 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33626) filed with the SEC on June 17, 2011).
Addendum to Employment Agreement by and between Genpact (UK) Limited and N.V. Tyagarajan, dated November 17,
2020.
Employment Agreement by and between Headstrong Canada Limited and Darren Saumur, dated February 26, 2018.
Employment Agreement by and between the Registrant and Edward Fitzpatrick, dated June 26, 2014 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33626) filed with the SEC on July 2,
2014).
Amended & Restated Credit Agreement, dated as of August 9, 2018, among Genpact International, Inc., Genpact Global
Holdings (Bermuda) Limited, Genpact Luxembourg S.à r.l., the Registrant, the lenders party thereto, Wells Fargo Bank,
National Association, as administrative agent, swingline lender, term lender, an issuing bank and a revolving lender, and the
other parties thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.
001-33626) filed with the SEC on August 9, 2018).
Master Services Agreement, dated as of December 22, 2016, by and between Genpact International, Inc. and General Electric
International, Inc.
Borrower Assignment & Assumption and Amendment Agreement, dated as of January 17, 2019, by and among Genpact
International, LLC (formerly Genpact International, Inc.), as the assignor, Genpact USA, Inc., as the assignee, Genpact Global
Holdings (Bermuda) Limited, Genpact Luxembourg S.à r.l., the Company, the lenders party thereto and Wells Fargo Bank,
National Association, as administrative agent (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report
on Form 10-K (File No. 001-33626) filed with the SEC on March 1, 2019).
Subsidiaries of the Registrant.
List of Issuers and Guarantor Subsidiaries (incorporated by reference to Exhibit 22.1 to the Registrant’s Quarterly Report on
Form 10-Q (File No. 001-33626) filed with the SEC on May 11, 2020).
Consent of KPMG Assurance and Consulting Services LLP.
Powers of Attorney (included on the signature page of this report).
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
83
Exhibit
Number
31.2*
32.1*
32.2*
101.INS*
Description
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
^
†
Filed with this Annual Report on Form 10-K.
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
Indicates a management contract or compensatory plan, contract or arrangement in which any director or executive officer
participates.
Item 16. Form 10-K Summary
None.
84
GENPACT LIMITED AND ITS SUBSIDIARIES
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Income for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2019 and 2020
Consolidated Statement of Equity and Redeemable Non-controlling Interest for the year ended December 31, 2018 and
Consolidated Statements of Equity for the years ended December 31, 2019 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2019 and 2020
Notes to the Consolidated Financial Statements
Page No.
F-2
F-7
F-8
F-9
F-10
F-13
F-14
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Genpact Limited:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Genpact Limited and subsidiaries (Genpact Limited or the
Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss),
equity, and cash flows for each of the years in the three-year period ended December 31, 2020 and the related notes (collectively,
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 01, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2(g) to the consolidated financial statements, the Company has changed its method of accounting for Leases
as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Realizability of deferred tax assets of Genpact Luxembourg entities
As discussed in Note 23 to the consolidated financial statements as of December 31, 2020, the Company has recorded gross
deferred tax assets of $377,159 thousand, a portion of which pertains to Genpact Luxembourg entities, and a corresponding
valuation allowance of $206,011 thousand, a portion of which pertains to Genpact Luxembourg entities. The Company
records a valuation allowance for the portion of the deferred tax assets that are not expected to be realized. Changes in
assumptions regarding estimates of future taxable income could have a significant impact on the realizability of deferred tax
assets, and the amount of valuation allowance.
We identified the evaluation of the realizability of deferred tax assets of Genpact Luxembourg entities as a critical audit
matter. Subjective and complex auditor judgment was required in assessing the forecasted taxable income, including
complexity in the application of the relevant tax regulations.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s deferred tax asset valuation allowance
process. This included controls related to the development of assumptions and application of the relevant tax regulations in
determining the forecasted taxable income. We performed a sensitivity analysis over the expected future taxable income for
Genpact Luxembourg entities to assess the effect on the realizability of deferred tax assets. To assess the Company’s ability
to forecast, we compared Genpact Luxembourg entities’ previous forecasts to actual results and other projected financial
information prepared by the Company. We involved income tax professionals with specialized skills and knowledge, who
assisted in assessing the Company’s application of the relevant tax regulations.
Gross unrecognized tax benefits pertaining to operations in India
As discussed in Note 23 to the consolidated financial statements, the Company has recorded gross unrecognized tax
benefits, excluding associated interest and penalties, of $34,300 thousand as of December 31, 2020, of which $19,785
thousand pertains to tax matters relating to operations in India.
We identified the assessment of gross unrecognized tax benefits pertaining to operations in India as a critical audit matter.
The Company operates in multiple jurisdictions across the world with a significant portion of the operations being in India.
Complex auditor judgment was required in evaluating the Company’s interpretation of tax law in respect of matters relating
to operations in India, and its estimate of the ultimate resolution of the related tax
F-3
positions. The audit effort also involved use of professionals with specialized skills and knowledge to assist in evaluating the
audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s unrecognized tax benefit process. This
included controls related to the interpretation of tax law and its application in the liability estimation process. We involved
tax professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
evaluating the Company’s interpretation of tax law and its potential impact on the unrecognized tax benefits
inspecting correspondence, assessments, and settlement documents with applicable taxing authorities
assessing the expiration of statutes of limitations
performing an assessment of the Company’s tax positions and comparing the results to the Company’s assessment.
We evaluated the Company’s ability to accurately estimate its gross unrecognized tax benefits by comparing historical gross
unrecognized tax benefits to actual results upon conclusion of tax examinations.
/s/KPMG Assurance and Consulting Services LLP
We have served as the Company’s auditor since 2004.
Gurugram, Haryana, India
March 01, 2021
F-4
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Genpact Limited:
Opinion on Internal Control Over Financial Reporting
We have audited Genpact Limited’s and subsidiaries’ (Genpact Limited or the Company) internal control over financial reporting
as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of income, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended
December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 01,
2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Enquero, Inc. and certain affiliated entities, and SomethingDigital.Com LLC, and management excluded
from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020,
Enquero, Inc.’s and certain affiliated entities’, and SomethingDigital.Com LLC’s internal control over financial reporting
associated with total assets of $230,184 thousand (of which $197,394 thousand represents goodwill and intangible assets within
the scope of the assessment) and total net revenues of $3,933 thousand included in the consolidated financial statements of the
Company as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company
also excluded an evaluation of the internal control over financial reporting of Enquero, Inc. and certain affiliated entities and
SomethingDigital.Com LLC.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
F-5
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/KPMG Assurance and Consulting Services LLP
Gurugram, Haryana, India
March 01, 2021
F-6
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data and share count)
Notes
As of December 31,
2019
As of December 31,
2020
$
467,096
$
680,440
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net of reserve for doubtful receivables of
$29,969 and allowance for credit losses of $27,707 as of December 31, 2019
and 2020, respectively
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Deferred tax assets
Intangible assets, net
Goodwill
Contract cost assets
Other assets, net of reserve for doubtful assets of $0 and allowance for credit losses
of $3,134 as of December 31, 2019 and 2020, respectively
Total assets
Liabilities and equity
Current liabilities
Short-term borrowings
Current portion of long-term debt
Accounts payable
Income taxes payable
Accrued expenses and other current liabilities
Operating leases liability
Total current liabilities
Long-term debt, less current portion
Operating leases liability
Deferred tax liabilities
Other liabilities
Total liabilities
4
5
8
9
23
10
10
25
11
15
14
23
13
14
23
16
$
$
$
$
$
Shareholders' equity
Preferred shares, $0.01 par value, 250,000,000 authorized, none issued
Common shares, $0.01 par value, 500,000,000 authorized, 190,118,181 and
189,045,661 issued and outstanding as of December 31, 2019 and 2020, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
Commitments and contingencies
Total liabilities and equity
28
$
$
See accompanying notes to the Consolidated Financial Statements.
F-7
914,255
170,325
1,551,676 $
254,035
330,854
89,715
230,861
1,574,466
205,498
217,079
4,454,184 $
$
70,000
33,509
21,981
43,186
683,871
57,664
910,211 $
1,339,796
302,100
3,990
208,916
2,765,013 $
—
1,896
1,570,575
648,656
(531,956)
1,689,171 $
881,020
187,408
1,748,868
231,122
304,714
106,674
236,732
1,695,688
225,897
323,818
4,873,513
250,000
33,537
13,910
41,941
806,769
56,479
1,202,636
1,307,371
289,363
1,516
238,398
3,039,284
—
1,885
1,636,026
741,658
(545,340)
1,834,229
4,454,184 $
4,873,513
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data and share count)
Net revenues
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative expenses
Amortization of acquired intangible assets
Other operating (income) expense, net
Income from operations
Foreign exchange gains (losses), net
Interest income (expense), net
Other income (expense), net
Income before equity-method investment activity, net and
income tax expense
Equity-method investment activity, net
Income before income tax expense
Income tax expense
Net income
Net loss (income) attributable to redeemable non-controlling interest
Net income attributable to Genpact Limited shareholders
Net income available to Genpact Limited common shareholders
Earnings per common share attributable to Genpact Limited common
shareholders
Basic
Diluted
Weighted average number of common shares used in computing earnings
per common share attributable to Genpact Limited common shareholders
Basic
Diluted
Notes
24, 25
10
21
22
27
23
20
20
$
Year ended December 31,
2019
3,520,543 $
2,294,688
2020
3,709,377
2,418,137
$ 1,079,022 $ 1,225,855 $ 1,291,240
2018
3,000,790 $
1,921,768
693,865
38,850
(1,845)
348,152 $
15,239
(37,119)
35,761
362,033 $
(12)
362,021 $
80,763
281,258 $
761
282,019 $
794,901
32,612
(31,034)
429,376 $
7,729
(43,458)
5,786
399,433 $
(16)
399,417 $
94,536
304,881 $
—
304,881 $
789,849
43,343
19,331
438,717
7,482
(48,960)
3,238
400,477
—
400,477
92,201
308,276
—
308,276
282,019 $
304,881 $
308,276
1.48 $
1.45 $
1.60 $
1.56 $
1.62
1.57
$
$
$
$
$
$
$
$
190,674,740
193,980,038
190,074,475 190,396,780
195,160,855 195,780,971
See accompanying notes to the Consolidated Financial Statements.
F-8
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Net income (loss)
Other comprehensive income:
Currency translation adjustments
Net income (loss) on cash flow hedging
derivatives, net of taxes (Note 7)
Retirement benefits, net of taxes
Other comprehensive income (loss)
Comprehensive income (loss)
(In thousands)
2018
Genpact Limited
Shareholders
Redeemable Non-
controlling interest
2019
Genpact Limited
Shareholders
2020
Genpact Limited
Shareholders
$
282,019 $
(761) $
304,881 $
308,276
(109,656)
(424)
(20,297)
(7,871)
(46,293)
1,454
(154,495)
127,524 $
$
—
—
(424)
(1,185) $
2,343
(6,542)
(24,496)
$
280,385
(3,468)
(2,045)
(13,384)
294,892
See accompanying notes to the Consolidated Financial Statements.
F-9
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity and Redeemable Non-controlling Interest
For the year ended December 31, 2018
(In thousands, except share count)
Common shares
Genpact Limited Shareholders
No. of
Shares
Amount
Paid-in Capital
Additional
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Equity
Redeemable
non-controlling
interest
Balance as of January 1,
2018, as previously
reported
Adoption of ASU 2014-091
Adjusted Balance as of
January 1, 2018
Adoption of ASU 2018-02
(Note 7, 23)
Issuance of common shares on
exercise of options (Note 18)
Issuance of common shares
under the employee stock
purchase plan (Note 18)
Net settlement on vesting of
restricted share units (Note 18)
Net settlement on vesting of
performance units (Note 18)
Stock repurchased and retired
(Note 19)
Expenses related to stock
purchase (Note 19)
Stock-based compensation
expense (Note 18)
Acquisition of redeemable non
controlling interest
Comprehensive income (loss):
Net income (loss)
Other comprehensive
income (loss)
Dividend ($0.30 per common
share, Note 19)
Balance as of December
31, 2018
192,825,207 $ 1,924 $
—
—
192,825,207 1,924
1,421,368 $ 355,982 $
17,924
—
(355,230) $
—
1,424,044 $
17,924
1,421,368 373,906
(355,230)
1,441,968
—
—
—
(2,265)
2,265
441,076
4
7,254
—
245,467
227,560
691,958
2
2
7
6,774
(2,651)
(13,277)
—
—
—
(5,085,167)
(51)
4,000
(158,007)
—
—
—
(98)
—
—
48,998
—
—
(1,165)
—
—
—
—
—
282,019
—
—
—
—
—
—
—
—
—
—
7,258
6,776
(2,649)
(13,270)
(154,058)
(98)
48,998
282,019
—
—
—
—
(154,495)
(154,495)
—
—
—
(57,102)
—
(57,102)
189,346,101 $ 1,888 $
1,471,301 $ 438,453 $
(507,460) $
1,404,182 $
1 Pursuant to the Company’s transition to Topic 606, Revenue from contracts with customers, effective January 1, 2018.
See accompanying notes to the Consolidated Financial Statements.
F-10
4,750
—
4,750
—
—
—
—
—
—
—
—
(761)
(424)
—
—
(1,165)
(3,565)
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the year ended December 31, 2019
(In thousands, except share count)
Balance as of January 1, 2019
Issuance of common shares on exercise of options
(Note 18)
Issuance of common shares under the employee
stock purchase plan (Note 18)
Net settlement on vesting of restricted share units
(Note 18)
Net settlement on vesting of performance units (Note
18)
Stock repurchased and retired (Note 19)
Expenses related to stock purchase (Note 19)
Stock-based compensation expense (Note 18)
Comprehensive income (loss):
Common shares
Genpact Limited Shareholders
No. of
Shares
Amount
Paid-in Capital
Additional
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Equity
189,346,101 $
1,888 $
1,471,301 $ 438,453 $
(507,460) $ 1,404,182
697,531
264,440
574,112
2,151
(766,154)
—
—
7
3
6
—
(8)
—
—
10,683
8,977
(4,271)
—
—
—
—
—
—
83,885
—
(29,992)
(15)
—
—
10,690
—
8,980
—
(4,265)
—
—
—
—
-
(30,000)
(15)
83,885
Net income (loss)
Other comprehensive income (loss)
Dividend ($0.34 per common share, Note 19)
Balance as of December 31, 2019
—
—
—
190,118,181 $
—
—
—
1,896 $
—
—
—
304,881
—
(64,671)
1,570,575 $ 648,656 $
—
(24,496)
—
304,881
(24,496)
(64,671)
(531,956) $ 1,689,171
See accompanying notes to the Consolidated Financial Statements.
F-11
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the year ended December 31, 2020
(In thousands, except share count)
Genpact Limited Shareholders
Common shares
No. of
Shares
Amount
Paid-in Capital
Additional
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Equity
190,118,181 $
1,896 $
1,570,575 $ 648,656 $
(531,956) $ 1,689,171
—
190,118,181
—
1,896
—
(3,984)
1,570,575 644,672
—
(531,956)
(3,984)
1,685,187
692,634
315,245
429,362
902,532
(3,412,293)
—
—
7
3
4
9
(34)
—
—
14,055
11,070
(7,846)
—
—
—
(25,836)
—
—
74,008
—
(137,010)
(68)
—
—
14,062
—
11,073
—
(7,842)
—
—
—
—
(25,827)
(137,044)
(68)
74,008
Balance as of January 1, 2020
Transition period adjustment pursuant to ASC 326,
net of tax
Adjusted balance as of January 1, 2020
Issuance of common shares on exercise of options
(Note 18)
Issuance of common shares under the employee
stock purchase plan (Note 18)
Net settlement on vesting of restricted share units
(Note 18)
Net settlement on vesting of performance units
(Note 18)
Stock repurchased and retired (Note 19)
Expense related to stock purchase (Note 19)
Stock-based compensation expense (Note 18)
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss)
Dividend ($0.39 per common share, Note 19)
Balance as of December 31, 2020
—
—
—
189,045,661 $
—
—
—
1,885 $
308,276
—
(74,212)
1,636,026 $ 741,658 $
—
—
—
—
(13,384)
—
308,276
(13,384)
(74,212)
(545,340) $ 1,834,229
See accompanying notes to the Consolidated Financial Statements.
F-12
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net income attributable to Genpact Limited shareholders
Net loss attributable to redeemable non-controlling interest
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs (including loss on extinguishment of debt)
Amortization of acquired intangible assets
Write-down of intangible assets and property, plant and equipment
Reserve for doubtful receivables/allowance for credit losses
Unrealized loss (gain) on revaluation of foreign currency asset/liability
Stock-based compensation expense
Deferred tax expense (benefit)
Write-down of operating lease right-of-use assets and other assets
Gain on exchange of non-monetary asset
Others, net
Change in operating assets and liabilities:
Year ended December 31,
2019
2018
$
$
282,019 $
(761)
281,258 $
304,881 $
—
304,881 $
64,868
3,975
38,850
4,265
1,857
3,352
48,998
6,054
—
—
1,329
96,101
1,779
32,612
3,511
7,443
(5,171)
83,885
(16,315)
—
(31,380)
(2,213)
2020
308,276
—
308,276
116,499
2,248
43,343
14,083
5,707
9,578
74,008
(22,587)
18,084
—
(1,291)
(Increase) decrease in accounts receivable
Increase in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and
other assets
Increase (decrease) in accounts payable
Increase in accrued expenses, other current liabilities, operating lease liabilities and other liabilities
Increase (decrease) in income taxes payable
Net cash provided by operating activities
Investing activities
Purchase of property, plant and equipment
Payment for internally generated intangible assets (including intangibles under development)
Proceeds from sale of property, plant and equipment
Proceeds from sale of equity affiliates
Payment for business acquisitions, net of cash acquired
Payment for redeemable non-controlling interest
Net cash used for investing activities
Financing activities
Repayment of capital/ finance lease obligations
Payment of debt issuance costs
Proceeds from long term debt
Repayment of long-term debt
Proceeds from short-term borrowings
Repayment of short-term borrowings
Proceeds from issuance of common shares under stock-based compensation plans
Payment for net settlement of stock-based awards
Payment of earn-out consideration
Dividend paid
Payment for stock repurchased and retired (including expenses related to stock repurchase)
Net cash provided by/ (used for) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Supplementary information
Cash paid during the period for interest on borrowings (including interest rate swaps)
Cash paid during the period for income taxes, net of refunds
Property, plant and equipment acquired under capital/finance lease obligations
Non-cash transaction: Gain on exchange of non-monetary asset
$
$
$
$
$
$
$
$
(76,894)
(121,983)
42,505
(76,392)
26,401
5,993
5,597
339,511 $
(84,978)
(75,439)
668
—
(111,571)
(4,730)
(276,050) $
(2,395)
(4,293)
129,186
(166,186)
250,000
(125,000)
14,034
(15,919)
(3,356)
(57,102)
(154,156)
(135,187) $
(64,346)
(71,726)
504,468
368,396 $
41,484 $
81,411 $
2,031 $
— $
(69,813)
(21,375)
157,580
8,346
427,888 $
(74,927)
(33,834)
1,750
2,168
(252,276)
—
(357,119) $
(7,380)
(2,317)
400,000
(34,000)
400,000
(625,000)
19,670
(3,850)
(12,790)
(64,671)
(30,015)
39,647 $
(11,716)
110,416
368,396
467,096 $
45,084 $
104,217 $
5,008 $
(31,380) $
(99,852)
(12,480)
87,180
(993)
584,308
(70,170)
(10,201)
607
—
(186,633)
—
(266,397)
(10,567)
(620)
—
(34,000)
610,000
(430,000)
25,135
(34,083)
(6,552)
(74,212)
(137,112)
(92,011)
(12,556)
225,900
467,096
680,440
49,101
193,946
29,526
—
See accompanying notes to the Consolidated Financial Statements.
F-13
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(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 customers, guided by its experience over time running thousands of processes for hundreds of Fortune Global 500 companies. The
Company has approximately 96,500 employees serving customers in key industry verticals from more than 30 countries.
Prior to the fourth quarter of 2019, the Company had one reportable segment. To align with how the Company’s Chief Operating
Decision Maker, or CODM, manages its business, including resource allocation and performance assessment, the Company realigned its
business segments into the following three reportable segments: Banking, Capital Markets and Insurance, or BCMI, Consumer Goods, Retail,
Life Sciences and Healthcare, or CGRLH, and High Tech, Manufacturing and Services, or HMS.
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-K. 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 on consolidation.
Non-controlling interest in subsidiaries outside of the Company’s control that is redeemable for cash or other assets is reflected in the
mezzanine section between liabilities and equity in the consolidated balance sheets at the redeemable value, which approximates fair value.
Redeemable non-controlling interest is adjusted to its fair value at each balance sheet date. Any resulting increases or decreases in the
estimated redemption amount are affected by corresponding charges to additional paid-in capital. The share of non-controlling interest in
subsidiary earnings is reflected in net loss (income) attributable to redeemable non-controlling interest in the consolidated statements of
income.
(b) Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and
assumptions include the useful lives of property, plant and equipment, 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 novel coronavirus (“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.
F-14
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(c) Business combinations, goodwill and other intangible assets
The Company accounts for its business combinations using the acquisition method of accounting in accordance with 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.
Goodwill represents the cost of acquired businesses in excess of the fair value of identifiable tangible and intangible net assets
purchased. Goodwill is not amortized but is tested for impairment at least on an annual basis on December 31, based on a number of factors,
including operating results, business plans and future cash flows. The Company performs an assessment of qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of
goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an
impairment loss is recognized in an amount equal to the excess. In addition, the Company performs a qualitative assessment of goodwill
impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. See Note 10 for information and related disclosures.
Intangible assets acquired individually or with a group of other assets or in a business combination or developed internally are carried
at cost less accumulated amortization and accumulated impairment loss based on their estimated useful lives as follows:
Customer-related intangible assets
Marketing-related intangible assets
Technology-related intangible assets
1-11 years
1-10 years
2-8 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.
F-15
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
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.
(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 17% and 16% of the Company’s receivables as of December 31, 2019 and 2020, respectively. GE accounted for
9%, 14% and 12% of the Company’s revenues in the years ended December 31, 2018, 2019 and 2020, 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.
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.
F-16
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
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 when the license 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.
(g) Leases (effective January 1, 2019)
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based
on 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 entered into prior to January 1, 2019 have been accounted for under ASC Topic 840, Lease Classification, and were
not reassessed on adoption of ASC Topic 842, Leases, on January 1, 2019.
F-17
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
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 right-of-use (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. 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.
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.
For the year ended December 31, 2020, due to the impact of the COVID-19 pandemic on the Company’s current and future revenues
and operations, the Company recorded restructuring charges related to the abandonment of leased office premises and related assets. See
Note 29 for additional information.
F-18
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(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 customer 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 customers and travel
and other billable costs related to the Company’s customers. 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 intangible and ROU assets other than those included in cost of revenue.
(j) Changes in accounting policies
Except as described below, the Company has applied accounting policies consistently to all periods presented in these consolidated
financial statements. The Company adopted ASC Topic 326, Financial Instruments—Credit Losses (“Topic 326”), effective January 1, 2020. As
a result of the Company’s adoption of this new standard, current expected credit losses (“CECL”) are measured using lifetime “expected credit
loss” methodology, replacing the incurred loss model that recognized losses only when they became probable and estimable. The Company
changed its accounting policy for recognition and measurement of CECL as detailed below. Topic 326 is applicable to financial assets
measured at amortized cost, such as accounts receivable (including deferred billings), deposits, employee advances and cash and cash
equivalents. It requires historical loss data to be adjusted to reflect changes in asset-specific considerations, current conditions and reasonable
and supportable forecasts of future economic conditions. In order to analyze credit losses on financial assets, the Company applied a
combination of methods, including the discounted cash flow and roll-rate methods, to determine expected credit losses. The expected credit
losses are adjusted each period for changes in expected lifetime credit losses. The Company applied Topic 326 using the modified retrospective
transition approach, which involves recognizing the cumulative effect of initial adoption of Topic 326 as an adjustment to its opening retained
earnings as of January 1, 2020. Therefore, comparative information prior to the adoption date has not been adjusted.
As a result of adoption of ASC 326, the Company recognized an incremental allowance for credit losses on its accounts receivable and
deferred billings of $4,185 and $734, respectively, resulting in an increase in deferred tax assets of $935 with a corresponding decrease in
retained earnings of $3,984, net of deferred tax.
F-19
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Credit losses (effective January 1, 2020)
The Company recognizes an allowance for credit losses for all debt instruments other than those held at fair value through profit or loss.
The Company pools its accounts receivable 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 including 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 uncollectable 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.
Impact on consolidated financial statements
The following table summarizes the impact of the Company’s adoption of Topic 326 on its consolidated financial statements as of
January 1, 2020.
Accounts receivable, net
Other assets
Deferred tax assets
Retained earnings
As reported
December 31,
2019
914,255
217,079
89,715
648,656
Adoption of Topic
326
Increase/(Decrease)
(4,185)
(734)*
935
(3,984)
Balance as of
January 1,
2020
910,070
216,345
90,650
644,672
*Represents the expected credit loss on deferred billings amounting to $7,858 included in “Other assets.”
(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) Cash and cash equivalents
Cash and cash equivalents consist of cash and bank balances and all highly liquid investments purchased with an original maturity of
three months or less.
F-20
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(m) Short-term investments
All liquid investments with an original maturity greater than three months but less than one year are considered to be short-term
investments. Marketable short-term investments are classified and accounted for as available-for-sale investments. Available-for-sale
investments are reported at fair value with changes in unrealized gains and losses recorded as a separate component of other comprehensive
income (loss) until realized. Realized gains and losses on investments are determined based on the specific identification method and are
included in “Other income (expense), net.” The Company does not hold these investments for speculative purposes.
(n) Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation and amortization and accumulated impairment loss.
Expenditures for replacements and improvements are capitalized, whereas the costs of maintenance and repairs are charged to earnings as
incurred. The Company depreciates and amortizes all property, plant and equipment using the straight-line method over the following
estimated economic useful lives of the assets:
Buildings
Furniture and fixtures
Computer equipment and servers
Plant, machinery and equipment
Computer software
Leasehold improvements
Vehicles
Years
40
4
4
4
4-7
Lease period or 10 Years, whichever is less
3-4
The Company capitalizes certain computer software and software development costs incurred in connection with developing or
obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be
used as intended. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining
computer software, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest
costs incurred while developing internal-use computer software.
Capitalized computer software costs are included in property, plant and equipment on the Company’s balance sheet and amortized on a
straight-line basis when placed into service over the estimated useful lives of the software.
Advances paid towards acquisition of property, plant and equipment outstanding as of each balance sheet date and the cost of property,
plant and equipment not put to use before such date are disclosed under “Capital work in progress.”
(o) 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 from 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.
F-21
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(p) Foreign currency
The Company’s consolidated financial statements are reported in U.S. dollars, the Company’s functional currency. The functional
currency for the Company’s subsidiaries organized in Europe, other than the United Kingdom, the Czech Republic, Luxembourg and one
subsidiary in Poland, is the euro, and the functional currencies of the Company’s subsidiaries organized in Brazil, China, Colombia,
Guatemala, India, Israel, Japan, Morocco, South Africa, the Philippines, Poland, the Czech Republic, Hong Kong, Singapore, Australia and
Canada are their respective local currencies. The functional currency of all other Company subsidiaries is the U.S. dollar. The translation of the
functional currencies of the Company’s subsidiaries into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect
as of the balance sheet date and for revenues and expense accounts using a monthly average exchange rate prevailing during the respective
period. The gains or losses resulting from such translation are reported as currency translation adjustments under other comprehensive
income (loss), net, under accumulated other comprehensive income (loss) as a separate component of equity.
Monetary assets and liabilities of each subsidiary denominated in currencies other than the subsidiary’s functional currency are
translated into their respective functional currency at the rates of exchange prevailing on the balance sheet date. Transactions of each
subsidiary in currencies other than the subsidiary’s functional currency are translated into the respective functional currencies at the average
monthly exchange rate prevailing during the period of the transaction. The gains or losses resulting from foreign currency transactions are
included in the consolidated statements of income.
(q) Derivative instruments and hedging activities
In the normal course of business, the Company uses derivative financial instruments to manage fluctuations in foreign currency
exchange rates and interest rate fluctuation. The Company enters into forward foreign exchange contracts to mitigate the risk of changes in
foreign exchange rates on intercompany transactions and forecasted transactions denominated in foreign currencies and interest rate swaps to
mitigate interest rate fluctuation risk on its indebtedness.
The Company recognizes derivative instruments and hedging activities as either assets or liabilities in its consolidated balance sheets
and measures them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative
and whether it is designated and qualifies for hedge accounting. Changes in the fair values of derivatives designated as cash flow hedges are
deferred and recorded as a component of other comprehensive income (loss) reported under accumulated other comprehensive income (loss)
until the hedged transactions occur and are then recognized in the consolidated statements of income along with the underlying hedged item
and disclosed as part of “Total net revenues,” “Cost of revenue,” “Selling, general and administrative expenses” and “Interest expense,” as
applicable. Changes in the fair value of derivatives not designated as hedging instruments and the ineffective portion of derivatives designated
as cash flow hedges are recognized in the consolidated statements of income and are included in foreign exchange gains (losses), net, and
other income (expense), net, respectively.
With respect to derivatives designated as cash flow hedges, the Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The
Company also formally assesses, both at the inception of the hedge and on a quarterly basis, whether each derivative is highly effective in
offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative or portion thereof is not highly effective
as a hedge, or if a derivative ceases to be a highly effective hedge, the Company will prospectively discontinue hedge accounting with respect to
that derivative instrument.
In all situations in which hedge accounting is discontinued and the derivative is retained, the Company continues to carry the derivative
at its fair value on the balance sheet and recognizes any subsequent change in its fair value in the consolidated statements of income. When it
is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately, in foreign
exchange gains (losses), net in the consolidated statements of income, the gains and losses attributable to such derivative that were
accumulated in other comprehensive income (loss).
F-22
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(r) Income taxes
The Company accounts for income taxes using the asset and liability method of accounting for income taxes. Under this method, income
tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their tax bases and for all operating loss and tax credit carryforwards, if any. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in the consolidated statement of income in
the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company applies a two-step approach for recognizing and measuring the benefit of tax positions. The first step is to evaluate the tax
position for recognition by determining, based on the technical merits, that the position will more likely than not be sustained upon
examination. The second step is to measure the tax benefit as the largest amount of the tax benefit that is greater than 50 percent likely of
being realized upon settlement. The Company includes interest and penalties related to an underpayment of income taxes within income tax
expense
The Company follows the specific identification approach for releasing stranded tax effects from accumulated other comprehensive
income (“AOCI”) upon recognition of these AOCI items in the consolidated statement of income.
(s) Employee benefit plans
Contributions to defined contribution plans are charged to consolidated statements of income in the period in which services are
rendered by the covered employees. Current service costs for defined benefit plans are accrued in the period to which they relate. The liability
in respect of defined benefit plans is calculated annually by the Company using the projected unit credit method. Prior service cost, if any,
resulting from an amendment to a plan is recognized and amortized over the remaining period of service of the covered employees. The
Company recognizes its liabilities for compensated absences dependent on whether the obligation is attributable to employee services already
rendered, relates to rights that vest or accumulate and payment is probable and estimable.
On January 1, 2018, the Company adopted ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The service cost is recognized under “cost of revenue” and “selling,
general and administrative expenses,” depending on the functional area of the underlying employees included in the plans, and the non-
operating components of net benefit plan costs are included within “other income (expense), net” in the consolidated statements of income.
The Company records annual amounts relating to its defined benefit plans based on calculations that incorporate various actuarial and
other assumptions, including discount rates, mortality, assumed rates of return on plan assets, future compensation increases and attrition
rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and
trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in other comprehensive income (loss) and
amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording
its obligations under its plans are reasonable based on its experience and market conditions.
(t) Deferred Compensation Plans
The Company maintains a non-qualified deferred compensation plan for certain employees. The plan is accounted for using the fair
value measurement approach. Plan earnings are calculated by reference to actual earnings of the funds chosen by individual participants. In
connection with the administration of this plan, the Company has purchased Company-owned life insurance policies insuring the lives of
certain employees, held under a Rabbi Trust. The Company consolidates the invested assets of the trust. The cash surrender value of these
insurance policies is included in “other assets” in the consolidated balance sheets at fair value. Gains or losses on the plan’s assets and changes
in the fair value of deferred compensation liabilities are included in “other income (expense), net,” and “selling, general and administrative
expenses,” respectively, in the consolidated statements of income.
F-23
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(u) Stock-based compensation
The Company recognizes and measures compensation expense for all stock-based awards based on the grant date fair value. For option
awards, grant date fair value is determined under the option-pricing model (Black-Scholes-Merton model) and for stock based awards other
than option awards, grant date fair value is determined on the basis of the fair market value of a Company common share on the date of grant
of such awards. The fair value determined at the grant date is expensed over the vesting period of the stock-based awards. The Company
recognizes compensation expense for stock-based awards net of estimated forfeitures. Stock-based compensation recognized in the
consolidated statements of income is based on awards ultimately expected to vest. As a result, the expense has been reduced for estimated
forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from such
estimates.
(v) Accelerated Share Repurchase
The Company entered into an accelerated share repurchase (“ASR”) agreement in 2017 with a third-party financial institution to
repurchase the Company’s common shares. Under the ASR agreement, the Company paid an upfront amount to the financial institution and
received an initial delivery of shares. Upon an interim delivery and settlement of the ASR agreement, the financial institution delivered
additional shares to the Company, with the final number of shares delivered determined by reference to the volume-weighted average price of
the Company’s common shares over the term of the agreement, less an agreed-upon discount. The transactions were accounted for as equity
transactions. All shares repurchased under the ASR agreement were retired. The number of weighted average common shares outstanding
used by the Company for purposes of calculating basic and diluted earnings per share was reduced as of the date of delivery of the common
shares.
(w) Government incentives
The Company recognizes incentives in the consolidated statements of income under “other income (expense), net.” Incentives are
recognized in the consolidated statements of income when there is reasonable assurance that the Company will comply with the conditions for
their receipt and a reasonable expectation that the funds will be received. In certain circumstances, the receipt of an incentive may not be subject
to any condition or requirement to incur further costs, in which case the incentive is recognized in the consolidated statement of income for the
period in which it becomes receivable. In the event that it becomes likely that the Company will be required to repay an incentive that has already
been recognized, the Company makes a provision for the estimated liability.
(x) Earnings (loss) per share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the
period. For the purposes of calculating diluted earnings per share, the treasury stock method is used for stock-based awards except where the
results would be anti-dilutive.
(y) Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs
incurred in connection with such liabilities are expensed as incurred.
F-24
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(z) Debt restructuring
The Company accounts for any restructuring of its credit facility using the ten percent cash flow test in accordance with ASC 470, Debt. If
the cash flow effect of the change in terms on a present-value basis is less than ten percent, the debt instruments are not considered to be
substantially different, and are accounted for as a modification. If the change is more than ten percent, it is treated as an extinguishment. In
performing the cash flow test, the Company includes all amounts paid to its lenders in connection with the restructuring but excludes third party
expenses. In the case of a modification, all new fees paid to lenders are capitalized and amortized as part of the existing effective yield and any
new fees paid to third parties are expensed as incurred under selling, general and administrative expenses. No gain or loss is recorded in the case
of a modification. In the case of an extinguishment, all new fees paid to lenders are expensed as incurred under selling, general and
administrative expenses and any new fees paid to third parties are capitalized and amortized as a debt issuance cost. The old debt is derecognized
and the new debt is recorded at fair value and a gain or loss is recorded for the difference between the net carrying value of the original debt and
the fair value of the new debt.
(aa) Recently issued accounting pronouncements
The authoritative bodies release standards and guidance which are assessed by management for impact on the Company’s consolidated
financial statements.
The Company has adopted the following recently released accounting standards:
The Company adopted ASC Topic 842, Leases, with a date of initial application of January 1, 2019, using the modified retrospective
approach. The significant accounting policy for leases is outlined in section (g) above.
In March 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2019-01, Leases
(Topic 842): Codification Improvement. The new standard contains several amendments to clarify the codification more generally and/or to
correct unintended applications of the guidance. The changes in the new standard eliminate the requirement for transition disclosures related to
Topic 250-10-50-3. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years.
Early application is permitted. In the quarter ended March 31, 2019, the Company adopted ASU 2019-01 effective January 1, 2019 and no prior
periods have been adjusted.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging.” The amendment expands an entity’s ability to apply hedge
accounting to non-financial and financial risk components and requires changes in the fair value of hedging instruments to be presented in the
same income statement line as a hedged item. The ASU also amends the presentation and disclosure requirements for the effect of hedge
accounting. The ASU must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to the opening
balance of retained earnings as of the initial application date. The ASU was effective for the Company beginning January 1, 2019, including
interim periods in the fiscal year 2019. On January 1, 2019, the Company adopted this ASU and concluded that it does not have any impact on its
consolidated results of operations, cash flows, financial position or disclosures.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. This ASU amends various SEC paragraphs pursuant
to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment
Company Reporting Modernization. The S-X Rule 3-04 requires the presentation of changes in stockholders’ equity in the form of a
reconciliation of the beginning balance to the ending balance for each period for which a statement of income is required to be filed with all
significant reconciling items. The Company presented changes in stockholders' equity as separate financial statements for the current and
comparative year-to-date interim periods beginning on January 1, 2019. This guidance was effective immediately upon issuance. The
additional elements of the ASU did not have a material impact on the Company's consolidated results of operations, cash flows, financial
position or disclosures.
F-25
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of credit losses on financial instruments.” The ASU requires
measurement and recognition of expected credit losses for financial assets held by the Company. The ASU requires entities to estimate an
expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The ASU became
effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020.
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326).” The ASU provides final guidance
that allows entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets at
amortized cost (except held-to-maturity securities) using the fair value option. The ASU is effective for the Company beginning January 1,
2020, including interim periods in fiscal year 2020.
In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit
Losses.” This ASU clarifies that the scope of the guidance related to expected recoveries extends to purchased financial assets with credit
deterioration. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2019-11 are effective on the same date as those in
ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-11 are effective for fiscal years beginning January 1,
2020 and interim periods therein.
The Company adopted ASU 2016-13, ASU 2019-05 and ASU 2019-11 beginning January 1, 2020, including interim periods in fiscal year
2020. The cumulative impact of the adoption of these standards has been described in section (j) above.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement.” The ASU modifies the disclosure requirements with respect to fair value measurements. The ASU is effective for the Company
beginning January 1, 2020, including interim periods in fiscal year 2020. The Company assessed the impact of this ASU and concluded that it
does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined
Benefit Plans.” The ASU modifies the disclosure requirements with respect to defined benefit pension plans. The Company adopted this ASU
in its consolidated financial statements for the year ended December 31, 2020 and it did not have any material impact on its disclosures.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract.” The ASU modifies the capitalization requirements with respect to implementation costs incurred by
the customer in a hosting arrangement that is a service contract. The ASU is effective for the Company beginning January 1, 2020. The
Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations,
cash flows, financial position or disclosures.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The ASU provides additional guidance on the recognition of
credit losses and addresses partial-term fair value hedges, fair value hedge basis adjustments and certain transition requirements, among
other things. The ASU also addresses the scope of the guidance on the requirement for re-measurement under ASC 820 when using the
measurement alternative, certain disclosure requirements and which foreign currency-denominated equity securities must be re-measured at
historical exchange rates. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. The
Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations,
cash flows, financial position or disclosures.
In November 2019, the FASB issued ASU No. 2019-08, “Codification Improvements—Share-Based Consideration Payable to a
Customer.” The ASU clarifies that share-based consideration payable to a customer is measured in accordance with guidance under AC 718--
Share based payments. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. The
Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations,
cash flows, financial position or disclosures.
F-26
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This ASU includes
amendments that make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications in relation
to financial instruments. This guidance was effective immediately upon issuance. The additional elements of the ASU did not have a material
impact on the Company's consolidated results of operations, cash flows, financial position and or disclosures.
In October 2020, the FASB issued ASU No. 2020-09, “Codification Improvements to Topic 470, Debt— Amendments to SEC
Paragraphs Pursuant to SEC Release No. 33-10762.” The SEC in its Release No. 33-10762 in March 2020 has adopted new rules on financial
disclosure requirements for guarantors and issuers of guaranteed securities and affiliates whose securities collateralize issuers’ securities. This
ASU revises certain SEC paragraphs of the FASB’s Accounting Standards Codification (ASC) to reflect, as appropriate, the amended financial
statement disclosure requirements in SEC Release 33-10762. The amended rules are effective January 4, 2021 but early compliance is
permitted. The Company adopted the amended rules issued by the SEC in its Release No. 33-10762 in the first quarter of 2020. Accordingly,
the Company has already adopted the amendments under this ASU and the disclosures related to guarantor financial information has been
omitted from the Notes to the Consolidated Financial Statements and included as part of Part II, Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
The following recently released accounting standards have not yet been adopted by the Company:
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU removes certain
exceptions for investments, intra-period tax allocations and interim calculations, and adds guidance to reduce complexity in accounting for
income taxes. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning January 1, 2021.
Early adoption is permitted. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its
consolidated results of operations, cash flows, financial position or disclosures.
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This
ASU provides temporary optional expedients and exceptions to the guidance in US GAAP on contract modifications and hedge accounting to
ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other
interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply
certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met.
An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting
determination. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company assessed the
impact of this ASU and since a substantial portion of the LIBOR-linked credit facilities are either hedged or short term in nature, and the
credit agreements cover the replacement mechanism in case the LIBOR is discontinued, the Company concluded that the adoption of this ASU
does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements.” The amendments in this ASU do not change the
GAAP requirements but it improves consistency by amending the Codification to include all disclosure guidance in the appropriate disclosure
sections and also clarifies application of various provisions in the codification by amending and adding new headings, cross referencing to
other guidance, and refining or correcting terminology. The ASU is effective for the Company for fiscal years, and interim periods within those
fiscal years, beginning January 1, 2021. Early application is permitted. The Company assessed the impact of this ASU and concluded that it
does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
F-27
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
3. Business acquisitions
(a) 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
$148,905. This amount represents cash consideration of $137,274, net of cash acquired of $11,631. The total purchase consideration paid by
the Company to the sellers was $141,938, resulting in a payable of $6,967, which is outstanding as of December 31, 2020. 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 is
expected to increase the scale and depth of the Company’s data and analytics capabilities and enhance 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 $86,669 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 $2,559, to the CGRLH segment in the amount of $22,239 and to the HMS
segment in the amount of $61,871. The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill
represents primarily the acquired capabilities, operating synergies 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 $32,759, assumed certain liabilities amounting to $17,113 and
recognized a net deferred tax liability of $13,310. 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 $5,848 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) 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 was $57,704,
resulting in a recoverable of $253 as of December 31, 2020. 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 supports the Company’s strategy to integrate experience and process
innovation to help clients on their digital transformation journeys and expands 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 expands the
Company’s capabilities into Magento Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based ecommerce platform
for high volume merchants.
F-28
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
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, operating synergies 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.
(c) 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 acquisition date was $248,470, resulting in a payable of
$22,199. This acquisition expands 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 earnout consideration with an estimated value
of $21,500 over the rollover period of three years which is included in the purchase consideration. The amount of deferred earnout
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. Refer to Note 6, “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, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
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 asset 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.
F-29
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
(d) riskCanvas Holdings, LLC
On January 7, 2019, the Company acquired 100% of the outstanding equity interests in riskCanvas Holdings, LLC, a Delaware
limited liability company, for total purchase consideration of $5,747. This amount includes cash consideration of $5,700, net of adjustment for
working capital. No portion of the total consideration, payable in cash, was unpaid as of December 31, 2020. This acquisition expands the
Company’s services in the areas of financial institution fraud, anti-money laundering and financial transaction surveillance and enhances its
consulting capabilities for clients in the financial services industry.
In connection with this acquisition, the Company recorded $1,700 in customer-related intangibles, $1,400 in software-related
intangibles and $100 in restrictive covenants. Goodwill arising from the acquisition amounting to $2,547 has been allocated to the Company’s
BCMI reporting segment and is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities, operating
synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $967 have been included in selling, general and administrative expenses as incurred. In connection with
the transaction, the Company also acquired certain assets with a value of $660 and assumed certain liabilities amounting to $707. The results
of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s
consolidated financial statements with effect from the date of the acquisition.
4. Cash and cash equivalents
Cash and other bank balances
Total
As of December 31,
2019
As of December 31,
2020
$
467,096
467,096 $
680,440
680,440
5. Accounts receivable, net of allowance for credit losses
Accounts receivable were $944,224 and $908,727, and reserve for doubtful receivables was $29,969 and allowance for credit losses was
$27,707, resulting in net accounts receivable balances of $914,255 and $881,020 as of December 31, 2019 and 2020, respectively.
The following table provides details of the Company’s allowance for credit losses:
Opening balance as of January 1
Transition period adjustment on accounts receivables (through retained
earnings) pursuant to adoption of ASC 326
Adjusted balance as of January 1
Additions due to acquisitions
Additions charged/reversal released to cost and expense, net
Deductions/effect of exchange rate fluctuations
Closing balance
2018
Year ended December 31,
2019
2020
$
23,660 $
23,960 $
29,969
—
23,660
—
1,857
(1,557)
23,960 $
—
23,960
1,004
7,443
(2,438)
29,969 $
4,185
34,154
200
3,307
(9,954)
27,707
$
F-30
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
6. Fair Value Measurements
The Company measures certain financial assets and liabilities, including derivative instruments, at fair value on a recurring basis. The
fair value measurements of these financial assets and liabilities were determined using the following inputs as of December 31, 2019 and
2020:
As of December 31, 2019
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Other Unobservable
Inputs
(Level 3)
Total
Assets
Derivative instruments (Note a, c)
Deferred compensation plan assets (a, e)
Total
Liabilities
Earn out Consideration (Note b, d)
Derivative instruments (Note b, c)
Deferred compensation plan liability (b, f)
Total
$
$
$
$
21,309 $
11,208
32,517 $
22,184 $
24,239
10,943
57,366 $
— $
—
— $
— $
—
—
— $
21,309 $
—
21,309 $
— $
24,239
—
24,239 $
—
11,208
11,208
22,184
—
10,943
33,127
As of December 31, 2020
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Other Unobservable
Inputs
(Level 3)
Total
Assets
Derivative instruments (Note a, c)
Deferred compensation plan assets (Note a, e)
Total
Liabilities
Earn out consideration (Note b, d)
Derivative instruments (Note b, c)
Deferred compensation plan liability (Note b, f)
Total
$
$
$
$
27,709 $
26,832
54,541 $
8,272 $
40,981
26,390
75,643 $
— $
—
$
—
— $
—
—
$
—
27,709 $
—
$
27,709
— $
40,981
—
$
40,981
—
26,832
26,832
8,272
—
26,390
34,662
(a)
(b)
(c)
(d)
Included in “prepaid expenses and other current assets” and “other assets” in the consolidated balance sheets.
Included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.
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.
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-31
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
6. Fair Value Measurements (Continued)
(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 years ended December 31, 2019 and 2020:
Opening balance
Earn-out consideration payable in connection with acquisitions
Payments made on earn-out consideration (Note a)
Change in fair value of earn out consideration (Note b)
Others (Note c)
Closing balance
$
$
Year ended December 31,
2019
17,073 $
21,701
(17,098)
—
508
22,184 $
2020
22,184
—
(6,552)
(7,790)
430
8,272
(a) Includes the interest payment on earn-out consideration in excess of the acquisition date fair value, which is included in “cash flows from
operating activities” amounting to $4,308 and $0 for the year ended December 31, 2019 and 2020, respectively.
(b) Changes in the fair value of earn-out consideration are reported in “other operating (income) expense, net” in the consolidated statements
of income.
(c)
“Others” is comprised of interest expense included in “interest income (expense), net” and the impact of changes in foreign exchange
reported in “foreign exchange gains (losses), net” in the consolidated statements of income. This also includes a cumulative translation
adjustment reported as a component of other comprehensive income (loss).
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 year ended December 31, 2019 and 2020:
Opening balance
Additions (net of redemption)
Change in fair value of deferred compensation plan assets (Note a)
Closing balance
$
$
Year ended December 31,
2019
1,613
8,299
1,296
11,208
$
$
2020
11,208
11,460
4,164
26,832
(a) Changes in the fair value of plan assets are reported in “other income (expense), net” in the consolidated statements of income.
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 year ended December 31, 2019 and 2020:
Opening balance
Additions (net of redemption)
Change in fair value of deferred compensation plan liabilities (Note a)
Closing balance
$
$
Year ended December 31,
2019
1,582
8,299
1,062
10,943
$
$
2020
10,943
11,327
4,120
26,390
(a) Changes in the fair value of deferred compensation liabilities are reported in “selling, general and administrative expenses” in the
consolidated statements of income.
F-32
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
7. Derivative financial instruments
The Company is exposed to the risk of rate fluctuations on 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 and foreign currency denominated forecasted cash flows and interest rate risks.
These derivative financial instruments are largely deliverable and non-deliverable forward foreign exchange contracts and interest rate swaps.
The Company enters into these contracts with counterparties that are banks or other financial institutions, and the Company considers the
risk of non-performance by such counterparties not to be material. The forward foreign exchange contracts and interest rate swaps mature
over periods of up to 48 months and the forecasted transactions are expected to occur during the same periods.
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,
2019
As of December 31,
2020
As of December 31,
2019
As of December 31,
2020
$
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)
United States Dollars (sell) Mexican Peso (buy)
United States Dollars (sell) Philippines Peso (buy)
Euro (sell) United States Dollars (buy)
Singapore Dollars (buy) United States Dollars (sell)
Euro (sell) Romanian Leu (buy)
Japanese Yen (sell) Chinese Renminbi (buy)
Pound Sterling (sell) United States Dollars (buy)
Australian Dollars (sell) United States Dollars (buy)
United States Dollars (sell) Hungarian Font (buy)
Hungarian Font (Sell) Euro (buy)
Australian Dollars (sell) Indian Rupees (buy)
Interest rate swaps (floating to fixed)
1,305,000 $
—
66,600
122,337
10,017
26,918
29,350
9,089
35,972
20,500
9,534
—
477,604
1,150,000
17,500
67,200
96,651
10,153
29,489
19,230
—
—
30,000
10,444
140,525
488,022
(5,740) $
—
462
4,135
38
(314)
(258)
383
1,924
162
(157)
—
(3,565)
(2,930)
15,207
716
1,332
(5,659)
66
(22)
473
—
—
904
61
(7,670)
(18,680)
(13,272)
(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 other 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.
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.
(b)
F-33
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
FASB guidance on derivatives and hedging requires companies to recognize all derivative instruments as either assets or liabilities at
fair value in the balance sheet. In accordance with the FASB guidance on derivatives and hedging, the Company designates foreign exchange
forward contracts and interest rate swaps as cash flow hedges. Foreign exchange forward contracts are entered into to cover the effects of
future exchange rate variability on forecasted revenue and purchases of services, and interest rate swaps are entered into to cover interest rate
fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under the FASB
guidance in order to hedge foreign exchange risks related to balance sheet items, such as receivables and intercompany borrowings, that are
denominated in currencies other than the Company’s underlying functional currency.
The fair values of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the
table below:
Assets
Prepaid expenses and other current assets
Other assets
Liabilities
Accrued expenses and other current liabilities
Other liabilities
Cash flow hedges
Cash flow hedges
Non-designated
As of December 31,
2019
As of December 31,
2020
As of December 31,
2019
As of December 31,
2020
$
$
$
$
16,214 $
3,086 $
16,188 $
6,164 $
2,009 $
— $
6,152 $
17,273 $
16,387 $
16,886 $
814 $
— $
5,357
—
3,785
3,923
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.
In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss), or OCI, and the
related tax effects are summarized below:
Before
Tax
amount
2018
Tax
(Expense)
or Benefit*
Net of
tax
Amount
Before
Tax
amount
2019
Tax
(Expense)
or Benefit*
Net of
tax
Amount
Before
Tax
amount
2020
Tax
(Expense)
or Benefit*
Year ended December 31,
$
50,529 $
(14,436)$ 36,093 $ (2,411)$
(5,524) $ (7,935)$ (4,126) $
(1,466) $
Net of
tax
Amount
(5,592)
—
2,265
2,265
—
—
—
—
—
—
9,336
(1,073)
8,263
19,401
(7,212)
12,189
(6,171)
605
(5,566)
(43,604)
5,574
(38,030)
17,686
(3,154)
14,532 (12,966)
3,932
(9,034)
(52,940)
(2,411)$
$
6,647
(1,715)
(46,293)
(5,524)$ (7,935) $ (4,126)$
4,058
(6,795)
2,343
(1,466) $ (5,592)$ (10,921) $
3,327
1,861 $
(3,468)
(9,060)
Opening balance
Adoption of ASU 2018-02 (refer
note 23)
Net gains (losses) reclassified
into statement of
income on completion of hedged
transactions
Changes in fair value of effective
portion of
outstanding derivatives, net
Gain/(loss) on cash flow hedging
derivatives, net
Closing balance
*The tax (expense) benefit includes the effect of novating certain hedging instruments as part of an intercompany transfer.
F-34
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
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
Forward foreign
exchange contracts
Interest rate swaps
Amount of Gain (Loss)
recognized in OCI on
Derivatives (Effective Portion)
Year ended December 31,
2018
2019
2020
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)
Year ended December 31,
2018
2019
$
(45,840) $
24,581 $
6,933 Revenue
$
(716) $
6,782
$
2,236
(6,895)
(19,899) Cost of revenue
Selling, general and
administrative expenses
Interest expense
$ (43,604) $
17,686 $
(12,966)
4,723
1,543
6,435
1,732
3,786
9,336
$
4,452
19,401
$
$
2020
4,432
(4,553)
(1,266)
(4,784)
(6,171)
There were no gains (losses) recognized in income on the ineffective portion of derivatives and excluded from effectiveness testing for
the years ended December 31, 2018, 2019 and 2020, respectively.
Non-designated Hedges
Amount of Gain (Loss) recognized in Statement of Income
on Derivatives
Year ended December 31,
Derivatives not designated as hedging
instruments
Location of Gain (Loss) recognized in Statement
of Income on Derivatives
2018
2019
2020
Forward foreign exchange
contracts (Note a)
Forward foreign exchange
contracts (Note b)
Foreign exchange gains (losses), net
$
(6,240) $
4,299
$
(8,055)
Foreign exchange gains (losses), net
—
(6,240) $
$
—
4,299
$
3,963
(4,092)
(a)
(b)
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.
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.
F-35
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
8. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
Advance income and non-income taxes
Contract asset (Note 25)
Prepaid expenses
Derivative instruments
Employee advances
Deposits
Advances to suppliers
Others
9. Property, plant and equipment, net
Property, plant and equipment, net consist of the following:
Land
Buildings
Furniture and fixtures
Computer equipment and servers
Plant, machinery and equipment
Computer software
Leasehold improvements
Vehicles
Capital work in progress
Property, plant and equipment, gross
Less: Accumulated depreciation, amortization and impairment
Property, plant and equipment, net
As of December 31,
As of December 31,
$
2019
43,763 $
19,170
29,734
18,223
4,209
1,784
4,289
49,153
$
170,325 $
2020
73,008
9,035
32,375
21,545
2,636
8,774
2,716
37,319
187,408
As of December 31,
As of December 31,
$
2019
5,923
$
42,595
49,849
229,890
105,004
141,330
123,413
120
46,037
744,161
(490,126)
254,035
$
$
$
$
2020
5,792
41,622
52,610
270,376
109,722
141,417
126,761
152
44,011
792,463
(561,341)
231,122
Depreciation expense on property, plant and equipment for the years ended December 31, 2018, 2019 and 2020 was $49,518, $53,332
and $67,662, respectively. Software amortization for the years ended December 31, 2018, 2019 and 2020 amounted to $12,317, $14,167 and
$9,421, respectively.
The depreciation and amortization expenses set forth above include the effect of the reclassification of foreign exchange (gains) losses
related to the effective portion of foreign currency derivative contracts, amounting to $(231), $(267) and $213 for the years ended
December 31, 2018, 2019 and 2020, respectively.
The Company recorded a write-down to certain property, plant and equipment during the years ended December 31, 2018 and 2020 as
described in Note 10.
F-36
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
10. Goodwill and intangible assets
The following table presents the changes in goodwill for the years ended December 31, 2019 and 2020:
Opening balance
Goodwill relating to acquisitions consummated during the period
Impact of measurement period adjustments
Effect of exchange rate fluctuations
Closing balance
As of December 31,
2019
1,393,832
185,381
(988)
(3,759)
1,574,466
$
$
2020
1,574,466
123,595
(5,653)
3,280
1,695,688
$
$
The following table presents the changes in goodwill by reporting unit for the year ended December 31, 2019:
Opening balance
Goodwill relating to acquisitions consummated during the period
Impact of measurement period adjustments
Effect of exchange rate fluctuations
Closing balance
$
$
BCMI
CGRLH
512,296
44,365
(151)
(1,380)
555,130
398,601
20,072
(380)
(1,080)
417,213
HMS
482,935
120,944
(457)
(1,299)
602,123
Total
1,393,832
185,381
(988)
(3,759)
1,574,466
The following table presents the changes in goodwill by reporting unit for the year ended December 31, 2020:
Opening balance
Goodwill relating to acquisitions consummated during the period
Impact of measurement period adjustments
Effect of exchange rate fluctuations
Closing balance
$
$
BCMI
CGRLH
555,130
52,612
(1,372)
1,204
420,172 607,574
417,213
2,559
(542)
942
HMS
602,123
68,424
(3,739)
1,134
667,942
Total
1,574,466
123,595
(5,653)
3,280
1,695,688
In the years ended December 31, 2019 and 2020, in accordance with ASU 2011-08, the Company performed an assessment to determine
whether events or circumstances exist that may lead 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 such assessment, as of December 31, 2019 and 2020, the Company concluded that it is not more likely
than not that the fair values of any of the Company’s reporting units are less than their carrying amounts.
The remaining amount of the Company’s goodwill deductible for tax purposes was $282,524 and $296,046 as of December 31, 2019 and
2020, respectively.
F-37
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
10. Goodwill and intangible assets (Continued)
The Company’s intangible assets are as follows:
Customer-related intangible assets $
Marketing-related intangible
assets
Technology-related intangible
assets
Intangible assets under
development
$
Gross
carrying
amount
As of December 31, 2019
Accumulated
amortization &
Impairment
Net
As of December 31, 2020
Gross
carrying
amount
Accumulated
amortization
& Impairment
Net
415,375 $
329,724 $
85,651
$
478,189 $
359,652 $
118,537
84,180
50,217
33,963
96,561
61,154
35,407
149,262
61,150
88,112
152,293
90,866
61,427
26,646
675,463 $
3,511
444,602 $
23,135
230,861 $
23,864
750,907 $
2,503
514,175 $
21,361
236,732
Amortization expenses for intangible assets acquired as a part of a business combination and disclosed in the consolidated statements
of income under amortization of acquired intangible assets for the years ended December 31, 2018, 2019 and 2020 were $38,850, $32,612 and
$43,343, respectively.
Amortization expenses for internally-developed and other intangible assets disclosed in the consolidated statements of income under
cost of revenue and selling, general and administrative expenses for the years ended December 31, 2018, 2019 and 2020 were $2,807, $18,957
and $27,290, respectively.
Amortization expenses for the technology-related, internally-developed intangible assets set forth above include the effect of the
reclassification of foreign exchange (gains) losses related to the effective portion of foreign currency derivative contracts, amounting to $5,
$(76) and $74 for the years ended December 31, 2018, 2019 and 2020, respectively.
During the years ended December 31, 2018, 2019 and 2020, the Company tested for recoverability certain customer-related and
technology-related intangible assets, including those under development, and certain property, plant and equipment, as a result of changes in
the Company’s investment strategy and market trends which led to a decision to cease certain service offerings. Based on the results of its
testing, the Company determined that the carrying value of certain assets tested were not recoverable and the Company recorded complete
write-downs of the carrying values of these assets amounting to $4,265, $3,511 and $14,083, respectively, for the years ended December 31,
2018, 2019 and 2020. These write-downs have been recorded in “other operating (income) expense, net” in the consolidated statements of
income.
The summary below represents the impairment charges recorded for various categories of assets during the years ended December 31,
2018, 2019 and 2020:
Technology related intangibles
Customer related intangibles
Total Intangibles
Property, plant and equipment
Total Property, plant and equipment
Grand Total
$
$
$
$
F-38
2018
Year ended December 31,
2019
3,511 $
—
3,511 $
—
— $
3,511 $
3,065 $
—
3,065 $
1,200
1,200 $
4,265 $
2020
5,179
938
6,117
7,966
7,966
14,083
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
10. Goodwill and intangible assets (Continued)
The estimated amortization schedule for the Company’s intangible assets for future periods is set out below:
For the year ending December 31:
2021
2022
2023
2024
2025 and beyond
$
$
81,753
53,705
42,119
24,003
13,791
215,371
11. Other Assets
Other assets consist of the following:
Contract asset (Note 25)
Advance income and non-income taxes
Deposits
Derivative instruments
Prepaid expenses
Deferred billings, net*
Others
Right of use (ROU) assets finance lease
As of December 31,
2019
As of December 31,
2020
21,176
93,277
36,342
3,086
6,003
7,858
15,853
33,484
217,079
$
6,770
155,035
32,058
6,164
5,176
25,357
43,175
50,083
323,818
$
* Deferred billings were $7,858 and $25,357, net of reserve for doubtful assets of $0 and allowance for credit losses of $3,134, as of December
31, 2019 and 2020, respectively. Total credit losses of $3,134 as of December 31, 2020 include $734 as a transition date adjustment through
retained earnings pursuant to the adoption of ASC 326 and $2,400 as a current period charge.
F-39
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
12. Leases
The Company has leased buildings, vehicles, furniture and fixtures, leased lines, computer equipment and servers, and plants,
machinery and equipment from various lessors. Certain lease agreements include options to terminate or extend the leases for up to 10 years.
The lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease cost for
operating and finance leases for the years ended December 31, 2019 and 2020 are summarized below:
Finance lease cost:
Amortization of ROU assets (Note a)
Interest on lease liabilities (Note b)
Operating lease cost (Note c)
Short-term lease cost (Note c)
Variable lease cost (Note c)
Total lease cost
Year ended
December 31,
2019
Year ended
December 31,
2020
9,302
2,997
74,436
438
4,052
91,225$
12,483
2,454
88,596
1,643
5,347
110,523
$
a)
b)
c)
Included in “depreciation and amortization” in the consolidated statements of income.
Included in “interest income (expense), net” in the consolidated statements of income.
Included in “cost of revenue” and “selling, general and administrative expenses” in the consolidated statements of income.
ROU assets relating to finance leases of $33,484 and $50,083 as of December 31, 2019 and December 31, 2020, respectively, are
included in “other assets.”
The operating lease cost set out above includes the effect of the reclassification of foreign exchange (gains) losses related to the effective
portion of foreign currency derivative contracts amounting to $(105) and $161 for the years ended December 31, 2019 and 2020, respectively.
Amortization of ROU asset set out above includes the effect of the reclassification of foreign exchange (gains) losses related to the
effective portion of foreign currency derivative contracts amounting to $(39) and $30 for the years ended December 31, 2019 and 2020,
respectively.
Other information
Weighted-average remaining lease term—finance leases
Weighted-average remaining lease term—operating leases
Weighted-average discount rate—finance leases
Weighted-average discount rate—operating leases
F-40
Year ended
December 31,
2019
Year ended
December 31,
2020
3.9 years
6.77 years
9.20%
6.87%
3.1 years
6.42 years
6.61%
7.28%
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
12. Leases (Continued)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Year ended
December 31,
2019
Year ended
December 31,
2020
$ 2,859
$ 72,645
$ 7,380
$
$
$
2,898
92,010
10,567
The following table reconciles the undiscounted cash flows for the Company’s finance and operating leases as of December 31, 2020 to
the finance and operating lease liabilities recorded on the Company’s balance sheet:
Period range
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Total lease liabilities
Finance lease
19,584
17,165
10,081
3,876
1,000
—
51,706
2,682
49,024
$
$
Operating lease
78,148
75,288
66,790
56,013
43,696
117,580
437,515
91,673
345,842
The following table reconciles the undiscounted cash flows for the Company’s finance and operating leases as of December 31, 2019 to
the finance and operating lease liabilities recorded on the Company’s balance sheet:
Period range
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Imputed interest
Total lease liabilities
Finance lease
12,019
8,765
6,008
4,506
3,445
1,512
36,255
5,790
30,465
$
$
Operating lease
79,912
74,736
63,539
57,742
45,870
135,104
456,903
97,139
359,764
Rental expenses in agreements with rent holidays and scheduled rent increases are recorded on a straight-line basis over the applicable
lease term. Rent expenses under cancellable and non-cancellable operating leases were $66,110 for the year ended December 31, 2018.
The rental expenses set out above include the effect of the reclassification of foreign exchange (gains) losses related to the effective
portion of foreign currency derivative contracts amounting to $(195) for the year ended December 31, 2018.
During the year ended December 31, 2020, the Company recorded an impairment charge of $16,322 relating to operating lease right-
of-use assets due to the Company’s shift to virtual operating environment. There was no such impairment charge during the year ended
December 31, 2019. Of the total impairment charge recorded in year ended December 31, 2020, $8,482 pertains to restructuring charges. See
Note 29 for additional details.
F-41
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
13. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
Accrued expenses
Accrued employee cost
Earn-out consideration
Statutory liabilities
Retirement benefits
Compensated absences
Derivative instruments
Contract liabilities (Note 25)
Finance lease liability
Others
14. Long-term debt
As of December 31,
As of December 31,
$
$
2019
178,845
274,000
6,384
62,786
1,333
26,116
6,966
97,313
9,740
20,388
683,871
$
$
2020
150,390
286,399
2,651
104,768
1,967
28,635
20,172
154,717
18,066
39,004
806,769
In August 2018, the Company amended its 2015 credit facility (“the 2015 Facility”), which was comprised of an $800,000 term loan and
a $350,000 revolving credit facility. The amended facility is comprised of a $680,000 term loan, which represents the outstanding balance
under the 2015 Facility as of the date of amendment, and a $500,000 revolving credit facility. The amended facility expires on August 8, 2023.
The amendment did not result in a substantial modification of $550,814 of the outstanding term loan under the 2015 Facility. Further, as a
result of the amendment, the Company extinguished the outstanding term loan under the 2015 Facility of $129,186 and obtained additional
funding of $129,186, resulting in no change to the outstanding principal of the term loan under the amended facility. In connection with the
amendment, the Company expensed $2,029, representing partial acceleration of the amortization of the existing unamortized debt issuance
costs and an additional fee paid to the Company’s lenders related to the term loan. The overall borrowing capacity under the revolving credit
facility increased from $350,000 to $500,000. The amendment of the revolving credit facility resulted in accelerated amortization of $82
relating to existing unamortized debt issuance cost. The remaining unamortized costs and an additional third party fee paid in connection
with the amendment will be amortized over the term of the amended facility, which will expire on August 8, 2023.
Borrowings under the amended credit facility bear interest at a rate equal to, at the election of the Company, either LIBOR plus an
applicable margin equal to 1.375% per annum, compared to a margin of 1.50% under the 2015 Facility, or a base rate plus an applicable
margin equal to 0.375% per annum, compared to a margin of 0.50% under the 2015 Facility, in each case subject to adjustment based on the
Company’s debt ratings provided by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. Based on the Company’s election
and current credit rating, the applicable interest rate is equal to LIBOR plus 1.375% per annum. The amended credit agreement restricts
certain payments, including dividend payments, if there is an event of default under the amended credit agreement or if the Company is not,
or after making the payment would not be, in compliance with certain financial covenants contained in the amended credit agreement,
including maintenance of a net debt to EBITDA leverage ratio of below 3x and an interest coverage ratio of more than 3x. During the year
ended December 31, 2020, the Company was in compliance with the terms of the amended credit agreement, including all of the financial
covenants therein. The Company’s retained earnings are not subject to any restrictions on availability to make dividend payments to
shareholders, subject to compliance with the financial covenants described above.
As of December 31, 2019 and 2020, the amount outstanding under the term loan, net of debt amortization expense of $1,641 and $1,150,
was $627,359 and $593,850, respectively. As of December 31, 2019 and 2020, the term loan bore interest at a rate equal to LIBOR plus a
margin of 1.375% per annum. Indebtedness under the amended facility is unsecured. The amount outstanding on the term loan as of
December 31, 2020 requires quarterly payments of $8,500, and the balance of the loan is due and payable upon the maturity of the term loan
on August 8, 2023.
F-42
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
14. Long-term debt (Continued)
The maturity profile of the term loan outstanding as of December 31, 2020, net of debt amortization expense, is as follows:
Year ended
2021
2022
2023
Total
Amount
33,537
33,564
526,749
593,850
$
$
Genpact Luxembourg S.à.r.l. (the “Issuer”), a wholly owned subsidiary of the Company, issued $350,000 aggregate principal amount of
3.70% senior notes in March 2017 (the “2017 Senior Notes”), and $400,000 aggregate principal amount of 3.375% senior notes in November
2019 (the “2019 Senior Notes” and together with the 2017 Senior Notes, the “Senior Notes”). The Senior Notes are fully guaranteed by the
Company. The total debt issuance cost of $2,642 and $2,937 incurred in connection with the 2017 Senior Notes and 2019 Senior Notes
offerings, respectively, are being amortized over the lives of the Senior Notes as an additional interest expense. As of December 31, 2019 and
2020, the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of $1,186 and $658, respectively, was $348,814
and $349,342, respectively, which is payable on April 1, 2022. As of December 31, 2019 and 2020, the amount outstanding under the 2019
Senior Notes, net of debt amortization expense of $2,868 and $2,284, was $397,132 and $397,716, respectively, which is payable on December
1, 2024. The Issuer will pay interest on the 2017 Senior Notes semi-annually in arrears on April 1 and October 1 of each year and on the 2019
Senior Notes semi-annually in arrears on June 1 and December 1 of each year, ending on the maturity dates of April 1, 2022 and December 1,
2024, respectively. The Company, at its option, may redeem the Senior Notes at any time in whole or in part, at a redemption price equal to (i)
100% of the principal amount of the notes redeemed, together with accrued and unpaid interest on the redeemed amount, and (ii) if the notes
are redeemed prior to, in the case of the 2017 Senior Notes, March 1, 2022, and in the case of the 2019 Senior Notes, November 1, 2024, a
specified “make-whole” premium. The Senior Notes are subject to certain customary covenants, including limitations on the ability of the
Company and certain of its subsidiaries to incur debt secured by liens, engage in certain sale and leaseback transactions and consolidate,
merge, convey or transfer their assets. During the year ended December 31, 2020, the Company and its applicable subsidiaries were in
compliance with the covenants. Upon certain change of control transactions, the Issuer will be required to make an offer to repurchase the
notes at a price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest. The interest rate payable on
the notes is subject to adjustment if the credit rating of the notes is downgraded, up to a maximum increase of 2.0%.
F-43
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
14. Long-term debt (Continued)
A summary of the Company’s long-term debt is as follows:
Credit facility, net of amortization expenses
3.70% Senior Notes, net of debt amortization expenses
3.375% Senior Notes, net of debt amortization expenses
Current portion
Non-current portion
Total
15. Short-term borrowings
The Company has the following borrowing facilities:
$
$
$
As of December 31,
$
2019
627,359
348,814
397,132
1,373,305 $
33,509
1,339,796
1,373,305 $
2020
593,850
349,342
397,716
1,340,908
33,537
1,307,371
1,340,908
(a)
(b)
Fund-based and non-fund-based credit facilities with banks, which are available for operational requirements in the form of
overdrafts, letters of credit, guarantees and short-term loans. As of December 31, 2019 and 2020, the limits available were
$14,307 and $14,311, respectively, of which $7,486 and $7,809 was utilized, constituting non-funded drawdown.
A fund-based and non-fund based revolving credit facility of $500,000, which the Company obtained through an amendment of
its existing credit agreement on August 9, 2018, as described in note 14. Prior to the amendment, the Company’s revolving credit
facility was $350,000. The amended credit facility expires on August 8, 2023. The funded drawdown amount under the
Company’s revolving facilities bore interest at a rate equal to LIBOR plus a margin of 1.375% as of December 31, 2019 and
December 31, 2020. The unutilized amount on the revolving facilities bore a commitment fee of 0.20% as of December 31, 2019
and 2020. As of December 31, 2019 and 2020, a total of $72,098 and $252,347, respectively, was utilized, of which $70,000 and
$250,000, respectively, constituted funded drawdown and $2,098 and $2,347, respectively, constituted non-funded drawdown.
The Company’s amended credit agreement contains certain customary covenants, including a maximum leverage covenant and a
minimum interest coverage ratio. During the year ended December 31, 2020, the Company was in compliance with the financial
covenants of the credit agreement.
16. Other liabilities
Other liabilities consist of the following:
Accrued employee cost
Earn-out consideration
Retirement benefits
Compensated absences
Derivative instruments
Contract liabilities (Note 25)
Finance lease liability
Others
As of December 31,
As of December 31,
$
$
2019
8,824 $
15,800
13,067
35,029
17,273
78,613
20,725
19,585
208,916 $
2020
19,797
5,621
11,947
47,656
20,809
68,760
30,958
32,850
238,398
F-44
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans
The Company has employee benefit plans in the form of certain statutory and other programs covering its employees.
Defined benefit plans
In accordance with Indian law, the Company provides a defined benefit retirement plan (the “Gratuity Plan”) covering substantially all
of its Indian employees. The Gratuity Plan provides a lump-sum payment to vested employees upon retirement or termination of employment
in an amount based on each employee’s salary and duration of employment with the Company. The Gratuity Plan benefit cost for the year is
calculated on an actuarial basis. The Company contributes the required funding for all ascertained liabilities to the Gratuity Plan. Trustees
administer contributions made to the trust, and contributions are invested in specific designated instruments as permitted by Indian law. The
Company’s overall investment strategy is to invest predominantly in fixed income funds managed by asset management companies and a
small portion in equity funds. These funds further invest in debt securities such as money market instruments, government securities and
public and private bonds. During the years ended December 31, 2018, 2019 and 2020, all of the plan assets were primarily invested in debt
securities.
In addition, in accordance with Mexican law, the Company provides certain termination benefits (the “Mexican Plan”) to all of its
Mexican employees based on the age, duration of service and salary of each eligible employee. The full-year benefit cost of the Mexican Plan is
calculated on an actuarial basis.
In addition, certain of the Company’s subsidiaries organized or operating in the Philippines and Japan have sponsored defined benefit
retirement programs (respectively, the “Philippines Plan” and the “Japan Plan”). The full-year benefit costs of the Philippines Plan and the
Japan Plan are calculated on an actuarial basis. Company contributions in respect of these plans are made to insurer-managed funds or to a
trust. The trust contributions are further invested in government bonds.
In addition, in accordance with Israeli law, the Company provides certain termination benefits (the “Israeli Plan”) to all of its Israeli
employees based on the age, duration of service and salary of each eligible employee. The full-year benefit cost of the Israeli Plan is calculated
on an actuarial basis.
Current service costs for defined benefit plans are accrued in the year to which they relate on a monthly basis. Actuarial gains or losses,
or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the
employees or over the average remaining life expectancies for inactive employees if most of the plan obligations are payable to inactive
employees.
F-45
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
The following table sets forth the funded status of the Company’s defined benefit plans and the amounts recognized in the Company’s
financial statements based on actuarial valuations carried out as of December 31, 2019 and 2020.
Change in benefit obligation
Projected benefit obligation at the beginning of the year
Service cost
Actuarial loss
Interest cost
Liabilities assumed on acquisition/ transfer of employees
Benefits paid
Plan Amendments
Effect of exchange rate changes
Projected benefit obligation at the end of the year
Change in fair value of plan assets
Fair value of plan assets at the beginning of the year
Employer contributions
Actual gain on plan assets
Actuarial gain/(loss)
Benefits paid
Effect of exchange rate changes
Fair value of plan assets at the end of the year
Funded status, end of year
Amounts recognized in the consolidated balance sheets
Non-current assets (recorded under other assets-others)
Current liabilities (recorded under accrued expenses and other current liabilities-retirement
benefits)
Non-current liabilities (recorded under other liabilities- retirement benefits)
Funded status, end of year
As of December 31,
2019
2020
61,448 $
8,915
12,323
4,667
96
(7,043)
(405)
560
80,561 $
39,683 $
35,459
3,258
387
(7,379)
(508)
70,900 $
(9,661) $
80,561
11,897
6,843
5,297
180
(6,388)
—
(730)
97,660
70,900
24,523
5,724
(354)
(6,287)
(697)
93,809
(3,851)
4,739 $
10,063
(1,333)
(13,067) $
(9,661) $
(1,967)
(11,947)
(3,851)
$
$
$
$
$
$
$
$
The change in defined benefit obligation for the years ended December 31, 2019 and 2020 is largely due to changes in actuarial
assumptions pertaining to discount rates.
Amounts included in accumulated other comprehensive income (loss) as of December 31, 2018, 2019 and 2020 were as follows:
Net actuarial loss
Net prior service credit / (cost)
Deferred tax assets
Other comprehensive income (loss), net
2018
(11,037) $
(967)
3,451
(8,553) $
As of December 31,
2019
(21,490) $
(717)
6,171
(16,036) $
$
$
2020
(24,669)
(477)
7,065
(18,081)
F-46
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
Changes in other comprehensive income (loss) during the year ended December 31, 2019 and 2020 were as follows:
Net Actuarial loss
Amortization of net actuarial loss
Deferred income taxes
Net prior service credit / (cost)
Effect of exchange rate changes
Other comprehensive income (loss), net
Funded status for defined benefit plans
For the year ended December 31,
$
$
2019
(11,283) $
1,150
2,720
436
435
(6,542) $
2020
(5,891)
2,242
894
219
491
(2,045)
The accumulated benefit obligation for defined benefit plans in excess of plan assets as of December 31, 2019 and 2020 was as follows:
Accumulated benefit obligation
Fair value of plan assets at the end of the year
As of December 31,
2019
17,631 $
6,023 $
2020
15,441
5,446
$
$
The projected benefit obligation for defined benefit plans in excess of plan assets as of December 31, 2019 and 2020 was
as follows:
Projected benefit obligation
Fair value of plan assets at the end of the year
As of December 31,
2019
21,659 $
7,259 $
2020
23,090
9,176
$
$
The amount of net projected benefit obligation and plan assets for all underfunded (including unfunded) defined benefit obligation
plans was $14,400 and $13,914 as of December 31, 2019 and 2020, respectively, and was classified as liabilities in the consolidated balance
sheets.
Net defined benefit plan costs for the years ended December 31, 2018, 2019 and 2020 include the following components:
Service costs
Interest costs
Amortization of actuarial loss
Expected return on plan assets
One-time cost
Net defined benefit plan costs
Year ended December 31,
2018
7,833 $
3,822
806
(2,435)
—
10,026 $
$
$
2019
8,915 $
4,667
1,384
(2,605)
202
12,563 $
2020
11,897
5,297
2,461
(4,589)
—
15,066
F-47
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
Expected Contributions
The Company estimates that it will pay $9,928 in fiscal 2021 related to contributions to defined benefit plans.
The weighted average assumptions used to determine the benefit obligations of the Gratuity Plan as of December 31, 2019 and 2020 are
presented below:
Discount rate
Rate of increase in compensation per annum
As of December 31,
2019
6.80%-7.35%
5.20%-11.50%
2020
4.45%-5.90%
5.20%-9.00%
The weighted average assumptions used to determine the Gratuity Plan costs for the years ended December 31, 2018, 2019 and 2020
are presented below:
Discount rate
Rate of increase in compensation per annum
Expected long-term rate of return on plan assets per annum
Year ended December 31,
2018
7.40% - 7.60%
5.20% - 11.00%
7.50%
2019
8.30%-8.40%
5.20%-11.00%
7.50%
2020
6.80%-7.35%
5.20-11.50%
7.50%
The weighted average assumptions used to determine the benefit obligations of the Mexican Plan as of December 31, 2019 and 2020 are
presented below:
Discount rate
Rate of increase in compensation per annum
F-48
As of December 31,
2019
2020
7.60%
5.50%
7.20%
5.50%
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
The weighted average assumptions used to determine the costs of the Mexican Plan for the years ended December 31, 2018, 2019 and
2020 are presented below:
Discount rate
Rate of increase in compensation per annum
2018
Year ended December 31,
2019
2020
7.60%
5.50%
9.40%
5.50%
7.60%
5.50%
The weighted average assumptions used to determine the benefit obligations of the Philippines Plan as of December 31, 2019 and 2020
are presented below:
Discount rate
Rate of increase in compensation per annum
As of December 31,
2019
5.22%
6.00%
2020
5.26%
5.00%
The weighted average assumptions used to determine the costs of the Philippines Plan for the years ended December 31, 2018, 2019 and
2020 are presented below:
Discount rate
Rate of increase in compensation per annum
Expected long-term rate of return on plan assets per annum
Year ended December 31,
2018
5.97%
8.00%
4.00%
2019
7.53%
6.00%
1.00%
2020
5.22%
6.00%
2.40%
The weighted average assumptions used to determine the benefit obligation of the Japan Plan as of December 31, 2019 and 2020 are
presented below:
Discount rate
Rate of increase in compensation per annum
As of December 31,
2019
0.094%-0.271%
0.00%
2020
0.17% -0.41%
0.00%
The weighted average assumptions used to determine the costs of the Japan Plan for the years ended December 31, 2018, 2019 and
2020 are presented below:
Discount rate
Rate of increase in compensation per annum
Expected long-term rate of return on plan assets per annum
2018
0.113%-0.789%
0.00% - 3.55%
0.00%-1.84%
Year ended December 31,
2019
2020
0.076%-0.269%
0.094%-0.271%
0.00%
0.00%-1.77%
0.00%
0.00%-1.77%
The expected returns on plan assets set forth above are based on the Company’s expectation of the average long-term rate of return
expected to prevail over the next 15 to 20 years on the types of investments prescribed by applicable statute.
The Company evaluates these assumptions based on projections of the Company’s long-term growth and prevalent industry standards.
Unrecognized actuarial loss is amortized over the average remaining service period of the active employees expected to receive benefits under
the plan.
F-49
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
Investment and Risk management strategy
The overall investment objective of the Company’s defined benefit plans is to match the duration of the plans’ assets to the plans’
liabilities while managing risk in order to meet defined benefit obligations. The plans’ future prospects, their current financial conditions, our
current funding levels and other relevant factors suggest that the plans can tolerate some interim fluctuations in market value and rates of
return in order to achieve long-term objectives without undue risk to the plans’ ability to meet their current benefit obligations.
Plan investments are exposed to risks including market, interest rate and operating risk. In order to mitigate significant concentrations
of these risks, the assets are invested in a diversified portfolio primarily consisting of fixed income instruments, liquid assets, equities and
debt.
The fair values of the Company’s plan assets as of December 31, 2019 and 2020 by asset category are as follows:
Asset category
Equity
Cash
Fixed income securities (Note a)
Other securities (Note b)
Total
Asset category
Equity
Cash
Fixed income securities (Note a)
Other securities (Note b)
Total
As of December 31, 2020
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Other Unobservable
Inputs
(Level 3)
Total
$
— $
21,707
63,444
8,658
$ 93,809 $
— $
21,707
9,611
4,423
35,741 $
— $
—
53,833
4,235
58,068 $
—
—
—
—
—
As of December 31, 2019
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Other Unobservable
Inputs
(Level 3)
12 $
11,001
3,732
2,630
17,375 $
— $
—
52,089
1,436
53,525 $
—
—
—
—
—
Total
$
12 $
11,001
55,821
4,066
$ 70,900 $
(a)
(b)
Includes investments in funds that invest 100% of their assets in fixed income securities such as money market instruments,
government securities and public and private bonds.
Includes investments in funds that invest primarily in fixed income securities and the remaining portion in equity securities.
F-50
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
The expected benefit plan payments set forth below reflect expected future service:
Year ending December 31,
2021
2022
2023
2024
2025
2026 - 2030
$
$
12,718
12,290
13,879
15,018
15,173
80,012
149,090
The Company’s expected benefit plan payments are based on the same assumptions that were used to measure the Company’s benefit
obligations as of December 31, 2020.
Defined contribution plans
During the years ended December 31, 2018, 2019 and 2020, the Company contributed the following amounts to defined contribution
plans in various jurisdictions:
India
U.S.
U.K.
China
Other regions
Total
Deferred compensation plan
Year ended December 31,
2018
23,877 $
13,454
9,619
17,625
4,772
69,347 $
2019
29,729 $
19,401
12,312
18,819
8,177
88,438 $
2020
30,396
19,491
11,543
17,361
10,427
89,218
$
$
On July 1, 2018, Genpact LLC, a wholly-owned subsidiary of the Company, adopted an executive deferred compensation plan (the
“Plan”). The Plan provides a select group of U.S.-based members of the Company’s executive management with the opportunity to defer from
1% to 80% of their base salary and from 1% to 100% of their qualifying bonus compensation (or such other minimums or maximums as
determined by the Plan administrator from time to time) pursuant to the terms of the Plan. Participant deferrals are 100% vested at all times.
The Plan also allows for discretionary supplemental employer contributions by the Company, in its sole discretion, which will be subject to a
two-year vesting schedule (50% vesting on the one-year anniversary of approval of the contribution and 50% vesting on the second year
anniversary of approval of the contribution) or such other vesting schedule as determined by the Company. However, no such contributions
have been made by the Company to date.
The Plan also provides an option for participants to elect to receive deferred compensation and earnings thereon on either fixed
date(s) no earlier than two years following the applicable Plan year (or end of the applicable performance period for performance-based bonus
compensation) or following a separation from service, in each case either in a lump sum or in annual installments over a term of up to 15
years. Each Plan participant’s compensation deferrals and discretionary supplemental employer contributions (if any) are credited or debited
with notional investment gains and losses equal to the performance of selected hypothetical investment funds offered under the Plan and
elected by the participant.
The Company has investments in funds held in Company-owned life insurance policies which are held in a Rabbi Trust that are
classified as trading securities. Management determines the appropriate classification of the securities at the time they are acquired and
evaluates the appropriateness of such classifications at each balance sheet date. The securities are classified as trading securities because they
are held for resale in anticipation of short-term fluctuations in market prices. The trading securities are stated at fair value.
F-51
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
17. Employee benefit plans (Continued)
The liability for the deferred compensation plan was $10,943 and $26,390 as of December 31, 2019 and 2020, respectively, and is
included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.
In connection with the administration of the Plan, the Company has purchased company-owned life insurance policies insuring the
lives of certain employees. The cash surrender value of these policies was $11,208 and $26,832 as of December 31, 2019 and 2020,
respectively. The cash surrender value of these insurance policies is included in “other assets” in the consolidated balance sheets.
During the years ended December 31, 2019 and 2020, the change in the fair value of Plan assets was $1,296 and $4,164, respectively,
which is included in “other income (expense), net,” in the consolidated statements of income. During the years ended December 31, 2019 and
2020, the change in the fair value of deferred compensation liabilities was $1,062 and $4,120, respectively, which is included in “selling,
general and administrative expenses.”
18. Stock-based compensation
The Company has granted stock-based awards under the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007
Omnibus Plan”) and the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”) to eligible persons,
including employees, directors and certain other persons associated with the Company.
A brief summary of each plan is provided below:
2007 Omnibus Plan
The Company adopted the 2007 Omnibus Plan on July 13, 2007 and amended and restated it on April 11, 2012. The 2007 Omnibus Plan
provided for the grant of awards intended to qualify as incentive stock options, non-qualified stock options, share appreciation rights,
restricted share awards, restricted share units, performance units, cash incentive awards and other equity-based or equity-related awards.
Under the 2007 Omnibus Plan, the Company was authorized to grant awards for the issuance of up to a total of 23,858,823 common shares.
2017 Omnibus Plan
On May 9, 2017, the Company’s shareholders approved the adoption of the Genpact Limited 2017 Omnibus Incentive Compensation
Plan (the “2017 Omnibus Plan”), pursuant to which 15,000,000 Company common shares are available for issuance. The 2017 Omnibus Plan
was amended and restated on April 5, 2019 to increase the number of common shares authorized for issuance by 8,000,000 shares to
23,000,000 shares. No grants may be made under the 2007 Omnibus Plan after the date of adoption of the 2017 Omnibus Plan. Grants that
were outstanding under the 2007 Omnibus Plan as of the Company’s adoption of the 2017 Omnibus Plan remain subject to the terms of the
2007 Omnibus Plan.
Stock-based compensation costs relating to the foregoing plans during the years ended December 31, 2018, 2019 and 2020, were
$48,196, $82,802 and $72,709, respectively, and have been allocated to cost of revenue and selling, general and administrative expenses.
Income tax benefits recognized in relation to stock-based compensation charges, including options, RSUs and PUs, including excess tax
benefits, during the years ended December 31, 2018, 2019 and 2020 were $11,783, $18,921 and $21,832, respectively.
Stock options
All options granted under the 2007 and 2017 Omnibus Plans are exercisable into common shares of the Company, have a contractual
period of ten years and vest over four to five years unless specified otherwise in the applicable award agreement. The Company recognizes
compensation cost over the vesting period of the option.
F-52
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
Compensation cost is determined at the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing
model.
The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in
2018, 2019 and 2020:
Dividend yield
Expected life (in months)
Risk-free rate of interest for expected life
Volatility
2018
0.95%-1.01%
84
2.67% - 2.93%
22.55% -22.73%
2019
0.82%-1.08%
84
1.56%- 2.63%
21.0%- 21.38%
2020
0.89%
84
1.50%
20.96%
Volatility was calculated based on the historical volatility of the Company’s share price during a period equivalent to the estimated term
of the option. The Company estimates the expected term of an option using the “simplified method,” which is based on the average of its
contractual vesting term. The risk-free interest rate that the Company uses in the option valuation model is based on U.S. Treasury bonds with
a term similar to the expected term of the options. The Company paid cash dividends of $0.085 and $0.0975 per share in each quarter of fiscal
2019 and 2020, respectively.
The Company has issued, and intends to continue to issue, new common shares upon stock option exercises and the vesting of share
awards under its equity-based incentive compensation plans.
A summary of stock option activity during the years ended December 31, 2018, 2019 and 2020 is set out below:
Year ended December 31, 2018
Outstanding as of January 1, 2018
Granted
Forfeited
Expired
Exercised
Outstanding as of December 31, 2018
Vested as of December 31, 2018 and expected to vest
thereafter (Note a)
Vested and exercisable as of December 31, 2018
Weighted average grant-date fair value of options
granted during the period
Shares arising
out of options
Weighted
average
Weighted average
remaining
contractual life
(years)
5,134,645 $
2,638,106
(70,000)
—
(441,076)
7,261,675 $
exercise price
19.52
30.47
27.65
—
16.46
23.61
Aggregate
intrinsic
value
—
—
—
—
6,731
34,143
33,997
30,806
5.6
—
—
—
—
6.4
$
$
6.4
3.7
$
$
7,107,605 $
3,313,570 $
23.50
17.69
$
8.32
F-53
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
Outstanding as of January 1, 2019
Granted
Forfeited
Expired
Exercised
Outstanding as of December 31, 2019
Vested as of December 31, 2019 and expected to vest thereafter
(Note a)
Vested and exercisable as of December 31, 2019
Weighted average grant-date fair value of options granted
during the period
Year ended December 31, 2019
Shares arising
out of options
7,261,675
1,881,068
(85,000)
—
(697,531)
8,360,212
Weighted
average
exercise price
23.61
$
28.50
29.91
—
15.33
25.33
$
8,006,985
3,111,039
$
$
25.18
19.16
$
6.98
Weighted average
remaining
contractual life
(years)
6.4
—
—
—
—
6.5
6.5
3.4
Outstanding as of January 1, 2020
Granted
Forfeited
Expired
Exercised
Outstanding as of December 31, 2020
Vested as of December 31, 2020 and expected to vest
thereafter (Note a)
Vested and exercisable as of December 31, 2020
Weighted average grant-date fair value of options granted
during the period
Year ended December 31, 2020
Shares arising
out of options
8,360,212
431,924
(752,261)
—
(692,634)
7,347,241
Weighted
average
exercise price
25.33
$
43.94
30.09
—
20.30
26.41
$
7,132,162
2,713,405
$
$
26.26
19.40
$
9.72
Weighted average
remaining
contractual life
(years)
6.5
—
—
—
—
5.7
5.7
2.6
Aggregate
intrinsic
value
$
—
—
—
—
18,724
$ 140,760
$ 136,017
71,584
$
Aggregate
intrinsic
value
$
$
$
$
—
—
—
—
11,813
110,925
108,671
59,593
(a)
Options expected to vest reflect an estimated forfeiture rate.
Cash received by the Company upon the exercise of stock options during the years ended December 31, 2018, 2019 and 2020 amounted
to $10,772, $10,690 and $14,062, respectively. Tax benefits from the exercise of stock options during the years ended December 31, 2018,
2019 and 2020 were $2,473, $2,966 and $7,381 (including excess tax benefits of $2,131, $2,743 and $7,310), respectively.
As of December 31, 2020, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to
$18,352, which will be recognized over the weighted average remaining requisite vesting period of 2.9 years.
Restricted Share Units
The Company has granted restricted share units, or RSUs, under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to
receive one common share. The fair value of each RSU is the market price of one common share of the Company on the date of grant. The
RSUs granted to date have graded vesting schedules of three months to four years. The compensation expense is recognized on a straight-line
basis over the vesting term.
F-54
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
A summary of RSU activity during the years ended December 31, 2018, 2019 and 2020 is set out below:
Year ended December 31, 2018
Outstanding as of January 1, 2018
Granted
Vested (Note b)
Forfeited
Outstanding as of December 31, 2018
Expected to vest (Note a)
Outstanding as of January 1, 2019
Granted
Vested (Note c)
Forfeited
Outstanding as of December 31, 2019
Expected to vest (Note a)
Outstanding as of January 1, 2020
Granted
Vested (Note d)
Forfeited
Outstanding as of December 31, 2020
Expected to vest (Note a)
Number of Restricted
Share Units
Weighted Average
Grant Date Fair Value
26.17
30.13
25.53
27.09
27.45
1,605,251 $
484,427
(358,697)
(201,982)
1,528,999 $
1,360,048
Year ended December 31, 2019
Number of Restricted
Share Units
1,528,999 $
470,939
(672,025)
(66,207)
1,261,706 $
1,149,286
Weighted Average
Grant Date Fair Value
27.45
37.58
26.84
30.43
31.41
Year ended December 31, 2020
Number of Restricted
Share Units
1,261,706 $
296,332
(640,212)
(57,518)
860,308 $
762,877
Weighted Average
Grant Date Fair Value
31.41
40.40
28.28
37.35
36.44
(a)
(b)
(c)
(d)
RSUs expected to vest reflect an estimated forfeiture rate.
261,260 RSUs that vested during the period were net settled upon vesting by issuing 175,505 shares (net of minimum statutory tax
withholding). 52,875 RSUs vested in the year ended December 31, 2017, 52,405 shares in respect of which were issued in 2019 after
withholding shares to the extent of minimum statutory withholding taxes. 44,562 RSUs vested in the year ended December 31, 2018,
shares in respect of which 44,165 shares were issued in 2020 after withholding shares to the extent of minimum statutory withholding
taxes.
637,933 RSUs that vested during the period were net settled upon vesting by issuing 521,707 shares (net of minimum statutory tax
withholding). 34,092 RSUs vested in the year ended December 31, 2019, shares in respect of which will be issued in 2021 after
withholding shares to the extent of minimum statutory withholding taxes .
590,699 RSUs that vested during the period were net settled upon vesting by issuing 385,197 shares (net of minimum statutory tax
withholding). 49,513 RSUs vested in the year ended December 31, 2020, shares in respect of which will be issued in 2021 after
withholding shares to the extent of minimum statutory withholding taxes.
52,482 RSUs vested in the year ended December 31, 2016, 52,055 shares in respect of which were issued in 2018 after withholding
shares to the extent of minimum statutory withholding taxes.
As of December 31, 2020, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $16,433,
which will be recognized over the weighted average remaining requisite vesting period of 2.1 years.
F-55
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
Performance Units
The Company also grants stock awards in the form of performance units, or PUs, and has granted PUs under both the 2007 and 2017
Omnibus Plans.
Each PU represents the right to receive one common share at a future date based on the Company’s performance against specified
targets. PUs granted to date have vesting schedules of six months to three years. The fair value of each PU is the market price of one common
share of the Company on the date of grant and assumes that performance targets will be achieved. PUs granted under the plan are subject to
cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting term. During the performance
period, the Company’s estimate of the number of shares to be issued is adjusted upward or downward based upon the probability of
achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized is based on a
comparison of the final performance metrics to the specified targets.
A summary of PU activity during the years ended December 31, 2018, 2019 and 2020 is set out below:
Year ended December 31, 2018
Outstanding as of January 1, 2018
Granted
Vested (Note b)
Forfeited
Adjustment upon final determination of level of performance goal
achievement (Note c)
Adjustment upon final determination of level of performance goal
achievement (Note d)
Outstanding as of December 31, 2018
Expected to vest (Note a)
F-56
Number of
Performance Units
2,900,940 $
1,682,740
(1,087,751)
(258,237)
Weighted Average
Grant Date Fair Value
24.40
30.62
22.73
26.03
Maximum Shares
Eligible to Receive
2,900,940
3,365,480
(1,087,751)
(305,737)
474,800
30.68
3,712,402 $
3,261,069
28.40
(1,160,530)
3,712,402
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
Outstanding as of January 1, 2019
Granted
Vested (Note e)
Forfeited
Adjustment upon final determination of level of
performance goal achievement (Note f)
Adjustment upon final determination of level of
performance goal achievement (Note g)
Outstanding as of December 31, 2019
Expected to vest (Note a)
Outstanding as of January 1, 2020
Granted
Vested (Note h)
Forfeited
Adjustment upon final determination of level of
performance goal achievement (Note i)
Adjustment upon final determination of level of
performance goal achievement (Note j)
Outstanding as of December 31, 2020
Expected to vest (Note a)
Number of
Performance Units
Year ended December 31, 2019
Weighted Average
3,712,402 $
1,579,109
(3,276)
(248,031)
Grant Date Fair Value
28.40
34.68
27.47
29.04
1,018,260
6,058,464 $
5,507,640
34.72
31.07
Number of
Performance Units
Year ended December 31, 2020
Weighted Average
6,058,464 $
1,253,766
(1,496,377)
(539,670)
Grant Date Fair Value
31.07
42.49
25.21
33.77
(399,987)
4,876,196 $
4,573,356
42.60
34.56
Maximum Shares
Eligible to Receive
3,712,402
3,158,218
(3,276)
(278,755)
(530,125)
6,058,464
Maximum Shares
Eligible to Receive
6,058,464
2,507,532
(1,496,377)
(560,867)
(1,632,556)
4,876,196
(a)
(b)
(c)
(d)
(e)
(f)
(g)
PUs expected to vest are based on the probable achievement of the performance targets after considering an estimated forfeiture rate.
Vested PUs were net settled upon vesting by issuing 691,958 shares (net of minimum statutory tax withholding).
Represents a 28.77% increase in the number of target shares expected to vest as a result of achievement of higher-than-target
performance for PUs granted in 2018, partially offset by an adjustment made in March 2018 to the number of shares subject to the PUs
granted in 2017 upon certification of the level of achievement of the performance targets underlying such awards.
Represents the difference between the maximum number of shares achievable and the number of shares expected to vest under the PU
awards granted in 2018 based on the level of achievement of the performance goals. Also includes an adjustment made in March 2018
to the number of shares subject to the PUs granted in 2017 upon certification of the level of achievement of the performance targets
underlying such awards.
Vested PUs were net settled upon vesting by issuing 2,151 shares (net of minimum statutory tax withholding).
Represents a 66.67% increase in the number of target shares expected to vest as a result of achievement of higher-than-target
performance for PUs granted in 2019 partially offset by an adjustment made in March 2019 to the number of shares subject to the PUs
granted in 2018 upon certification of the level of achievement of the performance targets underlying such awards.
Represents the difference between the maximum number of shares achievable and the number of shares expected to vest under the PU
awards granted in 2019 based on the level of achievement of the performance goals. Also includes an adjustment made in March 2019 to
the number of shares subject to the PUs granted in 2018 upon certification of the level of achievement of the performance targets
underlying such awards.
F-57
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
18. Stock-based compensation (Continued)
(h)
(i)
(j)
Vested PUs were net settled upon vesting by issuing 902,532 shares (net of minimum statutory tax withholding).
Represents a 32.98% decrease in the number of target shares expected to vest as a result of achievement of lower-than-target
performance for PUs granted in 2020, partially offset by an adjustment made in March 2020 to the number of shares subject to the PUs
granted in 2019 upon certification of the level of achievement of the performance targets underlying such awards.
Represents the difference between the maximum number of shares achievable and the number of shares expected to vest under the PU
awards granted in 2020 based on the level of achievement of the performance goals. Also includes an adjustment made in March 2020
to the number of shares subject to the PUs granted in 2019 upon certification of the level of achievement of the performance targets
underlying such awards.
As of December 31, 2020, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $51,014, which will
be recognized over the weighted average remaining requisite vesting period of 1.5 years.
Employee Stock Purchase Plan (ESPP)
On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International
Employee Stock Purchase Plan (together, the “ESPP”). In April 2018, these plans were amended and restated, and their terms were extended
to August 31, 2028.
The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90% of the closing price
of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under
the ESPP must not exceed 15% of the participating employee’s base salary, subject to a cap of $25 per employee per calendar year. With effect
from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and
end on the last business day of the subsequent May, August, November and February. 4,200,000 common shares have been reserved for
issuance in the aggregate over the term of the ESPP.
During the years ended December 31, 2018, 2019 and 2020, 245,467, 264,440 and 315,245 common shares, respectively, were issued
under the ESPP.
The ESPP is considered compensatory under FASB guidance on Compensation-Stock Compensation.
The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation—Stock Compensation.
The compensation expense for the ESPP during the years ended December 31, 2018, 2019 and 2020 was $802, $1,083 and $1,299,
respectively, and has been allocated to cost of revenue and selling, general and administrative expenses.
19. Capital stock
The Company’s authorized capital stock as of December 31, 2019 and 2020 consisted of 500 million common shares with a par value of
$0.01 per share, and 250 million preferred shares with a par value of $0.01 per share. There were 190,118,181 and 189,045,661 common
shares, and no preferred shares, issued and outstanding as of December 31, 2019 and 2020, respectively.
Holders of common shares are entitled to one vote per share. Upon the liquidation, dissolution or winding up of the Company, common
shareholders are entitled to receive a ratable share of the available net assets of the Company after payment of all debts and other liabilities.
The common shares have no preemptive, subscription, redemption or conversion rights.
F-58
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
19. Capital stock (Continued)
The Company’s board of directors by resolution can establish one or more series of preferred shares having such par value,
designations, dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative
participation, optional or other rights, qualifications, limitations or restrictions as may be fixed by the board of directors without shareholder
approval. Such rights, preferences, powers and limitations as may be established could also have the effect of discouraging an attempt to
obtain control of the Company. These preferred shares are of the type commonly known as “blank-check” preferred shares.
Under Bermuda law, the Company may declare and pay dividends from time to time unless there are reasonable grounds for believing
that the Company is or would, after the payment, be unable to pay its liabilities as they become due or that the realizable value of its assets
would thereby be less than the aggregate of its liabilities, its issued share capital, and its share premium accounts. Under the Company’s bye-
laws, each common share is entitled to dividends if, as and when dividends are declared by the Company’s board of directors. There are no
restrictions in Bermuda on the Company’s ability to transfer funds (other than funds denominated in Bermuda dollars) in or out of Bermuda
or to pay dividends to U.S. residents who are holders of common shares. The Company’s ability to declare and pay cash dividends is restricted
by its debt covenants.
Share Repurchases
The Board of Directors of the Company (the “Board”) has authorized repurchases of up to $1,250,000 under the Company’s existing
share repurchase program as of December 31, 2020. The Company’s share repurchase program does not obligate it to acquire any specific
number of shares. Under the program, shares may be purchased in privately negotiated and/or open market transactions, including under
plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
During the years ended December 31, 2018, 2019 and 2020, the Company repurchased 4,921,192, 766,154 and 3,412,293 of its common
shares, respectively, on the open market at a weighted average price of $31.30, $39.16 and $40.16 per share, respectively, for an aggregate
cash amount of $154,058, $30,000 and $137,044, respectively. In 2017, the Company entered into an accelerated share repurchase (“ASR”)
agreement with Morgan Stanley & Co. LLC to repurchase Company common shares for an aggregate purchase price of $200,000. The
Company received the delivery of 6,928,953 and 163,975 of its common shares under the ASR agreement during the years ended December 31,
2017 and 2018, respectively. The weighted average price per share of the common shares delivered was $28.20. All repurchased shares have
been retired.
The Company records repurchases of its common shares on the settlement date of each transaction. Shares purchased and retired are
deducted to the extent of their par value from common stock and from retained earnings for the excess over par value. Direct costs incurred to
acquire the shares are included in the total cost of the shares purchased. For the years ended December 31, 2018, 2019 and 2020, $98, $15 and
$68, respectively, was deducted from retained earnings in direct costs related to share repurchases.
$136,998 remained available for share repurchases under our existing share repurchase program as of December 31, 2020. This
repurchase program does not obligate us to acquire any specific number of shares and does not specify an expiration date.
F-59
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
19. Capital stock (Continued)
Dividend
On February 12, 2018, the Company announced that its Board of Directors had approved a 25% increase in its quarterly cash dividend
to $0.075 per share, up from $0.06 per share in 2017, representing an annual dividend of $0.30 per common share, up from $0.24 per share
in 2017, payable to holders of the Company’s common shares. On March 21, 2018, June 20, 2018, September 19, 2018 and December 19, 2018,
the Company paid dividends of $0.075 per share, amounting to $14,408, $14,240, $14,253 and $14,201 in the aggregate, to shareholders of
record as of March 9, 2018, June 8, 2018, September 10, 2018 and December 10, 2018, respectively.
On February 7, 2019, the Company announced that its Board of Directors had approved a 13% increase in its quarterly cash dividend to
$0.085 per share, up from $0.075 per share in 2018, representing an annual dividend of $0.34 per common share, up from $0.30 per share in
2018, payable to holders of the Company’s common shares. On March 20, 2019, June 21, 2019, September 20, 2019 and December 18, 2019,
the Company paid dividends of $0.085 per share, amounting to $16,119, $16,188, $16,208 and $16,156 in the aggregate, to shareholders of
record as of March 8, 2019, June 12, 2019, September 11, 2019 and December 9, 2019, respectively.
On February 6, 2020, the Company announced that its Board of Directors had approved a 15% increase in its quarterly cash dividend to
$0.0975 per share, up from $0.085 per share in 2019, representing an annual dividend of $0.39 per common share, up from $0.34 per share
in 2019, payable to holders of the Company’s common shares. On March 18, 2020, June 26, 2020, September 23, 2020 and December 23,
2020, the Company paid dividends of $0.0975 per share, amounting to $18,543, $18,595, $18,637 and $18,437 in the aggregate, to
shareholders of record as of March 9, 2020, June 11, 2020, September 11, 2020 and December 9, 2020, respectively.
20. Earnings per share
The Company calculates earnings per share in accordance with FASB guidance on Earnings per Share. Basic and diluted earnings per
common share give effect to the change in the number of common shares outstanding. The calculation of basic earnings per common share
was determined by dividing net income available to common shareholders by the weighted average number of common shares outstanding.
The potentially dilutive shares, consisting of outstanding options on common shares, restricted share units, common shares to be issued under
the ESPP and performance units, have been included in the computation of diluted net earnings per share and number of weighted average
shares outstanding, except where the result would be anti-dilutive.
The number of stock awards outstanding but not included in the computation of diluted earnings per common share because their effect
was anti-dilutive is 2,410,230, 1,809,069 and 1,182,572 for the years ended December 31, 2018, 2019 and 2020, respectively.
Net income available to Genpact Limited common shareholders
Weighted average number of common shares used in computing basic
earnings per common share
Dilutive effect of stock-based awards
Weighted average number of common shares used in computing dilutive
earnings per common share
Earnings per common share attributable to Genpact Limited common
shareholders
Basic
Diluted
Year ended December 31,
2018
282,019 $
2019
304,881 $
$
2020
308,276
190,674,740
3,305,298
190,074,475
5,086,380
190,396,780
5,384,191
193,980,038
195,160,855
195,780,971
$
$
1.48 $
1.45 $
1.60 $
1.56 $
1.62
1.57
F-60
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
21. Other operating (income) expense, net
Other operating (income) expense, net consists of the following:
Write-down of intangible assets and property, plant and equipment*
Write-down of operating lease right-of-use assets and other assets**
Change in fair value of earn out consideration and deferred consideration
(relating to business acquisitions)
Other operating (income) expense#
Other operating (income) expense, net
$
$
Year ended December 31,
2018
4,265 $
—
(5,655)
(455)
(1,845) $
2019
3,511 $
—
—
(34,545)
(31,034) $
2020
14,083
18,084
(7,790)
(5,046)
19,331
* Refer to Notes 10 and 29 for additional information about other operating (income) expense, net for the year ended December 31, 2020.
** Of the total write-down, $10,244 pertains to restructuring charges for the year ended December 31, 2020. No such charges were recorded
for the years ended December 31, 2018 and 2019. Refer to Notes 12 and 29 for additional details.
# Includes gain of $31,380 for the year ended December 31, 2019 on land rights transferred to a third-party real estate developer in exchange
for an interest in commercial property being developed on the land.
22. Interest income (expense), net
Interest income (expense), net consists of the following:
Interest income
Interest expense
Interest income (expense), net
23. Income taxes
Year ended December 31,
2018
11,388 $
(48,507)
(37,119) $
$
$
2019
7,321 $
(50,779)
(43,458) $
2020
7,284
(56,244)
(48,960)
Income tax expense (benefit) for the years ended December 31, 2018, 2019 and 2020 is allocated as follows:
Income from continuing operations
Other comprehensive income:
Unrealized gains (losses) on cash flow hedges
Retirement benefits
Retained earnings:
Reclassification from AOCI on early adoption of ASU 2018-02
Deferred tax expense recognized on adoption of ASU 2014-09
Deferred tax benefit recognized on adoption of ASU 2016-13
Accumulated other comprehensive income:
Reclassification to retained earnings on early adoption of ASU 2018-02
F-61
Year ended December 31,
2018
2019
2020
$
80,763
$
94,536 $
92,201
(6,647)
(1,407)
2,265
5,303
—
(2,265)
(4,058)
(2,720)
—
—
—
—
(3,327)
(894)
—
—
(935)
—
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
23. Income taxes (Continued)
The components of income before income tax expense from continuing operations are as follows:
Domestic (U.S.)
Foreign (other than U.S.)
Income before income tax expense
Year ended December 31,
2018
2019
2020
$
$
49,986 $
312,035
362,021 $
27,783 $
371,634
399,417 $
122,497
277,980
400,477
Income tax expense (benefit) attributable to income from continuing operations consists of:
Current tax expense:
Domestic (U.S. federal)
Domestic (U.S. state)
Foreign (other than U.S.)
Deferred tax expense (benefit):
Domestic (U.S. federal)
Domestic (U.S. state)
Foreign (other than U.S.)
Total income tax expense (benefit)
Year ended December 31,
2018
2019
2020
$
$
$
$
$
6,466
$
3,508
64,735
74,709 $
6,577 $
(1,176)
653
6,054 $
80,763 $
2,854
$
3,908
104,089
110,851 $
2,669 $
(1,679)
(17,305)
(16,315) $
94,536 $
23,668
10,765
80,355
114,788
(7,329)
(3,770)
(11,488)
(22,587)
92,201
Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the
U.S. federal statutory income tax rate of 21% to income before income taxes as a result of the following:
Income before income tax expense
Statutory tax rates
Computed expected income tax expense
Increase (decrease) in income taxes resulting from:
Year ended December 31,
$
2018
2019
2020
362,021
$
21%
76,024
399,417
$
21%
83,878
400,477
21%
84,100
23,373
(23,003)
3,245
Foreign tax rate differential
Tax benefit from tax holiday
Non-deductible expenses
Effect of change in tax rates
Change in valuation allowance
Unrecognized tax benefits
Employment related tax incentive
Internal restructuring
State taxes
Excess tax benefit on share-based compensation
Others*
16,295
(16,063)
372
453
142,733
3,228
—
(129,688)
6,995
(7,310)
(8,914)
92,201
Reported income tax expense (benefit)
*Following the transfer/closure of certain affiliated entities, deferred tax liabilities recorded against the outside basis difference were reversed amounting to $18,510 and $3,782 during the years ended
December 31, 2018 and 2019. Additionally, during the years ended December 31, 2019 and 2020, the Company created a deferred tax asset on the impairment of one of its intercompany investments
for income tax purposes amounting to $8,069 and $8,384. It was not more likely than not that the resulting net deferred tax asset would be realized. Therefore, a full valuation allowance was
established.
34,566
(21,393)
2,152
6,497
10,515
5,502
(5,239)
—
2,229
(2,743)
(21,428)
$
94,536
27,826
3,008
(3,243)
(2,859)
2,332
(2,131)
(23,662)
$
80,763
(147)
$
F-62
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
23. Income taxes (Continued)
A portion of the profits of the Company’s operations is exempt from income tax in India. One of the Company’s Indian subsidiaries has
certain units eligible for a tax holiday as a special economic zone unit in respect of 100% of the export profits it generates for a period of 5
years from commencement, 50% of such profits for the next 5 years (year 6 to year 10 from commencement) and 50% of the profits for an
additional period of 5 years (year 11 to year 15 from commencement), subject to the satisfaction of certain capital investment requirements.
The tax holidays for the Company’s existing special economic zone units will begin to expire on March 31, 2022 and will have fully expired on
March 31, 2035, assuming the Company satisfies the capital investment requirements.
During the year ended December 31, 2019, the Indian tax authorities introduced a new tax regime under which a Company can elect to
pay taxes at a lower tax rate by forgoing certain deductions and exemptions, including SEZ exemptions. The Company currently expects to
elect out of applicable Indian tax holidays to benefit from the reduced tax rate after March 31, 2021.
The effect of the Indian tax holiday on both basic and diluted earnings per share was $0.12, $0.11 and $0.08, respectively, for the years
ended December 31, 2018, 2019 and 2020.
The components of the Company’s deferred tax balances as of December 31, 2019 and 2020 are as follows:
Deferred tax assets
Net operating loss carryforwards
Accrued expenses and other liabilities
Provision for doubtful debts
Property, plant and equipment and right-of-use assets, net
Share-based compensation
Intangible assets, net
Retirement benefits
Contract liabilities
Tax credit carryforwards
Others
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Intangible assets, net
Property, plant and equipment, net
Deferred cost
Investments in foreign subsidiaries not indefinitely reinvested
Derivative instruments
Goodwill
Others
Total deferred tax liabilities
Net deferred tax asset
Classified as
Deferred tax assets non-current
Deferred tax liabilities non-current
F-63
As of December 31,
2019
2020
$
$
$
$
$
$
66,448
50,678
10,583
11,569
30,192
2,640
11,332
4,437
10,739
10,294
208,912
(62,628)
146,284
24,819
6,067
2,665
1,401
2,722
11,793
11,092
60,559
85,725
$
$
$
$
$
$
37,278
70,634
9,930
14,394
35,424
165,347
14,761
6,080
8,692
14,619
377,159
(206,011)
171,148
21,884
3,700
1,178
2,726
2,810
18,649
15,043
65,990
105,158
As of December 31,
2019
2020
$
$
$
89,715 $
3,990
85,725 $
106,674
1,516
105,158
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
23. Income taxes (Continued)
The change in the Company’s total valuation allowance for deferred tax assets as of December 31, 2018, 2019 and 2020 is as follows:
Opening valuation allowance
Reduction during the year
Addition during the year
Closing valuation allowance
Year ended December 31,
2018
2019
2020
$
$
24,549
$
(2,307)
29,744
$
51,986
51,986
$
(4,240)
14,882
$
62,628
62,628
(35,662)
179,045
206,011
During the year ended December 31, 2020, the Company undertook an internal restructuring that involved the transfer of certain
marketing intangibles between its Luxembourg subsidiaries for a total of $650,000. The Company had net operating loss carryforwards with a
full valuation allowance from prior years that were used to offset the Luxembourg taxable income arising from such transfer. The tax benefits
resulting from the step-up of the tax basis of the intangibles transferred are not expected to be realized and a full valuation allowance has been
recorded to reduce the deferred tax balances. Accordingly, this internal restructuring did not have any impact on the Company’s income tax
expense.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income
during the periods in which temporary differences are deductible.
Management considers the scheduled reversal of deferred tax liabilities and projected taxable income in making this assessment. In
order to fully realize a deferred tax asset, the Company must generate future taxable income prior to the expiration of the deferred tax asset
under applicable law. Based on the level of historical taxable income and projections for future taxable income over the periods during which
the Company’s deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize the
benefits of its deductible differences and carryforwards, net of the existing valuation allowances as of December 31, 2020. The amount of the
Company’s deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during
the carry-forward period are reduced.
For the years ended December 31, 2018, 2019 and 2020, the Company recognized net excess tax benefits on share-based compensation
of $2,131, $2,743 and $7,310, respectively, in income tax expense attributable to continuing operations.
As of December 31, 2020, the Company’s deferred tax assets related to net operating loss carryforwards of $143,521 amounted to
$33,551 (excluding state net operating losses). Net operating losses of subsidiaries in the United Kingdom, Israel, South Africa, Hong Kong,
Germany, Austria, the United States (for 2019) and Luxembourg (for 2016 and prior years) amounted to $53,881 and can be carried forward
for an indefinite period.
F-64
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
23. Income taxes (Continued)
The Company’s remaining operating loss carryforwards expire as set forth in the table below:
Year ending December 31,
2021
2022
2023
2024
2025
2034
2035
2036
2037
2040
US - Federal
Europe
Others
—
—
—
—
—
—
—
—
222
—
222 $
673
2,575
727
1,381
4,955
18,820
7,357
48,086
—
—
84,574 $
544
305
1,199
2,534
1
—
—
—
—
261
4,844
$
In the table above, “Europe” includes net operating losses of subsidiaries in Poland, the Czech Republic, Hungary, Slovakia, Latvia,
Luxembourg and Portugal, while “Others” includes net operating losses of subsidiaries in Japan, Philippines, China and Canada.
As of December 31, 2020, the Company had additional deferred tax assets for U.S. state and local tax loss carryforwards amounting to
$3,727 with varying expiration periods, most of which are between 2021 and 2039.
As of December 31, 2020, the Company had a total foreign tax credit carryforward of $8,692 for subsidiaries in the United States, India
and the Philippines, which will expire as set forth in the table below:
Year ending December 31,
2021
2029
2033
2034
2035
$
$
Amount
132
90
4,846
3,300
324
8,692
With exceptions, the Company has not accrued any income, distribution or withholding taxes that would arise if the undistributed
earnings of the Company’s foreign (non-Bermuda) subsidiaries that cannot be repatriated in a tax-free manner were to be repatriated. Due to
the Company’s changing corporate structure, the various methods that are available to repatriate earnings and uncertainty relative to the
applicable taxes at the time of repatriation, it is not practicable to determine the amount of tax that would be imposed upon repatriation. If
undistributed earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company will accrue the
applicable amount of taxes associated with such earnings at that time.
As of December 31, 2020, $666,054 of the Company’s $680,440 in cash and cash equivalents was held by the Company’s foreign (non-
Bermuda) subsidiaries. $12,220 of this cash is held by foreign subsidiaries for which the Company expects to incur and has accrued a deferred
tax liability on the repatriation of $16,400 of retained earnings. $653,834 of the Company’s cash and cash equivalents is either held as
retained earnings by foreign subsidiaries in jurisdictions where no tax is expected to be imposed upon repatriation or is being indefinitely
reinvested.
The Company reports its gain/loss on derivatives designated as cash flow hedges, actuarial gain/loss on retirement benefits and
currency translation adjustment, net of income taxes to the extent applicable, in AOCI.
F-65
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
23. Income taxes (Continued)
In the quarter ended March 31, 2018, the Company elected to early adopt ASU 2018-02, effective January 1, 2018, and made an election
to reclassify the stranded income tax effects of the Tax Cuts and Jobs Act (the “Tax Act’’) from AOCI to retained earnings for all items of AOCI.
The Company elected to adopt the new guidance at the beginning of 2018. Accordingly, a stranded tax effect in AOCI of $2,265 resulting from
the Tax Act has been adjusted through retained earnings.
In June 2016, the FASB issued ASU No. 2016-13, requiring measurement and recognition of expected credit losses for financial assets
held by the Company. In the quarter ended March 31, 2020, the Company adopted this ASU, effective January 1, 2020, and accordingly
recorded deferred tax assets of $935 through retained earnings.
The following table summarizes activities related to our unrecognized tax benefits from January 1 to December 31 for each of 2019 and
2020:
Opening balance at January 1
Increase related to prior year tax positions, including recorded in acquisition accounting
Decrease related to prior year tax positions
Decrease related to prior year tax position due to lapse of applicable statute of limitation
Increase related to current year tax positions, including recorded in acquisition accounting
Decrease related to settlements with tax authorities
Effect of exchange rate changes
Closing balance at December 31
$
$
2019
26,722 $
1,684
(1,232)
(135)
4,270
—
(280)
31,029 $
2020
31,029
2,875
(1,309)
(287)
2,454
(317)
(145)
34,300
As of December 31, 2019 and 2020, the Company had unrecognized tax benefits amounting to $29,835 and $34,300, respectively,
which, if recognized, would impact the effective tax rate.
As of December 31, 2019 and 2020, the Company had accrued $5,812 and $6,369, respectively, in interest and $1,048 and $900,
respectively, for penalties relating to unrecognized tax benefits.
During the years ended December 31, 2018, 2019 and 2020, the Company recognized $467, $826 and $662, respectively, in interest on
unrecognized tax benefits.
In the next twelve months and for all tax years that remain open to examinations by U.S. federal and various state, local, and other U.S.
tax authorities, the Company estimates that it is reasonably possible that the total amount of its unrecognized tax benefits will vary. However,
the Company does not expect significant changes within the next twelve months other than depending on the progress of tax matters or
examinations with various tax authorities, which are difficult to predict.
With certain immaterial exceptions, the Company is no longer subject to U.S. federal, state and local or other U.S. income tax
examinations by taxing authorities for years prior to 2017. The Company’s subsidiaries in India and China are open to examination by relevant
taxing authorities for tax years beginning on or after April 1, 2012 and January 1, 2010, respectively. The Company regularly reviews the
likelihood of additional tax assessments and adjusts its unrecognized tax benefits as additional information or events require.
F-66
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
24. Segment reporting
The Company’s reportable segments are as follows: (1) Banking, Capital Markets and Insurance (BCMI); (2) Consumer Goods, Retail,
Life Sciences and Healthcare (CGRLH); and (3) High Tech, Manufacturing and Services (HMS).
The Company has restated segment information for the year ended December 31, 2018 presented herein to conform to the current
presentation. This change in segment presentation does not affect the Company's consolidated statements of income, balance sheets or
statements of cash flows.
The Company’s Chief Executive Officer, who has been identified as the CODM, reviews operating segment revenue, which is a GAAP
measure, and operating segment adjusted income from operations, which is a non-GAAP measure. The Company does not allocate and
therefore the CODM does not evaluate foreign exchange gain/(losses), interest income/(expense), restructuring expenses, acquisition-related
expenses, stock-based compensation, amortization and impairment of intangible assets and income taxes by segment. The Company’s
operating assets and liabilities pertain to multiple segments. The Company manages assets and liabilities on a total Company basis, not by
operating segment, and therefore information about assets, liabilities and capital expenditures by operating segment are not presented to the
CODM and are not reviewed by the CODM.
Revenues and adjusted income from operations for each of the Company’s segments for the year ended December 31, 2020 were as
follows:
Reportable segments
BCMI
1,079,193
CGRLH
1,264,654
132,939
197,197
Revenues, net
Adjusted income from operations
Stock-based compensation
Amortization and impairment of acquired intangible
assets (other than included above)
Acquisition-related expenses
Foreign exchange gains (losses), net
Interest income (expense), net
Restructuring expenses (refer (a) below and Note
29)
Income tax expense
Net income attributable to Genpact Limited
shareholders
Total Reportable
segments
Others*
Total
HMS
1,388,826
244,166
3,732,673 (23,296)
14,506
574,302
3,709,377
588,808
(74,008)
(43,648)
(2,650)
7,482
(48,960)
(26,547)
(92,201)
308,276
(a) We do not allocate these charges to individual segments in internal management reports used by the chief operating decision maker.
Accordingly, such expenses are included in our segment reporting as “unallocated costs.”
*Adjusted income from operations for “Others” primarily represents the impact of over-absorption of overhead, unallocated
allowances for credit losses, impairments related to operating ROU assets and property, plant and equipment, and foreign exchange
fluctuations, which are not allocated to the Company’s segments for management’s internal reporting purposes.
F-67
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
24. Segment reporting (Continued)
Revenues and adjusted income from operations for each of the Company’s segments for the year ended December 31, 2019 were as
follows:
Revenues, net
Adjusted income from
operations
Stock-based compensation
Amortization and impairment of
acquired intangible assets (other
than included above)
Acquisition-related expenses
Foreign exchange gains (losses),
net
Interest income (expense), net
Income tax expense
Net income attributable to
Genpact Limited shareholders
Reportable segments
BCMI
1,078,844
CGRLH
1,107,534
HMS
1,348,635
Total
Reportable
segments
3,535,013
Others**
(14,470)
Total
3,520,543
115,998
161,515
238,129
515,642
43,199 #
558,841
(83,885)
(31,458)
(8,352)
7,729
(43,458)
(94,536)
304,881
**Revenues, net for “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to the Company’s
segments for management’s internal reporting purposes. Adjusted income from operations for “Others” primarily represents gains related
to a transfer of land, government incentives and the impact of foreign exchange fluctuations, which are not allocated to the Company’s
segments for management’s internal reporting purposes.
#Includes $10,524 toward the accelerated charge of a contract cost asset relating to a wealth management platform used in the Company’s
BCMI segment that the Company no longer plans to leverage beyond its current scope. If this charge had been recorded in the BCMI
segment in the year ended December 31, 2019, AOI for the Company’s BCMI segment in 2019 would have been $105,474, with a
corresponding increase in AOI of “Others” to $53,723.
Revenues and adjusted income from operations for each of the Company’s segments for the year ended December 31, 2018 were as
follows:
Revenues, net
Adjusted income from 0perations
Stock-based compensation
Amortization and impairment of acquired
intangible assets (other than included
above)
Acquisition-related expenses
Foreign exchange gains (losses), net
Interest income (expense), net
Income tax expense
Net income attributable to Genpact
Limited shareholders
Reportable segments
BCMI
CGRLH
HMS
Total Reportable
segments
Others***
1,079,673
148,712
903,225
116,705
1,005,070
177,209
2,987,968
442,626
12,822
30,688
Total
3,000,790
473,314
(48,998)
(37,292)
(2,362)
15,239
(37,119)
(80,763)
282,019
***Revenues, net for “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to the Company’s
segments for management’s internal reporting purposes. AOI for “Others” primarily represents government incentives and the impact of
foreign exchange fluctuations which are not allocated to the Company’s segments for management’s internal reporting purposes.
F-68
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
24. Segment reporting (Continued)
Revenues from a single customer in the Company’s HMS segment comprised 9%, 14% and 12% of the Company’s consolidated total net
revenues in 2018, 2019 and 2020, respectively.
Net revenues from geographic areas based on the location of the Company’s service delivery centers are as follows. A portion of net
revenues attributable to India consists of net revenues for services performed by delivery centers in India or at clients’ premises outside of
India by business units or personnel normally based in India.
India
Asia, other than India
North and Latin America
Europe
Total net revenues
Year ended December 31,
$
2018
1,739,455
327,462
641,716
292,157
3,000,790 $
2019
1,890,897 $
356,726
863,748
409,172
3,520,543 $
2020
1,851,347
461,839
1,007,635
388,556
3,709,377
$
$
Property, plant and equipment, net by geographic region are as follows:
India
Asia, other than India
North and Latin America
Europe
Total
25. Net Revenues
Disaggregation of revenue
$
$
As of December 31,
2019
161,227 $
17,212
58,499
17,097
254,035 $
2020
157,129
16,790
44,934
12,269
231,122
In the following tables, the Company’s revenue is disaggregated by customer classification:
GE
Global Clients
Total net revenues
Year ended December 31,
$
$
2018
268,210 $
2,732,580
3,000,790 $
2019
478,091 $
3,042,452
3,520,543 $
2020
458,850
3,250,527
3,709,377
All revenue from GE is included in revenue from the HMS segment, and the remainder of revenue from the HMS segment consists of
revenue from Global Clients. All of the segment revenue from both the BCMI and CGRLH segments consists of revenue from Global Clients.
Refer to Note 24 for details on net revenues attributable to each of the Company’s segments.
F-69
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
25. Net Revenues (Continued)
The Company has evaluated the impact of the COVID-19 pandemic on the Company’s net revenues for the year ended December 31,
2020 to ensure that revenue is recognized after considering all impacts to the extent currently known. Impacts observed include constraints
on the Company’s ability to render services, whether due to full or partial shutdowns of the Company’s facilities or significant travel
restrictions, penalties relating to breaches of service level agreements, and contract terminations or contract performance delays initiated by
clients. The Company’s net revenues for the year ended December 31, 2020 were lower than expected before the onset of the pandemic,
primarily due to delays in obtaining client approvals to shift to a virtual, work-from-home operating environment, whether as a result of
regulatory constraints or due to privacy or security concerns. The Company’s net revenues from various service lines, including transformation
services, in the year ended December 31, 2020 were also lower than originally expected before the onset of the pandemic due to adverse
market developments related to the pandemic, resulting in instances of delays or cancellations of new projects and orders. Due to the nature of
the pandemic, the Company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
Contract balances
Accounts receivable include amounts for services that the Company has performed but for which payment has not been received. The
Company typically follows a 30-day billing cycle and, as such, at any point in time may have accrued up to 30 days of revenues that have not
been billed. The Company has determined that in instances where the timing of revenue recognition differs from the timing of invoicing, the
related contracts generally do not include a significant financing component. See Note 5 for details on the Company’s accounts receivable and
allowance for credit losses.
The following table shows the details of the Company’s contract balances:
Contract assets (Notes a)
Contract liabilities (Note b)
Deferred transition revenue
Advance from customers
$
$
$
As of December 31,
2019
40,346 $
131,108 $
44,818 $
2020
15,805
130,804
92,673
(a)Included in "prepaid expenses and other current assets" and "other assets" in the consolidated balance sheet.
(b)Included in "accrued expenses and other current liabilities" and "other liabilities" in the consolidated balance sheet.
Contract assets represent the contract acquisition fees or other upfront fees paid to a customer. Such costs are amortized over the
expected period of benefit and recorded as an adjustment to the transaction price and deducted from revenue. The Company’s assessment
did not indicate any significant impairment losses on its contract assets for the periods presented.
Contract liabilities include that portion of revenue for which payments have been received in advance from customers. The Company
also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract
fulfillment costs. Consideration received from customers, if any, relating to such transition activities is also included as part of contract
liabilities. The contract liabilities are included within “Accrued expenses and other current liabilities” and “Other liabilities” in the
consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with the
customer.
Changes in the Company’s contract asset and liability balances during the year ended December 31, 2019 and 2020 were a result of
normal business activity and not materially impacted by any other factors.
Revenue recognized during the year ended December 31, 2019 and 2020 that was included in the contract liabilities balance at the
beginning of the period was $72,285 and $102,893, respectively.
F-70
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
25. Net Revenues (Continued)
The following table includes estimated revenue expected to be recognized in the future related to remaining performance obligations
as of December 31, 2020:
Transaction price allocated to remaining
performance obligations
$
Total
Less than 1 year
1-3 years
3-5 years
After 5 years
223,477 $
154,717
$
54,471 $
11,949 $
2,340
The following table provides details of the company’s contract cost assets:
Opening balance
Closing balance
Amortization
26. Related party transactions
2019
2020
As of December 31,
Sales incentive
programs
Transition
activities
Sales incentive
programs
Transition activities
$
25,891 $
35,366
17,684
134,302 $
170,132
70,001
$
35,366
33,390
19,960
170,132
192,507
68,770
The Company has from time to time entered into related party transactions with non-consolidating affiliates and Bain Capital
Investors, LLC (“Bain”), which was an affiliate of significant shareholders of the Company until November 2019. During the year ended
December 31, 2019, Bain’s affiliates sold their remaining shares in the Company and Bain is no longer a related party, and the Company also
has sold its investments in non-consolidating affiliates. Accordingly, transactions between the Company, its non-consolidating affiliates and
Bain are no longer presented as related party transactions for the year ended December 31, 2020. The value of related party transactions
entered into during the year ended December 31, 2018, 2019 and 2020 was not significant.
27. Other Income (expense), net
Other income (expense), net consists of following:
Government incentives
Other income (expense)
Other Income (expense), net
28. Commitments and contingencies
Capital commitments
Year ended
December 31,
$
$
2018
36,099 $
(338)
35,761 $
2019
3,976
1,810
5,786 $
$
2020
—
3,238
3,238
As of December 31, 2019 and 2020, the Company has committed to spend $5,368 and $5,128, respectively, under agreements to
purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchases.
Bank guarantees
The Company has outstanding bank guarantees and letters of credit amounting to $9,585 and $10,156 as of December 31, 2019 and
2020, respectively. Bank guarantees are generally provided to government agencies and excise and customs authorities for the purposes of
maintaining a bonded warehouse. These guarantees may be revoked by the government agencies if they suffer any losses or damages through
the breach of any of the covenants contained in the agreements governing such guarantees.
F-71
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
28. Commitments and contingencies (Continued)
Other commitments
Certain units of the Company’s Indian subsidiaries are established as Software Technology Parks of India units or Special Economic
Zone (“SEZ”) units under the relevant regulations issued by the Government of India. These units are exempt from customs and other duties
on imported and indigenous capital goods, stores and spares. SEZ units are also exempt from the Goods and Services Tax (“GST”) that was
introduced in India in 2017. The Company has undertaken to pay taxes and duties, if any, in respect of capital goods, stores, spares and
services consumed duty-free, in the event that certain terms and conditions are not fulfilled.
Contingency
In February 2019, there was a judicial pronouncement in India with respect to defined contribution benefit payments interpreting
certain statutory defined contribution obligations of employees and employers. It is not currently clear whether the interpretation set out in
the pronouncement has retrospective application. If applied retrospectively, the interpretation would result in an increase in contributions
payable by the Company for past periods for certain of its India-based employees. There are numerous interpretative challenges concerning
the retrospective application of the judgment. Due to such challenges and a lack of interpretive guidance and based on legal advice the
Company has obtained on the matter, it is currently impracticable to reliably estimate the timing and amount of any payments the Company
may be required to make. Accordingly, the Company plans to obtain further clarity and will evaluate the amount of a potential provision, if
any.
Beginning in the second quarter of 2020, the Indian taxing authorities (“ITA”) began to challenge or reject the Company’s Indian GST
and service tax refunds. In total, refunds of $15,965 have been denied or challenged by the ITA and additional refunds may be denied.
The Company had requested these refunds pursuant to the tax exemption available for exports under the previous Indian service tax
regime as well as the current Indian GST regime in respect of services performed by the Company in India for affiliates and clients outside of
India. In denying the refunds, the ITA have taken the position that the services provided are local services, which interpretation, if correct,
would make the service tax and GST exemption on exports unavailable to the Company in respect of such services. The Company is pursuing
appeals before relevant appellate authorities. The Company believes that the denial of the refunds claimed pursuant to the service tax and GST
exemption is incorrect and that the risk that the liability will materialize is remote. Accordingly, no reserve has been provided as of December
31, 2020.
An affiliate of the Company in India received an assessment order in 2016 seeking to assess tax amounting to $111,061 (including
interest to the date of the order) on certain transactions that occurred in 2013. This amount excludes penalty or interest accrued since the date
of the order. The Company filed an appeal against this assessment order with the Commissioner Income Tax (Appeals), the first tax appellant
authority in India, which ruled against the Company. Subsequently, the Company filed an appeal with the Income Tax Appellate Tribunal of
India (“Tribunal”). The Tribunal has accepted the legal arguments raised by the Company and the assessment order has been cancelled. The
taxes paid under protest amounting to $27,341 are yet to be refunded to the Company. The Indian tax authorities may appeal the order of the
Tribunal before higher appellate authorities. Based on its evaluation of the facts underlying the transaction and legal advice received, the
Company believes that it is more likely than not that this transaction would not be subject to tax liability in India. Accordingly, no reserve has
been provided as of December 31, 2020.
In September 2020, the Indian Parliament approved the Code on Social Security, 2020 (the “Code”), which will impact the Company’s
contributions to its defined contribution and defined benefit plans for employees based in India. The date the changes will take effect is not yet
known and the rules for quantifying the financial impact have not yet been published. The Company will evaluate the impact of the Code on
the Company in its financial statements for the period in which the Code becomes effective and the related rules are published.
F-72
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
29. Restructuring
In the second quarter of 2020, due to the impact of the COVID-19 pandemic on the Company’s current and expected future
revenues, the Company recorded a $21,658 restructuring charge primarily relating to the abandonment of leased office premises and
employee severance charges. In the third quarter of 2020, the Company recorded an additional charge of $4,889 relating to employee
severance charges.
Of the total recorded restructuring charges of $26,547, $11,152 was a non-cash charge (including $908 related to writing down
certain property, plant and equipment) recorded as other operating expense, which pertains to the abandonment of various leased office
premises as a result of the Company’s consolidation of underutilized office premises due to lower demand or shifting to a work-from-home
model. The Company made efforts to sublease certain office premises instead of abandoning them, but due to the COVID-19 pandemic and the
related widespread adoption of work-from-home practices by many businesses worldwide, the Company has been unable to sublease such
premises to date and it is unlikely that the Company will be able to sublease any such premises in the foreseeable future. The Company also
recorded a severance charge of $15,395 in personnel expense as a result of a focused reduction in its workforce. No further restructuring costs
were incurred related to this restructuring plan subsequent to third quarter of 2020.
30. Quarterly financial data (unaudited)
Total net revenues
Gross profit
Income from operations
Income before equity method investment activity, net
and income tax expense
Net income
Earnings per common share
Basic
Diluted
Weighted average number of common shares used in
computing earnings per common share
Basic
Diluted
March 31, 2020
$
$
$
923,192 $
318,421 $
110,658 $
June 30, 2020
900,094
306,202
90,364
Three months ended
September 30,
2020
December 31,
2020
$
$
$
935,523 $
329,694 $
124,642 $
950,568 $
336,923 $
113,053 $
Year ended
December 31,
2020
3,709,377
1,291,240
438,717
$
$
$
$
110,559 $
85,698 $
79,147
62,161
$
$
110,443 $
85,435 $
100,328 $
74,982 $
400,477
308,276
0.45 $
0.44 $
0.33 $
0.32 $
0.45 $
0.43 $
0.40 $
0.38 $
1.62
1.57
190,541,148 190,949,108
195,112,549
189,470,107 190,396,780
195,780,971
196,655,140 194,823,683
190,626,757
196,532,513
F-73
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(In thousands, except per share data and share count)
30. Quarterly financial data (unaudited) (Continued)
Total net revenues
Gross profit
Income from operations
Income before equity method investment
activity, net and income tax expense
Net income
Earnings per common share
Basic
Diluted
$
$
$
$
$
$
$
Weighted average number of common shares
used in computing earnings per common
share
Three months ended
March 31,
2019
809,206
290,069
90,072
June 30, 2019
881,799
$
310,555
$
106,202
$
$
$
$
79,320
60,841
$
$
94,970
73,722
$
$
September 30,
2019
December 31,
2019
888,799
315,140
113,584
110,794
88,120
$
$
$
$
$
940,739
310,091
119,518
114,349
82,198
$
$
$
$
$
0.32 $
0.31 $
0.39 $
0.38 $
0.46 $
0.45 $
0.43 $
0.42 $
Year ended
December 31,
2019
3,520,543
1,225,855
429,376
399,433
304,881
1.60
1.56
Basic
Diluted
189,451,845
193,394,208
190,163,359
194,766,047
190,599,049
195,890,841
190,083,647
196,592,325
190,074,475
195,160,855
31. Subsequent Events
Share Repurchase
Pursuant to its share repurchase program, the Company repurchased 929,895 of its common shares on the open market between
January 1, 2021 and February 5, 2021 at a weighted average price of $40.45 per share for an aggregate cash amount of $37,611.
In February 2021, the Company’s board of directors authorized a $500,000 increase to its existing $1,250,000 share repurchase
program, first announced in February 2015, bringing the total authorization under the Company’s existing share repurchase program to $
1,750,000.
Dividend
In February 2021, the Company announced that its Board of Directors has approved a 10% increase in its quarterly cash dividend,
representing a planned annual dividend of $0.43 per common share, increased from $0.39 per common share in 2020. The Board of Directors
also declared a dividend for the first quarter of 2021 of $0.1075 per common share, which will be paid on March 19, 2021 to shareholders of
record as of the close of business on March 10, 2021. The declaration of any future dividends will be at the discretion of the Board of Directors
and subject to Bermuda and other applicable laws.
F-74
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GENPACT LIMITED
By: /s/ N.V. TYAGARAJAN
N.V. Tyagarajan
President and Chief Executive Officer
Date: March 1, 2021
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints each of Heather D. White and Thomas D. Scholtes, as his
or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting to said attorneys-in-
fact and agents, and each of them, full power and authority to perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2021 by the
following persons on behalf of the registrant and in the capacities indicated.
Signature
/s/ N.V. TYAGARAJAN
N.V. Tyagarajan
/s/ EDWARD J. FITZPATRICK
Edward J. Fitzpatrick
/s/AJAY AGRAWAL
Ajay Agrawal
/s/ STACEY CARTWRIGHT
Stacey Cartwright
/s/ LAURA CONIGLIARO
Laura Conigliaro
/s/ CAROL LINDSTROM
Carol Lindstrom
/s/ JAMES C. MADDEN
James C. Madden
/s/ CECELIA MORKEN
CeCelia Morken
/s/ MARK NUNNELLY
Mark Nunnelly
/s/ BRIAN STEVENS
Brian Stevens
/s/ MARK VERDI
Mark Verdi
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer (Principal Financial and
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
85
Exhibit 10.12
Dear Mr Tyagarajan,
Sent by Email Only
17 November 2020
RELOCATION TO THE UK: ADDENDUM TO EMPLOYMENT CONTRACT
I am writing to confirm the terms that will apply to your employment contract dated 15 June 2011, and made between yourself and Genpact
Limited (a Bermuda limited exempted company) (the Employment Contract), for the duration of your stay in the United Kingdom.
Amendments
Unless stated otherwise, capitalised terms in this letter shall have the definitions given by the Employment Contract, and section references
are to sections within the Employment Contract.
With effect from 9 November 2020, the Employment Contract will be amended as follows:
1.
2.
3.
Genpact payroll entity: The Executive will be employed by and shall be remunerated by Genpact (UK) Limited;
Section 4(a): The Executive will receive his current Base Salary of USD 750,000 which will be converted into British Pounds
Sterling (GBP) at the exchange rate of $ 1.2970 to £1.00, amounting to a current annual Base Salary of £578,500. The Base
Salary and all other components of the Executive’s compensation payable under the Employment Contract will be paid into the
Executive’s designated bank account, and shall be subject to deductions for UK tax, National Insurance contributions, and any
other deductions required by English law. Salaries are paid monthly in equal instalments, on the last working day of each month;
Section 4 & 5: With the exception of the Base Salary, the Executive will receive all components of his compensation converted
into GBP at the Genpact-defined foreign currency exchange rate Monthly Operating Rate (“Forex”) prevailing at the month in
which the compensation is paid.
In respect of Base Salary, for each calendar year the Company will review the Forex used to set the GBP Base Salary to ensure
the GBP Base Salary is equivalent to that of the USD amount (by reference to the actual Forex for each month as compared with
the Forex used to calculate the Base Salary per clause 2 above). An adjustment shall be carried out each December or within the
first four months of the following year. If the Forex review results in a positive adjustment due to the Executive, this will be paid
subject to UK withholdings. Should the Forex review determine an overpayment of the Base Salary, the Executive will repay to
Genpact (UK) Limited the corresponding amount and hereby agrees that Genpact (UK) Limited is entitled to deduct such owed
amounts from other compensation due to him.
The Monthly Operating Rate (MOR) for a month is published on the 20th of the previous month or subsequent working day if 20th
falls on a public holiday. The calculation of MOR considers the spot exchange rate and the 1-month forward exchange rate
wherever available and is calculated at a 2-data point average. That average will become the MOR.
4.
Governing Law (Section 10(f)): The Executive’s Employment Contract will continue to be governed by and construed in
accordance with the laws of the state of New York, including but not limited to the Restrictive Covenants referred to at Section 9 of
the Employment Contract. The Executive and the Company hereby submit to the jurisdiction of a court situated in New York
County, NY for all disputes relating to the Employment Contract (save where such matters are to be resolved by arbitration
pursuant to Section 10(i) of the Employment Contract).
With the exception of these terms, your current Employment Contract remains unaffected.
Please sign and date a copy of this letter and return it to me as soon as possible and in any event before 24 November 2020 to confirm your
agreement to the following terms.
If you have any questions, please do not hesitate to contact me.
Yours sincerely,
/s/ Garth Jackson-Smith
Garth Jackson-Smith
For and on behalf of Genpact (UK) Limited
Signed:
/s/ N.V. Tyagarajan
Date: November 20, 2020
Registered Office
c/o Cogency Global (UK) Ltd.
6 Lloyds Avenue
Suite 4CL
London
EC3N 3AX
Genpact (UK) Limited
Registered in UK and Wales
Company No. 04217635
www.genpact.com
Exhibit 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is made and entered into on February 26, 2018, between Headstrong
Canada Limited (the “Company”) and Darren Saumur ("Employee").
W I T N E S S E T H:
WHEREAS, Employee desires to be employed by the Company upon the terms and be subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth
below, the parties hereto agree as follows:
1.
2.
3.
Position: Employee's position will be SVP and Global Operating Officer commencing on March 26, 2018 (“Start
Date”) as a full-time employee located in Toronto, Ontario, with business travel as required. By signing this
Agreement, Employee affirms that he or she knows of no reason why he or she may not be able to engage in
business travel as required by his or her position. As a management employee, Employee will not be eligible for
overtime pay or pay in lieu thereof under the Employment Standards Act, 2000 (“ESA”) or otherwise.
Restrictions on Outside Employment: To avoid any conflict of interest, while employed by the Company,
Employee may not work for himself or herself or for another business or individual or hold any director position
without the Company's written permission. Employee acknowledges and agrees that he or she is a fiduciary of the
Company and has fiduciary duties that are not extinguished by this Agreement.
Compensation: Employee will receive the following compensation. Compensation is subject to review and is subject
to change in the reasonable discretion of the Company. All compensation and benefits referenced herein will be
subject to such deductions and withholdings as are required by applicable law. For monthly payroll purposes, all
compensation amounts will be converted from USD to CAD based on the published Genpact monthly operating rate
(MOR). The MOR for a month is published on 20th of the previous month or subsequent working day if 20th happens
to be a holiday. The calculation of MOR considers the spot exchange rate and the 1-month forward exchange rate
wherever available and is calculated at a 2-data point average. That average will become the MOR.
a. Base Salary: Employee's annual base salary will be USD 500,000 which will be paid in arrears, according to
the Company's normal payroll practices.
b. Bonus: This position is bonus eligible under the Genpact 2018 bonus plan, which, in the Company’s sole
discretion, rewards individuals for success on individual goals and objectives. Your annual target bonus will be
up to USD 500,000 and will be subject to the performance of the Company and your individual performance.
Any bonus will be prorated from your start date for 2018, and payout is typically in March of the year following
the performance year in Canadian dollars per the above. This bonus is not guaranteed. Subject to the express
requirements of applicable employment standards legislation and Section 10(c) below, you have to be an
employee of the Company at the time bonuses are paid out to be eligible to receive your bonus.
For the year 2018, i.e. your first year of employment with the Company, you will receive USD 250,000 as a
guaranteed payout (the “Guaranteed Bonus”). To be eligible for the Guaranteed Bonus, Subject to the express
requirements of applicable employment standards legislation and Section 10(c) below, you must be an
employee of the Company on the day that bonuses are paid out to receive the Guaranteed Bonus.
c. Signing Bonus: Following the Start Date, Employee will receive a signing bonus of USD 250,000 (the “Signing
Bonus”). However, Employee acknowledges and agrees that in the event that Employee’s employment is
terminated by the Company with just cause or Employee resigns his or her employment with the Company, in
either case at any time prior to the first anniversary of the Start Date (the “Repayment Period 1”), Employee will
forthwith repay the Signing Bonus to the Company in full. In the event that Employee’s employment is terminated
by the Company with just cause or Employee resigns his or her employment with the Company, in either case at
any time prior to the second anniversary of the Start Date (the “Repayment Period 2”), Employee will forthwith
repay 50% of the Signing Bonus to the Company. Further, Employee hereby consents to the Company
deducting the Signing Bonus (or any portion thereof) from any wages otherwise owing to the Employee in the
event of Employee’s termination with just cause or resignation within the Repayment Periods.
d. Equity Compensation (stock options): You will be granted options to purchase 70,000 common shares of
Genpact Limited, subject to approval from the Compensation Committee of our Board of Directors. Your stock
options will be subject to the terms and conditions of the Genpact Limited Omnibus Incentive Compensation
Plan (the “Plan”) and your stock option agreement. The per share exercise price of your stock options will be the
NYSE closing price of a common share of Genpact Limited on the date of grant.
e. Equity Compensation (RSUs): Subject to approval of the Compensation Committee of the Genpact Board of
Directors, you will be granted 35,000 restricted stock units (“RSUs”) under the Plan. The RSUs will be subject to
the terms and conditions of the Plan and an RSU award agreement which will evidence such grant.
f.
Equity Compensation (Performance Shares): Subject to approval of the Compensation Committee of our
Board of Directors, you will be granted 20,000 2018 performance shares under the Plan. Your performance
shares will be subject to the terms and conditions of the Plan and your performance share award agreement.
g. Benefits: Benefits will be in accordance with the Company’s standard benefits package as described in general
in the enclosed brochure and in detail in our Benefits Summary Plan Description that may be revised from time to
time in the Company’s sole discretion.
h. Time Off Work: The Company agrees that Employee is entitled to 4 weeks of vacation with pay in accordance
with the Company’s Vacation Policy as amended from time to time.
4.
Definitions.
a.
b.
c.
"Companies" means the Company, Parent and any Related Company, and their respective successors or
assigns.
"Parent" means the ultimate parent company of the Company or successors in interest.
"Related Company" means (x) any other company directly or indirectly controlling, controlled by, or under direct
or indirect common control with Parent or (y) any other company that Parent directly or indirectly owns at least
fifty percent (50%) of the economic interest or equity securities of such other company.
5.
Copyrights, Patents, and Trade Secrets.
a. Employee agrees that all property rights in respect of every invention, innovation, tangible work
product, Corporate Information, as defined in paragraph 6(b) below, or any other intellectual property created,
made, devised or discovered by Employee during the course of and related to Employee's employment
(irrespective of whether so created, made, devised or discovered during normal working hours or using the
facilities of any of the Companies), shall belong to the Company and, to the extent necessary, all such
ownership rights are conveyed in whole to the Company, and Employee will assign and hereby assigns such
rights to the Company. Employee shall assist the Company to protect any proprietary interest as may be
reasonably required at the Company's expense and shall execute all documents required by the Company.
Employee shall promptly disclose and deliver to the Company full details of and shall provide the Company, any
such invention, innovation, tangible work product, Corporate Information or any intellectual property created,
made, devised or discovered by Employee. Further, Employee hereby waives in favour of the Company, and its
successors, assigns and licensees, all of his or her moral rights and any similar non- assignable rights
throughout the world, in any copyright work which is subject to the assignment obligations in this Section.
b. The provisions contained in paragraph 5(a) above may only be varied by written permission granted by the
Chief Executive Officer of Parent.
c. Employee agrees that the Companies have other intellectual property rights, including rights in copyright in all
Corporate Information and the written work product of the Companies that shall subsist regardless of the terms
of this Agreement. Employee further agrees that all tangible work product of the Companies and Corporate
Information may not be copied, modified, reformatted or paraphrased at any time without the Company's written
permission. Employee agrees that any unauthorized use of the Companies’ written work product shall constitute
copyright infringement and a breach of this Agreement and will cause significant and irreparable damage to the
Companies.
d. Employee agrees that the Companies have valuable trademark rights that may not be utilized except within the
scope of Employee's employment with the Company. Employee agrees that any unauthorized reference
whatsoever to the Companies' trademarks during or after employment shall constitute trademark infringement
and a breach of t h i s Agreement and will cause significant and irreparable damage to the
Companies.
6.
Confidentiality.
a. Agreement to Preserve Confidentiality. Employee covenants and agrees that while an employee of any of the
Companies and following termination of that employment, all Corporate Information shall not be disclosed and
shall be kept as confidential, proprietary, and in the nature of trade secrets, and Employee shall not disclose any
Corporate Information to any person or use any Corporate Information for Employee's own benefit or for the
benefit of any other person, except in furtherance of the Companies' business, or in any way that would be
detrimental to any of the Companies' business.
b. Definition of Corporate Information. Any knowledge, information or documents of any of the Companies
including, but not limited to, client lists, employee information, employee lists, prospective client lists, client
contracts, processes, consulting and training methodologies, operational methods and procedures, business
and marketing plans, product development ideas, designs of projects, research projects, products, systems,
software, models, modules, templates, source code and object code, designs, business systems, consulting
models, creative and graphical work, venture and business plans, programs, and financial plans, or
improvements modifications, components, prototypes or works thereof, pertaining to the Companies' business,
ventures or its clients shall constitute “Corporate Information”, whether or not reduced to tangible form, held
electronically or marked in physical writing or electronically as “confidential” and any information which has or
may be derived or obtained from such information. Corporate Information does not include any information
properly and generally in the public domain.
c. Return of Property. Upon termination of employment, Employee agrees to promptly return all documents of the
Companies and the Companies' clients and any other property of the Companies or the Companies' clients in
Employee's possession or control and destroy all electronic versions of any such property, including all
copies of same. In the event that a demand for return of Corporate Information is made by the Company during
employment or after termination, the Employee shall return all such property within five days of request.
7.
Agreement on Unfair Competition.
a.
b.
Duty of Loyalty and Good Faith. Employee understands and agrees that Employee owes the Company an
implied duty of good faith and loyalty and fiduciary obligations.
Non-solicitation of business clients. Based on the understanding that Employee will be given access to valuable
clients and confidential and proprietary information, Employee agrees that for a period of twelve (12) months
after termination of employment either voluntarily or involuntarily (the “Restricted Period”) Employee will not
(A)
business interaction during the twelve (12) month period immediately preceding Employee’s termination of
employment with any of the Companies (each a "Covered Client") if such solicitation is not for the benefit of
the Companies, or if such solicitation is for a product, service or employment opportunity comparable to that
provided by
solicit or attempt to solicit any of the Companies' clients with whom Employee had
c.
d.
e.
any of the Companies in the information technology consulting or services business (as more fully described
below) or (B) improperly and intentionally interfere with the business relationships between any of the
Companies and any Covered Client.
Non-solicitation of employees. Employee agrees that during the Restricted Period Employee will not directly or
indirectly (A) induce or seek to induce any employee of the Companies who reported to Employee
(directly or indirectly) or with whom Employee had business interaction in either case during the twelve
(12) month period immediately preceding Employee’s termination of employment with any of the Companies
(the “Covered Employees”) to leave their employment with any of the Companies or (B) in any way aid any
third party to recruit any Covered Employees.
Non-competition with the Companies' key business clients. Based on the understanding that Employee will be
given access to valuable clients and confidential and proprietary information, Employee agrees that during the
Restricted Period Employee will not provide Competitive Products or Services to any of the Companies' clients
with which Employee had material or substantial contact during the last twelve
(12) months of Employee's employment with any of the Companies. “Competitive Products or Services”
means the provision of strategies and solutions, assistance in the delivery of products, training, and
consultative support for the development and/or integration of Internet and wireless solutions, for business
intelligence, for e- commerce, for technology implementation in digital business ecosystems, for business
invention and strategic development, for program management of business change, for venture consulting,
for customer relationship management, for the application of user experiences associated with Internet
environments and wireless applications and interfaces, and for graphical design for Internet environments and
wireless applications and interfaces. These limitations apply within the Companies’ vertical industries of
specialization – Financial and Insurance, Manufacturing, Consumer Products, Retail, Energy, Utilities,
Telecommunications, and Health Care. For purposes of this Agreement, “material or substantial contact”
means any one or more of the following direct levels of client (or in the case of Section 7(e) hereof,
prospective client) contact: direct involvement or assistance in a bid or contract proposal; or personal oral or
written communications with the client (or in the case of Section 7(e) hereof, prospective client);
or a minimum of two on-site visits to the client (or in the case of Section 7(e) hereof, prospective client); or
participation in interviews with the client (or in the case of Section 7(e) hereof, prospective client), or
identification as a key resource for the client (or in the case of Section 7(e) hereof, prospective client)
proposal.
Prospective Clients. Based on the understanding that Employee will be given access to valuable information
relating to prospective clients which the Company has expended considerable financial and personnel
resources to obtain, including confidential and proprietary information about these prospective clients,
Employee agrees that during the Restricted Period Employee will not (A) solicit any of the Companies'
prospective clients with whom Employee had material or substantial contact during the twelve (12) months prior
to Employee's voluntary or involuntary termination of employment with any
of the Companies (each such client a "Covered Prospect") if such solicitation is not for the benefit of the
Companies or if such solicitation is for Competitive Products or Services, (B) improperly and intentionally
interfere with the prospective business relationships between any of the
f.
g.
Companies and any Covered Prospect, or (C) provide Competitive Products or Services to any Covered
Prospect.
Non-Competition Period. During the Restricted Period, the Employee will not, whether individually or in
partnership or jointly or in conjunction with any other person, perform services for a business, or establish,
control, own a beneficial interest in, or be otherwise commercially involved in any endeavor, activity or business
in Canada or the United States that provides Competitive Products or Services.
Reasonableness. Recognizing that the limitations in this Agreement permit Employee to continue Employee’s
chosen career in the same geographic area without any interruption while protecting the Company’s and
the other Companies’ legitimate business interests in its client and employee relationships, Employee agrees
that the above restrictions are reasonable including the short length of time, the limitation as to identified clients
and employees, and the specific area of business in which competition is limited as to those clients. Employee
agrees that these limitations are reasonable given the highly competitive nature of the Company's and the other
Companies' business and are required for the Company's and the other Companies' protection based upon
numerous factors including the knowledge and information to which Employee will have access during
Employee's employment with the Company. To ensure enforcement if the Company in its reasonable opinion
believes that a violation of this Agreement may have occurred or is occurring, Employee agrees to the entry of
a court order preventing Employee from violating any of the limitations found in this Agreement. Employee also
agrees that in addition to any other remedies, including an action for damages, the Company also may seek
injunctive relief against Employee. The party prevailing in any judicial proceeding between the parties hereto
shall be awarded its costs and expenses, including reasonable legal fees.
8.
Severability and Savings Provision. The Company and Employee desire that this Agreement be enforced to the
greatest degree possible. If a Court of competent jurisdiction finds any part or provision of this Agreement to be
unenforceable, void, overly burdensome or invalid, then the parties request such Court to enforce the remaining
parts of this Agreement or the provision, as applicable, as valid and enforceable as though the invalid portions
were not a part.
9.
Conflicting Agreements.
a. Prior Agreements. Employee represents and warrants that Employee's performance of all the terms of this
Agreement and any services to be rendered as an Employee of the Company does not and shall not breach any
fiduciary or other duty or any covenant, agreement or understanding, including, without limitation, any agreement
relating to any proprietary information, knowledge or data acquired by Employee in confidence, trust or
otherwise, prior to Employee's employment by the Company, to which Employee is a party or by the terms of
which Employee may be bound. Employee shall not disclose to the Company or its clients, or induce the
Company to use or disclose, any such proprietary information, knowledge, or data belonging to any previous
employer without such previous employer's permission and Employee will disclose to the Company the term and
subject of any prior confidentiality, non- competition, non-solicitation or invention agreement or agreements to
which Employee is a party.
b. Future Agreements. Employee will not enter into any agreement or understanding, either written or oral, in
conflict with the provisions of this Agreement.
c.
Indemnification. Employee hereby agrees that if Employee intentionally breaches any agreement or
understanding between him and another person or company or intentionally wrongfully uses any confidential or
proprietary information or trade
secrets he has obtained from sources other than the
Company without permission, then Employee will indemnify and hold the Company harmless from and against
any and all damages, claims, costs and expenses, including without limitation legal fees and legal costs and
expenses, based on or arising, directly or indirectly, from such intentional actions.
10.
Termination of Employment
a. Employee is employed by the Company for an indefinite period, subject to termination in accordance with the
termination provisions of this Agreement.
b. The Company may terminate Employee’s employment for just cause without notice or pay in lieu of notice,
subject only to the express requirements of the ESA.
c. The Company may terminate Employee’s employment without just cause by providing Employee with, in addition
to any accrued but outstanding wages, the greater of (i) the notice, termination pay in lieu of notice, and
severance pay as expressly required by the ESA, or (ii) 6 months’ base salary and, if the employee has
performed services for more than 9 months in any performance year, target bonus pro-rated to the date of
termination.
d.
In the case of the application of either (i) of (ii) above, subject to insurer approval and any required
exclusions, Employee’s benefits will be continued for 6 months following Employee’s dismissal, provided,
however, that in no case will Employee receive less benefit continuation than is expressly required by the
ESA. By signing this Agreement, Employee agrees that he will not be entitled to any additional notice, pay in
lieu of notice, severance pay or similar amounts and that the provisions of this Section describe Employee’s
full and complete entitlement to notice, pay in lieu of notice, severance pay and similar amounts, whether
under contract, statute or the common law in connection with termination of Employee’s employment
without just cause by the Company. Employee shall be required to sign a release document in favor of the
Company to receive any amounts under this Section in excess of Employee’s ESA entitlements.
e. Termination by Employee. The Employee may terminate Employee’s employment at any time by giving the
Company 3 months of written notice.
11.
Miscellaneous.
a.
If any part or portion hereof shall be determined to be invalid, illegal or unenforceable, in whole or in part, neither
the validity of the remaining part or portion of such term nor the validity of any other term or provision of this
Agreement shall in any way be affected thereby.
b. Termination of this Agreement pursuant to Section 10 (Termination) shall in no way relieve or be deemed to
relieve Employee from any ongoing duties, obligations or liabilities which may arise from this
Agreement. The provisions of Sections 5, 6, 7, 8, 9, a n d 10 of this Agreement shall survive termination of
Employee's employment, and form a continuing obligation on the part of the parties hereto, which may not be
waived except in writing by both parties to this Agreement.
c. This Agreement contains the entire agreement of the parties with respect to the matters contained herein. It may
be modified, changed or altered only by an agreement in writing signed by all of the parties. The language used
in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction will be applied against any person. This Agreement may be executed in any
number of counterparts.
d. This Agreement may be assigned to any Related Company based in Canada at any time without the consent of
the Employee.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, all as of the day and year first above
written.
* * * *
/s/ Genine Mikucki
Headstrong Canada Limited
February 26, 2018
Date:
/s/ Darren Saumur
Certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) would
likely cause competitive harm to the Company, if publicly disclosed. Double asterisks denote omissions.
Exhibit 10.16
THIS MSA is made by and between the following parties (each individually referred to as a “Party” and jointly as “the Parties”) and is effective as of: January 1, 2017 (the
MASTER SERVICES AGREEMENT (MSA)
(BPO, Professional IT and Engineering Services)
“Effective Date”).
GENERAL ELECTRIC INTERNATIONAL, INC. (“GE”)
a Delaware corporation
with the following principal business address:
41 Farnsworth St.
Boston, MA 02210
GE Notice Information:
GE Notice Contact: [**]
GE Notice Contact Phone: [**]
GE Notice Contact Email: [**]
Also send a written copy of any notices to:
GE LEGAL – Contact/Address/Email:
[**]
GENPACT INTERNATIONAL, INC (“SP”)
A Delaware Corporation
with the following principal business address:
42 Old Ridgebury Road
First Floor
Fairfield, CT 06431
SP Notice Information:
SP Notice Contact: [**]
SP Contact Phone: [**]
SP Contact Email:[**]
Also send a written copy of any notices to:
SP LEGAL – Contact/Address/Email: [**]
The Parties agree that the information above shall be used for the purpose of making any required notices. Capitalized terms are as defined in SCHEDULE MS1 and in
applicable Schedules. All Schedules, SOWs, COs, and policies set forth herein are incorporated by reference into the MSA and are collectively known as the “MSA”. Any references to
Supplier shall mean SP. Any references to Supplier Personnel shall mean SP Personnel.
MANDATORY SCHEDULES (MS)
☒ SCHEDULE MS1 - General Terms and Conditions (GTC)
☒ SCHEDULE MS2 - GE Privacy and Data Protection Appendix (PDPP)
☒ SCHEDULE MS3 - Required SP and SP Personnel Insurance Coverage (INS)
☒ SCHEDULE MS4 – Personnel Background Check Requirements (BC)
☒ SCHEDULE MS5 – Batched Payments and Accelerated Payment Terms
☒ SCHEDULE MS6 – Local Implementation Template (LI)
☒ SCHEDULE MS7 - Business Continuity Requirements (BCR)
☒ SCHEDULE MS8 – Statement of Work Template (SOW)
☒ SCHEDULE MS9 – Step-In Rights
☒ SCHEDULE MS10 – Change Order Template (CO)
(Prior to the commencement of any BPO, Professional IT or Engineering services, the Parties shall negotiate in good faith with respect to the applicable function specific schedules and
execute the same. Upon execution, the applicable function specific schedule shall be governed by and incorporated into this MSA).
ADDITIONAL FUNCTION SPECIFIC SCHEDULES (FS)
SCHEDULE FS1 –BPO Services
SCHEDULE FS2 –Professional IT Services
SCHEDULE FS3 –Engineering Services
IN WITNESS WHEREOF, the Parties have caused the MSA to be executed by their duly authorized representatives as of the Effective Date.
GENERAL ELECTRIC INTERNATIONAL, INC.
GENPACT INTERNATIONAL, INC
/s/ James P. Otis
By:
Printed Name: James P. Otis
Title: GO-S IT Professional Services Leader
Date: December 21, 2016
By: /s/ Victor Guaglianone
Printed Name: Victor Guaglianone
Title: SVP
Date: 12/22/16
GENERAL TERMS AND CONDITIONS OF SERVICE
Schedule MS1
1.
DEFINITIONS
a.
“Agreement” means these General Terms and Conditions of Service.
b.
this agreement.
“Affiliate” means any entity which directly or indirectly Controls, is Controlled by, or is under common Control of a Party to
c.
“Circumvent” means to directly or indirectly, including assisting any related or third party to (i) solicit, induce or influence or
attempt to solicit, induce or influence any Contacts to terminate, reduce the extent of, discourage the development of or otherwise harm its, his
or her relationship or contract with GE or any GE Affiliate, or (ii) in any fashion directing business or opportunities with a Contact away
from GE or any GE Affiliate.
d.
“Confidential Information” means any and all information, data and materials disclosed or provided by one Party to the other,
in any medium, that the disclosing Party designates as confidential, whether by marking, orally, or by other means, at the time of or promptly
after disclosure, or, if not so designated, that the receiving Party would reasonably be expected to assume is confidential due to its nature.
Confidential Information shall include, without limitation, all information, data and materials disclosed to SP and SP Personnel in any SOW
and in any other writing whether electronically, orally, visually and/or observed while on the premises of GE or any GE Affiliate, its
customers and/or that which is developed as a result of performance of the Services. Confidential Information shall also include, without
limitation, GE Data, GE Materials, and each Party’s ideas, inventions, methods, designs, formulas, systems, improvements, prices, discounts,
business affairs, products, product specifications, manufacturing processes, data and know-how, technical information of any kind
whatsoever, trade secrets and other confidential, secret or proprietary matters, as well as Controlled Data, GE Restricted Data, Personal Data
and Sensitive Personal Data as defined in the GE Privacy and Data Protection Appendix referenced in Section 11.g.
e.
f.
“Contacts” mean customers, contractors, vendors, consultants, programmers, manufacturers and inventors of a Party.
“Control” means the possession of the power (by voting, under a charter, by agreement or otherwise) to conduct the affairs of
another entity or to direct or cause the direction of the management and the policies of another entity.
g.
“Deliverables” means all data, reports, communications, materials, Work Product, deliverables, information, project status
reports, innovations, inventions, software, code, documentation, artwork, images, videos, presentations, or discoveries (whether or not
patentable, trademarkable or copyrightable), in any medium, conceived, reduced to practice, made or developed by SP solely or jointly with
others or otherwise provided by SP, SP Personnel or on their behalf, by or to GE in connection with the Services.
h.
“Disabling Device” means any software, hardware, device, technology or other means, the purpose or effect of which is to: (A)
permit unauthorized access to, or to destroy, disrupt, disable, distort, or otherwise harm or impede in any manner, any (i) computer, software,
firmware, hardware, system or network, or (ii) any application or function of any of the foregoing or the integrity, use or operation of any data
processed thereby; or (B) prevent GE or any authorized user from accessing or using the Services
as intended by this MSA, and includes any virus, timer, clock, counter, time lock, time bomb, Trojan horse, worm, file infector, boot
sector infector or other limiting design, instruction or routine that could, if triggered, erase data or programming or cause the resources to
become inoperable or otherwise incapable of being used in substantially the same manner for which such resources were intended to be used.
The term “Disabling Device” shall not include any tool of SP or its third-party licensors that is disclosed to GE and that disables the access at
the end of the subscription term as set forth in the agreed upon specifications of the applicable software.
i.
“Fees” means the rates and prices payable to SP in consideration of the performance of the Services as specified in the
applicable SOW or PO and subject to payment terms, including MS5 – Accelerated Payment Terms, discounts, pre-negotiated rates, rebates
and set-off rights.
j.
"GE Data" means any and all information, data, materials, works, expressions or other content of GE or a GE Affiliate that is
provided to SP or produced or developed in connection with the Services, including any that (a) are uploaded, submitted, posted, transferred,
transmitted or otherwise provided or made available by or on behalf of GE or any authorized user for processing by or through systems of SP
or SP Personnel, (b) are collected, downloaded or otherwise received by SP or SP Personnel for GE or any authorized user pursuant to this
MSA or at the written request or instruction of GE or such authorized user, or (c) meets the definition of GE Data, Controlled Data, GE
Restricted Data, Personal Data and Sensitive Personal Data as set forth in the GE Privacy and Data Protection Appendix referenced in Section
11.g. All output, copies, reproductions, improvements, modifications, adaptations, translations and other derivative works of, based on, derived
from or otherwise using any GE Data are themselves also GE Data.
k.
“GE Materials” means all Materials related to GE, its Affiliates, customers and other suppliers and personal property that is
furnished, disclosed or otherwise made available to SP, directly or indirectly, by or on behalf of GE pursuant to the Agreement and all
Intellectual Property Rights therein.
l.
“Indemnitees” means a Party and its Affiliates and each of their employees, shareholders, directors, officers, agents,
representatives, successors and assigns.
m.
“Intellectual Property Rights” means the entire right, title and interest under (i) all applicable worldwide intellectual
property laws, including without limitation, patent, copyright and trademark laws, (ii) all other rights, privileges and priorities, including
Related Rights; (iii) all rights to contest, protest, sue at law or in equity for any infringement, imitation, impairment, distortion, dilution or
other unauthorized use or conduct in derogation of the Deliverables and Related Rights occurring at any time, including the right to receive all
proceeds and damages therefrom; and (iv) any and all rights to obtain registrations, renewal of registrations or other legal protections
pertaining to the Deliverables and Related Rights.
n.
“Losses” means all actual and alleged damages, costs, expenses, fines, penalties, interest and legal/attorney fees, of
whatever kind and nature claimed or incurred by a Party or a third-party, including, without limitation, those related to warranties,
investigation, reworking, remediation, cover costs, royalty payments, litigation, alternative dispute resolution, appeals and/or settlement.
o.
“Materials” means any materials, information, systems; software, code, tools and tooling, mechanisms; mask works;
compositions of matter, processes, ideas, inventions, know-how, trade secrets, developments, discoveries and improvements, data, textual
matter, forms, lists, photographs,
illustrations, audio and/or video, compilations of data and other content, designs, specifications, schematics, work and process flows, plans,
models, prototypes, methodologies, interfaces, “look and feel,” packaging, research, analyses, reports, procedures, techniques, and
identifiers such as domain, business and/or product names, marks, logos, URL’s, user and account names, social media presences and the
like.
p.
“MSA” means this Agreement, Schedules, SOW(s), PO(s), CO(s), online materials and all documents and policies incorporated
by reference.
q.
“Open Source Materials” or “OSM” means Open Source Software (or Materials that meet the definition) as defined in the
Product Cybersecurity Appendix (as amended) referenced in Section 11.g. of this Agreement.
r.
“Related Rights” means common law rights, trade secret rights, design rights, industrial design rights, database rights,
performer’s rights, rights of approval, moral rights, trade dress rights, rights of publicity, rights of privacy, rights against defamation and libel
and right under the laws of unfair competition.
s.
“Services” means all services, Work Product and Deliverables provided by SP and SP Personnel to GE under the MSA.
t.
“SP Personnel” means all individuals and entities providing any Services under this Agreement, including, without limitation,
SP’s subsidiaries, Affiliates, employees, agents, contractors, subcontractors and suppliers, as well anyone directly or indirectly employed by,
retained by or acting on behalf of any of the foregoing.
u.
“SP Pre-Existing Intellectual Property” means data, materials and information, as evidenced by SP’s written records, that is:
(i) developed or otherwise owned by SP prior to the Effective Date or commencement of Services under this MSA, whichever is earlier; or (ii)
developed independently by SP outside the scope of this MSA and not based on GE Confidential Information, GE Data, GE Materials, Work
Product or other data, materials and information in which GE owns Intellectual Property Rights.
v.
“Third Party Materials” or “3PM” means Materials the rights to which are owned in whole or in part by one or more third-
party individuals or entities (and not by either Party or its Affiliates).
w.
Underlying License” means any and all terms which are legally applicable to the use, disclosure, modification, incorporation,
distribution (or other exercise of Intellectual Property Rights) in OSM or 3PM.
x.
“Work Product” means any Deliverables that are not Third Party Materials, Open Source Materials, or SP Pre-Existing
Intellectual Property and that are created by SP or SP Personnel for GE under the MSA.
2.
PROVISION OF SERVICES.
a.
Scope. This Agreement sets forth the terms under which SP and SP Affiliates (each as applicable, “SP” and “Party”)
agree to provide GE and its Affiliates with agreed upon Services and
Deliverables. The scope of Services shall be agreed upon by the GE or its Affiliates (each as applicable, “GE” and “Party”) in an applicable
SOW using the template in Schedule MS8 – Statement of Work, or PO and any attachments thereto, stating, at a minimum: (i) project
objectives and specifications; (ii) Services; (iii) Deliverables (including Work Product); (iv) acceptance criteria; (v) responsibilities of each
Party; (vi) timelines and deadlines; (vii) SP Pre-Existing Intellectual Property to be incorporated into the Deliverables or otherwise provided
to GE; and (viii) Fees. Each SOW and PO shall be a separate agreement governed by and subject to this MSA. GE is not obligated in
any way to provide or to guarantee SP with any exclusivity or a specific amount of services or an opportunity to work on GE projects.
b.
Change Orders. Neither Party shall materially deviate from the terms of an SOW except under the terms of a Change
Order (CO) (Schedule MS10) mutually agreed to in writing by both Parties (“Change Request”). If the Parties fail to agree (despite diligent
and good faith negotiations) on the outcome of a Change Request, SP shall (at GE’s option) continue performing under the SOW without any
changes, or cease performing under the SOW immediately upon receiving written notice of termination. Both Parties agree that all SOWs shall
be governed by this MSA even if the applicable SOW has no clear reference to this MSA.
3.
TERM.
The term of the MSA shall commence on the Effective Date and shall continue until the effective date of earlier termination or December
31, 2020, whichever is earlier. The term of the MSA may be extended in a written document signed by authorized representatives of both
Parties. The initial term, together with any extension terms, shall be collectively referred to as the “Term.” The terms of this MSA shall
continue to apply to any outstanding SOW until the SOW is completed, or terminated as set forth herein.
4.
ACCEPTANCE OF SERVICES AND DELIVERABLES.
If upon review of the Services, GE, in its commercially reasonable discretion, determines that any part of the Services does not conform
to mutually agreed upon acceptance criteria set forth in the applicable SOW, then SP, at its cost and expense, shall cure the nonconformity
within [**] days or other duration agreed upon by GE. Acceptance by GE shall not constitute a waiver of any rights and remedies that may
be available to GE under the MSA, law or equity, including for a breach of applicable warranties.
5.
FEES AND EXPENSES.
a.
General. The Services shall be provided at the agreed upon Fees without increase during the term of the applicable SOW or PO.
All agreed upon expenses and costs will be billed at actual net cost to GE without markup. GE shall not be billed or liable for any costs or
expenses other than those stated, described and expressly authorized by GE in the applicable SOW. SP shall be solely responsible for the its
costs of doing business, including, procuring any permits, licenses, equipment, software and other tools needed by SP in the ordinary course of
business for the performance of the Services.
b.
Invoicing and Payment Terms. GE has a strict “NO PO - NO PAY Policy.” SP shall not commence performance of
any Services under this MSA or applicable SOW until SP has received a PO from GE referencing this MSA and the applicable SOW. No GE
financial obligation shall arise absent a PO. Any invoice without a valid PO will be rejected. Except as otherwise set forth in the applicable
SOW or PO, SP shall invoice GE within [**] days of completion and delivery of the applicable Services and Deliverables. Invoices shall
clearly indicate the Services, expenses and costs for which GE is being
charged, and will provide adequate detail and itemization to allow GE to reconcile invoices with Services received. All authorized T&L
expenses shall be separately itemized and supported by receipts. Any invoice that is received more than [**] days after the due date shall be
deemed invalid and not payable by GE. Unless prohibited by applicable law, undisputed Fees, costs and expenses shall be payable by GE, as
applicable: (i) within [**] days from the date a correct invoice is received and approved by GE; or (ii) per the Batched Payments and
Accelerated Payment Terms in Schedule MS5, if SP is participating in one or both programs. GE shall have the right to set off amounts owed
by SP to GE or a GE Affiliate against any amounts payable to SP under this MSA.
c.
Billing Dispute. If GE disputes any fee, expense, or other charge, GE will provide SP with notice of such dispute within [**]
days of receipt of the applicable invoice. Any properly submitted and correct invoice not disputed in accordance with this section shall be
considered approved. GE and SP will use good faith efforts to resolve in an expedient manner. Each Party agrees to continue performing its
obligations under this Agreement while any dispute is being resolved unless and until such obligations are terminated by the termination or
expiration of this MSA. SP will provide GE with copies of all supporting documentation relating to the dispute within [**] days after GE has
provided written notification to SP. Such amount (or such amount as may be ultimately determined to be correct) shall not be due until [**]
days after the dispute is resolved but in no event earlier than the original invoice due date. Notwithstanding anything contained herein, GE
shall have no obligation to pay a disputed amount until resolution of the dispute.
6.
CONFIDENTIALITY OBLIGATIONS.
a.
Obligations. Each Party agrees to not disclose or use the other Party’s Confidential Information except as permitted in this
MSA and applicable SOW. Any other disclosure or use shall require the prior written approval of an authorized representative of the other
Party. Each Party will ensure that its personnel that need to access the Confidential Information under a SOW will abide by the confidentiality
obligations herein and such access will be limited to Confidential Information necessary for such Personnel to provide Services. Each Party
shall protect the other Party’s Confidential Information against unauthorized use or disclosure using at least those measures that it takes to
protect its own Confidential Information of a similar nature, but no less than a high degree of reasonable care. For certain engagement that are
identified by GE in the applicable SOW as strategic, if GE requires that specifically identified SP Personnel who are subcontractors or
suppliers of SP to execute additional documents to protect GE’s Confidential Information, SP shall promptly execute and shall cause said SP
Personnel to execute the same. Should SP already render or wish to render services to a third-party that directly or indirectly competes with
GE, then SP shall establish appropriate firewalls and security measures to protect GE Confidential Information, GE Data and GE Materials.
Upon GE’s request, SP shall provide GE with a written description of its practices to protect, secure and isolate GE Confidential Information,
GE Data and GE Materials and shall work in good faith to implement any additional measures as may be requested by GE. Neither Party will
disclose the existence or terms of any part of the MSA without the other Party’s prior written consent, provided however, GE may disclose
the same in connection with divestitures and acquisitions as set forth in Section 30.
b.
Exceptions. Confidential Information shall not include information that, using documentary evidence can be shown: (a) to
have been rightfully in the receiving Party’s possession from a source other than disclosing Party prior to the time of disclosure of said
information by the disclosing Party (the “Time of Receipt”); (b) to have been in the public domain prior to the Time of Receipt; (c) to have
become part of the public domain after the Time of Receipt by any means other than an unauthorized act or
omission on the part of the receiving Party; (d) to be independently developed by the receiving Party prior to the Time of Receipt.
c.
Procedure in case of Disclosure. In the event of any unauthorized use, disclosure or loss of any Confidential Information, the
receiving Party shall promptly, at its own expense: (i) notify the disclosing Party in writing; (ii) take such actions as may be necessary or
reasonably requested by the disclosing Party to minimize the violation or the damage resulting there from; and (iii) cooperate in all
reasonable respects with the disclosing Party to minimize the violation and any damage resulting there from.
d.
Compelled Disclosures. If, in the reasonable opinion of receiving Party’s counsel, any of the Confidential Information is
required to be disclosed pursuant to law, regulation, or court order, to the extent legally permissible, receiving Party will give disclosing Party
prompt, written notice, in order to allow disclosing Party to take whatever action it deems necessary to protect its Confidential Information. In
the event that no protective order or other remedy is obtained, or the disclosing Party waives compliance with the terms of this section,
receiving Party will furnish only that portion of the Confidential Information which receiving Party is advised by counsel as being legally
required and will notify disclosing Party in writing of the Confidential Information disclosed.
e.
Post-MSA Obligations. Upon expiration or any termination of this Agreement, completion of SP’s obligations under the
MSA or each SOW or upon request of disclosing Party at any time, receiving Party shall return or destroy, as disclosing Party may direct,
all documentation in any medium that contains or refers to the Confidential Information, and retain no copies; provided however, each Party
may retain a single copy for the duration as reasonably required to meet its legal and compliance obligations. Upon GE’s request, an
authorized officer of SP shall provide written certification of SP’s compliance with the foregoing obligations. Further, as applicable, for any
hardware or equipment on which GE's Confidential Information was stored or processed, SP shall dispose of the hardware and equipment
through a methodology consistent with best practices as defined by the National Institute of Standards Technology (NIST), including, without
limitation, NIST Guidelines for Media Sanitization. The obligations of confidentiality and non-use with respect to any Confidential
Information of GE shall survive in perpetuity.
f.
Third-Party Confidential Information. SP will not disclose to GE or use in the performance of the Services, any information
which is confidential or proprietary to a third party or the trade secret of a third party without first obtaining the written consent of such third
party and GE.
7.
NON-CIRCUMVENTION.
SP acknowledges that, during the performance of Services related to certain limited and strategic projects that are specifically
identified as strategic to SP by GE, SP may be introduced to GE Contacts and may have an opportunity to develop a relationship with GE
Contacts. SP agrees that during the Term and for a period of [**] years thereafter, whether terminated by SP or GE, SP will not enter into an
arrangement that Circumvents GE with respect to any Contacts on a project that is identical or similar to the strategic project without the prior
written consent of an authorized officer of GE .
8.
NON-HIRE.
Except as otherwise set forth in the applicable Function Specific Schedule (FS), and subject to applicable laws, during the Term
of this MSA and any SOW and for [**] months after its expiration or
termination for any reason, the Parties shall not, without a written waiver by the other Party of its rights under this Section, hire for
employment any employee of the other Party who: (a) is classified by the other Party as exempt from overtime eligibility under applicable
wage and hour laws; and (b) has been directly involved in the Services under this MSA within the previous [**] months. It shall not be a
breach of this MSA for a Party to solicit the employment of the other Party’s employee if it does not result in a hire, or if hired prior to
permission being obtained, the other Party does not object in writing within [**] days, or if an offer of employment is withdrawn and the other
Party fully reinstates the employee.
9.
PRE-EXISTING INTELLECTUAL PROPERTY OF SP.
GE will not acquire ownership of any SP Pre-existing Intellectual Property. SP shall not incorporate any SP Pre-existing
Intellectual Property into the Deliverables without the prior written consent of GE and without specifically disclosing it in the applicable SOW.
SP hereby grants to GE, a non-exclusive, irrevocable, transferable, royalty-free, worldwide license to use, modify and prepare derivative works
of any SP Pre-existing Intellectual Property (including the right to sublicense or assign) to the extent that such license is required to enable GE
to make use of the Services under the relevant SOW and so long as such SP Pre-existing Intellectual Property remains embedded in the
Deliverables and is not exploited commercially independent of the Deliverables. To the extent any portion of the SP Pre-existing Intellectual
Property is not SP’s original work, SP hereby represents and warrants that SP has obtained permission from the original owner of such third
party content to use all or a portion of such third party content, and that SP has the right to grant to GE such non-exclusive license in and to
such third party content.
10.
OWNERSHIP.
a.
GE Ownership. GE shall be the sole and exclusive owner of all right, title and interest in the GE Data, GE Confidential
Information and GE Materials and all Intellectual Property Rights therein. SP acknowledges that all trademarks, logos, service marks or trade
names of GE and its Affiliates, whether or not registered, are valuable and have attained a high degree of goodwill throughout the world. SP
agrees that it shall not, without prior written consent of GE (or the applicable GE Affiliate) in each instance; (a) use in advertising, publicity
or otherwise, the name or logo of GE or any GE Affiliate, or of any officer or employee of GE or GE Affiliates, nor any trade name, trademark,
logo or simulation thereof owned by GE or any GE Affiliate; or (b) represent directly or indirectly that any product or service provided
by SP has been approved or endorsed by GE or any GE Affiliate. Nothing contained in this MSA grants SP any express or implied rights or
licenses with respect to GE Data, GE Confidential Information or GE Materials other than for performance of SP’s obligations under the
applicable SOW.
b.
Third Party Materials, Open Source Materials. Without first disclosing to GE in the SOW and receiving GE’s prior written
approval, SP shall not provide any Deliverable to GE which uses or incorporates Open Source Materials or Third Party Materials (or depends in
any way upon OSM or 3PM) unless: (a) SP cooperates and complies with GE’s security and proprietary rights assessments concerning OSM and
3PM; (b) SP validly holds and is in compliance with all Underlying Licenses necessary to use or incorporate the OSM or 3PM as specified in
the SOW; and (c) SP agrees, upon GE’s request, to allow GE (or an approved third party inspector paid for by SP) to examine any Deliverable
for OSM or 3PM, and provides GE with any related necessary assistance. If any 3PM incorporated into a Deliverable is not commercially
available as a separate product offering, SP agrees to obtain for GE an Underlying License conveying a non-exclusive, royalty-free, perpetual,
irrevocable, worldwide, fully paid-up, sublicenseable (through all tiers) right which allows GE and its authorized designees to use the 3PM as
incorporated, at no additional charge to GE. SP shall be responsible at its sole expense for remediating any technical or
legal issues experienced by GE in connection with the use or incorporation of OSM or 3PM (including, but not limited to removing any OSM
or 3PM incorporated without GE approval; re-performing Services or Deliverables; reimbursing GE for losses, costs and other direct damages
related to the OSM or 3PM; and/or undertaking the fulfillment of obligations that might be imposed on GE by any applicable OSM or 3PM
Underlying Licenses, or resolving conflicts among them). SP further agrees that the GE may perform a code scan of any software
contained in any Work Product prior to acceptance to ensure that no Open Source Materials have been included in such Deliverable without
the prior approval from GE in writing.
c.
GE Rights. Subject to Third Party Materials, Open Source Materials and SP Pre-existing Intellectual Property license rights
disclosed by SP and approved by GE in writing, all Work Product and all Intellectual Property Rights therein shall be the sole and exclusive
property of GE. GE shall have the sole and exclusive right to use or not use the Services and Deliverables, and to use, reproduce, reuse,
modify, crop, alter, edit or change the Work Product, as it sees fit and for any purpose. GE shall have the right to transfer or assign any and all
rights hereunder to any third-party, in its sole discretion.
d.
Work Made for Hire. At GE’s written request, SP will execute, or cause to have executed, by SP Personnel, such documents
and take such other actions, as GE deems necessary or appropriate, to obtain, record or enforce Intellectual Property Rights or assignments
thereof in GE’s name, as applicable, covering the Work Product. To the extent the Work Product is copyrightable (including, without
limitation, computer programs, source code, object code and supporting documentation), it will be deemed a Work Made for Hire or
alternatively a Specially Commissioned Work under the Copyright Act of 1976 and will become and remain the sole and exclusive property of
GE and assignable by GE. If any Work Product may not be a Work Made for Hire, SP agrees to assign and does hereby assign or will cause
to have assigned all right, title and interest, including, Intellectual Property Rights in such Work Product to GE. SP shall cause the SP
Personnel to irrevocably waive, to the extent permitted by applicable law, any and all claims such SP Personnel may now or hereafter have in
any jurisdiction to so-called "moral rights" or rights of droit moral with respect to the Services. If for any reason, SP is unable to or does not
sign and/or deliver such documentation with respect to the Work Product within [**] days of GE’s escalation to SP’s General Counsel or other
senior officer of SP, any officer of GE is hereby irrevocably appointed and authorized as attorney-in-fact for SP to sign and deliver such
documentation, it being agreed that this authorization and appointment is a right coupled with an interest.
e.
Residual Knowledge. Except to the extent where an SP is specifically retained to develop ideas, concepts, know-how or
techniques as Work Product under the terms of the applicable SOW, each Party is free to use any generalized ideas, concepts, know-how, or
techniques that are developed or provided by the other or jointly by both Parties during the Term, so long as it does not use the Confidential
Information of the other Party. Subject to the restrictions set forth in the MSA, SP and GE are free to enter into similar agreements with third
parties, and to develop and provide to such third parties materials or services that are the same as or similar to those provided under this MSA.
11.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SP.
SP represents, warrants and covenants that each of SP and SP Personnel:
a.
General Warranty. (i) Is duly organized, validly existing and in good standing as a corporation or other entity as
represented herein under the laws and regulations of its jurisdiction of incorporation, organization or chartering; (ii) it has, and throughout the
Term and any additional periods during which it does or is required to perform the Services will retain, the full right, power and authority to
enter into this MSA and perform its obligations hereunder; (iii) the execution of this MSA by its representative whose signature is set forth at
the end hereof has been duly authorized by all necessary corporate or organizational action and when executed and delivered to GE, this MSA
will constitute the legal, valid and binding obligation of SP and SP Personnel, enforceable against them in accordance with its terms; and (iv)
is not a Party to any contract or arrangement with any third party or subject to any threatened or actual administrative or legal claim or
proceeding which prohibits, inhibits or adversely affects the performance of the Services or obligations under the MSA;
b.
Performance Warranty. Shall perform and provide the Services:
(i) in material compliance with the MSA; provided, however, for business process outsourcing services, the warranty shall
be as set forth in the applicable service levels, and with respect to all other services, such warranty shall be for a period of [**] days (or other
agreed upon duration in the applicable SOW) from acceptance by GE as set forth in Section 4. The warranty in this subsection shall run to
GE, its successors, assigns, and the users of Deliverables and Services covered by the SOW. If any Deliverables or Services are found to be
defective during that warranty period then, in addition to other rights and remedies that GE may have by law, contract or at equity, GE at its
option and sole discretion and at SP’s expense may: (x.) reject and return such Deliverables or Services; (y.) require SP to remove, ship and
reinstall/reperform nonconforming Deliverables and Services with Deliverables and/or Services that conform to all the requirements of the
MSA and the applicable SOW (and SP shall do so in a timely manner); and/or (z.) take such actions as may be required to cure all defects
and/or bring the Deliverables and Services into conformity with all the requirements of the MSA and the applicable SOW, in which event all
costs and expenses including material, labor and handling costs and charges (inclusive of any required re-performance), incurred by GE shall
be for SP’s account. Any repaired or replaced part, or re-performed Services shall carry warranties on the same terms as set forth above, with
the warranty period being the later of the original unexpired warranty or [**] months after repair or replacement. To the extent SP is not the
manufacturer of any goods or components or Deliverables sold or transferred hereunder SP agrees to transfer to GE, or otherwise give the
benefit to GE, of any warranties or indemnities that may be provided by the manufacturer of such goods and/or components and/or
Deliverables and shall enforce the same for GE at SP’s sole cost and expense;
(ii) (a) without violating, infringing or misappropriating any rights of third-parties, including without limitation,
Intellectual Property Rights, proprietary, contractual or Related Rights; (b) with a guarantee that GE’s use of the Services or Deliverables or
the exercise of any rights and licenses provided hereunder shall not violate, infringe or misappropriate any rights of third-parties, including
without limitation, Intellectual Property Rights, proprietary, contractual or Related Rights;
(iii) free from any security interest, lien or other encumbrance; and
(iv) free of any defects (latent or patent) in material, design or workmanship;
c.
Operational Warranty. Shall devote the resources necessary to meet their obligations under the MSA, shall provide
periodic status reports if requested by GE or per the applicable SOW, and all Services shall be performed in a timely, professional and
workmanlike manner in conformity with the best industry standards applicable to the Services using personnel with the requisite skill,
experience and qualifications.
d.
Recommendations. Is a recognized expert in the field of Services who shall be responsible for its recommendations,
including those related to the use of Third Party Materials and Open Source
Materials, products or services that are provided by SP as a requirement (without any other options) for the use of the Deliverables and
Services;
e.
Originality. Subject to Third Party Materials and SP Pre-existing Intellectual Property license rights approved by GE in
writing, all Work Product shall be new and original;
f.
Compliance with Law. Shall perform, deliver and maintain the Services, regardless of the location: (i) in accordance
with all applicable laws, rules and regulations of any governmental authority, agency, securities exchange or other self-regulatory organization
of which it is a member or by which its activities are governed or regulated; (ii) in accordance with any other applicable legal or other
limitation or restriction; and (iii) in compliance with its charter and by-laws or other constituent documents, and not in contravention or
breach of its obligations to or agreements with any third-party.
g.
systems,
facilities,
premises,
Compliance with GE Policies. Shall comply with, and shall replace any SP Personnel who fail to comply with, all
applicable GE policies, procedures, licenses and governance matters including, without limitation, (i) GE’s safety, security, drug use and drug
testing policies; (ii) applicable licenses, policies, procedures, governance matters if SP or SP Personnel are provided access to GE or GE-
contracted
at
www.gesupplier.com/html/GEPolicies.htm, including, the GE Integrity Guide and as applicable, Supplier Travel and Expense Policy, GE
Privacy and Data Protection Appendix (PDP), European Union Standard Data Privacy Clauses, Protected Health Information Agreement,
Product Cybersecurity Appendix, GE Background Checking Guidelines and US Government Flowdown Provisions (if identified in the
applicable SOW)/GE Power & Water Government Acquisition of Commercial Items Appendix (if identified in the applicable SOW). (To the
extent SP is unable to comply with any material amendments thereto due to a substantial increase in SP's costs or obligations under the MSA,
within fifteen (15) days of notice of said amendments, SP shall provide GE with written notification of its inability to do so and said
notification shall specifically identify the amendments to which such inability applies. Without limitation, the Parties mutually acknowledge
that failure to comply with this Section shall be deemed a material breach incapable of cure.);
equipment;
software
content,
policies
located
The
(iii)
and
or
h.
Background Checks. Shall, to the extent permissible by applicable law, perform background checks using an authorized
background checking agency as set out in Schedule MS4 -Personnel Background Check Requirements (BC) prior to (a) stationing any SP
Personnel to perform Services at any GE location, facility or work site (for purpose of clarity, “stationing” shall not include periodic
attendance or visits to such locations, facilities or work sites); (b) granting access to GE networks (such as having a GE issued single sign-on
account) to SP Personnel to provide the Services; (c) assigning SP Personnel to duties that are directly related to the safe operation or security
of a GE facility or piece of equipment and which, if not performed properly, could cause a serious environmental, health or safety hazard to
employees or the general public; or (iv) assigning SP Personnel to a GE worksite that is designated in its entirety as “security sensitive,” even
though the work responsibilities, if performed in another context, would not be security sensitive; and after securing appropriate written
authorization from its SP Personnel.
i.
Taxes. Shall be responsible for all taxes applicable to its income from the Services, and for including any sales, use,
value-added or similar taxes applicable to the Services as a line item on the pertinent invoice (identifying the type and amount thereof) as
well as for tracking and paying the taxes collected from GE to the appropriate governmental authority;
j.
Licenses and Assets for Performance. Shall, at no additional cost to GE, obtain and keep in full force and effect any
assets, licenses, visas, certifications, permits, clearances or registrations necessary to provide the Services in the ordinary course of business;
k.
Third Party and Open Source Materials. Shall not incorporate any Third Party Materials and Open Source Materials
into the Services until all required clearances within GE have been obtained;
l.
Litigation Support. Shall ensure that the Services are capable of audit trails and record hold requests and it can
implement such trails and hold requests promptly and in a manner that will meet GE’s litigation and regulatory obligations as they arise;
m.
Migration. Have the knowledge, experience, technology and plans to sufficiently locate, isolate and extract GE
Confidential Information and GE Materials, should GE desire bring the same back in-house or migrate to a different vendor;
n.
Disabling Devices. Shall deliver and maintain the Services free from all Disabling Devices.
12.
INFRINGEMENT OF INTELLECTUAL PROPERTY
If the Services become or in GE’s opinion are likely to become the subject of an infringement or misappropriation claim, SP
shall, at SP’s sole cost and expense, in addition to its indemnification obligations, at GE’s discretion, either (i) procure for GE the right to
continue using the Services or SP Pre- existing Intellectual Property, (ii) replace or modify the Services or SP Pre-existing Intellectual Property
in a manner acceptable to GE to make them non-infringing or without misappropriation, provided that any such replacement or modification
shall not materially degrade the performance or quality of the affected Services or Pre-existing Intellectual Property, or disrupt GE’s business
operations; or (iii) refund all or part of the Fees and costs for the applicable Services.
13.
INDEMNIFICATION
a.
SP Duty. To the fullest extent permitted by law, SP shall, at its own expense, defend, indemnify, release, and hold the GE
Indemnitees harmless against all Losses related to third-party claims, to the extent directly or indirectly, arising from, related to, or out of: (i.)
any act or omission of SP or SP Personnel, constituting negligence, recklessness, or intentional or willful misconduct, (ii) breach of any term,
representations, warranties or covenants of the MSA or any part thereof by SP or SP Personnel; (iii.) any assertion or allegation that the
Services or use thereof by GE as intended or agreed upon by the Parties in the applicable SOW constitute violations, misappropriation or
infringement of any Intellectual Property Rights; (iv.) injury to person (including death) or damage to property caused by SP or SP Personnel;
and (v.) taxes or other liability related to the employment or engagement or the termination of employment or engagement of SP Personnel.
SP shall extend the benefit to GE of all applicable third- party indemnities that are provided to SP in connection with the Services.
b.
GE Duty. To the fullest extent permitted by law, GE shall, at its own expense, defend, indemnify, release, and hold SP
Indemnitees harmless against all Losses related to third party claims to the extent arising from or related to (i.) any assertion or allegation that
SP’s use of any GE Confidential Information violates the Intellectual Property Rights of said third-party; (ii) injury to person (including
death) or damage to property caused by a GE employee; and (iii) breach by GE of applicable laws.
c.
Exceptions to Intellectual Property Infringement. The indemnifying Party shall not be responsible for a violation or
infringement of Intellectual Property Rights of a third-party to the extent caused directly by: (i) an unauthorized modification or enhancement
or misuse of the subject intellectual property by the indemnified party and such violation or infringement would not have arisen but for such
modification, enhancement or misuse; (ii) failure by the indemnified party to use new or corrected versions of the subject intellectual property
(provided and implemented at no additional cost to the indemnified party) after written notification to do so and the violation or infringement
would not have occurred but for such failure; or (iii) the combination or integration of the subject intellectual property with products or
information not furnished or otherwise authorized by the indemnifying property and the violation or infringement would not have occurred but
for such combination or integration.
d.
Procedure. The indemnified party shall have the right, but not the obligation, at its expense, to participate in the defense of
any such claim through counsel of its own choosing. If the indemnifying Party and/or its retained counsel fail to promptly provide such
defense, or, having commenced such defense, fail to diligently proceed with such defense, in the indemnified Party’s discretion, the
indemnified party shall have the right to assume the defense of any such matter through legal counsel of its own choosing. In such case, the
indemnifying Party shall remain liable for all of the indemnified party’s Losses incurred in conjunction therewith, including all legal fees
and expenses the indemnified party incurs to enforce its indemnity rights. The indemnifying Party shall not enter into any settlement
agreement or otherwise agree to the entry of any order or judgment that requires the indemnified Party to take any specific action, admit
liability or pay any sum of money out of its own resources without the prior written approval of an authorized representative of the
indemnified party.
14.
DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
a.
Disclaimer of Warranties. NEITHER PARTY PROVIDES ANY WARRANTIES, EXPRESS OR IMPLIED,
OTHER THAN THOSE SET FORTH IN THIS AGREEMENT.
b.
Disclaimer of Special Damages. NEITHER PARTY SHALL BE LIABLE UNDER THE MSA TO THE OTHER
PARTY OR ANY THIRD PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVE
DAMAGES, WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE
c.
Limitation of Liability. EACH PARTY’S LIABILITY TO THE OTHER PARTY RELATING TO THE SERVICES
PROVIDED UNDER A SOW SHALL NOT EXCEED TWO (2) TIMES THE AMOUNT PAYABLE BY GE WITH RESPECT TO THAT
APPLICABLE SOW.
d.
Exclusions. The Disclaimer of Special Damages in Section 14(b) and Limitation of Liability in Section 14 (c) shall not
apply to any Losses arising from or related to: (i) either Party’ gross negligence, intentional misconduct, including fraud, or willful
misconduct; (ii) either Party’s obligation to indemnify the other Party per Section 13 or a breach of either Party’s indemnification obligations
or any infringement or misappropriation by SP or SP Personnel of any Intellectual Property Rights of GE or GE Affiliate; (iii) any intentional
or willful breach of the MSA by SP or SP Personnel; (iv) any personal injury, bodily injury, death or property damage caused by SP or SP
Personnel; (v) breach of confidentiality obligations by SP or SP Personnel; (vi) any taxes, filing fees, fines, penalties and related charges
imposed on or alleged against GE due SP’s or SP Personnel’s acts or omissions in violation of this MSA; (vii) any warranties pertaining to
product, equipment, Deliverables, Work Product or Services provided under the MSA; or (viii) any matters that cannot be limited due to
applicable laws or regulations.
15.
Insurance.
SP shall, and shall cause SP Personnel, to secure and maintain, in full force and effect throughout the Term and for a period of [**]
years from the termination or expiration of the applicable SOW (whichever is longer), insurance coverage in types and amounts (at a
minimum Commercial General Liability, Worker’s Compensation, Commercial Automobile Liability, Errors and Omissions/Professional
Liability) appropriate to the conduct of SP's business and sufficient to support SP's indemnification obligations hereunder, but no less than as
required in SCHEDULE MS3 - Required SP and SP Personnel Insurance Coverage. In no event shall the coverage or limits of any insurance
maintained by SP under this section or the lack or unavailability of any other insurance, limit or diminish in any way SP’s obligations or
liability to GE under this Agreement, law or equity. Any acceptance of insurance certificates by GE shall not limit or relieve SP of the duties
and responsibilities assumed by SP under the MSA.
16.
Business Audit.
a.
GE Right to Audit. GE through its authorized employees, representatives, agents, and partners, upon giving notice to SP (as
reasonable under the circumstances), will have the right to inspect and/or audit, at GE’s discretion, all facilities, equipment, procedures, and
practices employed by SP in conducting the Services and to examine and audit all records, files, notebooks, relevant operating procedures and
processes, and data relating to the Services performed or provided, in order to assure and confirm SP's compliance with the MSA, including all
applicable GE policies and applicable law. Any significant non-compliance issues identified during such inspection and/or audit will be
communicated to SP. SP will provide a corrective action plan in writing to GE within [**] days (or mutually agreed upon longer period) of
such communication, unless GE determines that a shorter period is necessary due to the nature of non-compliance. If, in the sole discretion of
GE, the non-compliance is not remediable or resolution cannot be reached within a reasonable period of time following such request, GE, in
its sole discretion, may terminate the MSA and/or any or all SOWs as a material breach of this Agreement. The foregoing rights shall be
effective during the Term and for a period of [**] years following the expiration or termination of the MSA or an applicable SOW
(whichever is later). Except where SP is alleged to be in breach of the MSA, including, without limitation, breach of security and
confidentiality requirements or applicable law, the audit rights shall not be exercised more than [**] month period. Except to the extent
reasonably necessary for GE to enforce its rights and remedies under the MSA, the audit shall be conducted in compliance with SP’s
reasonable security and confidentiality requirements.
b.
SP Responsibilities. SP shall continuously monitor its facilities, equipment, SP Personnel and procedures and practices
employed by SP in performing the Services, including, without limitation, the effectiveness of SP and SP Personnel’s security (physical and
IT). Additionally, SP shall be responsible for ensuring consistency of its operations, including proactive monitoring and mitigation of all
vulnerabilities across all of its sites. Using an independent third-party reasonably acceptable to GE and at SP’s sole cost and expense, SP shall
conduct audits and risk and vulnerability assessments against the requirements of policies and procedures referenced in this MSA or made
known to SP, no less frequently than every [**] months. The reports of such audits and assessments shall include, at a minimum, the scope of
the audit and/or assessment and any vulnerabilities/issues/findings/concerns/recommendations in so far as they impact GE. SP shall provide to
GE all reports of such periodic audits and assessments. Such reports will be treated as SP Confidential Information. SP shall remediate within
[**] days any items rated as high, critical or severe (or similar rating indicating similar risk) in such reports and shall remediate all other issues
within a commercially reasonable time. If, in the sole discretion of GE, the non-compliance is
not remediable or resolution cannot be reached within a reasonable period of time, GE, in its sole discretion, may terminate the MSA and/or
any or all SOWs as a material breach of this Agreement.
17.
Financial Audit Rights
During the Term and for [**] years after (or the length of time as may be required by applicable law, ordinance or regulation,
whichever period is longer), SP shall maintain complete and accurate books and records, in accordance with generally accepted accounting and
document retention principles, regarding its business operations relevant to the calculation of Fees and SP and SP Personnel’s compliance
with this MSA. Upon GE’s request, SP shall make such books and records, and appropriate SP Personnel, available during normal business
hours for inspection and audit by GE or an independent accounting firm, provided that GE shall: (a) give SP prior notice (reasonable under the
circumstances) of any audit; (b) undertake an audit no more than once per calendar year except for good cause shown; and (c) conduct or cause
to be conducted such audit in a manner designed to minimize disruption of SP’s normal business operations. GE may take copies and
abstracts of materials audited [provided that such material is deemed Confidential Information of SP]. In case of any discrepancy, SP shall
immediately, pay GE the amount of any overpayment revealed by the audit. Additionally, if an audit reveals an overbilling or over-reporting
of [**] percent ([**]%) or more, then SP shall reimburse GE for the cost of the audit.
18.
Business Continuity Planning
If GE, in its sole discretion, identifies SP as a critical supplier in an applicable SOW, SP shall, at no additional cost to GE,
comply with the requirements of Schedule MS7- Business Continuity Planning.
19.
Export Controls.
The Parties acknowledge that certain materials to be provided hereunder and certain transactions hereunder may be subject to
export controls under the laws and regulations of the United States, EU member states, EU and other countries. Neither Party will export or re-
export any such items, information, or any direct product thereof or undertake any transaction in violation of any such laws or regulations. SP
agrees that all persons performing Services, or otherwise working with controlled United States technology, will be in compliance with the
Export Administration Regulations (15 C.F.R. 730 et seq.) and that SP will obtain any required export license for SP Personnel prior to
assigning such personnel to the Services.
20.
Local Implementation Agreement
a.
LIA. Where it appears necessary to accommodate specific regional or national circumstances, in particular to differences
in local mandatory laws and regulations or to local business requirements of GE, a GE Affiliate or SP, the Parties may enter into a local
implementation agreement ("LIA") for the purchase of Services in a particular country using the template form set out in Schedule MS6 -
Local Implementation Agreement Template. Each such LIA shall: (i) form a separate agreement between the relevant parties to it governing
the provision of Services to the GE Affiliate in or in respect of the relevant country or market; (ii) incorporate as if set out in full therein the
then current version of this Agreement; (iii) set out any exceptions and/or additional terms and conditions in a LIA deemed appropriate by the
relevant parties to such LIA in consideration of their respective organizational or operational needs and/or processes or to apply local
mandatory laws; and (iv) be read such that references in this Agreement to “GE” shall be deemed to be references to the GE Affiliate
contracting entity of such LIA.
b.
Requirements. A LIA shall not take effect under this MSA unless each of the following requirements is met: (i) the
LIA references this MSA as being a LIA placed under it; (ii) the LIA is signed by an authorized GE (or GE Affiliate, as applicable) signatory
and by an authorized SP signatory; and (iii) at the date the LIA is signed by both applicable parties to the LIA, this MSA has not expired or
been terminated. For governance reasons, each LIA shall have to be countersigned by a GE Global Commodity Leader.
c.
Exceptions. Any exceptions expressly agreed upon in writing by a GE Affiliate and SP, pursuant to a particular LIA
shall apply only for purposes of that LIA and only between the parties thereto, and shall not be deemed to in any way amend, modify,
cancel, or waive the provisions of this MSA or any other LIA or SOW. To the extent the parties desire to amend or modify a particular term in
a SOW, the parties shall specifically reference the applicable section of the SOW. Any such modification or amendment shall be limited to that
particular SOW and only to such matter and section. In no event shall the applicable GE Affiliate and SP use the LIA to override
substantive terms of this MSA unless required by local mandatory laws and regulations to be changed.
21.
Independent Contractor
The relationship of the Parties under this MSA is that of independent contractors. Nothing contained in the MSA is intended or
is to be construed so as to constitute the Parties as partners, joint venturers, or one Party as an agent or employee of the other Party. Neither
Party has any express or implied right under this Agreement or any SOW to assume or create any obligation on behalf of or in the name of the
other Party or to bind the other Party to any contract, agreement or undertaking with any third party, and no conduct of a Party will be deemed
to infer such right. To the extent SP engages the services of any individual or entity to support the Services under any SOW, SP is responsible
for compliance with all applicable employment or tax laws.
22.
Assignment and Subcontracting
SP shall not assign the MSA or any part thereof to any third party without GE’s prior written consent (which is in its sole
discretion to grant or withhold). Any permitted assignment will not relieve SP of responsibility for the performance of any obligation.
Additionally, SP shall not subcontract, delegate or outsource any right, duty or obligations under the MSA to any third party without GE’s prior
written consent (which is in GE’s sole discretion to grant or withhold). If any such subcontracting, delegation or outsourcing is permitted,
such consent by GE shall be limited to the specific project, time period, or other parameters, for or on which such consent was provided and
GE shall have no direct responsibility for payment of any kind to such SP Personnel and no liability for amounts owing by SP to such SP
Personnel. SP will remain jointly and severally responsible and liable for the acts or omissions of SP Personnel as if such acts or omission had
been performed directly by SP. GE may freely assign this MSA to any GE Affiliate without the consent of SP.
23.
Notices.
Any notices required or permitted under this Agreement will be in writing, will refer specifically to this Agreement, and will be
sent by recognized national or international overnight courier, confirmed facsimile transmission (provided that duplicative copy is provided
via confirmed electronic mail, registered mail or certified mail), confirmed electronic mail, or registered or certified mail, postage prepaid,
return receipt requested, or delivered by hand to the address as set forth herein. A Party may
change its contact information immediately upon written notice to the other Party in the manner provided in this Section.
24.
Termination
a.
Termination for Convenience. GE may terminate this MSA and/or any SOW (or any part thereof) for convenience by giving
to SP thirty (30) days’ written notice of its intention to terminate.
b.
Termination for Cause. Either Party may terminate the MSA and/or any SOW (or any part thereof) for cause immediately by
written notice to the other Party (the “Defaulting Party”), if the Defaulting Party: (a) materially breaches this Agreement, and such breach is
incapable of cure, or with respect to a material breach capable of cure, the Defaulting Party does not cure such breach within [**] days or
other agreed upon period after receipt of written notice of such breach provided the Defaulting Party has commenced cure in good faith; (b)
becomes insolvent or has an encumbrancer take possession or a receiver or examiner appointed over any of its property or assets; (c) makes
any voluntary arrangement with its creditors or becomes subject to an administration order; (d) goes into liquidation (except for the purposes
of restructuring or other reorganization and in such manner that the company resulting from the reorganization effectively agrees to be bound by
or to assume the obligations imposed on that other Party under this Agreement); (e) suffers any distress, execution or other process to be
levied or enforced on any of its property and is not paid out withdrawn or discharged within 21 days; (f) ceases or threatens to cease to carry
on business; or (g) suffers any material adverse change that impacts its ability to perform under the MSA. Additionally, GE may terminate the
MSA and/or SOW immediately for cause if: (u) there is a change in Control of SP, including, without limitation, a change in Control involving
any entity that directly or indirectly competes with GE and/or its Affiliates; provided however, SP shall provide written notice to GE in
accordance with Section 23 of any change in Control within [**] days of effective date thereof and GE shall have one hundred and eighty
(180) days from the receipt of the properly delivered notice to terminate the MSA and/or SOW as permitted under this Section; or (v) if SP or
SP Personnel violate any applicable anti-corruption laws, rules, regulations and conventions.
c.
Survival. Expiration or termination of the MSA and/or any SOW shall not relieve SP from the provisions which by their
express terms of nature extend beyond expiration or termination, including but not limited to Sections 1, 4-19, 22, and 24-31 hereof, which
shall remain binding upon the Parties until expressly released by the GE in writing. Upon termination, GE shall be entitled to receive all
completed and uncompleted Deliverables which SP and SP Personnel have made or developed hereunder up to the termination date.
d.
Post-Termination Obligations. The provisions of the MSA shall continue to govern all outstanding, but non-terminated SOWs
and during the Transition Period in Section 25. Except in case of Termination for Cause by GE involving breaches by SP or SP Personnel of
Sections 6, 11.b., 11.f., 11.g., 11.j., and 11.m., upon expiration or termination of the MSA and/or SOW (or any part thereof), GE shall pay SP
those undisputed and unpaid Fees due under the applicable SOW for Services provided to and accepted by GE prior to the effective date of
termination. The foregoing shall be the sole and exclusive remedy of SP in connection with any termination or expiration. Unless otherwise
set forth in the applicable termination notice, any termination of this MSA or applicable SOW by a GE Affiliate shall be effective only with
respect to the terminating GE Affiliate and shall not affect any other GE Affiliate. Any advance payments made by GE or a GE Affiliate to SP
which are in excess of amounts due to SP as of the effective date of termination or expiration shall be refunded to GE within thirty (30) days of
said effective date of termination or expiration, together with all GE Materials in the possession or control of SP or SP Personnel.
25.
Transition Assistance.
On GE’s request at any time, or the termination or expiration of the MSA or an applicable SOW, SP shall, and shall cause SP
Personnel to: (a) return GE Data in a platform-agnostic format; and (b) destroy or return, as instructed by GE, all remaining GE Confidential
Information and GE Materials on the systems of SP and SP Personnel. In connection with any termination or expiration of the MSA and/or any
SOW, for a period of [**] days (or mutually agreed upon longer period) from the effective date of termination or expiration, SP shall provide
to GE, such information and transition assistance or that GE reasonably requests to allow the applicable Services to continue without
interruption or adverse effect on GE and to facilitate the smooth and orderly transfer of those Services to GE or its designee, as applicable. In
case of Termination for Cause by GE involving breaches by SP or SP Personnel of Sections 6, 11.b., 11.f., 11.g., 11.j., and 11.m., all such
assistance shall be provided at SP’s sole cost and expense. In all other cases, the Parties shall enter into an SOW with respect to such transition
services, provided however, SP shall provide all transition services at the same rates, terms and conditions in effect at the time of termination
or expiration. SP shall fully cooperate with GE and any replacement provider by promptly providing requested information and committing
necessary resources to ensure that the quality of Services is maintained at levels set forth in the applicable SOW and to ensure a seamless
transition of Services.
26.
Severability.
If any provision, right or remedy provided for herein is held to be unenforceable or inoperative by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions will not be affected thereby.
27.
Waiver.
No waiver will be implied from conduct or failure to enforce rights. No provisions of this Agreement or any Statement of Work
will be deemed waived by either Party unless such waiver is in writing and signed by the authorized representative of the other Party. Waiver
by a Party of any default by the other Party of any provision of this Agreement or SOW will not be deemed a waiver of any subsequent or
other default.
28.
Order of Precedence
To the extent any business terms and conditions of this MSA conflict with those of any SOW, this MSA will control unless the
SOW expressly and specifically states an intent to supersede the MSA on a specific matter by specific reference to the applicable section in the
MSA (but then only with respect to a particular SOW and with respect only to such matter and section). Notwithstanding the foregoing, the
Parties agree that this Agreement shall supersede any conflicting, different or additional legal terms in a SOW, including, without limitation,
indemnification, limitation of liability, confidentiality, and representations, warranties and covenants. To the extent, SP desires to modify any
legal terms in this Agreement, SP shall request a written amendment to the MSA, which shall be agreed or withheld by GE, in its sole discretion.
The pre-printed terms appearing on either Party’s PO’s and invoices shall be deemed without effect and superseded by this MSA. If any of
either Party’s systems require any user to “click through”online terms when accessing or using the Services, such terms shall be deemed
without effect and superseded by this MSA.
29.
Additional Parties.
SP agrees that the Services and Deliverables provided under this MSA (including any SOWs issued hereunder) may be used by
GE for itself, and at no additional expense to GE, for the benefit of any GE Affiliate. Any GE Affiliate, worldwide, which uses the Services
and/or Deliverables, whether the right to use passes directly to that entity or not, shall be entitled to all of the rights and interests of GE under
this Agreement and may enforce this MSA in its own name. Each GE Affiliate shall be provided the benefit of this MSA and to any discounts,
rebates or other advantageous financial arrangements provided to the other GE Affiliates and may enter into SOWs directly with SP. If a GE
Affiliate enters into an SOW with SP under this MSA, then all references to GE and Party in this Agreement will be deemed to be reference to
that GE Affiliate in its individual capacity. Each individual GE Affiliate will be solely responsible for its own obligations and performance
under this MSA and SP will look solely to such GE Affiliate with respect to rights and remedies under this MSA. All obligations of each GE
Affiliate under the MSA will be several and not joint; in no event will any GE Affiliate be liable for the obligations or performance of any
other GE Affiliate. In the event an SOW is terminated at the request of GE, the Parties will mutually resolve any issues from such termination
pursuant to Section 31.e. of the MSA.
30.
Divestitures and Acquisitions.
Any GE Affiliate divested by GE as an ongoing concern or otherwise, for a period of [**] months following the effective date of
divestiture, may continue to: (a) benefit under the terms of this MSA and/or applicable SOW, as well as, (b) issue SOWs under the MSA.
Any entity or business acquired by GE or a GE Affiliate may utilize the terms of this MSA for any of their SOWs with SP. The Parties
understand and agree that any entity that was divested by GE as of the Effective Date of this MSA shall have the right to continue to rely on
and exercise all rights and remedies in the manner and for the duration set forth in the agreements between GE and SP that were in place prior
to the Effective Date of this MSA, which shall continue in full force and effect for purposes thereof.
31.
Miscellaneous.
a.
Additional Duties. As GE may request, and/or as may be set forth in a SOW, SP will submit written reports on the
progress of the Services. SP will not present or publish, or submit for publication, any work resulting from the Services without GE’s prior
written approval.
b.
Effect of SP or SP Personnel Bankruptcy. All rights and licenses granted by SP under this MSA shall be deemed to
be rights and licenses to "intellectual property," and the subject matter of this agreement, including the Services, is and shall be deemed to be
"embodiment[s]" of "intellectual property" for purposes of and as such terms are used in and interpreted under section 365(n) of the
United States Bankruptcy Code (the "Code") (11 U.S.C. § 365(n) (2010)). GE shall have the right to exercise all rights and elections under the
Code and all other applicable bankruptcy, insolvency and similar laws with respect to this Agreement (including all executory SSAs and
SLAs). Without limiting the generality of the foregoing, if SP or its estate becomes subject to any bankruptcy or similar proceeding: (a)
subject to GE’s rights of election, all rights and licenses granted to GE under this Agreement will continue subject to the respective terms and
conditions hereof and thereof, and will not be affected, even by SP’s rejection of this Agreement; (b) GE shall be entitled to a complete
duplicate of (or complete access to, as appropriate) all such intellectual property and embodiments of intellectual property, and the same, if not
already in GE’s possession, shall be promptly delivered to GE, unless SP elects to and does in fact continue to perform all of its obligations
under this Agreement; and (c) if there is an escrow agreement between the Parties, the automatic stay under Section 362 of the Code (11
U.S.C. § 362 (2011)) shall not apply to any
instructions from GE to the escrow agent relating to the escrow deposit materials; provided however, GE shall be responsible for fees charged
by the escrow agent related to the maintenance of such escrow deposits.
c.
Integration. This Agreement includes all attached exhibits and SOWs, all of which are herein incorporated by reference.
This MSA contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all previous agreements and
undertakings with respect thereto. This MSA may be modified only by written agreement signed by the Parties. Notwithstanding the
foregoing, the Parties understand and agree that any existing European Union Standard Data Privacy Clauses executed by SP prior to the
Effective Date shall continue in full force and effect during the Term until and unless SP executes a new set of said Clauses.
d.
Governing Law. This MSA and each SOW will be construed, governed, and interpreted in accordance with the laws
of the state of New York, excluding its conflicts of law provisions. The United Nations Convention on the International Sale of Goods shall
not apply to this MSA.
e.
Dispute Resolution.
i. Mediation and Arbitration. Except with respect to any request for preliminary injunctive relief or other interim or
conservatory measures of protection or those circumstances described in subparagraph (ii) below, in the event of any dispute, controversy or
claim arising out of or relating to this MSA, including any question regarding its existence, validity, interpretation, breach, violation or
termination (a “Dispute”), the Parties shall first refer the Dispute to proceedings under The Mediation Rules of the International Chamber of
Commerce. If the dispute has not been settled pursuant to said Rules of Mediation within [**] days following the filing of a Request for
Mediation or within such other period that the Parties may agree in writing or which may be shortened due to the appointment of an
emergency arbitrator, such dispute shall thereafter be finally resolved by arbitration under the Rules of Arbitration of the International
Chamber of Commerce. The seat of arbitration shall be New York, New York. Where the claim amount is less than US $[**], the tribunal
shall consist of a sole arbitrator. Where the claim amount is $[**] or greater, the tribunal shall consist of three arbitrators, with the claimant
and the respondent each nominating a single arbitrator respectively, and the two party- nominated arbitrators within [**] days of the last of
their appointments, appointing the third arbitrator, who shall be the chairman of the tribunal. The language of the arbitration shall be English.
The prevailing Party shall be entitled to recover, in addition to its damages, its reasonable attorneys’ fees and expenses, expert witness fees
and expenses and its internal legal, administrative and management costs incurred in connection therewith. The Parties hereby waive any
right to refer any question of law and any right of appeal on the law and/or merits to any court.
ii. Litigation. Notwithstanding the foregoing, GE is authorized to institute proceedings in the federal and state courts of
the County of New York, State of New York, at any time, if commencement of litigation is deemed appropriate by GE (a) to avoid the
expiration of a statute of limitations period, (b) to preserve a superior position with respect to other creditors; (c) because GE makes a good
faith determination that a breach of the MSA (or actual or threatened violation of its rights) by SP or SP Personnel is imminent (or has
already occurred), such that a temporary restraining order or other preliminary injunctive relief is necessary; or (d) with regard to the
determination of intellectual property rights in connection with any of the Services or Deliverables. Litigation authorized under this section
shall include the right to seek, in addition to damages, court costs and fees of attorneys and other professionals.
being resolved unless and until such obligations are terminated by the termination or expiration of this MSA or the applicable SOW.
iii. Continuing Obligation. SP agrees to continue performing its obligations under this Agreement while any dispute is
f.
Injunctive Relief. Each Party acknowledges that a breach of Sections 6-8, 10-19, 22 and 25 hereof may cause the
other Party irreparable damages, for which an award of damages would not be adequate compensation and agrees that, in the event of
such breach or threatened breach, the non- breaching Party will be entitled to seek equitable relief, including a restraining order, injunctive
relief, specific performance and any other relief that may be available from any court. Such remedies shall not be deemed to be exclusive but
shall be in addition to all other remedies available at law or in equity.
g.
Force Majeure. The Parties hereto shall be excused from non-performance to the extent arising from any event
beyond that Party’s control which the affected Party could not have been prevented or avoided by the exercise of all due diligence including
but not limited to, labor disturbance, war, terrorist action, fire, adverse weather, and national emergencies. The time for any performance
required hereunder shall be extended by the delay incurred as a result of such act of force majeure, and each Party shall act with diligence to
correct such force majeure. Except as otherwise set forth above, no Force Majeure event shall relieve SP of its other contractual obligations,
including those related to disaster recovery, ownership, confidentiality, security, and indemnification. Notwithstanding anything to the
contrary contained herein, such force majeure eventsdo not include any event that are within SP’s reasonable control and that the SP could
have prevented or avoided by the exercise of all due diligence, including, but not limited to (i) shutdowns, disruptions, malfunctions, labor
disturbances, fire, accidents, breakdown of or damage to equipment or facilities other than as a result of or on a general and widespread bases
that are not limited to SP; and (ii) the delay or failure of any SP Personnel to perform any obligation unless such delay or failure to perform is
itself by reason of a force majeure event.
h.
Jurisdiction and Venue. Any legal suit, action or proceeding for injunctive relief or to enforce an arbitration award shall
be instituted exclusively in the federal courts of the United States or the courts of the State of New York in each case located in County of New
York. Each Party irrevocably submits to the exclusive jurisdiction of and venue in such courts. Service of process, summons, notice or other
document by mail to such Party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought
in any such court.
i.
Counterparts. This MSA and all SOWs issued thereunder may be executed in any number of counterparts by the Parties
hereto and delivered in-person or by facsimile or email, each of which, when so executed and delivered, shall be deemed an original, but such
counterparts shall constitute but one and the same Agreement or SOW, as the case may be. Facsimiles and scanned images of original
signatures are considered valid as original signatures. This MSA and any applicable SOW may be executed using electronic signatures. In
addition, images of the original of this Agreement and/or any SOW with original or electronic signatures may be stored electronically. The
Parties intend that electronic copies or images reproduced from the electronically stored original of this MSA and/or any SOW shall be valid
as an original.
[END OF DOCUMENT]
SCHEDULE MS2
GE Privacy and Data Protection Appendix
By executing the MSA, SP and SP Personnel agree to the GE Privacy and Data Protection Appendix
located at
http://www.gesupplier.com/html/GEPolicies.htm. This Appendix may change from time to time. Please check the Appendix periodically for
updates.
REQUIRED SP AND SP PERSONNEL INSURANCE COVERAGE (INS)
SCHEDULE MS3
Insurance Policy.
1.0.
1.1
Carriers. SP, and each subcontractor of SP performing under this MSA, shall obtain and keep in force for the benefit of
SP the following insurance to be issued by insurance carriers with a minimum A.M. Best’s rating of A-: VII, or S&P A, or
better, or the equivalent in those jurisdictions that do not recognize such rating classification, and licensed to provide insurance in
the jurisdiction in which work is to be performed, with minimum limits as set forth below:
1.1.1 Worker’s Compensation; Employer’s Liability. Statutory Workers’ Compensation and or Employer’s Liability as
required by state or country law.
1.1.2. Commercial General Liability. Commercial General Liability (also referred to as civil or public liability insurance outside of the US)
including, Product and Completed Operations Liability (maintained in effect for a period of at least [**] years after the date of final
payment); including contractual liability and deletion of the Care, Custody, Control and Insured vs. Insured exclusions. The following
minimum limits for Bodily/Personal Injury and Property Damage and be written on an occurrence basis: $[**] per occurrence, $[**] general
aggregate, $[**] product completed operations.
1.1.3. Business Automobile Liability. Business Automobile Liability covering all vehicles (owned, non-owned, hired, etc.) used in
connection with the Services, covering Bodily Injury and Property Damage with a minimum limit of $[**] combined single limit per
accident.
1.1.4. Professional Errors and Omissions. Professional Errors and Omissions (also known as Professional Indemnity outside the USA)
covering the activities of SP, with coverage limits of not less than [**] Dollars per claim or per occurrence/[**] Dollars aggregate ($[**]).
Policy may be placed either on an “occurrence” basis or on a “claims made” basis, with full prior acts coverage for claims arising out of
services rendered from the initial commencement of Services through the end of the MSA. Continuity of coverage must be maintained for, [**]
years after the completion of the Services. If SP will have access to GE’s IT systems or GE Data, coverage must also include loss of,
mishandling of data containing private or confidential information of GE or others for which GE is responsible; and failure to prevent
unauthorized access to, or use of, GE’s systems or data.
1.1.5. Crime Insurance. If SP will have access to GE’s funds or accounts, Crime Insurance (also known as Employee Dishonesty insurance/
Fidelity Bond) in an amount of not less than $[**] covering all SP Personnel and Subcontractors and including a Client’s interest
endorsement or Insuring Agreement specifying that coverage extends to GE’s property in the event of any theft of GE money or property, or
money or property of others for which GE is responsible. Verification that GE has been included as a Joint Loss payee under the policy
must be provided upon request by GE.
1.1.6. Property. If the SP either has GE property in its care, custody or control or is reliant upon its property in connection with the
provision of Services and/or Deliverables, Property insurance on an All- Risk, Replacement Cost basis. If property includes that of the GE,
policy must name GE as Loss Payee, as its interests may appear.
1.1.7. Environmental. If the scope of Services involves the potential for an environmental release, Environmental Impairment (also known
as Pollution) Liability with a limit of not less than $[**] per occurrence covering on-site and off-site bodily injury and property damage,
including clean-up cost as a result of pollution conditions arising from the SP’s operations, including completed operations. If coverage is
provided on a claims-made form, the retroactive date must precede the effective date of this agreement and provide for continuity in cover for
[**] after the completion of the Services.
1.1.8. The amount of coverage specified herein may be satisfied with combined limits together with umbrella/excess liability policies which
follow form and drop down to apply as primary insurance in the event an underlying policy is exhausted.
Additional Insureds.
2.0
GE, GE Affiliates, and their respective directors, officers, agents and employees shall be named as additional insureds under the Commercial
General Liability and Automobile Liability policies of insurance set forth in subsections 1.1.2 and 1.1.3, for any and all purposes arising out
of or connected to the MSA. SP shall secure endorsements to this effect from all insurers of such policies.
3.0.
Insurance to be Primary.
It is the intent of the Parties that all insurance purchased by SP in compliance with this MSA that provides Additional Insured status,
will be primary to any other insurance owned, secured, or in place by GE, which insurance shall not be called upon by SP’s insurer to
contribute in any way. SP shall secure endorsements to this effect from all insurers of such policies.
Verification of Coverage.
4.0.
Upon execution of this MSA, SP shall furnish GE with certificates of insurance reflecting the coverage required by this clause. For the
duration of the MSA and any mutually agreed upon extended period of time, SP shall provide GE with Certificates of Insurance prior to
each subsequent renewal of the evidenced insurance outlined above.
Policy Change or Termination.
5.0.
SP shall ensure that the policies shall not be canceled, terminated or altered so that coverage is reduced below that which is required
in this MSA without [**] days prior written notice to GE.
6.0.
Waiver of Right of Subrogation.
SP hereby waives any right of recovery against GE and its insurers for any loss or damage that is covered by any insurance policy maintained or
required to be maintained with respect to the Services. SP shall inform all its insurers of policies required by this MSA about this waiver of
subrogation, and shall secure from the insurers amendments to the policies recognizing and providing for the waiver.
Subcontractor’s Insurance.
7.0.
SP shall be responsible to ensure that any and all subcontractors hired on behalf of SP or have procured Workers’ Compensation Insurance,
Commercial General Liability Insurance and Commercial Automobile Liability Insurance for losses arising out of the performance of their
work in amounts as stated above. SP shall obtain a certificate of insurance from each subcontractor’s insurance company, agent or broker
authorized by that insurer to bind coverage on its behalf showing that the above insurance is in force. The certificate of Insurance shall include
insurer, policy numbers, dates of expiration and limits of liability, and further providing that the insurance will not be canceled or
5.
6.
7.
8.
changed until the expiration of at least [**] days after written notice of the cancellation or change has been mailed to and received by SP and
GE.
9.
Separate Duty.
8.0.
In no event shall the coverage or limits of any insurance maintained by SP or SP Personnel under this section or the lack or unavailability of
any other insurance, limit or diminish in any way SP’s obligations or liability to GE under this Agreement, law or equity. Any acceptance of
insurance certificates by GE shall not limit or relieve SP or SP Personnel of the duties and responsibilities assumed by SP under the MSA.
SCHEDULE MS4
Personnel Background Check Requirements (BC)
By executing
the MSA, SP and SP Personnel agree
to
the GE Background Checking Guidelines
located at
http://www.gesupplier.com/html/GEPolicies.htm. These requirements may change from time to time. Please check periodically for updates.
Schedule MS5
Batched Payments and Accelerated Payment Terms
(a)
(b)
(c)
Batched Payments. Unless prohibited by law, GE or the applicable GE Affiliate may choose to group all invoices that have not
been discounted and that have Net Dates ranging from the sixteenth day of one month to the fifteenth day of the next month, and
initiate payment for all such invoices on the third day of the second month or if that day is not a business day, then on the next business
day (the “Monthly Batch Payment Date”), with the result that some invoices will be paid earlier than their Net Dates and some
invoices will be paid later than their Net Dates. Alternatively, unless prohibited by law, GE or the applicable GE Affiliate may choose
to group and pay on a quarterly basis all invoices that have not been discounted as follows: (i) invoices with Net Dates ranging from the
sixteenth day of February to the fifteenth day of May will be grouped and GE or the applicable GE Affiliate will initiate payment on the
third day of April or if that day is not a business day, then on the next business day; (ii) invoices with Net Dates ranging from the
sixteenth day of May to the fifteenth day of August will be grouped and Buyer will initiate payment on the third day of July or if that
day is not a business day, then on the next business day; (iii) invoices with Net Dates ranging from the sixteenth day of August to the
fifteenth day of November will be grouped and GE or the applicable GE Affiliate will initiate payment on the third day of October or if
that day is not a business day, then on the next business day; and (iv) invoices with Net Dates ranging from the sixteenth day of
November to the fifteenth day of February will be grouped and GE or the applicable GE Affiliate will initiate payment on the third day
of January or if that day is not a business day, then on the next business day (each such payment date being referred to as the
“Quarterly Batch Payment Date”), with the result that some invoices will be paid earlier than their Net Dates and some invoices will
be paid later than their Net Dates.
Accelerated Payment Program. The Accelerated Payment Program is administered by GE Capital US Holdings, Inc. (“GECC”). If SP
is enrolled in the Accelerated Payment Program, the agreed upon early payment discount of the gross invoice price per the TPS
Agreement (the “Daily Discount Rate”) will be taken for each day payment is initiated before the Net Date. If the Net Date falls on a
weekend or holiday, the Net Date will be moved to the next business day and an early payment discount will be taken for each day
payment is initiated before that date. Alternatively, a flat early payment discount (the “Flat Discount”) may be taken for initiating
payment on a date certain prior to the Net Date (the “Flat Discount Date”). The Flat Discount will be calculated by applying the Daily
Discount Rate to the number of days between the Flat Discount Date and the Net Date. If the Flat Discount Date falls on a weekend or
a holiday, payment will be initiated on the next business day net of the Flat Discount. Each early payment discount will be rounded to
the nearest one hundredth of a percent.
Indexing. The Daily Discount Rate is based in part on the 3 Month Libor Rate (defined below) in effect on the last business day of
the month preceding the day when the first early payment discount is taken to settle an invoice (the “Base Libor Rate”). If the 3 Month
Libor Rate in effect on the last business day of any month (the “Current Libor Rate”) differs from the Base Libor Rate, the Daily
Discount Rate may be adjusted on the last business day of such month to reflect the difference between the Base Libor Rate and the
Current Libor Rate. If the Daily Discount Rate is adjusted, the adjusted Daily Discount Rate will be applied to all invoices posted for
payment after that date. The “3 Month Libor Rate” will be the three month Libor rate published in the “Money Rates” section of The
Wall Street Journal as the “London interbank offered rate, or Libor three month” (or, if not so published, as published in another
nationally recognized publication) on the last business day of each month.
(d)
Title Transfer. If GE or the applicable GE Affiliate takes an early payment discount to settle an invoice, SP confirms that: (1) GE or
the GE Affiliate has assigned its right, title and interest in the related Services to GECC and an interest in such Services will pass
directly to GECC in accordance with the terms of this Agreement; (2) once an interest in such Services has passed to GECC, GECC
will immediately and directly transfer such interest to GE or the GE Affiliate; and (3) all of SP’s obligations under this Agreement,
including SP's representations and warranties, will extend to and benefit GE or the GE Affiliate as if such interest passed directly to
GE or the GE Affiliate.
LOCAL IMPLEMENTATION AGREEMENT (LIA)
SCHEDULE MS6
This Local Implementation Agreement (“LIA”) for [INSERT COUNTRY] ("Country") is executed as of [INSERT EFFECTIVE DATE] by
and between [INSERT SP], a legally registered company incorporated under the laws of [INSERT COUNTRY] and maintaining an office at
[INSERT ADDRESS] (“SP”), and [INSERT NAME OF APPLICABLE GE AFFILIATE], a legally registered company incorporated under the
laws of [INSERT COUNTRY] and maintaining an office at [INSERT ADDRESS] (“GE”). For purposes of this LIA, SP and GE may be referred
collectively as “Local Parties” or individually as a “Local Party.” In consideration of the mutual covenants and terms and conditions set out
below, the Local Parties agree as follows:
1.
GENERAL TERMS. This LIA incorporates the terms of the Purchase Agreement, with an effective date of [INSERT DATE], by and
between [INSERT SP] and [INSERT GENERAL ELECTRIC COMPANY OR THE NAME OF THE APPLICABLE GE CONTRACTING
ENTITY] (the “Agreement”), and all other attachments and documents incorporated by reference to this LIA (including all applicable Order
Forms and SOWs). Capitalized terms used but not defined in this LIA shall have the meaning ascribed to them in the Agreement.
TERM. The initial term of this LIA shall commence on the Effective Date and shall continue until such date as this LIA may be
2.
terminated or expires in accordance with the terms of the Agreement.
ADDITIONAL OR MODIFIED TERMS. To override any terms or conditions of the Agreement, the Local Parties must expressly
3.
override the terms or conditions of the Agreement with reference to the specific section number(s) of the Agreement to be overridden by the
LIA, in which case the conflicting provisions of the LIA shall prevail but only with respect to the LIA. The Local Parties agree to supplement
and/or modify the Agreement as follows solely for purposes of this LIA (and corresponding Order Forms and SOWs to this LIA) to the extent
necessary to comply with local law or with local custom, practices or commercial climate:
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