OPERATING SEGMENTS

3 Months Ended

Mar. 31, 2014

OPERATING SEGMENTS [Abstract]

OPERATING SEGMENTS

11. OPERATING SEGMENTS

The Company reports segment information based on the managerial responsibility for its client base. Because managerial responsibility for a particular client relationship generally correlates with the client’s geographic location, there is a high degree of similarity between client locations and the geographic boundaries of the Company’s reportable segments. In some specific cases, however, managerial responsibility for a particular client is assigned to a management team in another region, usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In a case like this, the client’s activity would be reported through the management team’s reportable segment.

The Company’s reportable segments are North America, Europe, Russia and Other. The Company’s Chief Operating Decision Maker (“CODM”) evaluates its performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to similar factors, pressures and challenges. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as an allocation of certain shared services expenses. Certain expenses are not allocated to specific segments, as management does not believe it is practical to allocate such costs to individual segments because they are not directly attributable to any specific segment. Further, stock-based compensation expense is not allocated to individual segments in internal management reports used by the CODM. Accordingly, these expenses are separately disclosed as “unallocated” and adjusted only against the Company’s total income from operations.

Revenues from external customers and segment operating profit, before unallocated expenses, for the North America, Europe, Russia and Other reportable segments for the three months ended March 31, 2014 and 2013, were as follows:

	Three Months Ended March 31,
	2014			2013
Total segment revenues:
North America	$	80,198		$	63,057
Europe		67,659			46,153
Russia		10,748			12,353
Other		1,392			2,613
Total segment revenues	$	159,997		$	124,176
Segment operating profit:
North America	$	18,197		$	14,181
Europe		14,135			8,371
Russia		(1,135	)		632
Other		(1,318	)		84
Total segment operating profit	$	29,879		$	23,268

Intersegment transactions were excluded from the above on the basis that they are neither included into the measure of a segment’s profit and loss by the CODM, nor provided to the CODM on a regular basis.

During the three months ended March 31, 2014, revenues from one customer, UBS AG, accounted for more than 10% of total revenues. Revenues from this customer were $20,024 and were included in the Company’s Europe segment. No customer accounted for more than 10% of our revenues in the corresponding period of 2013.

Reconciliation of segment revenues and operating profit to consolidated income before provision for income taxes is presented below:

	Three Months Ended March 31,
	2014			2013
Total segment revenues	$	159,997		$	124,176
Unallocated revenue		387			22
Revenues	$	160,384		$	124,198
Total segment operating profit:	$	29,879		$	23,268
Unallocated amounts:
Other revenues		387			22
Stock-based compensation expense		(3,208	)		(2,576	)
Non-corporate taxes		(546	)		(820	)
Professional fees		(1,314	)		(1,350	)
Depreciation and amortization		(655	)		(715	)
Bank charges		(247	)		(332	)
Other corporate expenses		(2,439	)		(1,961	)
Income from operations		21,857			15,536
Interest and other income, net		976			630
Foreign exchange loss		(1,241	)		(499	)
Income before provision for income taxes	$	21,592		$	15,667

Geographic Area Information

Management has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably among the segments. Geographical information about the Company’s long-lived assets based on physical location of the assets is as follows:

	March 31, 2014		December 31, 2013
Belarus	$	38,924	$	38,697
Ukraine		5,544		5,525
Russia		3,027		3,414
Hungary		2,592		2,644
United States		1,983		2,217
Other		1,002		818
Total	$	53,072	$	53,315

Long-lived assets include property and equipment, net of accumulated depreciation and amortization.

Information about the Company’s revenues by client location is as follows:

	Three Months Ended March 31,
	2014		2013
United States	$	69,136	$	57,450
United Kingdom		34,244		27,068
Switzerland		20,532		9,280
Russia		10,390		11,738
Canada		9,981		5,425
Germany		6,132		4,533
Sweden		2,312		1,255
Netherlands		2,118		2,386
Kazakhstan		1,242		2,465
Belgium		641		—
France		373		—
Italy		223		9
Norway		189		—
Ukraine		165		188
Spain		106		632
Other locations		633		331
Reimbursable expenses and other revenues		1,967		1,438
Revenues	$	160,384	$	124,198

Service Offering Information

Information about the Company’s revenues by service offering is as follows:

	Three Months EndedMarch 31,
	2014		2013
Software development	$	110,687	$	83,780
Application testing services		31,770		24,153
Application maintenance and support		11,378		10,839
Infrastructure services		3,754		3,410
Licensing		828		578
Reimbursable expenses and other revenues		1,967		1,438
Revenues	$	160,384	$	124,198