SEGMENT INFORMATION

The Company determines its business segments and reports segment information in accordance with the management approach, which designates internal reporting used by management to make operating decisions and assess performance as the source of the Company’s reportable segments.

The Company manages its business primarily based on the managerial responsibility for its client base. As 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 cases, managerial responsibility for a particular client is assigned to a management team in another region and is usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In such cases, 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 revenues in the Other segment represented less than 1% of total segment revenues in 2015 due to the ending of certain customer relationships and contractual changes with other clients. As no substantial clients remained in the segment, during the first quarter of 2016, the Company shifted managerial responsibility for the remaining clients to the Russia segment. This change did not represent a change in the Company’s segments but rather a movement in responsibility for several clients that represented less than 1% of total segment revenue.

The Company’s Chief Operating Decision Maker (“CODM”) evaluates performance and allocates resources based on the segment’s revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each reportable 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 that are not controllable at the segment level are not allocated to specific segments. Such “unallocated” expenses are deducted against the Company’s total income from operations and are not allocated to individual segments in internal management reports used by the CODM.

Revenues from external customers and operating profit, before unallocated expenses, for the North America, Europe, and Russia reportable segments for the three and six months ended June 30, 2017 and 2016, were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Segment revenues:
North America	$	194,025	$	157,110	$	372,328	$	304,600
Europe	141,319		115,726		274,026		223,569
Russia	13,677		11,141		27,370		20,622
Total segment revenues	$	349,021	$	283,977	$	673,724	$	548,791
Segment operating profit:
North America	$	43,622	$	38,339	$	80,714	$	68,994
Europe	20,658		13,413		40,469		30,245
Russia	1,895		2,876		5,444		4,036
Total segment operating profit	$	66,175	$	54,628	$	126,627	$	103,275

Intersegment transactions were excluded from the above on the basis that they are neither included in the measure of a segment’s profit and loss results, nor considered by the CODM during the review of segment results.

There were no customers that accounted for more than 10% of total revenues during the three and six months ended June 30, 2017. During the three and six months ended June 30, 2016, revenues from one customer, UBS AG, were $36,570 and $72,239, respectively, and accounted for more than 10% of total revenues. Revenues from this customer were included in the Company’s Europe segment in the periods indicated.

Accounts receivable and unbilled revenues are generally dispersed across our clients in proportion to their revenues. As of June 30, 2017, unbilled revenues from one customer, UBS AG, individually exceeded 10% and accounted for 16.0% of our unbilled revenues. No customers individually exceeded 10% of our accounts receivable as of June 30, 2017.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Total segment revenues	$	349,021		$	283,977		$	673,724		$	548,791
Other revenues	(44		)	(145		)	(96		)	(477		)
Revenues	$	348,977		$	283,832		$	673,628		$	548,314

Total segment operating profit:	$	66,175		$	54,628		$	126,627		$	103,275
Unallocated amounts:
Other revenues	(44		)	(145		)	(96		)	(477		)
Stock-based compensation expense	(12,927		)	(12,730		)	(28,703		)	(23,694		)
Taxes other than income taxes	(1,795		)	(1,437		)	(5,246		)	(2,517		)
Professional fees	(2,476		)	(2,460		)	(4,820		)	(4,186		)
Depreciation and amortization	(1,905		)	(2,576		)	(3,880		)	(4,267		)
Bank charges	(446		)	(386		)	(843		)	(727		)
Other acquisition-related expenses	(330		)	(307		)	(898		)	(307		)
Other corporate expenses	(5,570		)	(2,507		)	(10,493		)	(4,689		)
Income from operations	40,682			32,080			71,648			62,411
Interest and other income, net	802			1,138			1,386			2,349
Foreign exchange gain (loss)	1,562			(2,295		)	(1,393		)	(3,585		)
Income before provision for income taxes	$	43,046		$	30,923		$	71,641		$	61,175

Geographic Area Information

Long-lived assets include property and equipment, net of accumulated depreciation and amortization, and management has determined that it is not practical to allocate these 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 was as follows:



	As of June 30, 2017		As of December 31, 2016
Belarus	$	46,500	$	46,011
Russia	8,410		7,203
Ukraine	5,564		5,610
Hungary	3,791		3,485
United States	3,403		2,618
Poland	2,772		2,213
China	1,736		1,887
India	1,346		1,650
Other	3,593		2,939
Total	$	77,115	$	73,616

The table below presents information about the Company’s revenues by client location, including reimbursable expenses and other revenues of $4,167 and $3,126 for the three months ended June 30, 2017 and 2016, respectively, and $8,092 and $5,572 for the six months ended June 30, 2017 and 2016, respectively. See Note 1 for discussion on reclassifications to conform to the current presentation.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
United States	$	192,319	$	147,364	$	369,149	$	284,003
United Kingdom	46,112		45,652		92,706		89,212
Switzerland	28,119		32,596		57,215		63,448
Russia	13,326		10,505		26,535		19,470
Germany	14,144		9,736		26,238		18,475
Canada	13,649		15,327		26,143		31,173
Netherlands	12,556		3,326		21,227		5,973
Sweden	8,177		6,033		15,643		10,161
Hong Kong	4,491		5,283		9,268		11,227
United Arab Emirates	3,201		—		5,249		—
China	1,909		413		3,493		707
Ireland	1,600		1,304		2,989		2,490
Italy	1,517		1,006		2,797		1,674
Belgium	1,398		2,571		2,642		4,723
Other locations	6,459		2,716		12,334		5,578
Total	$	348,977	$	283,832	$	673,628	$	548,314