SEGMENT REPORTING

6 Months Ended

Jun. 30, 2014

SEGMENT REPORTING

12. SEGMENT REPORTING

Effective the first quarter of 2014, as a result of the completion of organizational changes, the Company changed its basis of segmentation to vertical segments as follows:

• Banking and Financial Services

• Insurance

• Healthcare and Life Sciences

• Manufacturing

• Retail, Logistics and Telecom

The Company revised its three months and six months ended June 30, 2013 segment figures presented below to conform to the three months and six months ended June 30, 2014 presentation, respectively.

Syntel’s leadership evaluates the Company’s performance and allocates resources based on segment revenues and segment cost of revenues. Segment Gross Profit is defined as gross profit before Corporate Direct Costs.

The Company’s cost of revenues consists of costs directly associated with billable professionals in the U.S. and offshore, including salaries, payroll taxes, benefits, relocation costs, immigration costs, finder’s fees, trainee compensation and travel. Generally, the cost of revenues for each operating segment has similar characteristics and is subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by our operating groups may affect revenue and cost of revenues to differing degrees.

Banking and Financial Services

Our Banking and Financial Services business segment serves financial institutions throughout the world. Our clients include customers providing banking, investments, transaction processing, capital markets, and cards and payments services to third parties. Our clients engage us to help make their operations as effective, productive and cost-efficient as possible, and to support new capabilities. We assist these clients in such areas as: retail banking, wholesale banking, consumer lending, cards and payments, risk management, investment banking, reconciliations, fraud analysis, mobile banking, compliance and securities services. The demand for our services in the banking sector is being driven by several significant changes in the industry. We help our customers adapt to market changes by providing technology-based industry-specific solutions. In addition to application services, the services increasingly in demand in this sector include testing, Business Intelligence (BI), IT Infrastructure Management Services (IMS), Knowledge Process Outsourcing (KPO), Cloud, Enterprise Resource Planning (ERP), and business and technology consulting.

Insurance

We serve the needs of global property and casualty insurers, insurance brokers, personal, commercial, life and retirement insurance service providers. These customers turn to us for assistance in improving the efficiency and effectiveness of their operations and in achieving business transformation. We focus on such aspects of our clients’ operations as: policy administration, claims processing and compliance reporting. We also serve the growing trend among insurers to improve their sales and marketing processes by deepening direct retail customer relationships and strengthening interactions with networks of independent and captive insurance agents, often through the use of social media and mobile technologies. Additionally, many insurers seek to improve business effectiveness by reducing expense ratios and exiting non-core lines of business and operations. Our services most in demand in this sector include testing, BI, IMS, KPO, Cloud, ERP, and business and technology consulting.

Healthcare and Life Sciences

Our Healthcare and Life Sciences segment serves many companies, including healthcare payers, providers and pharmaceutical and medical device providers, among others. The healthcare industry is constantly seeking to improve the quality of care while lowering the cost of care and making healthcare affordable to a larger population. Our healthcare practice focuses on providing a broad range of services and solutions to the industry to address regulatory requirements and emerging industry trends such as: International Classification of Diseases (ICD–10), Electronic Health Records (EHR) and healthcare banking. We also partner with clients to enable their systems and processes to deal with the retail orientation of healthcare, such as the support of individual mandates and the adoption of mobile and analytics solutions to improve access to health information and decision making by end consumers.

In the life sciences category, we partner with leading pharmaceutical, biotech, and medical device companies, as well as providers of generics, animal health and consumer health products. Our life sciences solutions help transform many of the business processes in the life sciences value chain (research, clinical development, manufacturing and supply chain, sales and marketing) as well as regulatory and administrative functions. Among our services most often in demand are testing, BI, IMS, KPO, Cloud, ERP, and business and technology consulting.

Manufacturing

Our Manufacturing segment provides business consulting and technology services in a range of sub-sectors, including industrial product, aerospace and automotive manufacturing, as well as processors of natural resources, chemicals, Product Lifecycle Management (PLM), and supply chain of raw materials. We also serve many energy utilities, as well as oil and gas producers. Some of our manufacturing solutions for industrial and automotive clients include warranty management, dealer system integration, Supply Chain Management (SCM), sales and operations planning, and mobility.

Industry trends that influence the demand for our services in this sector include the increasing globalization of sourcing and the desire of clients to further penetrate emerging markets, leading to longer and more complex supply chains. These trends are driving demand for offerings such as Enterprise Application Services (EAS), Enterprise Information Management (EIM), Consulting and Social, Mobile, Analytics and Cloud (SMAC) technologies. Our services most in demand in this sector include testing, BI, IMS, KPO, Cloud, ERP, and business and technology consulting.

Retail, Logistics and Telecom

In Retail, we serve a wide spectrum of retailers and distributors, including supermarkets, specialty premium retailers, department stores and large mass-merchandise discounters, who seek our assistance in becoming more efficient and cost-effective and in helping to drive business transformation. Services in high demand in the retail sector include consulting, eCommerce, EAS, systems integration, testing, KPO and EIM. We also serve the entire travel and hospitality industry including airlines, hotels and restaurants, as well as online and retail travel, global distribution systems, and intermediaries and real estate companies, providing solutions such as Customer Relationship Management (CRM) and EIM.

In Logistics, our clients look to Syntel to implement business-relevant changes that will make them more productive, competitive and cost effective. To that end, we help organizations improve operational efficiencies, enhance responsiveness and collaborate with trading partners to better serve their markets and end customers. We leverage a comprehensive understanding of the business and technology drivers of the industry. Some of our solutions for logistics clients include SCM, sales and operations planning, and mobility. For transportation and logistics clients, our service areas include Point of Sale(POS) testing, Multi-Channel, customer and retail store analytics.

In Telecom, we help our clients address important changes in the telecom industry, such as the transition to new network technologies, designing, developing, testing and introducing new products and channels, improving customer service and increasing customer satisfaction.

In the Retail, Logistics and Telecom segment our services most in demand include testing, BI, IMS, KPO, Cloud, ERP, and business and technology consulting.

Corporate Direct Costs

Certain expenses, for cost centers such as Centers of Excellence, Architecture Solutions Group (ASG), Research and Development (R&D), Cloud Computing, and Application Management, are not allocated to specific industry segments because management believes it is not practical to allocate such expenses to individual segments as they are not directly attributable to any specific segment. Accordingly, these expenses are separately disclosed as Corporate Direct Costs and adjusted only against Total Gross Profit.

In accordance with ASC 280 “Disclosures about Segments of an Enterprise and Related Information,” segment disclosures for prior periods have been restated to reflect industry segments for all periods presented. Revenues from external customers and gross profit for the Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics and Telecom segments for three and six months ended June 30, 2014 and June 30, 2013 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)						(in thousands)
Net Revenues:
Banking and Financial Services	$	112,942		$	106,038		$	221,040		$	208,930
Healthcare and Life Sciences		38,791			33,654			77,257			63,144
Insurance		34,238			30,042			66,218			59,143
Manufacturing		6,565			7,731			12,900			16,001
Retail, Logistics and Telecom		35,714			25,036			70,358			44,389
	$	228,250		$	202,501		$	447,773		$	391,607
Gross Profit:
Banking and Financial Services		45,682			45,684			93,301			90,673
Healthcare and Life Sciences		17,281			14,972			36,530			27,597
Insurance		11,559			11,614			24,164			22,757
Manufacturing		1,927			2,645			3,759			5,627
Retail, Logistics and Telecom		14,682			9,650			30,567			16,510
Total Segment Gross Profit		91,131			84,565			188,321			163,164
Corporate Direct cost		(1,583	)		(984	)		(2,750	)		(1,806	)
Gross Profit	$	89,548		$	83,581		$	185,571		$	161,358
Selling, general and administrative expenses		26,321			18,690			58,542			44,383
Income from operations	$	63,227		$	64,891		$	127,029		$	116,975

During the three and six months ended June 30, 2014, American Express Corp., State Street Bank and Federal Express Corp. each contributed revenues in excess of 10% of total consolidated revenues. Revenues from American Express Corp., State Street Bank and Federal Express Corp. were $49.3 million, $32.1 million and $26.2 million, respectively, during the three months ended June 30, 2014, contributing approximately 21.6%, 14.1% and 11.5%, respectively of total consolidated revenues. The revenues from American Express Corp. and State Street Bank were generated in the Banking and Financial Services segment. The revenue from Federal Express Corp. was generated in the Retail, Logistics and Telecom segment The corresponding revenues for the three months ended June 30, 2013 from American Express Corp., State Street Bank and Federal Express Corp. were $52.7 million, $32.1 million and $14.7 million, respectively, contributing approximately 26.0%, 15.9% and 7.2%, respectively, of total consolidated revenues. During the six months ended June 30, 2014, revenue from American Express Corp., State Street Bank and Federal Express Corp. were $96.2 million, $63.7 million and $50.9 million, respectively, contributing approximately 21.5%, 14.2% and 11.4%, respectively, of total consolidated revenues. The revenues from American Express Corp. and State Street Bank were generated in the Banking and Financial Services segment. The revenue from Federal Express Corp. was generated in the Retail, Logistics and Telecom segment. The corresponding revenues for the six months ended June 30, 2013 from American Express Corp., State Street Bank and Federal Express Corp. were $104.6 million, $63.5 million and $24.4 million, respectively, contributing approximately 26.7%, 16.2% and 6.2%, respectively, of total consolidated revenues. At June 30, 2014 and December 31, 2013, accounts receivable from American Express Corp. were $16.5 million and $20.4 million, respectively. Accounts receivable from State Street Bank were $13.3 million and $10.6 million, respectively, at June 30, 2014 and December 31, 2013. Accounts receivable from Federal Express Corp. were $9.1 million and $12.3 million, respectively, at June 30, 2014 and December 31, 2013.