15. 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:

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Banking and Financial Services

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Healthcare and Life Sciences

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Insurance

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Manufacturing

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Retail, Logistics and Telecom

The Company revised its years ended December 31, 2013 and December 31, 2012 segment figures presented below to conform to the year ended December 31, 2014 presentation.

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 segment serves financial institutions throughout the world. Our clients include companies 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: cards and payments, retail banking, wholesale banking, consumer lending, risk management, investment banking, reconciliations, fraud analysis, mobile banking, and compliance and securities services. The demand for our services in the banking and financial services 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 segment include testing, BI, IMS, KPO, SMAC technologies, 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: migration to the ICD–10 standard, wider use of EHR and increasing prevalence of healthcare banking. We also partner with clients to enable their systems and processes to deal with the increasing retail orientation of healthcare, such as support for 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, SMAC, 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 aspects of our clients’ operations, such 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 segment include testing, BI, IMS, KPO, SMAC, 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, and supply chain of raw materials. Some of our manufacturing solutions for industrial and automotive clients include warranty management, dealer system integration, Product Lifecycle Management (PLM), SCM, sales and operations planning, and mobility.

Industry trends that influence the demand for our services in this segment include the increasing globalization of sourcing and the desire of clients to further penetrate emerging markets, leading to longer and more complex supply chains. Our services most in demand in this segment include EAS, EIM, testing, BI, IMS, KPO, SMAC, 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 business and technology 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 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. Our solutions for logistics clients include SCM, sales and operations planning mobility, 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, SMAC, 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 years ended December 31, 2014, 2013 and 2012 are as follows:


	2014			2013			2012
	(In thousands)
Net Revenues:
Banking and Financial Services	$	455,100		$	423,238		$	397,801
Healthcare and Life Sciences		147,424			138,578			126,863
Insurance		137,447			122,089			101,076
Manufacturing		27,622			30,322			32,223
Retail, Logistics & Telecom		143,836			110,538			65,940

	$	911,429		$	824,765		$	723,903
Gross Profit:
Banking and Financial Services		193,916			192,902			178,329
Healthcare and Life Sciences		67,289			65,828			58,671
Insurance		50,050			49,609			40,963
Manufacturing		8,136			10,844			12,915
Retail, Logistics & Telecom		63,262			48,805			27,280

Total Segment Gross Profit		382,653			367,988			318,158
Corporate Direct Cost		(5,086	)		(3,799	)		(3,174	)
Gross Profit	$	377,567		$	364,189		$	314,984
Selling, general and administrative expenses		109,217			96,587			103,044

Income from operations	$	268,350		$	267,602		$	211,940

The Company’s largest customer in 2014, 2013 and 2012 was American Express, which accounted for revenues in excess of 10% of total consolidated revenues. Revenue from this customer was approximately $201.6 million, $205.5 million and $194.8 million, contributing approximately 22%, 25% and 27% of total consolidated revenues during 2014, 2013 and 2012, respectively. At December 31, 2014, 2013 and 2012, accounts receivable from this customer were $19.0 million, $20.4 million and $17.1 million, respectively. The revenue from American Express Corp. was generated, primarily in Banking and Financial Services segment.

The Company’s second largest customer, State Street Bank, had revenues in excess of 10% of total consolidated revenues for the years 2014, 2013 and 2012. Revenue from this customer was approximately $126.4 million, $129.3 million and $121.8 million, contributing approximately 14%, 16% and 17% of total consolidated revenues during 2014, 2013 and 2012, respectively. At December 31, 2014, 2013 and 2012, accounts receivable from this customer was $11.3 million, $10.6 million and $9.8 million, respectively. The revenue from State Street Bank was generated, primarily in Banking and Financial Services segment.

The Company’s third largest customer, Federal Express Corporation, had revenues in excess of 10% of total consolidated revenues for the year ended 2014. Revenue from this customer was approximately $105.0 million, $68.1 million and $28.5 million, contributing approximately 12%, 8% and 4% of total consolidated revenues during 2014, 2013 and 2012, respectively. At December 31, 2014, 2013 and 2012, accounts receivable from this customer was $14.3 million, $12.3 million and $4.3 million, respectively. The revenue from Federal Express Corporation was generated, primarily in Retail Logistics & Telecom segment.