13.

SEGMENT REPORTING

The Company’s reportable business segments are as follows:

•

Banking and Financial Services

•

Healthcare and Life Sciences

•

Insurance

•

Manufacturing

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Retail, Logistics and Telecom

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 consist 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.

In each of our business segments, Syntel helps customers adapt to market change by providing a broad array of technology-based, industry-specific solutions. These solutions leverage Syntel’s strong understanding of the underlying trends and market forces in our chosen industry segments. These solutions are complemented by strong capabilities in Digital Modernization, Social, Mobile, Analytics and Cloud (SMAC) technologies, Business Intelligence (BI), Knowledge Process Outsourcing (KPO), application services, testing, Enterprise Resource Planning (ERP), IT Infrastructure Management Services (IMS), and business and technology consulting.

Banking and Financial Services

Our Banking and Financial Services segment serves financial institutions throughout the world. Our clients include companies providing banking, capital markets, cards and payments, investments and transaction processing 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: payment solutions, retail banking, wholesale banking, consumer lending, risk management, investment banking, reconciliation, 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 changing global regulatory requirements, customer interest in newer technology areas and related services such as digital modernization, and an ongoing focus on cost reduction and operational efficiencies.

Healthcare and Life Sciences

Our Healthcare and Life Sciences segment serves healthcare payers, providers and pharmaceutical and medical device providers, among others. The healthcare industry is constantly seeking to improve the quality of care while managing the cost of care in order to make healthcare affordable to a larger population. Our healthcare practice focuses on providing a broad range of services and solutions to the industry across the consumer lifecycle, which includes regulatory requirements, integrated care, stakeholder engagement and wider use of electronic health records, among others. We also partner with clients to modernize their systems and processes to enable them to deal with the increasing consumer 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, and sales and marketing) as well as regulatory and administrative functions.

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. This is often accomplished through the use of digital front-end technologies like cloud, social media and mobile, and supported by modernization of applications and infrastructure elements. Additionally, many insurers seek to improve business effectiveness by reducing expense ratios and exiting non-core lines of business and operations.

Manufacturing

We provide technology services and business consulting in a range of sub-sectors including industrial products, aerospace and automotive manufacturing, as well as to processors of raw materials and natural resources. Demand for our services in this segment is being driven by trends that, among others, include the increasing globalization of sourcing and the desire of clients to further penetrate emerging markets, leading to longer and more complex supply chains. Some of our solutions for industrial and manufacturing clients include warranty management, dealer system integration, Product Lifecycle Management (PLM), Supply Chain Management (SCM), sales and operations planning, and mobility.

Retail, Logistics and Telecom

In Retail, we serve a wide spectrum of retailers in specialty, apparel and home improvement segments. We also serve the travel and hospitality industry including airlines, hotels as well as online and travel retail, global distribution systems and intermediaries. Our domain intensive solutions transform customer/shopper experiences while keeping down the cost of IT Operations.

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.

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.

Syntel’s Retail Logistics and Telecom Business unit leverages its comprehensive understanding of the business and technology needs of the industry. Our industry solutions for our clients include SCM, sales and operations planning, mobility, Point of Sale (POS) testing, omnichannel enablement and integration, web content management solutions, sales force and cloud foundry enablement, among others.

In addition, there is strong demand for digital modernization services across these industries to enhance efficiency and agility of their underlying technology systems.

Corporate Direct Costs

Certain expenses, for cost centers such as Centers of Excellence, Architecture Solutions Group, certain portion of Research and Development, 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 are presented below. 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 the three and nine months ended September 30, 2017 and September 30, 2016 are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	*(in thousands)*						*(in thousands)*
Net Revenues:
Banking and Financial Services	$	103,058		$	116,093		$	312,690		$	357,902
Healthcare and Life Sciences		41,528			39,519			118,704			117,880
Insurance		35,446			32,960			100,947			95,780
Manufacturing		9,663			11,006			28,645			34,260
Retail, Logistics and Telecom		41,645			41,677			123,034			122,841

	$	231,340		$	241,255		$	684,020		$	728,663

Gross Profit:
Banking and Financial Services		39,453			45,535			116,446			135,832
Healthcare and Life Sciences		17,760			17,047			47,705			47,313
Insurance		11,258			12,418			32,577			34,399
Manufacturing		2,481			3,137			7,368			9,953
Retail, Logistics and Telecom		17,611			17,188			49,319			49,882

Total Segment Gross Profit		88,563			95,325			253,415			277,379
Corporate Direct cost		(442	)		(742	)		(1,412	)		(2,087	)

Gross Profit	$	88,121		$	94,583		$	252,003		$	275,292
Selling, general and administrative expenses		27,160			29,526			86,150			77,468

Income from operations	$	60,961		$	65,057		$	165,853		$	197,824

During the three months ended September 30, 2017, State Street Bank, American Express Corp. and Federal Express Corp. each contributed revenues in excess of 10% of total consolidated revenues. Revenues from State Street Bank, American Express Corp., and Federal Express Corp. were $35.1 million, $33.5 million and $33.1 million, respectively, during the three months ended September 30, 2017, contributing approximately 15.2%, 14.5% and 14.3%, respectively of total consolidated revenues. The revenues from State Street Bank and American Express Corp. 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 September 30, 2016 from State Street Bank, American Express Corp., and Federal Express Corp. were $32.8 million, $ 50.9 million and $30.2 million, respectively, contributing approximately 13.6%, 21.1%, and 12.5%, respectively, of total consolidated revenues.

During the nine months ended September 30, 2017, American Express Corp., State Street Bank and Federal Express Corp. each contributed revenues in excess of 10% of total consolidated revenues. During the nine months ended September 30, 2017, revenues from American Express Corp., State Street Bank and Federal Express Corp. were $113.3 million, $103.0 million and $94.9 million, respectively, contributing approximately 16.6%, 15.1% and 13.9%, respectively, of total consolidated revenues. The corresponding revenues for the nine months ended September 30, 2016 from American Express Corp., State Street Bank and Federal Express Corp. were $159.9 million, $100.2 million and $89.5 million, respectively, contributing approximately 21.9%, 13.7% and 12.3%, respectively, of total consolidated revenues.

At September 30, 2017 and December 31, 2016, accounts receivable from American Express Corp. were $11.4 million and $24.3 million, respectively. Accounts receivable from State Street Bank were $16.3 million and $10.9 million at September 30, 2017 and December 31, 2016, respectively. Accounts receivable from Federal Express Corp. were $16.9 million and $17.8 million at September 30, 2017 and December 31, 2016 respectively.