OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2013

OPERATING SEGMENTS [Abstract]

OPERATING SEGMENTS

11. OPERATING SEGMENTS

The Company’s reportable segments are North America, Europe, Russia and Other. This determination is based on the unique business practices and market specifics of each region and that each region engages in business activities from which it earns revenues and incurs expenses. The Company’s reportable segments are based on the allocation of 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 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 and nine months ended September 30, 2013 and 2012, were as follows:

	Three Months Ended September 30,				Nine MonthsEndedSeptember 30,
	2013		2012		2013		2012
Total segment revenues:
North America	$	73,480	$	52,767	$	205,613	$	142,333
Europe		51,531		42,505		146,108		123,160
Russia		12,050		11,688		37,901		30,943
Other		3,078		3,115		7,867		11,786
Total segment revenues	$	140,139	$	110,075	$	397,489	$	308,222
Segment operating profit:
North America	$	18,133	$	10,450	$	48,527	$	30,616
Europe		8,049		8,798		24,538		24,461
Russia		391		1,680		2,710		3,498
Other		1,024		1,230		960		4,550
Total segment operating profit	$	27,597	$	22,158	$	76,735	$	63,125

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.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Total segment revenues	$	140,139		$	110,075		$	397,489		$	308,222
Unallocated revenue		11			3			43			39
Revenues	$	140,150		$	110,078		$	397,532		$	308,261
Total segment operating profit:	$	27,597		$	22,158		$	76,735		$	63,125
Unallocated amounts:
Other revenues		11			3			43			39
Stock-based compensation expense		(3,365	)		(2,046	)		(9,791	)		(5,369	)
Stock charge		—			—			—			(640	)
Non-corporate taxes		(690	)		(391	)		(2,190	)		(1,630	)
Professional fees		(594	)		(493	)		(2,668	)		(1,811	)
Depreciation and amortization		(732	)		(448	)		(2,162	)		(756	)
Bank charges		(261	)		(278	)		(914	)		(823	)
Other corporate expenses		(1,736	)		(1,769	)		(5,752	)		(4,785	)
Income from operations		20,230			16,736			53,301			47,350
Interest and other income, net		846			486			2,245			1,422
Foreign exchange loss		(720	)		(635	)		(2,088	)		(1,949	)
Income before provision for income taxes	$	20,356		$	16,587		$	53,458		$	46,823

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:

	September 30, 2013		December 31, 2012
Belarus	$	39,417	$	40,095
Ukraine		5,359		5,357
Russia		3,462		3,234
United States		2,535		2,048
Hungary		2,498		1,744
Other		791		657
Total	$	54,062	$	53,135

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 September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
United States	$	62,871	$	50,365	$	180,067	$	145,629
United Kingdom		26,637		25,651		81,416		70,777
Switzerland		13,920		8,496		33,934		21,438
Russia		11,534		10,554		36,464		29,045
Canada		9,162		3,270		22,980		5,816
Germany		5,141		4,325		14,211		11,766
Kazakhstan		2,921		2,967		7,414		6,300
Netherlands		1,895		750		6,665		2,408
Sweden		1,382		1,006		3,986		3,478
Spain		448		387		1,689		1,109
Ukraine		193		181		524		4,556
Other locations		1,860		733		3,048		1,753
Reimbursable expenses and other revenues		2,186		1,393		5,134		4,186
Revenues	$	140,150	$	110,078	$	397,532	$	308,261

Service Offering Information

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Software development	$	93,870	$	73,894	$	267,948	$	206,045
Application testing services		27,773		22,001		78,473		61,297
Application maintenance and support		11,758		8,806		33,245		25,775
Infrastructure services		3,754		3,213		10,625		8,965
Licensing		809		771		2,107		1,993
Reimbursable expenses and other revenues		2,186		1,393		5,134		4,186
Revenues	$	140,150	$	110,078	$	397,532	$	308,261