SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2019

The Company determines its business segments and reports segment information in accordance with how the Company’s chief operating decision maker (“CODM”) organizes the segments to evaluate performance, allocate resources and make business decisions. Segment results are based on the segment’s revenues and operating profit, where segment operating profit is defined as income from operations before unallocated costs. 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 corporate expenses are not allocated to specific segments as these expenses are not controllable at the segment level. Such expenses include certain types of professional fees, non-corporate taxes, compensation to non-employee directors and certain other general and administrative expenses, including compensation of specific groups of non-production employees. In addition, the Company does not allocate stock-based compensation expenses, amortization of purchased intangible assets, other acquisition-related expenses and other unallocated costs. These unallocated amounts are combined with total segment operating profit to arrive at consolidated income from operations as reported below in the reconciliation of segment operating profit to consolidated income before provision for income taxes. Additionally, management has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably among the segments.

The Company manages its business primarily based on the managerial responsibility for its client base and market. As managerial responsibility for a particular customer relationship generally correlates with the customer’s geographic location, there is a high degree of similarity between customer locations and the geographic boundaries of the Company’s reportable segments. In some cases, managerial responsibility for a particular customer is assigned to a management team in another region and is usually based on the strength of the relationship between customer executives and particular members of EPAM’s senior management team. In such cases, the customer’s activity would be reported through the management team’s reportable segment.

During the fourth quarter of 2019, the Company changed its management reporting of segment revenue to exclude other income. Prior year amounts presented below have been changed to conform to the new presentation.

Revenues from external customers and operating profit, before unallocated expenses, by reportable segments were as follows:



	For the years ended December 31,
	2019		2018		2017
Segment revenues:
North America	$	1,380,944	$	1,076,979	$	796,040
Europe	820,717		692,785		591,450
Russia	92,137		73,148		62,958
Total revenues	$	2,293,798	$	1,842,912	$	1,450,448
Segment operating profit:
North America	$	293,757	$	221,846	$	169,340
Europe	114,863		115,876		92,080
Russia	17,347		11,377		13,906
Total segment operating profit	$	425,967	$	349,099	$	275,326

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 individually exceeding 10% of our total segment revenues for the years ended December 31, 2019, 2018 and 2017.

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



	For the Years Ended December 31,
	2019			2018			2017
Total segment operating profit:	$	425,967		$	349,099		$	275,326
Unallocated costs:
Stock-based compensation expense	(72,036		)	(59,188		)	(52,407		)
Amortization of purchased intangibles	(9,914		)	(8,101		)	(7,562		)
Other acquisition-related expenses	(3,774		)	(916		)	(1,500		)
Other unallocated costs	(37,393		)	(35,130		)	(40,911		)
Income from operations	302,850			245,764			172,946
Interest and other income, net	8,725			3,522			4,601
Foreign exchange (loss)/gain	(12,049		)	487			(3,242		)
Income before provision for income taxes	$	299,526		$	249,773		$	174,305

During the year ended December 31, 2018, the Company began to allocate certain staff recruitment and development expenses into segment operating profit as these expenses became part of the evaluation of segment management’s performance. These costs were not previously allocated to segments and were included in other unallocated costs in the reconciliation of segment operating profit to consolidated income before provision for income taxes above. The effect of this reclassification was not material to segment operating profit and had no impact on total income from operations for the year end December 31, 2018.

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. Physical locations and values of the Company’s long-lived assets are presented below:



	As of December 31, 2019		As of December 31, 2018		As of December 31, 2017
Belarus	$	75,984	$	50,085	$	49,866
Ukraine	24,652		8,433		6,995
Russia	17,980		9,902		9,617
United States	15,637		13,101		3,371
India	7,443		7,019		2,698
Hungary	5,201		3,168		3,901
Poland	5,029		2,637		2,893
China	3,036		2,651		2,608
Other	10,297		5,650		4,470
Total	$	165,259	$	102,646	$	86,419

The table below presents the Company’s revenues by customer location for the years ended December 31, 2019, 2018 and 2017:



	For the Years Ended December 31,
	2019		2018		2017
United States	$	1,321,662	$	1,029,327	$	783,563
United Kingdom	290,039		200,918		188,995
Switzerland	152,710		144,398		123,281
Russia	89,941		71,181		61,222
Netherlands	88,488		70,274		51,556
Germany	82,441		80,787		60,158
Canada	68,304		69,836		57,129
Other locations	200,213		176,191		124,544
Revenues	$	2,293,798	$	1,842,912	$	1,450,448