UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2013
OR2015
¨ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-35418
EPAM SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
223536104
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
EPAM Systems, Inc.
41 University Drive,
Suite 202
Newtown, Pennsylvania 18940
(Address of principal executive offices, including zip code)
267-759-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x  No ¨ No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ox

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨xAccelerated filerx¨
Non-accelerated filer
¨ (Do(Do not check if a smaller reporting company)
Smaller reporting company¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No  x
As of June 30, 20132015 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $653.3$3,332 million based on the closing sale price as reported on the New York Stock Exchange. Solely for purposes of the foregoing calculation, “affiliates” are deemed to consist of each officer and director of the registrant, and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant.
The number of shares of common stock, $0.001par value, of the registrant outstanding as of March 1, 2014February 10, 2016 was 46,848,70350,370,482 shares.

DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement for its 20142016 annual meeting of stockholders pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2013.2015. Portions of the registrant’s Proxy Statement are incorporated by reference into Part III of this Form 10-K. With the exception of the portions of the Proxy Statement expressly incorporated by reference, such document shall not be deemed filed with this Form 10-K.






EPAM SYSTEMS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20132015
TABLE OF CONTENTS

Page

In this annual report, “EPAM,” “EPAM Systems, Inc.,” the “Company,” “we,” “us” and “our” refer to EPAM Systems, Inc. and its consolidated subsidiaries.
“EPAM” is a trademark of EPAM Systems, Inc. “CMMI” is a trademark of the Software Engineering Institute of Carnegie Mellon University. “ISO 9001:2000” and “ISO 27001:2005” are trademarks of the International Organization for Standardization. All other trademarks and servicemarks used herein are the property of their respective owners.
Unless otherwise indicated, information contained in this annual report concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from various sources (including industry publications, surveys and forecasts and our internal research), on assumptions that we have made, which we believe are reasonable, based on thosesuch data and other similar sources and on our knowledge of the markets for our services. The projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate, are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under “Item 1A. Risk Factors” and elsewhere in this annual report. These and other factors could cause results to differ materially from those expressed in the estimates included in this annual report.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains estimates and forward-looking statements, principally in “Item 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Important factors, in addition to the factors described in this annual report, may adversely affect our results as indicated in forward-looking statements. You should read this annual report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect.
The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable law.
EMERGING GROWTH COMPANY STATUS
In April 2012, several weeks after
GEOGRAPHICAL REFERENCES
We use the terms “CIS”, “CEE” and “APAC” to describe a portion of our initial public offering in February 2012, President Obama signed into lawgeographic operations and assets. CIS, which stands for the Jumpstart Our Business Startups ActCommonwealth of 2012 (the “JOBS Act”). The JOBS Act contains provisions that relax certain requirements for “emerging growth companies” that otherwise apply to larger public companies. For as long as a company retains emerging growth company status, which may be until the fiscal year-end after the fifth anniversaryIndependent States, is comprised of its initial public offering, it will not be required to (1) provide an auditor’s attestation report on its management’s assessmentconstituents of the effectivenessformer U.S.S.R., including Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. CEE, which stands for Central and Eastern Europe, includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Republic of its internal control over financial reporting, otherwise required by Section 404(b)Macedonia, Romania, Serbia, Montenegro, Slovakia, and Slovenia. APAC, which stands for Asia Pacific, includes all of the Sarbanes-Oxley Act of 2002, (2) comply with any new or revised financial accounting standard applicable to public companies until such standard is also applicable to private companies, (3) comply with certain new requirements adopted by the Public Company Accounting Oversight Board, (4) provide certain disclosure regarding executive compensation required of larger public companies or (5) hold shareholder advisory votes on matters relating to executive compensation.
We are classified as an emerging growth company, under the JOBS ActAsia (including India) and are eligible to take advantage of the accommodations described above for as long as we retain this status. However, we have elected not to take advantage of the transition period described in (2) above, which is the exemption provided in Section 7(a)(2)(B) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 (in each case as amended by the JOBS Act) for complying with new or revised financial accounting standards. We will therefore comply with new or revised financial accounting standards to the same extent that a non-emerging growth company is required to comply with such standards.Australia.

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PART I
Item 1.Business
OverviewCompany Background
We are a leading global provider of complex software product engineering, technology consulting and digital expertise to clients located around the world, primarily in North America, Europe, Asia and the CIS region. With a strong focus on innovative and scalable software solutions, and technology services with delivery capacity distributed across Central and Eastern Europe. Our clients rely on us to deliver a broad rangecontinually evolving mix of software engineering and IT services, with a significant share of proactive, domain-led, high-value services aimed at improving the client’s ability to innovate and cut time to market. We draw on our extensive vertical, technology and process/methodology expertise andadvanced capabilities, we leverage industry standard and custom developed technology, tools and platforms as well a portfolio of internally and externally developed assets in our delivery.to deliver results for the most complex business challenges. We primarily focus on building long-term partnerships with clients in industries that demand technologically advanced skills and solutions, such as independent software vendors, or ISVs and Technology, Bankinghigh technology, financial services, media and Finance, Business Informationentertainment, travel and Media,hospitality, retail, energy, life sciences, healthcare, telecommunications, and Travel and Consumer. We deliver services to clients located primarily in North America, Western Europe, and Central and Eastern Europe, or CEE.government.
Since our inception in 1993, we have been serving ISVsfocused on software product development services for major independent software vendors (ISVs) and Technology companies.technology companies and refined this core competency through ongoing multi-year engagements. These companies produce advanced software and technology products that demand sophisticated software engineering talent, tools, methodologies and infrastructure to deliver solutions that support functionality and configurability to sustain multiple generations of platform innovation. The foundationinfrastructure. As a result, we have built serving ISVsdeveloped a culture of innovation, technology leadership and technology companies has enabledprocess excellence, which helps us to differentiate ourselves in the marketmaintain a strong reputation for software engineering skillstechnical proficiency and technology capabilities. high-quality project delivery.
Our work with these clientsglobal leaders in enterprise software platforms and emerging technology companies exposes us to their customers’strategic business challenges across a variety of industry verticals. This has enabledin various industries, allowing us to develop vertical-specific domain expertiseexpertise. Unlike custom application development tailored to specific business requirements, ISVs’ software products must be designed with a higher level of product configurability and operational performance to address the needs of a diverse set of end-users operating in a variety of deployment environments. This in-depth understanding of how vertically-oriented ISVs and technology companies solve their clients’ challenges allows us to focus and grow our business in multiple industry verticals, including Banking andpredominantly Financial Services, Business InformationMedia and Media,Entertainment, and Travel and Consumer.
Our historical core competency is full lifecycle software development and product engineering services including design and prototyping, product development and testing, component design and integration, product deployment, performance tuning, porting and cross-platform migration. We have developed extensiveThis experience in each of these areas by working collaboratively with leading ISVs and technology companies, creating an unparalleledcreated a foundation for the evolution of our other offerings, which include custom application development, application testing,advanced technology software solutions, intelligent enterprise application platforms, application maintenanceservices and support, and infrastructure management.digital engagement.
We believe the quality of our employees underpins our success and serves as a key point of differentiation in how we deliver a superior value proposition to our clients. Our delivery centers in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland are strategically located in centers of software engineering talent and educational excellence across CEE, and the Commonwealth of Independent States, or the CIS. CEE includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Republic of Macedonia, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, the former Yugoslav Republic of Macedonia, Turkey and Ukraine. The CIS is comprised of constituents of the former U.S.S.R., including Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Our highly-skilled information technology, or IT, professionals, combined with our extensive experience in delivering custom solutions that meet our clients’ pressing business needs, hasstrategic acquisitions allowed us to develop a deep culturefurther expand our global footprint and service offering portfolio. Our 2014 acquisitions of software engineering excellence. We believe this culture enables us to attract, trainNetsoft Holdings, LLC, Joint Technology Development Limited, GGA Software Services, LLC and retain talented IT professionals.
We employ highly-educated IT professionals, nearly allGreat Fridays Ltd. expanded our capabilities in the healthcare, financial services and digital design areas. Our 2015 acquisitions of whom hold a master’s equivalent university degreeNavigationArts, Inc and Alliance Consulting Global Holdings, Inc. enhanced our abilities in math, science or engineeringdigital strategy, consulting and are proficienttest automation, increasing our reach in English. To ensure we attract the best candidates from this deep talent pool, we have developed close relationships with leading universities across CEE, whereby we actively support curriculum development and engage students to identify their talents and interests. We continue to expand these efforts throughout the major talent hubs within CEE.
Since inception, we have invested significant resources into developing a proprietary suite of internal applications and tools to manage all aspectsmany of our delivery process. These applications and tools are effectiveexisting verticals as well as establishing our presence in reducing risks, such as security breaches and cost overruns, while providing control and visibility across all project lifecycle stages to both our clients and us. In addition,India. We expect these applications and toolsstrategic acquisitions will enable us to provide solutions using the optimal software product development methodologies, including iterative methodologies such as Agile development. Our applications, tools, methodologies and infrastructure allow us to seamlessly deliveroffer a broader range of services and solutions from our delivery centers to global clients, thereby further strengthening our relationships with them.
We believe we are the only ISAE 3402 Type 2 certified IT services provider with multiple delivery centers in CEE, based on our analysis of publicly available information of IT services providers. This certification is a widely recognized auditing standard developed by the American Institute of Certified Public Accountants, or AICPA, and it serves as additional assurance to our clients that are required to validate the controls in place to protect the security of their sensitive data. Furthermore, this is an important certification for firms in data and information-intensive industries, as well as any organization that is subject to the internal controls certification requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act. Our ISAE 3402 Type 2 certification, in addition to our multiple ISO/IEC 27001:2005 and ISO 9001:2008 attestations, underscores our focus on establishing stringent security standards and internal controls.
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Our clients primarily consist of Forbes Global 2000 corporations located in North America, Europe and the CIS. We maintainfrom a geographically diverse client base with 50.8% of our 2013 revenues from clients located in North America, 36.1% from clients in Europe and 11.7% from clients in the CIS. Our focus on delivering quality to our clients is reflected by an average of 93.9% and 78.4% of our revenues in 2013 coming from clients that had used our services for at least one and two years, respectively. In addition, we have significantly grown the size of existing accounts. For example, from 2008 to 2013, the number of clients accounting for over $5.0 million in annual revenues increased from 7 to 22, and those accounting for $1.0 million or more in revenues increased from 42 to 95.
Our Approach
Since our inception, we have focused on software product development services, which we have refined through repeat, multi-year engagements with major ISVs. Unlike custom application development, which is usually tailored to very specific business requirements, software products of ISVs must be designed with a high level of product configurability and operational performance to address the needs of a diverse set of end-users working in multiple industries and operating in awider variety of deployment environments. This demands a strong focus on upfront design and architecture, strict software engineering practices, and extensive testing procedures.locations.
Our focus on software product development services for ISVs and technology companies requires high-quality software engineering talent, advanced knowledge of up-to-date methodologies and productivity tools, and strong project management practices. As a result, we have developed a culture focused on innovation, technology leadership and process excellence, which helps us maintain a strong reputation with our clients for technical expertise and high-quality project delivery.
Our work with ISVs and technology companies, including both global leaders in enterprise software platforms and emerging, innovative technology companies focusing on new trends, exposes us to their customers’ business and strategic challenges, allowing us to develop vertical-specific domain expertise. In-depth understanding of how vertically-oriented ISVs and technology companies solve their clients’ challenges allows us to focus and grow our business in multiple industries, including Banking and Financial Services, Business Information and Media, and Travel and Consumer.
Our Services
Our service offerings cover the full software and product development lifecycle from digital strategy and customer experience design to enterprise application platforms implementation and program management services and from complex software development services to maintenance, support, custom application development, application testing, and infrastructure management. Our key service offerings include:
Software Product Development Services
We provide a comprehensive set of software product development services including product research, customer experience design and prototyping, program management, component design and integration, full lifecycle software testing, product deployment and end-user customization, performance tuning, product support and maintenance, managed services, as well as porting and cross-platform migration. We focus on software products covering a wide range of business applications as well as product development for multiple mobile platforms and embedded software product services.

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Custom Application Development Services
We offer complete custom application development services to meet the requirements of businesses with sophisticated application development needs not adequately supported by packaged applications or by existing custom solutions. Our custom application development services leverage our experience in software product development as well as our industry expertise, prebuilt application solution frameworks and specific software product assets. Our range of services includes business and technical requirements analysis, user experience design, solution architecture creation and validation, development, component design and integration, quality assurance and testing, deployment, performance tuning, support and maintenance, legacy applications re-engineering/refactoring, porting and cross-platform migration and documentation.
Application Testing Services
We maintain a dedicated group of testing and quality assurance professionals with experience across a wide range of technology platforms and industry verticals. Our Quality Management System complies with global quality standards such as ISO 9001:2008 and we employ industry-recognized and proprietary defect tracking tools to deliver a comprehensive range of testing services. Our application testing services include: (i) software application testing, including test automation tools and frameworks; (ii) testing for enterprise IT, including test management, automation, functional and non-functional testing, as well as defect management; and (iii) consulting services focused on helping clients improve their existing software testing and quality assurance practices.

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Enterprise Application Platforms
As a proven provider of software product development services to major ISVs, we have participated in the development of industry standard technology and business application platforms and their components in such specific areas as customer relationship management and sales automation, enterprise resource planning, enterprise content management, business intelligence, e-commerce, mobile, Software-as-a-Service and cloud deployment. Our experience in such areas allows us to offer services around Enterprise Application Platforms, which include requirements analysis and platform selection, deep and complex customization, cross-platform migration, implementation and integration, as well as support and maintenance. We use our experience, custom tools and specialized knowledge to integrate our clients’ chosen application platforms with their internal systems and processes and to create custom solutions filling the gaps in their platforms’ functionality necessary to address the needs of the clients’ users and customers.
Application Maintenance and Support
We deliver application maintenance and support services through a dedicated team of IT professionals. Our application maintenance and support offerings meet rigorous CMMI and ISAE 3402 Type 2 requirements. Our clients benefit from our proprietary distributed project management processes and tools, which reduce the time and costs related to maintenance, enhancement and support activities. Our services include incident management, fault investigation diagnosis, work-around provision, application bug fixes, release management, application enhancements and third-party maintenance.
Infrastructure Management Services
Given the increased need for tighter enterprise integration between software development, testing and maintenance with private, public and mobile infrastructures, our service offerings also cover infrastructure management services. We have significant expertise in implementing large infrastructure monitoring solutions, providing real-time notification and control from the low-level infrastructure up to and including applications. Our ISAE 3402 Type 2, ISO/IEC 27001:2005 and ISO 9001:2008 certifications provide our clients with third-party verification of our information security policies. Our solutions cover the full lifecycle of infrastructure management including application, database, network, server, storage and systems operations management, as well as incident notification and resolution.
We also work closely with leading companies in other industries to enable our clients to better leverage technology and address simultaneous pressures of driving value for the consumer and offering a more engaging experience. Our Verticalsdigital strategy and experience design practice provides strategy, design, creative, and program management services for clients looking to improve their customer experience. In 2014 and 2015, we expanded our digital design capabilities through strategic acquisitions in the U.K. and U.S. We also offer deep expertise across several domains including business-to-business and business-to-consumer e-commerce, customer/partner self-service, employee portals, online merchandising and sales, web content management, mobile solutions and billing.



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Our Vertical Markets
Strong vertical-specific domain knowledge, backed by extensive experience merging technology with the business processes of our clients, allows us to deliver tailored solutions to the followingvarious industry verticals:verticals. We have categorized our customers into five main industry verticals and a group of emerging verticals.
ISVs and Technology;
Banking and Financial Services;
Business Information and Media; and
Travel and Consumer.
We also serve the diverse technology needs of clients in the energy, telecommunications, automotive, manufacturing, insurance and life sciences industries and the government.
The following table sets forth our revenues by vertical by amount and as a percentage of our revenues for the periods presented:

  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
Banking and Financial Services $156,340   28.2% $111,941   25.8% $76,645   22.9%
ISVs and Technology  134,970   24.3   106,852   24.6   84,246   25.2 
Travel and Consumer  117,248   21.1   95,965   22.1   71,488   21.4 
Business Information and Media  75,677   13.6   62,398   14.4   63,988   19.1 
Other verticals  63,256   11.4   50,226   11.6   31,985   9.6 
Reimbursable expenses and other revenues  7,626   1.4   6,417   1.5   6,176   1.8 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100.0%
ISVs and Technology. ISVs and technology companies have a constant need for innovation and rapid time-to-market. Since inception, we have focused on providing complex software product development services to leading global ISVs and technology companies to meet these demands. Through our experience with many industry leaders, we have developed rigorous standards for software product development, as well as proprietary internal processes, methodologies and IT infrastructure. Our services span the complete software development lifecycle for software product development, testing and performance tuning, deployment and maintenance and support. We offer a comprehensive set of software development methodologies, depending on client requirements, from linear or sequential methodologies such as waterfall, to iterative methodologies such as Agile. In addition, we are establishing
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close partner relationships with many of our ISV and technology company clients and are offering distributed professional services around their product offerings directly to our corporate clients.
Banking and Financial Services.We established our Banking and Financial Services vertical in 2006 and have significant experience working with global retail and investment banks, investment firms, and brokerages; commercial and retail banks, credit card companies, depositories, corporate treasuries, pension funds, and market data providers. We offer a broad portfolio of services in assetassist these clients with challenges stemming from new regulations, compliance requirements, and wealth management, corporate and retail banking, cards and payments, investment banking and brokerage, research and analysis, as well as governance, risk and compliance.management. We have also established a Capital Markets Competency Center, which facilitates knowledge exchange, education and collaboration across our organization and develops new software products, frameworks and components to further enhance our industry-specificfinancial services solutions and services.
Business InformationTravel and Media. Consumer. Our capabilities span a range of platforms, applications and solutions that businesses in travel and hospitality use to serve their customers, capture management efficiencies, control operating expenses and grow revenues. Many of the world’s leading airlines, hotel providers and travel agencies rely on our knowledge in creating the best tools for operating and managing their business.
Software and Hi-Tech. Our core competency is in providing complex software product development services to meet ISVs and technology companies’ constant need for innovation and rapid time-to-market. Through our experience with many industry leaders, we have developed proprietary internal processes, methodologies and IT infrastructure. Our services span the complete software development lifecycle for software product development using our comprehensive development methodologies, testing and performance tuning, deployment and maintenance and support.
Media and Entertainment.We have established long termlong-term relationships with leading business informationmedia and mediaentertainment companies, which enable us to bring sustainable value creation and enhanced return-on-content for organizations within this vertical. Our solutions help clients develop new revenue sources, accelerate the creation, collection, packaging and management of content and reach broader audiences. We serve clients in a range of business information and media sub-sectors, including entertainment media, news providers, broadcasting companies, financial information providers, content distributors and advertising networks. Our Business Information Competency Center enables us to provide our clients with solutions that help them overcome challenges related to operating legacy systems, manage varied content formats, rationalize their online assets and lower their cost of delivery. In addition, we provide knowledge discovery platform services through our InfoNgen business, which combines custom taxonomy development with web crawling, internal file and e-mail classification, newsletter and feed publication and content trend analysis.
TravelLife Sciences and Consumer. Healthcare. We have extensivehelp our customers in the Life Sciences and Healthcare industry address ever changing market conditions and regulatory environments. Our professionals deliver end-to-end experience in designing, implementingthat includes strategy, architecture, build and supportingmanaged services to clients ranging from the traditional healthcare providers to innovative startups. We work with global Life Sciences companies to deliver sophisticated scientific informatics and innovative enterprise technology solutions. We offer a combination of deep scientific and mathematical knowledge providing global coverage for broad-based initiatives. Our solutions for the travelenable clients to speed research, discovery, and hospitality industry. This has led to the development of a substantial repository oftime-to-market while improving collaboration, knowledge componentsmanagement, and solutions, such as our Loyalty, Marketing and Booking Engine frameworks, which results in accelerated development and implementation of solutions, while ensuring enterprise-class reliability. Our capabilities span a range of platforms, applications and solutions that businesses in travel and hospitality use to serve their customers, capture management efficiencies, control operating expenses and grow revenues.operational excellence.
We also work closely with leading companiesserve the diverse technology needs of clients in the energy, telecommunications, automotive, manufacturing, insurance, retail industries and consumer industry to enablethe government. These industries represent our clients to better leverage technology and address simultaneous pressures of driving valueEmerging verticals.
Our revenues by vertical for the consumer and offering a more engaging experience. Our expertise allows us to integrate our services with our clients’ existing enterprise resource planning, billing fulfillment and customer relationship management solutions. Our digital strategy and experience design practice, EPAM Empathy Lab, provides strategy, design, creative, and program management services for clients looking to improve their customer experience. We also offer deep expertise across several domains including business-to-business and business-to-consumer e-commerce, customer/partners self-service, employee portals, online merchandising and sales, web content management, mobile solutions and billing.
Our Delivery Model
We have delivery centers located in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland. We have client management locations in the United States, Canada, United Kingdom, Germany, Sweden, Switzerland, Netherlands, Russia, Kazakhstan, Singapore, Hong Kong and Australia. We believe the development of a robust global delivery model creates a key competitive advantage, enabling us to better understand and meet our client’s diverse needs and provide a compelling value proposition.
Our primary delivery centersperiods presented are located in Belarus with 3,474 IT professionals as of December 31, 2013, the majority of which are located in Minsk, the capital of Belarus, which is a major educational and industrial center in CEE. It is well-suited to serve as a prime IT outsourcing destination given its strong industrial base, good educational infrastructure and legacy as the center of computer science for the former Soviet Union. Furthermore, the IT industry in Belarus has been strongly supported by the government, which has taken steps to encourage investment in the IT sector through long-term tax incentives.
Our delivery centers in Ukraine have 2,572 IT professionals as of December 31, 2013. Ukraine promotes the growth of a domestic IT outsourcing export industry that is supported by regulation, intellectual property protection and a favorable investment climate.
Our delivery centers in Russia have 1,294 IT professionals as of December 31, 2013. Our locations in Ukraine and Russia offer many of the same benefits as Belarus, including educational infrastructure, availability of qualified software engineers and government sponsorship of the IT industry. We believe our locations in Ukraine and Russia, along with our delivery centers in Belarus, offer a strong and diversified delivery platform across CEE.
Our delivery centers in Hungary have 848 IT professionals as of December 31, 2013, and serve as the center for our nearshore delivery capabilities to European clients. Hungary’s geographic proximity, cultural affinity and similar time zones with our clients in Europe enables increased interaction that creates closer client relationships, increased responsiveness and more efficient delivery of our solutions.follows:
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Our client management locations maintain account management and production personnel with significant project management capabilities, which enable us to work seamlessly with our clients and delivery centers. Our onsite and offshore delivery teams are linked together through common processes, collaboration applications and tools, and a communications infrastructure that features a secure and redundant environment enabling global collaboration.
Quality and Process Management
We have built complex proprietary applications and tools to manage quality, security and transparency of the delivery process in a distributed environment. Our proprietary ISO 9001:2008 and CMMI-certified Quality Management System has been documented, implemented and maintained to ensure the timely delivery of software development services to our clients. We have also developed sophisticated project management techniques facilitated through our Project Management Center, a web-based collaborative environment for software development, which we consider critical to meeting or exceeding the service levels required by our clients.
Our Quality Management System ensures that we provide timely delivery of software development services to enhance client satisfaction by enabling:
objective valuation of the performed process, work products and services against the client’s process descriptions, standards and procedures;
 Year Ended December 31,
 2015 2014 2013
Financial Services$248,526
 27.2% $215,425
 29.5% $156,340
 28.2%
Travel and Consumer215,303
 23.6
 157,756
 21.6
 117,248
 21.1
Software & Hi-Tech192,989
 21.1
 157,944
 21.6
 134,970
 24.3
Media & Entertainment120,616
 13.2
 91,726
 12.6
 75,677
 13.6
Life Sciences and Healthcare73,327
 8.0
 42,428
 5.8
 14,079
 2.5
Emerging Verticals53,856
 5.9
 56,338
 7.7
 49,177
 8.9
Reimbursable expenses and other revenues9,511
 1.0
 8,410
 1.2
 7,626
 1.4
Revenues$914,128
 100.0% $730,027
 100.0% $555,117
 100.0%

identification, documentation and timely resolution of noncompliance issues;
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feedback to the client’s project staff and managers on the results of quality assurance activities;
monitoring and improvement of the software development process to ensure adopted standards and procedures are implemented and flaws are detected and resolved in a timely manner; and
execution of planned and systematic problem prevention activities.
Our proprietary Project Management Center supports our software development delivery model. Our Project Management Center is effective in reducing risks and providing control and visibility across all project lifecycle stages based on the following features:
multi-site, multi-project capabilities;
activity-based software development lifecycle, which fully tracks the software development activities through the project documentation;
project, role-based access control, which can be available to us, clients and third parties;
fully configurable workflow engine with built-in notification and messaging;
extensive reporting capabilities and tracking of key performance indicators; and
integration with Microsoft Project and Outlook.
The transparency and visibility into software development project deliverables, resource management, team messaging and project-related documents and files provided by our Project Management Center promotes collaboration and strengthens our relationships with our clients. Improved traceability enables significant time savings and cost reductions for business users and IT management during change management for the software development lifecycle. The combination of our Project Management Center with our other proprietary internal applications enhances our offering by reducing errors, increasing quality and improving maintenance time. Combining applications can lead to more efficient communications and oversight for both clients and our staff.
Sales and Marketing
Our sales and marketing strategy seeks to increase our revenues from new and existing clients through our account managers, sales and business development managers, vertical specialists, technical specialists and subject-matter experts. Given our focus on complex application development and the needs of our clients, we believe our IT professionals play an integral role in engaging with clients on potential business opportunities. For example, account managers are organized vertically and maintain direct client relationships. In addition, they are responsible for handling inbound requests and referrals, identifying new business opportunities and responding to requests-for-proposals, or RFPs. Account managers typically engage technical and other specialists in responding to RFPs and pursuing opportunities. This sales model has been effective in promoting repeated business and growth from within our existing client base.
In addition to effective client management, we believe that our reputation as a premium provider of software product development services drives additional business from inbound requests, referrals and RFPs. We enjoy published recognition from other third-party industry observers, such as Forrester Research, Everest Group, Zinnov, Information Week, and Software Magazine.
We also maintain a dedicated sales force as well as a marketing team, which coordinates corporate-level branding efforts that range from sponsorship of programming competitions to participation in and hosting of industry conferences and events.
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Clients
Our clients primarily consist of Forbes Global 2000 corporations. One corporations located in North America, Europe, Asia and the CIS. We maintain a geographically diverse client base with 53.1% of our 2015 revenues from clients located in North America, 38.6% from clients in Europe, 4.7% from clients in the CIS and 2.6% from our clients in APAC. We typically enter into master services agreements with our clients, which provide a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement, including the services to be performed, pricing terms and performance criteria.
Our focus on delivering quality to our clients is reflected by an average of 95.1% and 84.3% of our revenues in 2015 coming from clients that had used our services for at least one and two years, respectively. In addition, we have significantly grown the size of existing accounts as majority of our top client mix remains consistent over the years. The annual revenue from our top five clients increased from $65.9 million in 2010 to $298.1 million in 2015 and the annual revenue from our top ten clients increased from $94.5 million in 2010 to $400.3 million in 2015.
During 2015 and 2014, one customer, Thomson Reuters,UBS AG, accounted for over 10% of our revenues in 2011.revenues. No customer accounted for over 10% of our revenues in 2013 or 2012.2013.
The following table sets forthpresents the percentage of our revenues for the periods presented by client location:

 % of Revenues for Year Ended December 31,
 Client location
2015 2014 2013
North America53.1% 50.4% 50.8%
Europe38.6
 39.0
 36.1
CIS4.7
 7.6
 11.7
APAC2.6
 1.8
 
Reimbursable expenses and other revenues1.0
 1.2
 1.4
Revenues100.0% 100.0% 100.0%
 
 % of Revenues for Year Ended December 31, 
Client location
 2013  2012  2011 
North America  50.8%  47.7%  49.4%
Europe  36.1   35.8   32.0 
CIS  11.7   15.0   16.8 
Reimbursable expenses and other revenues  1.4   1.5   1.8 
Revenues  100.0%  100.0%  100.0%
Revenues by client location above differ from theour segment information. Our operations consist of four reportable segments: 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. Our reportable segments are based on managerial responsibility for a particular client. 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 our 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 our senior management team. In such a case, like this, the client’s activity would be reported through the management team’s reportable segment. Information aboutParticularly, our segments is presented below:

 
 % of Segment Revenues for Year Ended December 31, 
Segment
 2013  2012  2011 
North America  51.3%  45.5%  45.5%
Europe  36.8   38.9   36.9 
Russia  10.0   11.7   13.8 
Other  1.9   3.9   3.8 
Segment Revenues  100.0%  100.0%  100.0%
acquired clients in the APAC region are reported as part of the Europe segment based on the managerial responsibility for those clients. The following table sets forthpresents the percentage of our revenues by client verticalreportable segment:
 % of Segment Revenues for Year Ended December 31,
 Segment
2015 2014 2013
North America51.5% 51.3% 51.3%
Europe43.8
 41.0
 36.8
Russia4.2
 6.9
 10.0
Other0.5
 0.8
 1.9
Segment Revenues100.0% 100.0% 100.0%
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this annual report for the periods presented:additional information regarding segments.

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 % of Revenues for Year Ended December 31, 
Vertical
 2013  2012  2011 
Banking and Financial Services  28.2%  25.8%  22.9%
ISVs and Technology  24.3   24.6   25.2 
Travel and Consumer  21.1   22.1   21.4 
Business Information and Media  13.6   14.4   19.1 
Other verticals  11.4   11.6   9.6 
Reimbursable expenses and other revenues  1.4   1.5   1.8 
Revenues  100.0%  100.0%  100.0%
The following table shows the distribution of our clients by revenues for the periods presented:

 Year Ended December 31,
Revenues Greater Than or Equal To2015 2014 2013
$0.1 million365 306 263
$0.5 million211 181 147
$1 million136 116 95
$5 million33 24 22
$10 million14 12 12
$20 million7 6 4

 
 Year Ended December 31, 
Revenues Greater Than or Equal To
 2013  2012  2011 
$0.1 million  263   216   176 
$0.5 million  147   114   98 
$1.0 million  95   81   54 
$5.0 million  22   16   15 
$10.0 million  12   7   8 
$20.0 million  4   4   3 

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The following table sets forth our revenues by service offering as a percentage of our revenues for the periods presented:

 
 % of Revenues for Year Ended December 31, 
Service Offering
 2013  2012  2011 
Software development  67.4%  66.8%  65.5%
Application testing services  19.7   19.8   20.3 
Application maintenance and support  8.3   8.3   8.8 
Infrastructure services  2.6   2.9   2.5 
Licensing  0.6   0.7   1.1 
Reimbursable expenses and other revenues  1.4   1.5   1.8 
Revenues  100.0%  100.0%  100.0%

See Note 18 of17 in the notes to our consolidated financial statements in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements,”this Annual Report on Form 10-K for furtherinformation regarding total assets, operating results and other financial information regarding our operating segments.
Sales and Marketing
We typically enter into master services agreements with our clients, which provide a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement, including the services to be performed, pricing termsOur sales and performance criteria.
For example, we have entered into a master services agreement with Thomson Reuters. Under this master services agreement, we may not use subcontractors to perform the services without Thomson Reuters’ prior written consent. Our personnel must comply with Thomson Reuters’ security policies. The intellectual property rights to deliverables we make in the course of, or enabling the, performance of the services we provide to Thomson Reuters are owned by Thomson Reuters. Deliverables and services are subject to acceptance testing, and liquidated damages are prescribed for late delivery. Service credits are prescribed for service-level failures and charges are subject to adjustment for deficiencies in services that are not measured by service levels. The master services agreement provides step-in rights, benchmarking, monitoring rights and audit rights. The master services agreement is not a commitment to purchase our services, and may be terminated for various reasons including a time-limited right of termination upon a change-of-control event or without cause upon six months’ notice.
Competition
The markets in which we compete are changing rapidly and we face competition from both global IT services providers as well as those based in CEE. We believe that the principal competitive factors inmarketing efforts support our business includestrategy to increase our revenues from new and existing clients through our senior management, sales and business development staff, account managers, and technical expertisespecialists. We maintain a dedicated sales force and industry knowledge, end-to-end solution offerings, reputation and track record for high-quality and on-time delivery of work, effective employee recruiting, training and retention, responsiveness to clients’ business needs, scale, financial stability and price.
We face competition primarily from:
India-based technology outsourcing IT services providers,a marketing team, which coordinates corporate-level branding efforts such as Cognizant Technology Solutions (NASDAQ:CTSH), Luxoft Holding, Inc. (NYSE:LXFT), GlobalLogic, HCL Technologies, Infosys Technologies (NASDAQ:INFY), Mindtree, Sapient (NASDAQ:SAPE), Symphony Technology Group, Tata Consultancy Servicessponsorship of programming competitions to participation in and Wipro (NASDAQ:WIT);
hosting of industry conferences and events.
Local CEE technology outsourcingGiven our focus on providing technical solutions to our clients’ complex challenges, our IT services providers;
professionals play an integral role in engaging with clients on potential business opportunities. Our account managers maintain direct client relationships and are tasked with identifying new business opportunities and responding to requests-for-proposals, or RFPs. Account managers typically engage technical and other specialists when pursuing opportunities. This sales model has been effective in promoting repeated business and growth from within our existing client base.
Large global consulting and outsourcing firms, such as Accenture, Atos Origin, Capgemini, CSC and IBM;
China-based technology outsourcing IT services providers such as Camelot Information Services, and Pactera; and
In-house IT departments of our clients and potential clients.
We are a leading global IT services provider of complex software product development and software engineering services in CEE. WeIn addition to effective client management, we believe that our focus on complexreputation as a premium provider of software product developmentengineering solutions our technical employee base, and the developmentinformation technology services drives additional business from inbound requests, referrals and continuous improvement in process methodologies, applications and tools position us well to compete effectively in the future. However, we face competitionRFPs. We enjoy published recognition from offshore IT services providers in other outsourcing destinations with low wage costs,third-party industry observers, such as IndiaForrester Research, Forbes Research, Everest Group, Zinnov, CIO Magazine, Information Week, and China, and from IT services providers that have more locations or that are based in countries more stable than some CIS and CEE countries. Our present and potential competitors may also have substantially greater financial, marketing or technical resources; may also be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greater resources towards the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our clients.Software Magazine.
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Human Capital
Our people are critical to the success of our business. Attracting and retaining employees is a key factor in our ability to grow our revenues and meet our clients’ needs. At December 31, 2013, 2012 and 2011, we employed 11,056, 10,043 and 8,125 professionals, respectively. Of these employees, approximately 91.0% were located in the CIS and CEE, 3.0% were located in Western Europe (excluding Hungary) and 6.0% were located in North America at December 31, 2013. We believe that we maintain a good working relationship with our employees and we have not experienced any labor disputes. Our employees have not entered into any collective bargaining agreements.
Recruitment and Retention
We believe our company culture and reputation as a leading global IT services provider of complex software product development and software engineering services in CEE enhances our ability to recruit and retain highly sought-after employees. We have dedicated full-time employees that oversee all aspects of our human capital management process. Through our proprietary internal tools, weWe effectively plan our short-term and long-term recruitment needs and deploy the necessary personnel and processes to optimize utilization and to quickly satisfy the demands of our clients. As our business grows, we also focus on hiring and retaining individuals with appropriate skills to fill our executive, finance, legal, HR and other key management positions.
At December 31, 2015, 2014 and 2013, we had a total of 18,354, 14,109 and 11,056 employees, respectively. Of these employees, as of December 31, 2015, 2014 and 2013, respectively, 16,078, 11,824 and 9,340 were revenue generating IT professionals.
In our competitive industry, the ability to hire and retain highly-skilled information technology professionals is critical to our success. We believe the quality of our employees serves as a key point of differentiation in how we deliver a superior value proposition to our clients. To attract, retain and motivate our IT professionals, we offer a challenging work environment, ongoing skills development initiatives, attractive career advancement and promotion opportunities thus providing an environment and culture that rewards entrepreneurial initiative and performance.
Historically, we have developed our base of IT professionals by hiring highly-qualified, experienced IT professionals from thisthe CIS and CEE region and by recruiting students from leading universities in CEE.there. The quality and academic prestige of the CIS and CEE educational system is renowned worldwide. We have strong relationships with the leading institutions in CEE,these geographies, such as the Belarusian State University, Belarusian State University of Informatics and Radioelectronics, the Saint Petersburg State University of Information Technologies, Mechanics and Optics, the Moscow State University, the Moscow Institute of Physics & Technology, the Moscow State University of Instrument Engineering and Computer Sciences and the National Technical University of Ukraine,Ukraine. The participants from these universities are frequent and weconsistent winners in the ACM International Collegiate Programming Contest (“ICPC”), the oldest, largest, and most prestigious programming contest in

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the world. In the 2015 ACM International Collegiate Programming Contest, the two top winning spots were awarded to the CIS schools and a highly regarded Belarusian university finished in the top 15.
We have established EPAM delivery centers near many of these university campuses. The quality and academic prestige of the CEE educational system is renowned world-wide. For instance, in the 2012 ACM International Collegiate Programming Contest (“ICPC,”) five out of 10 top ranked finishers were from CEE, and two Belarus universities made it in the top 12. Our ongoing involvement with these universities includes supporting EPAM-branded research labs, developing training courses, providing teaching equipment, actively supporting curriculum development and engaging students to identify their talents and interests. Our relationships with these technical institutions provide us access to a highly-qualified talent pool of programmers, and allow us to consistently attract highly-skilled students from these institutions. We also conduct lateral hiring through a dedicated IT professional talent acquisition team whose objective is to locate and attract qualified and experienced IT professionals within the region.region and other EPAM locations.
To attract, retainWe believe that we maintain a good working relationship with our employees and motivate our employees have not entered into any collective bargaining agreements or engaged in any labor disputes.

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Our Delivery Model
We have delivery centers located in Belarus, Ukraine, Russia, Hungary, Kazakhstan, Bulgaria, Armenia, Poland, China, Mexico, Austria, Czech Republic and India. We have client management locations in the United States, Canada, United Kingdom, Germany, Sweden, Switzerland, Netherlands, Russia, Kazakhstan, Singapore, Hong Kong and Australia. We believe the development of a robust global delivery model creates a key competitive advantage, enabling us to better understand and meet our clients’ diverse needs and provide a compelling value proposition. We continuously grow our delivery platform both organically and through acquired delivery centers and client management locations. Our total headcount of revenue generating personnel was 16,078 as of December 31, 2015.
Our primary delivery centers are located in Belarus, where we have 5,207 IT professionals we seekas of December 31, 2015. The majority of these IT professionals are located in Minsk, the capital of Belarus, which is well-positioned to provide an environmentserve as a prime IT outsourcing destination given its strong industrial base, good educational infrastructure and culture that rewards entrepreneurial initiativelegacy as the center of computer science for the former Soviet Union. Furthermore, the IT industry in Belarus has been strongly supported by the government, which has taken steps to encourage investment in the IT sector through long-term tax incentives.
Our delivery centers in Ukraine have 3,734 IT professionals as of December 31, 2015. Our delivery centers in Russia have 2,235 IT professionals as of December 31, 2015. Our locations in Ukraine and performance. In addition, weRussia offer many of the same benefits as Belarus, including educational infrastructure, availability of qualified software engineers and government support of the IT industry. We believe our locations in Ukraine and Russia, along with our delivery centers in Belarus, offer a challenging work environment, ongoing skills development initiativesstrong and attractive career advancementdiversified delivery platform across Europe. Our business has not been materially affected by the political and promotion opportunities.economic uncertainty in Russian or Ukraine to date.
Our other significant delivery centers are in the United States with 1,016 IT professionals, Hungary with 1,151 IT professionals and India with 1,031 IT professionals as of December 31, 2015. These delivery centers are located strategically to serve clients in North America, Europe and Asia. The delivery center in India has been established through our business combination with Alliance Consulting Global Holdings, Inc.
Training and Development
We dedicate significant resources to the training and development of our IT professionals. We believe in the importance of supporting educational initiatives and we sponsor employees’ participation in internal and external training and certifications. Furthermore, we actively pursue partner engagements with technical institutions in CEE.
We provide training, continuing education and career development programs for both entry-level and experienced IT professionals. Entry-level IT professionals undergo a rigorous training program that consists of approximately three to six months of classroom training, as well as numerous hours of hands-on training through actual engagements. This comprehensive program results in employees who are highly proficient and possess deep technical expertise that enables them to immediately serve our clients’ needs. For our mid-level and senior IT professionals, we offer continuing education programs aimed at helping them advance in their careers. We also provide mentoring opportunities, management and soft skills training, intensive workshops and management and technical advancement programs. We are committed to systematically identifying and nurturing the development of middle and senior management through formal leadership training, evaluation, development and promotion.
Quality and Process Management
Over the years we have invested significant resources into developing a proprietary suite of internal applications and tools to manage all aspects of our delivery process. These applications and tools are effective in reducing costs and security risks, while providing control and visibility across all project lifecycle stages both internally and to our clients. In addition, these applications, tools, methodologies and infrastructure allow us to seamlessly deliver services and solutions to global clients, further strengthening our relationships with them.
Our proprietary ISO 9001:2008 and CMMI-certified Quality Management System has been documented, implemented and maintained to ensure the timely delivery of software development services to our clients. We have also developed sophisticated project management techniques facilitated through our Project Management Center, a web-based collaborative environment for software development, which we consider critical to meeting or exceeding the service levels required by our clients.

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Our Quality Management System ensures that we provide timely delivery of software development services to enhance client satisfaction by enabling:
objective valuation of the performed process, work products and services against the client’s process descriptions, standards and procedures;
identification, documentation and timely resolution of noncompliance issues;
feedback to the client’s project staff and managers on the results of quality assurance activities;
monitoring and improvement of the software development process to ensure adopted standards and procedures are implemented and flaws are detected and resolved in a timely manner; and
execution of planned and systematic problem prevention activities.
Our proprietary Project Management Center supports our software development delivery model. Our Project Management Center is effective in reducing risks and providing control and visibility across all project lifecycle stages based on the following features:
multi-site, multi-project capabilities;
activity-based software development lifecycle, which fully tracks the software development activities through the project documentation;
project, role-based access control, which can be available to us, clients and third parties;
fully configurable workflow engine with built-in notification and messaging;
extensive reporting capabilities and tracking of key performance indicators; and
integration with Microsoft Project and Outlook.
The transparency and visibility into software development project deliverables, resource management, team messaging and project-related documents and files provided by our Project Management Center promotes collaboration and strengthens our relationships with our clients. Improved traceability enables significant time savings and cost reductions for business users and IT management during change management for the software development lifecycle. The combination of our Project Management Center with our other proprietary internal applications enhances our offering by reducing errors, increasing quality, effectiveness and oversight, and improving maintenance time.
Based on our analysis of publicly available information of IT services providers, we are the only ISAE 3402 Type 2 certified IT services provider with multiple delivery centers in CEE. This certification is a widely recognized auditing standard developed by the American Institute of Certified Public Accountants, or AICPA, and it serves as additional assurance to our clients regarding the control environment and the security of their sensitive data. Furthermore, this is an important certification for firms in data and information-intensive industries, as well as any organization that is subject to the internal controls certification requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act. Our ISAE 3402 Type 2 certification, in addition to our multiple ISO/IEC 27001:2005 and ISO 9001:2008 attestations, underscores our focus on establishing stringent security standards and internal controls.
Competition
The markets in which we compete are changing rapidly and we face competition from both global technology solutions providers as well as those based primarily in specific geographies with lower cost labor such as CEE, India and China. We believe that the principal competitive factors in our business include technical expertise and industry knowledge, end-to-end solution offerings, reputation and track record for high-quality and on-time delivery of work, effective employee recruiting, training and retention, responsiveness to clients’ business needs, scale, financial stability and price.
We face competition primarily from:
India-based technology outsourcing IT services providers, such as Cognizant Technology Solutions (NASDAQ:CTSH), GlobalLogic, HCL Technologies, Infosys Technologies (NASDAQ:INFY), Mindtree, Symphony Technology Group, Tata Consultancy Services and Wipro (NASDAQ:WIT);
Local CEE technology outsourcing IT services providers such as Luxoft Holding, Inc. (NYSE:LXFT);
Large global consulting and outsourcing firms, such as Accenture, Atos Origin, Capgemini, CSC and IBM;
China-based technology outsourcing IT services providers such as Camelot Information Services, and Pactera; and
In-house IT departments of our clients and potential clients.
We believe that our focus on complex software product development solutions, our technical employee base, and the development and continuous improvement in process methodologies, applications and tools position us well to compete

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effectively in the future. Our present and potential competitors may have substantially greater financial, marketing or technical resources; may be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greater resources towards the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our clients.
Intellectual Property
OurProtecting our intellectual property rights are importantis critical to our business. We have invested, and will continue to invest, in research and development to enhance our domain knowledge and create complex, specialized solutions for our clients. We rely on a combination of intellectual property laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We require our employees, independent contractors, vendors and clientsindependent contractors to enter into written confidentiality agreements upon the commencement of their relationships with us, which assign to us all intellectual property and work product made, developed or conceived by them in connection with their employment with us. These agreements generallyalso provide that any confidential or proprietary information disclosed or otherwise made available by us be keptremains confidential.
We customarilyalso enter into confidentiality and non-disclosure agreements with our clients with respect to theclients. These customary agreements cover our use of theirthe clients’ software systems and platforms. Ourplatforms as our clients usually own the intellectual property in the software or systemsproducts we develop for them. Furthermore, we usually grant a perpetual, worldwide, royalty-free, nonexclusive, transferable and non-revocable license to our clients to use our preexisting intellectual property, but only to the extent necessary in order to use the software or systems we developed for them.
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Protecting our intellectual property rights is critical to our business. We have invested, and will continue to invest, in research and development to enhance our domain knowledge and create complex, specialized solutions for our clients.
Long-lived Assets
Our long lived-assets disclosed in the table below consist of property and equipment. The table below sets forthpresents the locations of our long-lived assets:

 Year Ended December 31,
 2015 2014 2013
Belarus$44,879
 $41,652
 $38,697
Ukraine4,487
 4,392
 5,525
Hungary2,485
 2,773
 2,644
Russia2,084
 2,196
 3,414
United States1,969
 2,001
 2,217
India1,099
 
 
Poland1,088
 747
 4
Other2,408
 1,373
 814
Total$60,499
 $55,134
 $53,315
  
December 31,
2013 
 
December 31,
2012 
  (in thousands) 
Belarus(1) $38,697  $40,095 
Ukraine  5,525   5,357 
Russia  3,414   3,234 
United States  2,217   2,048 
Hungary  2,644   1,744 
Other  818   657 
Total $53,315  $53,135 

(1)At December 31, 2013 and 2012, the amounts included $15.1 million and $15.4 million, respectively, related to our building, and $15.7 million and $15.6 million, respectively, of capitalized construction costs related to our corporate facilities in Minsk, Belarus.

Acquisitions
We have acquired a number of companies in order to expand our vertical-specific domain expertise, geographic footprint, service portfolio, client base and management expertise.proficiency.
In May 2012,On July 10, 2015, we completedacquired all of the outstanding equity of NavigationArts, Inc. and its subsidiary, NavigationArts, LLC (collectively “NavigationArts”). The U.S.-based NavigationArts provides digital consulting, architecture and content solutions and is regarded as a leading user-experience agency. The acquisition of Thoughtcorp,NavigationArts added approximately 90 design consultants to our headcount.
On November 16, 2015, we acquired all of the outstanding equity of Alliance Consulting Global Holdings, Inc. including its wholly-owned direct and indirect subsidiaries Alliance Global Services, Inc., Alliance Global Services, LLC, companies organized under the laws of USA, and Alliance Global Services IT India, a Canadian company with a 17-year historyorganized under the laws of successfully delivering high-value ITIndia (collectively, “AGS”). AGS provides software product development services and test automation solutions and complex software applications to some of Canada’s most prominent companies withinhas multiple locations in the telecommunications, financialUnited States and retail sectors. With the Thoughtcorp acquisition, we have strengthened our Banking and Financial Services, and Travel and Consumer verticals, and have gained significant telecommunications expertise with a highly skilled and experienced employee base of approximately 50 IT professionals.India. The acquisition also expandsof AGS added 1,151 IT professionals to our North American geographic footprintheadcount in the United States and complements our global delivery capabilities with expertise in areas important for us, such as Agile Development, Enterprise Mobility and Business Intelligence.India.

In December 2012, we completed the acquisition
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Regulations
Due to the industry and geographic diversity of our operations and services, our operations are subject to a variety of rules and regulations, and several Belarusian, Russian, Ukrainian, Hungarian, Kazakhstanregulations. Several foreign and U.S. federal and state agencies regulate various aspects of our business. See “Item 1A. Risk Factors — Risks Relating to Our Business — Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations or unfavorable interpretation by authorities of these regulations could harm our business.” and “Item 1A. Risk Factors — Risks Relating to Our Business — We are subject to laws and regulations in the United States and other countries in which we operate, concerning our operations, including export restrictions, U.S. economic sanctions and the Foreign Corrupt Practices Act, or FCPA, and similar anti-briberyanti-corruption laws. If we are not in compliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures.”

We benefit from certain tax incentives promulgated by the Belarusian and Hungarian governments. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Provision for Income Taxes.”
Corporate Information
EPAM Systems, Inc. was incorporated in the State of Delaware on December 18, 2002. Our predecessor entity was founded in 1993. Our principal executive offices are located at 41 University Drive, Suite 202, Newtown, Pennsylvania 18940 and our telephone number is 267-759-9000. We maintain a website at http://www.epam.com. Our website and the information accessible through our website are not incorporated into this annual report.
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We make certain filings with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments and exhibits to those reports. We make such filings available free of charge through the Investor Relations section of our website, http://investors.epam.com, as soon as reasonably practicable after they are filed with the SEC. The filings are also available through the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330. In addition, these filings are available on the internet at http://www.sec.gov. Our press releases and recent analyst presentations are also available on our website. The information on our website does not constitute a part of this annual report.

Executive Officers of the Registrant
The following table sets forth the names, ages and positions of our executive officers as of March 1, 2014:
Name
Age
Position
Arkadiy Dobkin53Director, President and Chief Executive Officer
Karl Robb51Director, President of EU Operations and Executive Vice President
Balazs Fejes38Senior Vice President, Global Head of Banking and Financial Services Business Unit
Anthony J. Conte42Vice President, Chief Financial Officer and Treasurer
Ginger Mosier49Vice President, General Counsel and Corporate Secretary
Executive officers are appointed by the Board. A brief biography for each of our other executive officers follows.
Arkadiy Dobkin, 53, has served as Chairman of the Board, Chief Executive Officer and President since December 2002 and is one of our co-founders. After earning a MS in Electrical Engineering from the Byelorussian National Technical University, Mr. Dobkin began his career in Minsk, Belarus, where he worked for several emerging software development companies. After immigrating to the United States, he held thought and technical leadership positions at Colgate-Palmolive and SAP Labs. Our Board believes Mr. Dobkin’s experience as an IT professional and executive in the IT services industry coupled with his in-depth understanding of our global delivery model provide him with the necessary skills to serve as a member of our Board and will enable him to provide valuable insight to the board and our management team regarding operational, strategic and management issues as well as general industry trends.
Karl Robb, 51, has served as a director of our Board since 2004 and as our President of EU Operations and Executive Vice President since April 2013. From March 2004 to April 2013, Mr. Robb served as our President of EU Operations and Executive Vice President of Global Operations. Mr. Robb joined us when Fathom Technology, a Hungarian software development outsourcing company he co-founded, merged with EPAM. Mr. Robb is a 30-year veteran of the global software engineering and IT solutions industries, having worked ten years in Europe, nine years in the United States and 11 years in Eastern Europe. Mr. Robb has been employed as a consultant by Landmark Business Development Limited, or Landmark, a consulting firm, since 1986. Our Board believes that Mr. Robb’s extensive experience as an executive in the IT services industry and his knowledge of the IT services industry in North America, Europe and Central and Eastern Europe, as well as his experience working with global IT services companies and successfully starting two software companies and his extensive service and responsibilities at EPAM, provide him with the necessary skills to serve as a member of our Board and will enable him to provide valuable insight to the Board regarding strategy, business development, sales, operational and management issues, as well as general industry trends.
Balazs Fejes, 38, has served as our Senior Vice President, Global Head of Banking and Financial Services business unit since August 2012. From March 2004 to August 2012, Mr. Fejes served as EPAM’s Chief Technology Officer. Mr. Fejes joined us when Fathom Technology, a Hungarian software engineering firm, which he co-founded and for which he served as Chief Technology Officer, merged with us. Prior to co-founding Fathom Technology, Mr. Fejes was a chief software architect/line manager with Microsoft Great Plains (Microsoft Business Solutions). He also served as a chief software architect of Scala Business Solutions. Mr. Fejes has been employed as a consultant by Redlodge Holdings Limited, a consulting firm, since July 2007.
Anthony J. Conte, 42, became our Chief Financial Officer in November 2013. Previously, he served as Vice President — Finance, where he was instrumental in our initial public offering; and as Controller when he joined EPAM in 2006. Mr. Conte is a CPA with over 20 years of experience in finance, accounting, audit, international operations and strategic planning. Prior to joining EPAM, Mr. Conte spent five years in several senior finance roles within the McGraw Hill organization, last serving as Controller of its Platts business unit, a leading global provider of energy, petrochemicals, metals and agriculture information. Mr. Conte was also the finance manager for John Hancock’s International Operations, overseeing various established Asian subsidiaries and working to successfully launch a new Chinese subsidiary for the company. Mr. Conte started his career at Coopers and Lybrand in Boston and holds a B.S. in Accounting and an M.B.A. from Northeastern University.
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Ginger Mosier, 49, has served as our Vice President and General Counsel since March 2010 and as our Corporate Secretary since January 2012. Ms. Mosier also served as our Assistant Corporate Secretary from May 2010 to January 2012. Prior to joining EPAM, Ms. Mosier spent approximately eight years in a variety of legal positions with Hewlett-Packard Company. In her last position, she served as senior counsel advising on global IT outsourcing deals and related services transactions. Prior to that, she advised a number of HP Software divisions as corporate counsel and was the legal representative for the HP Software Integration Office created for implementing the acquisition and integration of several software companies. Immediately prior to Hewlett-Packard, Ms. Mosier practiced corporate law at Drinker, Biddle & Reath. Ms. Mosier began her legal career at Baker & Daniels. Ms. Mosier holds a J.D., magna cum laude, from Indiana University School of Law at Indianapolis where she was a member of the Indiana Law Review and a B.A. from Indiana University-Purdue University at Indianapolis.

Item 1A.Risk Factors
Risk factors, which could cause actual results to differ from our expectations and which could negatively impact our financial condition and results of operations, are discussed below and elsewhere in this annual report. The risks and uncertainties described below are not the only ones we face. If any of the risks or uncertainties described below or any additional risks and uncertainties actually occur, our business, results of operations and financial condition could be materially and adversely affected. In particular, forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. See “Special Note Regarding Forward-Looking Statements.”Statements”.
Risks Relating to Our Business
We may be unable to effectively manage our rapid growth or achieve anticipated growth, which could place significant strain on our management personnel, systems and resources.
We have experienced rapid growth and significantly expanded our business over the past several years. Our revenues grew from $160.6 million in 2008 to $555.1 million in 2013.years, both organically and through acquisitions. We have also supplementedgrown our organic growth with strategic acquisitions. As of December 31, 2013, we had 9,340 IT professionals, as compared to 2,890 IT professionals as of December 31, 2007. We intend to continue our expansion in the foreseeable future to pursue existingsupport function headcount, including finance, legal and potential market opportunities.
other areas. Our rapid growth has placed and will continue to place significant demands on our management and our administrative, operational and financial infrastructure. Continued expansion increases the challenges we face in:
recruiting, training and retaining sufficiently skilled IT professionals and management personnel;
adhering to and further improving our high-quality and process execution standards and maintaining high levels of client satisfaction;
managing a larger number of clients in a greater number of industries and locations;
maintaining effective oversight of personnel and delivery centers;
preservingcoordinating effectively across geographies and business units to execute our culture, valuesstrategic plan; and entrepreneurial environment; and
developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internal systems.
As a result of these problems associated with expansion, our business, financial condition and results of operations could be materially adversely affected.
Moreover, we intend to continue our expansion infor the foreseeable future to pursue existing and potential market opportunities. As we introduce new services or enter into new markets, we may face new market, technological, operational, compliance and operationaladministrative risks and challenges, with which we are unfamiliar, and we may not be able to mitigate these risks and challenges to successfully grow those services or markets. WeAs a result of these problems associated with expansion, we may not be able to achieve our anticipated growth whichand our business, prospects, financial condition and results of operations could be materially adversely affect our business and prospects.affected.

If we fail to attract and retain highly skilled IT professionals, we may not have the necessary resources to properly staff projects, and
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Our failure to successfully compete for suchattract, train and retain new IT professionals with the qualifications necessary to fulfill the needs of our existing and future clients could materially adversely affect our ability to provide high quality services to ourthose clients.
Our success depends largely on the contributions ofThe ability to hire and retain highly-skilled information technology professionals is critical to our success. To maintain and renew existing engagements and obtain new business, we must attract, train and retain skilled IT professionals, and our ability to attract and retain qualifiedincluding experienced management IT professionals. Competition for IT professionals can be intense in the markets in whichwhere we operate can be intense and, accordingly, we may not be able to retainhire or hireretain all of the IT professionals necessary to meet our ongoing and future business needs. Any reductions in headcount for economicConsequently, we may have to forgo projects due to lack of resources or business reasons, however temporary, could negatively affect our reputation as an employer and our abilityinability to hire IT professionals to meet our business requirements.staff projects optimally.
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The total attrition rates among our IT professionals who have worked for us for at least six months were 13.1%, 10.7% and 9.1% for 2013, 2012 and 2011, respectively. We may encounter higher attrition rates in the future. A significant increase in the attrition rate among IT professionals with specialized skills could decrease our operating efficiency and productivity and could lead to a decline in demand for our services. The competitionIn addition, any reductions in headcount for highly-skilled IT professionals may require us to increase salaries,economic or business reasons, however temporary, could negatively affect our reputation as an employer and we may be unable to pass on these increased costs to our clients.
In addition, our ability to maintain and renew existing engagements and obtain new business will depend, in large part, on our ability to attract, train and retain skilledhire IT professionals including experienced management IT professionals, which enables us to keep pace with growing demands for outsourcing, evolving industry standards and changing client preferences. If we are unable to attract and retain the highly-skilled IT professionals we need, we may have to forgo projects for lack of resources or be unable to staff projects optimally. Our failure to attract, train and retain IT professionals with the qualifications necessary to fulfill the needs ofmeet our existing and future clients or to assimilate new IT professionals successfully could materially adversely affect our ability to provide high quality services to our clients.business requirements.
Increases in wages for our IT professionals and other compensation expense for our IT professionals could prevent us from sustaining our competitive advantage.advantage and result in dilution to our stockholders.
Wage costs for IT professionals in CIS, CEE and CEE countriesAPAC, and certain other geographies in which we operate are lower than comparable wage costs in more developed countries. However, wage costs in the CIS and CEE IT servicesservice industry in these countries may increase at a faster rate than in the past, which ultimately may make us less competitive unless we are able to increase the efficiency and productivity of our IT professionals as well as the prices we can charge for our services. Increases in wage costs may reduce our profitability.
Additionally, we have granted certain optionsequity-based awards under our stock incentive plans and entered into certain other stock-based compensation arrangements in the past, as a result of which we have recorded $13.2 million, $6.8 million and $2.9 million as stock-based compensation expenses for the years ended December 31, 2013, 2012 and 2011, respectively.
Generally Accepted Accounting Principles in the United States (“GAAP”) prescribe how we account for stock-based compensation, which could adversely or negatively impact our results of operations or the price of our common stock. GAAP requires usexpect to recognize stock-based compensation as compensation expense in the statement of operations generally based on the fair value of equity awards on the date of the grant, with compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award.continue this practice. The expenses associated with stock-based compensation may reduce the attractiveness to us of issuing equity awards under our equity incentive plan. However, if we do not grant equity awards, or if we reduce the numbervalue of equity awards we grant, we may not be able to attract and retain key personnel. If we grant more equity awards to attract and retain key personnel, the expenses associated with such additional equity awards could materially adversely affect our results of operations. The issuance of equity-based compensation to our IT professionals would also result in additional dilution to our stockholders.
Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.
Our future success heavily depends upon the continued services of our senior executives and other key employees. We currently do not maintain key man life insurance for any of the senior members of our management team or other key personnel. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain our senior executives and key personnel or attract and retain new senior executives and key personnel in the future, in which case our business may be severely disrupted.
If any of our senior executives or key personnel, such as business development managers, joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and key IT professionals and staff members to them. Also, if any of our business development managers, who generally keep a close relationship with our clients, joins a competitor or forms a competing company, we may lose clients, and our revenues may be materially adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. If any dispute arises between our senior executives or key personnel and us, any non-competition, non-solicitation and non-disclosure agreements we have with our senior executives or key personnel might not provide effective protection to us, especially in CIS and CEE countries where some of our senior executives and most of our key employees reside, in light of uncertainties with legal systems in CIS and CEE countries.
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Our global business exposes us to operational and economic risks.
Emerging markets such asour revenues excluding reimbursable expenses for 2015, 2014 and 2013. The majority of our employees, along with our development and delivery centers, are located in the CIS and CEE countriesCEE. The global nature of our business creates operational and economic risks.
Risks inherent in conducting international operations include:
foreign exchange fluctuations;
application and imposition of protective legislation and regulations relating to import or export;
difficulties in enforcing intellectual property and/or contractual rights;

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complying with a wide variety of foreign laws;
potentially adverse tax consequences;
tariffs, quotas and other trade protection measures;
competition from companies with more experience in a particular country or with international operations;
potential difficulties in collecting accounts receivable;
overall foreign policy and variability of foreign economic conditions.
We earn our revenues and incur our expenses in multiple currencies, which exposes us to foreign exchange risks relating to revenues, receivables, compensation, purchases and capital expenditures. Currency exchange volatility caused by political or economic instability or other factors, could materially impact our results. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” The IT services industry is particularly sensitive to the economic environment and the industry tends to decline during general economic downturns. Given our significant revenues from North America and Europe, if those economies further weaken or slow, pricing for our services may be depressed and our clients may reduce or postpone their technology spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability.
War, terrorism, other acts of violence or natural or manmade disasters may affect the markets in which we operate, our clients, and our service delivery.
Our business may be negatively affected by instability, disruption or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or manmade disasters, including famine, flood, fire, earthquake, storm or disease. Such events may cause clients to delay their decisions on spending for IT services and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our people and to physical facilities and operations around the world, whether the facilities are ours or those of our clients, which could materially adversely affect our financial results. By disrupting communications and travel, giving rise to travel restrictions, and increasing the difficulty of obtaining and retaining highly-skilled and qualified IT professionals, these events could make it difficult or impossible for us to deliver services to some or all of our clients. Travel restrictions could cause us to incur additional unexpected labor costs and expenses or could restrain our ability to retain the skilled IT professionals we need for our operations. In addition, any extended disruptions of electricity, other public utilities or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could also adversely affect our ability to serve our clients.
Emerging markets are subject to greater risks than more developed markets, including significant legal, economic, tax and political risks.
We have significant operations in CIS and CEE countries, India and other Asian countries, which are generally considered to be emerging markets. CEE includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Republic of Macedonia, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, the former Yugoslav Republic of Macedonia, Turkey and Ukraine. The CIS is comprised of constituents of the former U.S.S.R., including Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Investors in emerging markets should be aware that these markets are vulnerable to market downturns and economic slowdowns elsewhere in the world and are subject to greater risks than more developed markets, including complying with foreign laws and regulations and the potential imposition of trade or foreign exchange restrictions or sanctions, tax increases, fluctuations in exchange rates, inflation and unstable political and military situations, and labor issues. Investors should also note thatThe economies of certain countries where we operate have experienced periods of considerable instability and have been subject to abrupt downturns. Moreover, emerging markets have less established legal systems, which can be characterized by gaps in regulatory structures, selective enforcement of laws, and limited judicial and administrative guidance on legislation, among other limitations. Financial problems or an increase in the perceived risks associated with investing in emerging economies such as the economies of Belarus, Russia, Ukraine, Kazakhstan and Hungary are subject to rapid change and that the information set forth in this annual report may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, ancould dampen foreign investment in these markets and materially adversely affect their economies. Such economic instability and any future deterioration in the international economic situation could materially adversely affect our common stock is appropriate.business, financial condition and results of operations.

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Our Ukrainian and Russian operations may be adversely affected by ongoing developmentsconflict in Ukraine.
Continuing military activities in Ukraine have combined with Ukraine’s weak economic conditions to fuel ongoing uncertainty in Ukraine, Russia and other markets. In response to the actions in Ukraine, the EU, United States, Canada, Japan, Switzerland and other nations have imposed, and may continue imposing further, economic sanctions, including specific sanctions on certain Russian entities (specifically in the Ukraine.
energy, defense and financial sectors). Restored stability of Ukraine’s political and economic conditions may not occur for some time and there could be increased violence or economic distress in Ukraine has been undergoing heightened political turmoil since the removal of President Yanukovych from power by the Ukrainian parliament in late February 2014, which was followed by reports of Russian military activityor other areas in the Crimean region. The situation in the Ukraine is rapidly developing, and we cannot predict the outcome of developments there or the reaction to such developments by U.S., European, U.N. or other international authorities.
We have delivery centers in the Ukraine employing approximately 2,600 engineers,3,734 IT professionals, none of which are located in Crimea.the most volatile regions of Eastern Ukraine. We also have delivery centers in Russia, employing approximately 1,300 personnel2,235 IT professionals located in various cities including Moscow and St. Petersburg. At presentTo date we have not experienced any interruption in our office infrastructure, utility supply or Internet connectivity. All EPAM offices remain open and fully functional, including those we use in the Ukraine and Russiaconnectivity needed to support our clients. We continue to monitor the situation closely. Our contingency plans include relocating work or personnel to other locations and adding new locations, as appropriate. We have no way to predict the progress or outcome of the situation, as the political and civil unrest and reported military activities are fluid and beyond our control.  Prolonged unrest, military activities, or broad-basedpolitical instability in Ukraine, sanctions should they be implemented,against Russia and Russia’s potential response to such sanctions could have a material adverse effect on our operations.
We generate a significant portion ofdo not have long-term commitments from our revenues from a small number of clients, and anyour clients may terminate contracts before completion or choose not to renew contracts. A loss of business from thesesignificant clients could materially reduceaffect our revenues.results of operations.
Our ability to maintain close relationships with our major clients is essential to the growth and profitability of our business. However, the volume of work performed for aany specific client is likely to vary from year to year, especially since we generally are not our clients’ exclusive IT services provider and we do not have long-term commitments from any clients to purchase our services.
A major client in one year may not provide the same level of revenues for us in any subsequent year. The IT services we provide to our clients, and the revenues and net income from those services, may decline or vary as the type and quantity of IT services we provide change over time. Furthermore, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service.
In addition, a number of factors other than our performance could cause the loss of or reduction in business or revenues from a client, and these factors are not predictable. For example, a client may decide to reduce spending on technology services or sourcing from us due to a challenging economic environment or other factors, both internal and external, relating to its business. These factors, among others, may include corporate restructuring, pricing pressure, changes to its outsourcing strategy, switching to another IT services provider or returning work in-house.
The loss of any of our major clients, or a significant decrease in the volume of work they outsource to us or the price at which we sell our services to them, could materially adversely affect our revenues and thus our results of operations.
Our revenues, operating results and profitability may experience significant variability and, as a result, it may be difficult to make accurate financial forecasts.
Our revenues, operating results and profitability have varied in the past and are likely to vary in the future, which could make it difficult to make accurate financial forecasts. Factors that are likely to cause these variations include:
the number, timing, scope and contractual terms of IT projects in which we are engaged;
delays in project commencement or staffing delays due to difficulty in assigning appropriately skilled or experienced IT professionals;
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the accuracy of estimates of resources, time and fees required to complete fixed-price projects and costs incurred in the performance of each project;
changes in pricing in response to client demand and competitive pressures;
changes in the allocation of onsite and offshore staffing;
the business decisionsability of our clients regarding the use of our services;
the ability to further grow revenues from existing clients;
the available leadership and senior technical resources compared to junior engineering resources staffed on each project;
seasonal trends, primarily our hiring cycle and the budgetterminate master services agreements and work cycles oforders with or without cause makes our clients;
delays or difficulties in expandingfuture revenues uncertain, as our operational facilities or infrastructure;
the ratio of fixed-price contracts to time-and-materials contracts in process;
employee wage levels and increases in compensation costs, including timing of promotions and annual pay increases;
unexpected changes in the utilization rate of our IT professionals;
unanticipated contract or project terminations;
the timing of collection of accounts receivable;
the continuing financial stability of our clients; and
general economic conditions.
If we are unable to make accurate financial forecasts, it could materially adversely affect our business, financial condition and results of operations.
We do not have long-term commitments from our clients, and our clients may terminate contracts before completion or choose not to renew contracts.
Our clients are generally not obligated for any long-term commitments to us. Although a substantial majority of our revenues are generated from repeated business, which we define as revenues from a clientclients who also contributed to our revenues during the prior year, our engagements with our clients are typically for projects that are singular in nature. In addition, our clients can terminate many of our master services agreements and work orders with or without cause, and in most cases without any cancellation charge. Therefore, we must seek to obtain new engagements when our current engagements are successfully completedend. Our failure to perform or are terminatedobserve any contractual obligations could also result in termination or non-renewal of a contract, as well as maintain relationships with existing clients and secure new clients to expandcould a change of control of our business.company.
There are a number of factors relating to our clients that are outside of our control, which might lead them to terminate a contract or project with us, including:including a client’s:
financial difficulties for the client;difficulties;
a corporate restructuring, or mergers and acquisitions activity;
change in strategic priorities, resulting in elimination of the impetus for the project or a reduced level of technology spending;
a change in outsourcing strategy resulting in moving more work to the client’s in-house technology departments or to our competitors; and
the replacement by our clients of existing software with packaged software supported by licensors; andlicensors.
mergers and acquisitions or significant corporate restructurings.
Failure to perform or observe any contractual obligations could result in cancellationTermination or non-renewal of a customer contract which could cause us to experience a higher than expected number of unassigned employees and an increase in our cost of revenues as a percentage of revenues, until we are able to reduce or reallocate our headcount. The abilityloss of any of our major clients, or a significant decrease in the volume of work they outsource to terminate agreements makesus or the price at which we sell our future revenues uncertain. We mayservices to them, if not be able to replace anyreplaced by new client that elects to terminate or not renew its contract with us, whichengagements, could materially adversely affect our revenues and thus our results of operations.
In addition, some of our agreements specify that if a change of control of our company occurs during the term of the agreement, the client has the right to terminate the agreement. If any future event triggers any change-of-control provision in our client contracts, these master services agreements may be terminated, which would result in loss of revenues.

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Our revenues are highly dependent on clients primarily locateda limited number of industries, and any decrease in the United States and Europe. Worsening economic conditions or factors that negatively affect the economic health of the United States or Europedemand for outsourced services in these industries could reduce our revenues and thus adversely affect our results of operations.
The recent crisisA substantial portion of our clients is concentrated in five specific industry verticals: Financial Services; Software and Hi-Tech; Media and Entertainment; Travel and Consumer; and Life Sciences and Healthcare. Our business growth largely depends on continued demand for our services from clients in these five industry verticals and other industries that we may target in the future, as well as on trends in these industries to outsource IT services.
A downturn in any of our targeted industries, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for our services and materially adversely affect our business, financial condition and results of operations. For example, a worsening of economic conditions in the financial and credit markets in North America, Europe and Asia led to a global economic slowdown, with the economies of those regions showing significant signs of weakness. The IT services industry, is particularly sensitive to the economic environment, and tends to decline during general economic downturns. We derive aor significant portionconsolidation in any of our revenues from clients in North America and Europe. If the North American or European economies further weaken or slow, pricing for our servicesthese industries may be depressed and our clients may reduce or postpone their technology spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability.
If we are unable to successfully anticipate changing economic and political conditions affecting Other developments in the marketsindustries in which we operate may also lead to a decline in the demand for our services, and we may not be unableable to effectively plansuccessfully anticipate and prepare for any such changes. Decreased demand for our services, or respond to those changes, andincreased pricing pressure on us from our clients in these key industries could adversely affect our results of operationsoperations.
If our pricing structures are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, or if we are not able to maintain favorable pricing for our services, then our contracts could be adversely affected.unprofitable.
We negotiate pricing terms with our clients utilizing a range of pricing structures and conditions. We face a number of risks when pricing our contracts. Our pricing is highly dependent on our internal forecasts, assumptions and predictions about our projects, the marketplace and global economic conditions (including foreign exchange volatility). Many of our projects entail the coordination of operations and personnel in multiple locations with different skill sets and competencies. Our pricing and cost estimates for the work that we perform may include anticipated long-term cost savings from transformational and other initiatives that we expect to achieve and sustain over the life of the contract. Because of these inherent uncertainties, we may underprice our projects (particularly with fixed-price contracts), fail to accurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts. Any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work, including those caused by factors outside our control, could make these contracts less profitable or unprofitable. Moreover, if we are not able to pass on to our clients increases in compensation cost (whether driven by competition for talent or ordinary-course pay increases) or charge premium prices when justified by market demand or the type of service, our profitability may suffer.
In addition, a number of our contracts contain pricing terms that condition a portion of the payment of fees by the client on our ability to meet defined performance goals, service levels and completion schedules set forth in the contracts. Our failure to meet such performance goals, service levels or completion schedules or our failure to meet client expectations in such contracts may result in less profitable or unprofitable engagements.
Our profitability will suffer if we are not able to maintain our resource utilization levels and productivity levels.
Our profitability is significantly impacted by our utilization levels of fixed-cost resources, including human resources as well as other resources such as computers and office space, and our ability to increase our productivity levels. We have expanded our operations significantly in recent years, through organic growth and strategic acquisitions, which has resulted in a significant increase inmaterially increased both our headcount and fixed overhead costs.
Some of our IT professionals are specially trained to work for specific clients or on specific projects and some of our offshore development centers are dedicated to specific clients or specific projects. Our ability to manage our utilization levels depends significantly on our ability to hire and train high-performing IT professionals and to staff projects appropriately, and on the general economy and its effect on our clients and their business decisions regarding the use of our services. If we experience a slowdown or stoppage of work for any client or on any project for which we have dedicated IT professionals or facilities, we may not be able to efficiently reallocate these IT professionals and facilities to other clients and projects to keep their utilization and productivity levels high. If we are not able to maintain optimal resource utilization levels without corresponding cost reductions or price increases, our profitability will suffer.

We face intense competition from onshore and offshore IT services companies, and increased competition, our inability to compete successfully against competitors, pricing pressures or loss of market share could materially adversely affect our business.
The market for IT services is highly competitive, and we expect competition to persist and intensify. We believe that the principal competitive factors in our markets are reputation and track record, industry expertise, breadth and depth of service offerings, quality of the services offered, language, marketing and selling skills, scalability of infrastructure, ability to address clients’ timing requirements and price.
We face competition from offshore IT services providers in other outsourcing destinations with low wage costs such as India and China, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Clients tend to engage multiple IT services providers instead of using an exclusive IT services provider, which could reduce our revenues to the extent that clients obtain services from other competing IT services providers. Clients may prefer IT services providers that have more locations or that are based in countries more cost-competitive or more stable than some CIS and CEE countries.
Our ability to compete successfully also depends in part on a number of factors beyond our control, including the ability of our competitors to recruit, train, develop and retain highly-skilled IT professionals, the price at which our competitors offer comparable services and our competitors’ responsiveness to client needs. Some of our present and potential competitors may have substantially greater financial, marketing or technical resources. Our current and potential competitors may also be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greater resources towards the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our clients. Client buying patterns can change if clients become more price sensitive and accepting of low-cost suppliers. Therefore, we cannot assure you that we will be able to retain our clients while competing against such competitors. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could materially adversely affect our business.
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We are investing substantial cash in new facilities and physical infrastructure, and our profitability could be reduced if our business does not grow proportionately.
We have made and continue to make significant contractual commitments related to capital expenditures on construction or expansion of our delivery centers, such as in Minsk, Belarus. We may encounter cost overruns or project delays in connection with new facilities. These expansions will likely increase our fixed costs and if we are unable to grow our business and revenues proportionately, our profitability may be reduced.
Our revenues are highly dependent on a limited number of industries, and any decrease in demand for outsourced services in these industries could reduce our revenues and adversely affect our results of operations.
A substantial portion of our clients is concentrated in four specific industry verticals: Banking and Financial Services, ISVs and Technology, Business Information and Media, and Travel and Consumer. Clients in Banking and Financial Services accounted for 28.2%, 25.8%, and 22.9% of our revenues in 2013, 2012 and 2011, respectively. Clients in ISVs and Technology accounted for 24.3%, 24.6%, and 25.2% of our revenues in 2013, 2012 and 2011, respectively. Our business growth largely depends on continued demand for our services from clients in these four industry verticals and other industries that we may target in the future, as well as on trends in these industries to outsource IT services.
A downturn in any of our targeted industries, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for our services and materially adversely affect our business, financial condition and results of operations. For example, a worsening of economic conditions in the financial services industry and significant consolidation in that industry may reduce the demand for our services and negatively affect our revenues and profitability.
Other developments in the industries in which we operate may also lead to a decline in the demand for our services in these industries, and we may not be able to successfully anticipate and prepare for any such changes. For example, consolidation in any of these industries or acquisitions, particularly involving our clients, may decrease the potential number of buyers of our services. Our clients may experience rapid changes in their prospects, substantial price competition and pressure on their profitability. This, in turn, may result in increasing pressure on us from clients in these key industries to lower our prices, which could adversely affect our results of operations.
If we are not successful in managing increasingly large and complex projects, we may not achieve our financial goals and our results of operations could be adversely affected.
To successfully market our service offerings and obtainperform larger and more complex projects, we need to establish and maintain effective, close relationships with our clients, continue high levels of client satisfaction and develop a thorough understanding of theirour clients’ operations. In addition, we may face a number of challenges managing larger and more complex projects, including:
maintaining high-quality control and process execution standards;

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maintaining planned resource utilization rates on a consistent basis;basis and using an efficient mix of onsite and offshore staffing;
maintaining productivity levels and implementing necessary process improvements; and
controlling costs;
maintaining close client contact and high levels of client satisfaction; and
maintaining effective client relationships.costs.
Our ability to successfully manage large and complex projects depends significantly on the skills of our management personnel and IT professionals, some of whom do not have experience managing large-scale or complex projects. In addition, large and complex projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. Such cancellations or delays may make it difficult to plan our project resource requirements. If we fail to successfully obtain engagements for large and complex projects, we may not achieve our revenue growth and other financial goals. Even if we are successful in obtaining such engagements, a failure by us to effectively manage these large and complex projects could damage our reputation, cause us to lose business, impactcompress our margins and adversely affect our business and results of operations.
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If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards we may lose clients and our business could be materially adversely affected.
Rapidly changing technologies, methodologies and evolving industry standards characterize the market for our services. Our future success will depend in part upon our ability to anticipate developments in IT services, enhance our existing services and to develop and introduce new services to keep pace with such changes and developments and to meet changing client needs. The process of developing our client solutions is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies and methodologies. Our ability to keep up with technology, methodology and business changes is subject to a number of risks, including that:
we may find it difficult or costly to update our services, applications, tools and software and to develop new services quickly enough to meet our clients’ needs;
we may find it difficult or costly to make some features of our software work effectively and securely over the Internet or with new or changed operating systems;
we may find it difficult or costly to update our software and services to keep pace with business, evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and
we may find it difficult to maintain a high level of quality in implementing new technologies and methodologies.
We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Further, services, technologies or methodologies that are developed by our competitors may render our services non-competitive or obsolete. Our failure to enhance our existing services and to develop and introduce new services to promptly address the needs of our clients could cause us to lose clients and materially adversely affect our business.
We face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.
We have a long selling cycle for our IT services, which requires significant investment of human resources and time by both our clients and us. Before committing to use our services, potential clients require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients’ decision to choose alternatives to our services (such as other IT services providers or in-house resources) and the timing of our clients’ budget cycles and approval processes. If our sales cycle unexpectedly lengthens for one or more large projects, it would negatively affect the timing of our revenues and hinder our revenue growth. For certain clients, we may begin work and incur costs prior to concluding theexecuting a contract. A delay in our ability to obtain a signed agreement or other persuasive evidence of an arrangement, or to complete certain contract requirements in a particular quarter, could reduce our revenues in that quarter.
Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to whom we have devoted significant time and resources. Any significant failure to generate revenues or delays in recognizing revenues after incurring costs related to our sales or services process could materially adversely affect our business.
We may not be able to recognize revenues in the period in which our services are performed, which may cause our margins to fluctuate.
Our services are performed under both time-and-material and fixed-price contract arrangements. All revenues are recognized pursuant to applicable accounting standards. We recognize revenues when realized or realizable and earned, which is when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. If there is an uncertainty about the project completion or receipt of payment for the services, revenues are deferred until the uncertainty is sufficiently resolved.
Additionally, we recognize revenues from fixed-price contracts based on the proportional performance method. In instances where final acceptance of the system or solution is specified by the client, revenues are deferred until all acceptance criteria have been met. In absence of a sufficient basis to measure progress towards completion, revenues are recognized upon receipt of final acceptance from the client. Our failure to meet all the acceptance criteria, or otherwise meet a client’s expectations, may result in our having to record the cost related to the performance of services in the period that services were rendered, but delay the timing of revenue recognition to a future period in which all acceptance criteria have been met.
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If our pricing structures are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, then our contracts could be unprofitable.
We negotiate pricing terms with our clients utilizing a range of pricing structures and conditions. Our pricing is highly dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could turn out to be inaccurate. If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us. We face a number of risks when pricing our contracts, as many of our projects entail the coordination of operations and personnel in multiple locations with different skill sets and competencies. Our pricing and cost estimates for the work that we perform sometimes include anticipated long-term cost savings from transformational and other initiatives that we expect to achieve and sustain over the life of the contract. There is a risk that we will underprice our projects, particularly with fixed-price contracts, fail to accurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts. In particular, any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work, including those caused by factors outside our control, could make these contracts less profitable or unprofitable.
In addition, a number of our contracts contain pricing terms that condition a portion of the payment of fees by the client on our ability to meet defined performance goals, service levels and completion schedules set forth in the contracts. Our failure to meet such performance goals, service levels or completion schedules or our failure to meet client expectations in such contracts may result in less profitable or unprofitable engagements.
Our profitability could suffer if we are not able to maintain favorable pricing rates.
Our profitability and operating results are dependent on the rates we are able to charge for our services. Our rates are affected by a number of factors, including:
our clients’ perception of our ability to add value through our services;
our competitors’ pricing policies;
bid practices of clients and their use of third-party vendors;
the mix of onsite and offshore staffing;
employee wage levels and increases in compensation costs, including timing of promotions and annual pay increases;
our ability to charge premium prices when justified by market demand or the type of service; and
general economic conditions.
If we are not able to maintain favorable pricing for our services, our profitability could suffer.
If we are unable to collect our receivables from, or bill our unbilled services to, our clients, our results of operations and cash flows could be materially adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We usually bill and collect on relatively short cycles. We maintain allowances against receivables. Actual losses on client balances could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. Weak or volatile macroeconomic conditions and related turmoil in the global financial system conditions could also result in financial difficulties including limited access to the credit markets, insolvency, or bankruptcy for our clients, and, as a result, could cause clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. Timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations and cash flows could be materially adversely affected. Moreover, in the event of delays in payment from our governmental and quasi-governmental clients, we may have difficulty collecting on receivables owed. In addition, if we experience an increase in the time
We face intense competition for clients and opportunities from onshore and offshore IT services companies, and increased competition, our inability to bill and collect for our services, our cash flowscompete successfully against competitors, pricing pressures or loss of market share could be materially adversely affected.affect our business.
The market for IT services is highly competitive, and we expect competition to persist and intensify. We face competition from offshore IT services providers in other outsourcing destinations with low wage costs such as India and China, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Clients tend to engage multiple IT services providers instead of using an exclusive IT services provider, which could reduce our revenues to the extent that clients obtain services from other competing IT services providers. Clients may prefer IT services providers that have more locations or that are based in countries more cost-competitive or more stable than some of the emerging markets in which we operate.

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Current or prospective clients may elect to perform certain services themselves or may be discouraged from transferring services from onshore to offshore IT services providers to avoid negative perceptions that may be associated with using an offshore IT services provider. This shift away from offshore outsourcing would seriously harm our ability to compete effectively with competitors that provide services from within the countries in which our clients operate.
Some of our present and potential competitors may have substantially greater financial, marketing or technical resources than EPAM. Client buying patterns can change if clients become more price sensitive and accepting of low-cost suppliers with less emphasis on quality. Therefore, we cannot assure you that we will be able to retain our clients while competing against such competitors. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could materially adversely affect our business.
Our ability to generate and retain business depends on our reputation in the marketplace.
Our services are marketed to clients and prospective clients based on a number of factors. Since many of our specific client engagements involve unique services and solutions, our corporate reputation is a significant factor in our clients’ evaluation of whether to engage our services.service, and our clients’ perception of our ability to add value through our services is critical to the profitability of our engagements. We believe the EPAM brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees.
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However, our corporate reputation is potentially susceptible to damage by actions or statements made by current or former clients, competitors, vendors, adversaries in legal proceedings, government regulators, as well as members of the investment community and the media. There is a risk that negative information about our company, even if based on false rumor or misunderstanding, could adversely affect our business. In particular, damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of the EPAM brand name and could reduce investor confidence in us.
If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards we may lose clients and our business could be materially adversely affected.
Rapidly changing technologies, methodologies and evolving industry standards are inherent in the market for our services. Our future success will depend in part upon our ability to anticipate developments in IT services, enhance our existing services and to develop and introduce new services to keep pace with such changes and developments and to meet changing client needs. The process of developing our client solutions is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies and methodologies. Our ability to keep pace with, anticipate or respond to changes in technology, methodology and business is subject to a number of risks, including that:
we may find it difficult or costly to update our services, applications, tools and software and to develop new services quickly enough to meet our clients’ needs;
we may find it difficult or costly to make some features of our software work effectively and securely over the Internet or with new or changed operating systems;
we may find it difficult or costly to update our software and services to keep pace with business, evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and
we may find it difficult to maintain a high level of quality in implementing new technologies and methodologies.
We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Further, services, technologies or methodologies that are developed by our competitors may render our services non-competitive or obsolete. Our failure to enhance our existing services and to develop and introduce new services to promptly address the needs of our clients could cause us to lose clients and materially adversely affect our business.

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Undetected software design defects, errors or failures may result in loss of or delay in market acceptance of our services or in liabilities that could materially adversely affect our business.
Our software development solutions involve a high degree of technological complexity, have unique specifications and could contain design defects or software errors that are difficult to detect and correct. Errors or defects may result in the loss of current clients and loss of, or delay in, revenues, loss of market share, loss of client data, a failure to attract new clients or achieve market acceptance, diversion of development resources and increased support or service costs. We cannot provide assurance that, despite testing by our clients and us, errors will not be found in new software product development solutions, which could result in litigation, other claims for damages against us, as well as reputational harm and thus could materially adversely affect our business.
Security breaches and other disruptions to network security could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of business, we have access to, collect, store, process and transmit sensitive or confidential data, including intellectual property, our proprietary business information and that of our clients, and personally identifiable information of our clients and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to human error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, misappropriated, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under applicable laws and regulatory penalties. Such a breach or disruption could also disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, as well as require us to expend significant resources to protect against further breaches and to rectify problems caused by such a breach or disruption. Any of these results could adversely affect our business, revenues and competitive position.
A significant failure in our telecommunications or IT infrastructure or systems could harm our service model, which could result in a reduction of our revenue and otherwise disrupt our business.
Part of our service model is to maintain active voice and data communications, financial control, accounting, customer service and other data processing systems between our clients’ offices, our delivery centers and our client management locations. Moreover, many of our key systems for corporate operations are internally-developed applications. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these internet, IT or communication systems, which could be caused by, among other things, software malfunction, computer virus attacks, conversion errors due to system upgrading, damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, demands placed on internet infrastructure by growing numbers of users and time spent online or increased bandwidth requirements or other events beyond our control. Internally-developed systems may not possess the same level of control, security or support that traditional third-party systems and applications do. Loss of all or part of the infrastructure or systems for a period of time could hinder our performance or our ability to complete client projects on time which, in turn, could lead to a reduction of our revenue or otherwise materially adversely affect our business and business reputation.
We may be liable to our clients for damages caused by the disclosure of confidential information, system failures or errors.
If any person, including any of our personnel, misappropriates sensitive or confidential client information, including personally identifiable information, we could be subject to significant liability from our clients or from our clients’ customers for breaching contractual confidentiality provisions or privacy laws. Some of our client agreements do not limit our potential liability for certain occurrences, including breaches of confidentiality and infringement indemnity. Furthermore, breaches of confidentiality may entitle the aggrieved party to equitable remedies, including injunctive relief. Any such breach or misappropriation resulting in unauthorized disclosure of sensitive or confidential client information, or a violation of intellectual property rights, whether through employee misconduct, breach of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.

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If we cause disruptions to our clients’ businesses or provide inadequate service, our clients may have claims for substantial damages against us, which could cause us to lose clients, have a negative effect on our reputation and adversely affect our results of operations.
If our IT professionals make errors in the course of delivering services to our clients or fail to consistently meet service requirements of a client, these errors or failures could disrupt the client’s business, which could result in a reduction in our revenues or a claim for substantial damages against us. Furthermore, any errors by our employees in the performance of services for a client, or poor execution of such services, could result in a client terminating our engagement and seeking damages from us. In addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business. Any failure in a client’s system or breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us, regardless of our responsibility for such failure. The successful assertion of one or more large claims against us, whether or not successful could materially adversely affect our reputation, business, financial condition and results of operations.
From time to time we may invest substantial cash in new facilities and physical infrastructure, and our profitability could be reduced if our business does not grow proportionately.
As our business grows, we may invest in new facilities and physical infrastructure. We may encounter cost overruns or project delays in connection with new facilities. These expansions will likely increase our fixed costs and if we are unable to grow our business and revenues proportionately, our profitability may be reduced.
If we fail to integrate or manage acquired companies efficiently, or if the acquired companies do not perform to our expectations, our overall profitability and growth plans could be materially adversely affected.
Part of our expansion strategy includes strategic acquisitions. These transactions involve significant challenges, including that the risk that an acquisition does not advance our business strategy, that we do not achieve a satisfactory return on our investment, that we are unable to successfully integrate an acquired company’s employees, client relationships and operations, and that the transactions divert significant management attention and financial resources from our ongoing business.
The primary value of many potential acquisition targets in the IT services industry lies in their skilled IT professionals and established client relationships. Transitioning these types of assets to our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors. These challenges could disrupt our ongoing business, distract our management and employees and increase our expenses, including causing us to incur significant one-time expenses and write-offs, and make it more difficult and complex for our management to effectively manage our operations. If we are not able to successfully integrate an acquired entity and its operations and to realize the benefits envisioned for such acquisition, our overall growth and profitability plans may be adversely affected.
Our effective tax rate could be materially adversely affected by several factors.
We conduct business globally and file income tax returns in multiple jurisdictions. Our effective tax rate could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutory tax rates; changing tax laws, regulations and interpretations of such tax laws in multiple jurisdictions; and the resolution of issues arising from tax audits or examinations and any related interest or penalties.
We report our results of operations based on our determination of the amount of taxes owed in the various jurisdictions in which we operate. We have transfer pricing arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales and delivery functions. U.S. transfer pricing regulations, as well as regulations applicable in CIS and CEE countries in which we operate, require that any international transaction involving associated enterprises be on arm’s-length terms. We consider the transactions among our subsidiaries to be on arm’s-length terms. The determination of our consolidated provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions.
If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment, including as a result of a determination that the transfer prices and terms we have applied are not appropriate, such an adjustment could have a negative impact on our business.

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Our earnings could be adversely affected if we change our intent not to repatriate earnings in the CIS and CEE or such earnings become subject to U.S. tax on a current basis.
We do not accrue incremental U.S. taxes on all CIS and CEE earnings as these earnings (as well as other foreign earnings for all periods) are considered to be indefinitely reinvested outside of the United States. While we have no plans to do so, events may occur in the future that could effectively force us to change our intent not to repatriate our foreign earnings. If we change our intent and repatriate such earnings, we will have to accrue the applicable amount of taxes associated with such earnings and pay taxes at a substantially higher rate than our effective income tax rate in 2013.2015. These increased taxes could materially adversely affect our financial condition and results of operations.
Our operating results may be negatively impacted by the loss of certain tax benefits provided by the governments of Belarus Hungary and Russiaother countries to companies in our industry.
Our subsidiary in Belarus is a member of the Belarus Hi-Tech Park, in which member technology companies are exempt or levied at a reduced rate on a variety of taxes, including a 100% exemptionexempt from Belarusian income tax (which as of the date of this annual report was 18%) and an exemption from the value added tax for a period of 15 consecutive years effective July 1, 2006). In addition, our subsidiary in Hungary benefits from2006 and levied at a tax creditreduced rate on a variety of 10% of qualified salaries, taken over a four-year period, for up to 70% of the total tax due for that period. We have been able to take the full 70% credit for 2007 to 2012. The Hungarian tax authorities repealed the tax credit beginning with 2012. Credits earned in years prior to 2012, however, will be allowed through 2014. We anticipate full utilization up to the 70% limit until 2014, with full phase out in 2015.taxes. Our subsidiary in Russia benefits from a substantially reduced rate on social contributions and an exemption on value added tax in certain circumstances, which is a benefit to qualified IT companies in Russia. If thethese tax holiday relating to our Belarusian subsidiary, the tax incentives relating to our Hungarian subsidiary or the lower tax rates and social contributions relating to our Russian subsidiarybenefits are changed, terminated, not extended or comparable new tax incentives are not introduced, we expect that our effective income tax rate and/or our operating expenses would increase significantly, which could materially adversely affect our financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Provision— Provision for Income Taxes.”
Changes in, or interpretations of, accounting principles could have a significant impact on our financial position and results of operations
We prepare our Consolidated Financial Statements in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). These principles are subject to interpretation by the Securities and Exchange Commission (“SEC”) and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions.
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For example, the U.S.-based Financial Accounting Standards Board (“FASB”) is currently working together with the International Accounting Standards Board (“IASB”) on several projects to further align accounting principles and facilitate more comparable financial reporting between companies who are required to follow GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the U.S. These efforts by the FASB and IASB may result in different accounting principles under GAAP that may result in materially different financial results for us in areas including, but not limited to, principles for recognizing revenue and lease accounting.
Our agreement with one of our largest clients gives it the option to assume the operations of one of our offshore development centers, and the exercise of that option could result in a loss of future revenues and adversely affect our results of operations.
During the four-year term of our agreement with one of our largest clients, which ends in December 2014 unless extended by the client, the client is entitled to request us to transfer to it or its designees all of the operating relationships, including employment relationships with the employees dedicated to the offshore development center and contracts with subcontractors, at a pre-determined transfer price dependent on the experience level of the transferred employee and the duration such employee worked on projects for the client. We are required to transfer assets that have already been financed by the client under our agreement, such as our offshore development center dedicated to the client, at a de minimis pre-agreed price. Since our client has already financed such assets, the carrying value of such assets is de minimis. In addition to the above amounts, the client is also required to pay a negotiated value or book value for the assets to be transferred that have not already been financed by the client. This client accounted for 9.6%, 9.2% and 6.3% of our revenues in 2013, 2012 and 2011, respectively. In addition, under our agreement, the client has the right to step in and take over all or part of the offshore development center in certain instances, including if we are in material default under certain provisions of our agreement, such as those related to the level or quality of our services, or the client has determined it is otherwise obliged to do so in emergencies or for regulatory reasons. In the event the client takes over any services we provide under our agreement, it will not be obligated to pay us for the provision of those services. If the client exercises these rights, we would lose future revenues related to the services we provide to the client, as well as lose some of our assets and key employees, and our losses may not be fully covered by the contractual payment, which could adversely affect our results of operations.
Undetected software design defects, errors or failures may result in loss of or delay in market acceptance of our services or in liabilities that could materially adversely affect our business.
Our software development solutions involve a high degree of technological complexity, have unique specifications and could contain design defects or software errors that are difficult to detect and correct. Errors or defects may result in the loss of current clients and loss of, or delay in, revenues, loss of market share, loss of client data, a failure to attract new clients or achieve market acceptance, diversion of development resources and increased support or service costs. We cannot provide assurance that, despite testing by our clients and us, errors will not be found in new software product development solutions, which could result in litigation and other claims for damages against us and thus could materially adversely affect our business.
Disruptions in internet infrastructure, telecommunications or significant failure in our IT systems could harm our service model, which could result in a reduction of our revenue.
Part of our service model is to maintain active voice and data communications, financial control, accounting, customer service and other data processing systems between our clients’ offices, our delivery centers and our client management locations (including our headquarters in Newtown, PA). Our business activities may be materially disrupted in the event of a partial or complete failure of any of these internet, IT or communication systems, which could be caused by, among other things, software malfunction, computer virus attacks, conversion errors due to system upgrading, damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, demands placed on internet infrastructure by growing numbers of users and time spent online or increased bandwidth requirements or other events beyond our control. Loss of all or part of the infrastructure or systems for a period of time could hinder our performance or our ability to complete client projects on time which, in turn, could lead to a reduction of our revenue or otherwise materially adversely affect our business and business reputation.

Our computer networks may be vulnerable to security risks that could disrupt our services and cause us to incur losses or liabilities that could adversely affect our business.
Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses, worms, malicious applications and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information, including personally identifiable information, or cause interruptions or malfunctions in our operations. Although we intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information stored in and transmitted through our computer systems. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter our clients from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches.
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Data networks are also vulnerable to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers have bypassed firewalls and misappropriated confidential information, including personally identifiable information. It is possible that, despite existing safeguards, an employee could misappropriate our clients’ proprietary information or data, exposing us to a risk of loss or litigation and possible liability. Losses or liabilities that are incurred as a result of any of the foregoing could adversely affect our business.
If we cause disruptions to our clients’ businesses or provide inadequate service, our clients may have claims for substantial damages against us, which could cause us to lose clients, have a negative effect on our reputation and adversely affect our results of operations.
If our IT professionals make errors in the course of delivering services to our clients or fail to consistently meet service requirements of a client, these errors or failures could disrupt the client’s business, which could result in a reduction in our revenues or a claim for substantial damages against us. In addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business.
The services we provide are often critical to our clients’ businesses. Certain of our client contracts require us to comply with security obligations including maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees that work with our clients by conducting background checks. Any failure in a client’s system or breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. Any significant failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, and adversely affect our results of operations.
Under our contracts with our clients, our liability for breach of our obligations is in some cases limited pursuant to the terms of the contract. Such limitations may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients, are generally not limited under our contracts. The successful assertion of one or more large claims against us in amounts greater than those covered by our current insurance policies could materially adversely affect our business, financial condition and results of operations. Even if such assertions against us are unsuccessful, we may incur reputational harm and substantial legal fees.
Our subcontracting practices may expose us to technical uncertainties, potential liabilities and reputational harm.
In order to meet our personnel needs, increase workforce flexibility, and improve pricing competitiveness, we use subcontractors and freelancers primarily to perform short-term assignments in certain specialty areas or on other projects where it is impractical to use our employees, or where we need to supplement our resources. We also use subcontractors for internal assignments, such as assisting in development of internal systems, recruiting, training, human resources consulting and administration, and other similar support functions. Despite certain advantages of subcontracting, such arrangements also give rise to a number of risks.
Although we try to source competent and credible third parties as our subcontractors, they may not be able to deliver the level of service that our clients expect us to deliver. Furthermore, we enter into confidentiality agreements with our subcontractors, but we cannot guarantee that they will not breach the confidentiality of us or our clients and misappropriate our or our clients’ proprietary information and technology in the course of providing service. We, as the party to the contract with the client, are directly responsible for the losses our subcontractors cause our clients. Under the subcontracting agreements we enter into, our subcontractors generally promise to indemnify us for damages caused by their breach, but we may be unable to collect under these agreements. Moreover, their breaches may damage our reputation, cause us to lose existing business and adversely affect our ability to acquire new business in the future.
Our employee loans expose us to lending risks
At December 31, 2013, we had $6.4 million, or 1.5%, of our total assets, of loans issued to employees. These loans expose us to a risk of non-payment and loss. Repayment of these loans is primarily dependent on personal income of borrowers obtained though their employment with EPAM and may be adversely affected by changes in macroeconomic situations, such as higher unemployment levels, foreign currency devaluation and inflation. Additionally, continuing financial stability of the borrower may be adversely affected by job loss, divorce, illness or personal bankruptcy. We also face the risk that the collateral will be insufficient to compensate us for loan losses, if any, and costs of foreclosure. Decreases in real estate values could adversely affect the value of property used as collateral, and we may be unsuccessful in recovering the remaining balance from either the borrower and/or guarantors. See Note 5 of our consolidated financial statements in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements,” for further information regarding these loans.
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There may be adverse tax and employment law consequences if the independent contractor status of our IT professionals or the exempt status of our employees is successfully challenged.
Some of our IT professionals are retained as independent contractors. Although we believe that we have properly classified these individuals as independent contractors, there is nevertheless a risk that the IRS or another federal, state, provincial or foreign authority will take a different view. Furthermore, the tests governing the determination of whether an individual is considered to be an independent contractor or an employee are typically fact sensitive and vary from jurisdiction to jurisdiction. Laws and regulations that governjurisdiction, as can the status and misclassificationinterpretation of independent contractors are subject to change or interpretation by various authorities.the applicable laws. If a federal, state, provincial or foreigngovernment authority or court enacts legislation or adopts regulations that change the manner in which employees and independent contractors are classifiedthese classification tests or makes any adverse determination with respect to some or all of our independent contractors, we could incur significant costs, under such laws and regulations, including for prior periods, in respect of tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be required to modify our business model, any of which could materially adversely affect our business, financial condition and results of operations. There is also a risk that we may be subject to significant monetary liabilities arising from fines or judgments as a result of any such actual or alleged non-compliance with federal, state, provincial or foreign tax laws.applicable laws in this area. Further, if it were determined that any of our independent contractors should be treated as employees, we could possibly incur additional liabilities under our applicable employee benefit plans.
In addition, we have classified nearly all of our U.S. employees as “exempt” under the Federal Labor Standards Act, or the FLSA. If it were determined that any of our U.S. employees should be classified as “non-exempt” under the FLSA, we may incur costs and liabilities for back wages, unpaid overtime, fines or penalties and/or be subject to employee litigation.
Our insurance coverage may be inadequate to protect us against losses.
Although we maintain some insurance coverage, including professional liability insurance, property insurance coverage for certain of our facilities and equipment and business interruption insurance coverage for certain of our operations, we do not insure for all risks in our operations. If any claims for injury are brought against us, or if we experience any business disruption, litigation or natural disaster, we might incur substantial costs and diversion of resources.
Most of the agreements we have entered into with our clients require us to purchase and maintain specified insurance coverage during the terms of the agreements, including commercial general insurance or public liability insurance, umbrella insurance, product liability insurance, and workers’ compensation insurance. Some of these types of insurance are not available on reasonable terms or at all in CIS and CEE countries.some countries in which we operate. Although to date no client has brought any claims against us for such failure, our clients have the right to terminate these agreements as a result of such failure.

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The banking and financial systems in less developed markets where we hold funds remain less developed than those in some more developed markets, and a banking crisis could place liquidity constraints on our business and materially adversely affect our business and financial condition.
Banking and other financial systems in the CIS are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of more developed markets, and the transparency of the banking sector lags behind international standards. Furthermore, in Russia, Belarus and other CIS countries, bank deposits made by corporate entities generally are not insured. As a result, the banking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy or insolvency of banks through which we receive or with which we hold funds, particularly in Belarus, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in that region, which could materially adversely affect our business and financial condition.
Our business could be negatively affected if we incur legal liability, including with respect to our indemnification obligations, in connection with providing our solutions and services.
If we fail to meet our contractual obligations or otherwise breach obligations to our clients, we could be subject to legal liability. We may enter into non-standard agreements because we perceive an important economic opportunity or because our personnel did not adequately adhere to our guidelines. In addition, the contracting practices of our competitors may cause contract terms and conditions that are unfavorable to us to become standard in the marketplace. If we cannot or do not perform our obligations, we could face legal liability and our contracts might not always protect us adequately through limitations on the scope and/or amount of our potential liability. If we cannot, or do not, meet our contractual obligations to provide solutions and services, and if our exposure is not adequately limited through the terms of our agreements,As a result, we might face significant legal liability and payment obligations, and our financial condition and results of operations could be materially adversely affected.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to defend and hold the indemnified party and certain of their affiliates harmless with respect to claims related to matters including our breach of certain representations, warranties or covenants, or out of our intellectual property infringement, our gross negligence or willful misconduct, and certain other claims. Payments by us under any of these arrangements are generally conditioned on the client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement, and any claims under these agreements may not be subject to liability limits or exclusion of consequential, indirect or punitive damages. Historically, we have not made payments under these indemnification agreements so they have not had any impact on our operating results, financial position, or cash flows. However, if events arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have a material impact on our financial condition and results of operations.
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We may be liable to our clients for damages caused by a violation of intellectual property rights, the disclosure of other confidential information, including personally identifiable information, system failures, errors or unsatisfactory performance of services, and our insurance policies may not be sufficient to cover these damages.
We often have access to, and are required to collect and store, sensitive or confidential client information, including personally identifiable information. Some of our client agreements do not limit our potential liability for breaches of confidentiality, infringement indemnity and certain other matters. Furthermore, breaches of confidentiality may entitle the aggrieved party to equitable remedies, including injunctive relief. If any person, including any of our employees, penetrates our network security or misappropriates sensitive or confidential client information, including personally identifiable information, we could be subject to significant liability from our clients or from our clients’ customers for breaching contractual confidentiality provisions or privacy laws. The protection of the intellectual property rights and other confidential information or personally identifiable information of our clients is particularly important for us since our operations are mainly based in CIS and CEE countries. CIS and CEE countries have not traditionally enforced intellectual property protection to the same extent as countries such as the United States. Despite measures we take to protect the intellectual property and other confidential information or personally identifiable information of our clients, unauthorized parties, including our employees and subcontractors, may attempt to misappropriate certain intellectual property rights that are proprietary to our clients or otherwise breach our clients’ confidences. Unauthorized disclosure of sensitive or confidential client information, including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.
Many of our contracts involve projects that are critical to the operations of our clients’ businesses and provide benefits to our clients that may be difficult to quantify. Any failure in a client’s system or any breach of security could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client, or poor execution of such services, could result in a client terminating our engagement and seeking damages from us.
Although we attempt to limit our contractual liability for consequential damages in rendering our services, these limitations on liability may not apply in all circumstances, may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. There may be instances when liabilities for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not covered by our insurance.
We may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position.
We rely on a combination of copyright, trademark, unfair competition and trade secret laws, as well as intellectual property assignment and confidentiality agreements and other methods to protect our intellectual property rights. Implementation of intellectual property-related laws in CIS and CEE countries has historically been lacking, primarily because of ambiguities in the laws and difficulties in enforcement. Accordingly, protectionProtection of intellectual property rights and confidentiality in CIS and CEEsome countries in which we operate may not be as effective as that in the United States or other countries.countries with more mature legal systems.
To protect our and our clients’ proprietary information and other intellectual property, weWe require our employees and independent contractors vendors and clients to enter into written confidentiality agreements with us upon the commencement of their relationship with us, which assign to EPAM all intellectual property and work product made, developed or conceived by them in connection with their employment or engagement with us. These agreements also provide that any confidential or proprietary information disclosed or otherwise made available by us be kept confidential. We also enter into confidentiality and non-disclosure agreements with our clients and vendors. These agreements may not provide meaningful protection for trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of our and our clients’ proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our and our clients’ proprietary technologies, tools and applications could enable third parties to benefit from our or our clients’ technologies, tools and applications without paying us for doing so, and our clients may hold us liable for that act and seek damages and compensation from us, which could harm our business and competitive position.
We rely on our trademarks, trade names, service marks and brand names to distinguish our services and solutions from the services of our competitors, and have registered or applied to register severalmany of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may oppose our trademark applications, or otherwise challenge our use of our trademarks. For instance, in 2005, we entered into a Consent of Use and Settlement Agreement that allowed a third party to use the mark “ePAM” (as capitalized in the foregoing) and restricted our ability to do so. In the event that our trademarks are successfully challenged, we could be forced to rebrand our services and solutions, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

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We may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.
In addition, we rely on certain third-party software to conduct our business. If we lose the licenses which permit us to use such software, they may be difficult to replace and it may be costly to do so.

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We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.
Our success largely depends on our ability to use and develop our technology, tools, code, methodologies and services without infringing the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. We may be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties.
We typically indemnify clients who purchase our services and solutions against potential infringement of intellectual property rights, which subjects us to the risk of indemnification claims. These claims may require us to initiate or defend protracted and costly litigation on behalf of our clients, regardless of the merits of these claims and are often not subject to liability limits or exclusion of consequential, indirect or punitive damages. If any of these claims succeed, we may be forced to pay damages on behalf of our clients, redesign or cease offering our allegedly infringing services or solutions, or obtain licenses for the intellectual property such services or solutions allegedly infringe. If we cannot obtain all necessary licenses on commercially reasonable terms, our clients may be forced to stop using our services or solutions.
The holders of patents and other intellectual property rights potentially relevant to our service offerings may make it difficult for us to acquire a license on commercially acceptable terms. In addition, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties, which may damage our ability to rely on such technologies.
Further, our current and former employees and/or subcontractors could challenge our exclusive rights in the software they have developed in the course of their employment. In Russia and certain other countries in which we operate, an employer is deemed to own the copyright in works created by its employees during the course, and within the scope, of their employment, but the employer may be required to satisfy additional legal requirements in order to make further use and dispose of such works. While we believe that we have complied with all such requirements, and have fulfilled all requirements necessary to acquire all rights in software developed by our independent contractors and/or subcontractors, these requirements are often ambiguously defined and enforced. As a result, we cannot assure that we would be successful in defending against any claim by our current or former employees, independent contractors and/or subcontractors challenging our exclusive rights over the use and transfer of works those employees, independent contractors and/or subcontractors created or requesting additional compensation for such works.
We are subject to additional risks as a result of our recent and possible future acquisitions and the hiring of new employees who may misappropriate intellectual property from their former employers. The developers of the technology that we have acquired or may acquire may not have appropriately created, maintained or enforced intellectual property rights in such technology. Indemnification and other rights under acquisition documents may be limited in term and scope and may therefore provide little or no protection from these risks. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property. Intellectual property litigation is expensive, and time-consuming and could divert management’s attention from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages, develop non-infringing technology, or rebrand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and would require us to cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in existing or potential clients deferring or limiting their purchase or use of our software product development services or solutions until resolution of such litigation, or could require us to indemnify our clients against infringement claims in certain instances. Any intellectual propertyof these actions, regardless of the outcome of litigation or merits of the claim, or litigation in this area, whether we ultimately win or lose, could damage our reputation and materially adversely affect our business, financial condition and results of operations.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violations or unfavorable interpretation by authorities of these regulations could harm our business.
Because we provide IT services to clients throughout the world, we are subject to numerous, and sometimes conflicting, legal rules on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, internal and disclosure control obligations, data privacy and labor relations, particularly in the CIS and CEE countries in which we operate. Our systems and operations are located almost entirely in the CIS and CEE and laws and regulations that are applicable to us, but not to our competitors, may impede our ability to develop and offer services that compete effectively with those offered by our non-CIS or -CEE based competitors and generally available worldwide. Violations of these laws or regulations in the conduct of our
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business could result in fines, criminal sanctions against us or our officers, prohibitions on doing business, damage to our reputation and other unintended consequences such as liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights. Our failure to comply with applicable legal and regulatory requirements could materially adversely affect our business.
We are subject to laws and regulations in the United States and other countries in which we operate, concerning our operations, including export restrictions, U.S. economic sanctions and the Foreign Corrupt Practices Act, or FCPA, and similar anti-briberyanti-corruption laws. If we are not in compliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures.
OurAs a company with international operations, we are subject to many laws and regulations restricting our operations, including activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. sanctions imposed by the Office of Foreign Assets Control, or OFAC, or other international economic sanctions that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations and individuals. We are subject to the FCPA, which prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and other laws concerning our international operations. The FCPA’s foreign counterparts contain similar prohibitions, although varying in both scope and jurisdiction.jurisdiction and not limited to transactions with government officials. We operate in many parts of the world that have experienced governmental corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.

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We have recently developed and are in the process of implementing formala compliance program with controls and procedures designed to ensure that we are inour compliance with the FCPA, OFAC sanctions, and similar sanctions, laws and regulations. The continuing implementation and ongoing development and monitoring of such proceduresprogram may be time consuming and expensive, and could result in the discovery of issues or violations with respect to the foregoing by us or our employees, independent contractors, subcontractors or agents of which we were previously unaware.
Any violations of these or other laws, regulations and procedures by our employees, independent contractors, subcontractors and agents could expose us to administrative, civil or criminal penalties, fines or business restrictions on export activities (including other U.S. laws and regulations as well as foreign and local laws) and would adversely affect our reputation and the market for shares of our common stock and may require certain of our investors to disclose their investment in our company under certain state laws. If we are not in compliance with export restrictions, U.S. or international economic sanctions or other laws and regulations that apply to our operations, we may be subject to civil or criminal penalties and other remedial measures.
Anti-outsourcing legislation and restrictions on immigration, if adopted, may affect our ability to compete for and provide services to clients in the United States or other countries, which could hamper our growth and cause our revenues to decline.
The vast majority of our employees are nationals of CIS and CEE countries.countries, and in 2015, we added significant headcount in India. Some of our projects require a portion of the work to be undertaken at our clients’ facilities, which are sometimes located outside the CIS, CEE and CEE.India. The ability of our employees to work in necessary locations around the United States, Europe, the CIS and CEE, and other countries outside the CIS and CEEworld depends on their ability to obtain the necessaryrequired visas and work permits. Historically, thepermits, and this process for obtaining visas for nationals of CIS and CEE countries to certain countries, including the United States and Europe, has beencan be lengthy and cumbersome.difficult. Immigration laws in the United States and in other countries are subject to legislative change, as well as to variations in standards of application and enforcement due to political forces and economic conditions.
In addition, the issue of companies outsourcing services to organizations operating in other countries is a topic of political discussion in many countries, including the United States, which is our largest source of revenues.
Many organizations and public figures in the United States and Europe have publicly expressed concern about a perceived association between offshore outsourcing IT services providers and the loss of jobs in their home countries. For example,countries, and there are legislative measures aimed at limiting or restricting outsourcing by U.S. companies are currently under consideration in the U.S. Congress and in numerousvarious state legislatures to address concerns over the perceived association between offshore outsourcing and the loss of jobs in the United States. In particular, itthis concern. It is possible that pending legislation in the United States may impose restrictions on our ability to deploy employees holding U.S. work visas to client locations, which could adversely impact our ability to do business in the jurisdictions in which we have clients.business. It is generally difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or maintaining business visas for our employees. However, if enacted, such measures may broaden restrictions on outsourcing by federal and state government agencies and on government contracts with firms that outsource services directly or indirectly, impact private industry with measures such as tax disincentives or intellectual property transfer restrictions, and/or restrict the use of certain work visas.
Our reliance on visas for a number of employees makes us vulnerable to such changes and variations as it affects our ability to staff projects with employees who are not citizens of the country where the work is to be performed. We may not be able to obtain a sufficient number of visas for our employees or we may encounter delays or additional
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costs in obtaining or maintaining such visas, in which case we may not be able to provide services to our clients on a timely and cost-effective basis or manage our sales and delivery centers as efficiently as we otherwise could, any of which could hamper our growth and cause our revenues to decline.
Similarly, legislation enacted in certain European jurisdictions and any future legislation in European jurisdictions or any other country in which we have clients restricting the performance of services from an offshore location could also materially adversely affect our business, financial condition and results of operations. For example, legislation enacted in the United Kingdom, based on the 1977 EC Acquired Rights Directive, has been adopted in some form by many European Union countries, and provides that if a company outsources all or part of its business to an IT services provider or changes its current IT services provider, the affected employees of the company or of the previous IT services provider are entitled to become employees of the new IT services provider, generally on the same terms and conditions as their original employment. In addition, dismissals of employees who were employed by the company or the previous IT services provider immediately prior to that transfer are automatically considered unfair dismissals that entitle such employees to compensation. As a result, in order to avoid unfair dismissal claims, we may have to offer, and become liable for, voluntary redundancy payments to the employees of our clients who outsource business to us in the United Kingdom and other European Union countries who have adopted similar laws. This legislation could materially affect our ability to obtain new business from companies in the United Kingdom and European Union and to provide outsourced services to companies in the United Kingdom and European Union in a cost-effective manner.
In addition, from time to time, there has been publicity about negative experiences associated with offshore outsourcing, such as theft and misappropriation of sensitive client data. Current or prospective clients may elect to perform certain services themselves or may be discouraged from transferring services from onshore to offshore IT services providers to avoid negative perceptions that may be associated with using an offshore IT services provider. Any slowdown or reversal of the existing industry trends toward offshore outsourcing would seriously harm our ability to compete effectively with competitors that provide services from within the country in which our clients operate.
Our international sales and operations are subject to many uncertainties.
Revenues from clients outside North America represented 47.8%, 50.8% and 48.8% of our revenues excluding reimbursable expenses for 2013, 2012 and 2011, respectively. We anticipate that clients outside North America will continue to account for a material portion of our revenues in the foreseeable future and may increase as we expand our international presence, particularly in Europe and the CIS. In addition, the majority of our employees, along with our development and delivery centers, are located in the CIS and CEE. As a result, we may be subject to risks inherently associated with international operations, including risks associated with foreign currency exchange rate fluctuations, which may cause volatility in our reported income, and risks associated with the application and imposition of protective legislation and regulations relating to import or export or otherwise resulting from foreign policy or the variability of foreign economic conditions.
Additional risks associated with international operations include difficulties in enforcing intellectual property and/or contractual rights, the burdens of complying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers and potential difficulties in collecting accounts receivable. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations. Additionally, such companies may have long-standing or well-established relationships with desired clients, which may put us at a competitive disadvantage. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. Our international expansion plans may not be successful and we may not be able to compete effectively in other countries. There can be no assurance that these and other factors will not impede the success of our international expansion plans or limit our ability to compete effectively in other countries.
If we fail to integrate or manage acquired companies efficiently, or if the acquired companies are difficult to integrate, divert management resources or do not perform to our expectations, we may not be able to realize the benefits envisioned for such acquisitions, and our overall profitability and growth plans could be materially adversely affected.
On occasion we have expanded our service capabilities and gained new clients through selective acquisitions. Our ability to successfully integrate an acquired entity and realize the benefits of an acquisition requires, among other things, successful integration of technologies, operations and personnel. Challenges we face in the acquisition and integration process include:
integrating operations, services and personnel in a timely and efficient manner;
diverting significant management attention and financial resources from our other operations and disrupting our ongoing business;
unforeseen or undisclosed liabilities and integration costs;
incurring liabilities from the acquired businesses for infringement of intellectual property rights or other claims for which we may not be successful in seeking indemnification;
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incurring debt, amortization expenses related to intangible assets, large and immediate write-offs, assuming unforeseen or undisclosed liabilities, or issuing common stock that would dilute our existing stockholders’ ownership;
generating sufficient revenues and net income to offset acquisition costs;
potential loss of, or harm to, employee or client relationships;
properly structuring our acquisition consideration and any related post-acquisition earn-outs and successfully monitoring any earn-out calculations and payments;
failing to realize the potential cost savings or other financial benefits and/or the strategic benefits of the acquisition;
retaining key senior management and key sales and marketing and research and development personnel, particularly those of the acquired operations;
potential incompatibility of solutions, services and technology or corporate cultures;
consolidating and rationalizing corporate, information technology and administrative infrastructures;
integrating and documenting processes and controls;
entry into unfamiliar markets; and
increased complexity from potentially operating additional geographically dispersed sites, particularly if we acquire a company or business with facilities or operations outside of the countries in which we currently have operations.
In addition, the primary value of many potential acquisition targets in the IT services industry lies in their skilled IT professionals and established client relationships. Transitioning these types of assets to our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors. For example, some newly acquired employees may decide not to work with us or to leave shortly after their move to our company and some acquired clients may decide to discontinue their commercial relationships with us. These challenges could disrupt our ongoing business, distract our management and employees and increase our expenses, including causing us to incur significant one-time expenses and write-offs, and make it more difficult and complex for our management to effectively manage our operations. If we are not able to successfully integrate an acquired entity and its operations and to realize the benefits envisioned for such acquisition, our overall growth and profitability plans may be adversely affected.
International hostilities, terrorist activities, other violence or war, natural disasters, pandemics and infrastructure disruptions could delay or reduce the number of new service orders we receive and impair our ability to service our clients.
Hostilities and acts of terrorism, violence or war, natural disasters, global health risks or pandemics or the threat or perceived potential for these events could materially adversely affect our operations and our ability to provide services to our clients. We may be unable to protect our people, facilities and systems against any such occurrences. Such events may cause clients to delay their decisions on spending for IT services and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our people and to physical facilities and operations around the world, whether the facilities are ours or those of our clients, which could materially adversely affect our financial results. By disrupting communications and travel, giving rise to travel restrictions, and increasing the difficulty of obtaining and retaining highly-skilled and qualified IT professionals, these events could make it difficult or impossible for us to deliver services to some or all of our clients. Travel restrictions could cause us to incur additional unexpected labor costs and expenses or could restrain our ability to retain the skilled IT professionals we need for our operations. In addition, any extended disruptions of electricity, other public utilities or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could also adversely affect our ability to serve our clients.
We may need additional capital, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.
We believe that our current cash, cash flow from operations and revolving line of credit should be sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility.
The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
investors’ perception of, and demand for, securities of IT services companies;
conditions of the United States and other capital markets in which we may seek to raise funds;
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our future results of operations and financial condition;
government regulation of foreign investment in the CIS and CEE; and
economic, political and other conditions in the CIS and CEE.
Existing stockholders have substantial control over us and could limit your ability to influence the outcome of key transactions, including a change of control.
As of March 1, 2014, to our knowledge, our greater than 5% stockholders, directors and executive officers and entities affiliated with them own approximately 46.3% of the outstanding shares of our common stock, which includes approximately 16.7% of the outstanding shares of our common stock owned by affiliates of Siguler Guff & Company. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors, the approval of merger, consolidation or sale of all or substantially all of our assets and other significant business or corporate transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
Companies doing business in emerging markets, such as CIS and CEE countries, are subject to significant economic risks.
CIS and CEE countries are generally considered to be emerging markets. Investors in emerging markets should be aware that these markets are subject to greater risks than more developed markets, including significant economic risks. The economies of CIS and CEE countries, like other emerging economies, are vulnerable to market downturns and economic slowdowns elsewhere in the world. The economies of Belarus, Russia, Ukraine, Hungary and other CIS and CEE countries where we operate have experienced periods of considerable instability and have been subject to abrupt downturns. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies such as in the CIS and CEE could dampen foreign investment in these markets and materially adversely affect their economies. In addition, deterioration in macroeconomic conditions, such as the recent debt crisis in Europe, could require us to reassess the value of goodwill for potential impairment. This goodwill is subject to impairment tests on an ongoing basis. Weakening macroeconomic conditions in the countries in which we operate and/or a significant difference between the performance of an acquired company and the business case assumed at the time of acquisition could require us to write down the value of the goodwill or a portion of such value. These risks may be compounded by incomplete, unreliable or unavailable economic and statistical data on CIS and CEE countries, including elements of the information provided in this annual report. Similar statistics may be obtainable from other non-official sources, although the underlying assumptions and methodology, and consequently the resulting data, may vary from source to source. Economic instability in CIS or CEE countries where we operate and any future deterioration in the international economic situation could materially adversely affect our business, financial condition and results of operations.
Fluctuations in currency exchange rates could materially adversely affect our financial condition and results of operations.
We have significant international operations, and we earn our revenues and incur our expenses in multiple currencies. Doing business in different foreign currencies exposes us to foreign currency risks, including risks related to revenues and receivables, compensation of our personnel, purchases and capital expenditures. The majority of our revenues are in U.S. dollars, British pounds, Russian rubles and euros, and the majority of our expenses, particularly salaries of IT professionals, are denominated in U.S. dollars but payable in Belarusian rubles or in other local currencies at the exchange rate in effect at the time. To the extent that we increase our business and revenues which are denominated in Belarusian rubles, Ukrainian hryvnia, Hungarian forints or other local currencies, we will also increase our receivables denominated in those currencies and therefore also increase our exposure to fluctuations in their exchange rates against the U.S. dollar, our reporting currency. Similarly, any capital expenditures, such as for computer equipment, which are payable in the local currency of the countries in which we operate but are imported to such countries, and any deposits we hold in local currencies, can be materially affected by depreciation of the local currency against the U.S. dollar and the effect of such depreciation on the local economy. Due to the increasing size of our international operations, fluctuations in foreign currency exchange rates could materially impact our results. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
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The banking and financial systems in the CIS remain less developed than those in some more developed markets, and a banking crisis could place liquidity constraints on our business and materially adversely affect our business and financial condition.
Banking and other financial systems in the CIS are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of more developed markets, and the transparency of the banking sector lags behind international standards. Furthermore, in Russia, Belarus and other CIS countries, bank deposits made by corporate entities generally are not insured. As a result, the banking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy or insolvency of banks through which we receive or with which we hold funds, particularly in Belarus, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in the CIS, which could materially adversely affect our business and financial condition.
The legal systems in CIS countries can create an uncertain environment for business activity, which could materially adversely affect our business and operations in the CIS.
The legal framework to support a market economy remains new and in flux in Belarus, Russia, Ukraine and other CIS countries and, as a result, these legal systems can be characterized by:
inconsistencies between and among laws and governmental, ministerial and local regulations, orders, decisions, resolutions and other acts;
gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations;
selective enforcement of laws or regulations, sometimes in ways that have been perceived as being motivated by political or financial considerations;
limited judicial and administrative guidance on interpreting legislation;
relatively limited experience of judges and courts in interpreting recent commercial legislation;
a perceived lack of judicial and prosecutorial independence from political, social and commercial forces;
inadequate court system resources;
a high degree of discretion on the part of the judiciary and governmental authorities; and
underdeveloped bankruptcy procedures that are subject to abuse.
In addition, as is true of civil law systems generally, judicial precedents generally have no binding effect on subsequent decisions. Not all legislation and court decisions in CIS countries are readily available to the public or organized in a manner that facilitates understanding. Enforcement of court orders can in practice be very difficult. All of these factors make judicial decisions difficult to predict and effective redress uncertain. Additionally, court claims and governmental prosecutions may be used in furtherance of what some perceive to be political aims.
The untested nature of much of recent legislation in the countries in which we operate and the rapid evolution of their legal systems may result in ambiguities, inconsistencies and anomalies in the application and interpretation of laws and regulations. Any of these factors may affect our ability to enforce our rights under our contracts or to defend ourselves against claims by others, or result in our being subject to unpredictable requirements, and could materially adversely affect our business, financial condition and results of operations.
These uncertainties also extend to property rights. For example, during the transformation of Russia, Belarus, Ukraine and other CIS countries from centrally planned economies to market economies, legislation has generally been enacted in each of these countries to protect private property against uncompensated expropriation and nationalization. However, there is a risk that due to the lack of experience in enforcing these provisions and due to political factors, these protections would not be enforced in the event of an attempted expropriation or nationalization. Expropriation or nationalization of any of our entities, their assets or portions thereof, potentially without adequate compensation, could materially adversely affect our business, financial condition and results of operations.
Our CIS subsidiaries can be forced into liquidation on the basis of formal noncompliance with certain legal requirements.
We operate in CIS countries primarily through locally organized subsidiaries. Certain provisions of Russian law and the laws of other CIS countries may allow a court to order liquidation of a locally organized legal entity on the basis of its formal noncompliance with certain requirements during formation, reorganization or during its operations.
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For example, in Russian corporate law, if the net assets of a Russian joint stock company calculated on the basis of Russian accounting standards are lower than its charter capital as at the end of its third or any subsequent financial year, the company must either decrease its charter capital or liquidate. If the company fails to comply with thesecertain requirements including those relating to minimum net assets, governmental or local authorities can seek the involuntary liquidation of such company in court, and the company’s creditors will have the right to accelerate their claims or demand early performance of the company’s obligations as well as demand compensation of any damages.
Similarly, there have also been cases in CIS countries in which formal deficiencies in the establishment process of a legal entity or noncompliance with provisions of law have been used by courts as a basis for liquidation of a legal entity. Weaknesses in the legal systems of CIS countries create an uncertain legal environment, which makes the decisions of a court or a governmental authority difficult, if not impossible, to predict. If involuntary liquidation of any of our subsidiaries were to occur, such liquidation could materially adversely affect our financial condition and results of operations.
Any U.S.We may need additional capital, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.
We believe that our current cash, cash flow from operations and revolving line of credit are sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other foreign judgmentsfuture developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that may be obtained against us may be difficultwould restrict our operations. Our ability to enforce in Belarus, Russia, Ukraine and other CIS countries.
Although we are a Delaware corporation,obtain additional capital on acceptable terms is subject to suit ina variety of uncertainties, including:
investors’ perception of, and demand for, securities of IT services companies;
conditions of the United States and other courts, manycapital markets in which we may seek to raise funds;
our future results of our assets are locatedoperations and financial condition;
government regulation of foreign investment in Belarus, Russia, Ukrainethe CIS and CEE and other CIS countries and one of our directors and his assets are located outside the United States. Although arbitration awards are generally enforceable in CIS countries, judgments obtained in the United Stateswhich we operate or in which we plan to expand; and
economic, political and other foreign courts, including those with respect to U.S. federal securities law claims, may not be enforceableconditions both globally and in many CIS countries, including Belarus, Russia and Ukraine. There is no mutual recognition treaty between the United States and Belarus, Russia or Ukraine. Therefore, it may be difficult to enforce any U.S. or other foreign court judgment obtained against any of our operating subsidiaries in CIS countries.emerging markets.
Our stock price is volatile.
Our common stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by our competitors and us, projections or speculation about our business or that of our competitors by the media or investment analysts or uncertainty about current global economic conditions. The stock market, as a whole, also has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to these companies’ operating performance. Furthermore, we believe our stock price should reflect future growth and profitability expectations and, if we fail to meet these expectations, our stock price may significantly decline.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expense and affect our operations.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, SEC regulations and New York Stock Exchange, or NYSE, rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and corporate governance practices. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.

Item 1B.Unresolved Staff Comments
Not applicable.None.

Item 2.2. Properties

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We are incorporated in Delaware with headquarters in Newtown, PA, with multiple delivery centers located in Belarus, Ukraine, Russia, Hungary, Kazakhstan, Bulgaria, China, Armenia, Poland, Czech Republic, Mexico, Austria and Poland,India, and client management locations in the United States, Canada, the United Kingdom, Germany, Sweden, Switzerland, Netherlands, Russia, Kazakhstan, Singapore, Hong Kong and Kazakhstan.Australia.
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The table below sets forth our principal properties:

Location 
Square Meters
Leased 
 
Square Meters
Owned 
 
Total Square
Meters 
Delivery Centers and Client Management Locations:      
Belarus 37,287
 21,669
 58,956
Ukraine 32,452
 
 32,452
Russia 20,399
 
 20,399
Hungary 16,560
 
 16,560
India 11,529
 
 11,529
United States 6,868
 
 6,868
China 5,889
 
 5,889
Poland 4,990
 
 4,990
Kazakhstan 2,735
 
 2,735
Mexico 2,007
 
 2,007
Bulgaria 1,850
 
 1,850
Czech Republic 1,757
 
 1,757
United Kingdom 1,090
 
 1,090
Canada 810
 
 810
Armenia 408
 
 408
Sweden 322
 
 322
Switzerland 112
 
 112
Germany 28
 
 28
Total 147,093
 21,669
 168,762
Executive Office:      
Newtown, PA, United States 1,050
 
 1,050
Location
 
Square Meters
Leased 
 
Square Meters
Owned 
 
Total Square
Meters 
Delivery Centers and Client Management Locations: 
  
  
 
Belarus  26,909   7,655   34,564 
Ukraine  27,783      27,783 
Russia  14,906      14,906 
Hungary  9,851      9,851 
Kazakhstan  3,119      3,119 
United States  2,982      2,982 
Canada  810      810 
United Kingdom  365      365 
Sweden  220      220 
Switzerland  122      122 
Poland  86      86 
Germany         
Total  87,153   7,655   94,808 
Executive Office:            
Newtown, PA, United States  932      932 
Our facilities are used interchangeably amongstamong all of our segments. We believe that our existing facilities are adequate to meet our current requirements, and that suitable additional or substitute space will be available, if necessary.

Item 3.3. Legal Proceedings
Although we may, fromFrom time to time, bewe are involved in litigation and claims arising out of our operations in the normal course of business, webusiness. We are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us.

Item 4.4. Mine Safety Disclosures
Not applicable.
None.

PART II
Item 5.5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the New York Stock Exchange or the NYSE,(NYSE) under the symbol “EPAM.”
Our shares have been publicly traded since February 8, 2012. The following table shows theprice range per share range of highcommon stock presented below represents the highest and lowlowest intraday sales prices for shares of ourthe Company’s common stock as listed for quotation on the NYSE and the quarterly cash dividends paid per share for the quarterly periods indicated.during each quarter of

2013
 
  
 
Quarter Ended High  Low 
December 31 $39.00  $32.55 
September 30 $35.13  $25.36 
June 30 $27.52  $20.97 
March 31 $23.68  $18.98 

2012
 
  
 
Quarter Ended High  Low 
December 31 $20.99  $17.32 
September 30 $19.64  $13.94 
June 30 $23.62  $14.72 
March 31 $21.25  $13.25 

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the two most recent years.
2015    
Quarter Ended High  Low 
December 31 $84.41
 $67.29
September 30 $76.69
 $63.37
June 30 $74.49
 $57.58
March 31 $63.50
 $45.27
2014    
Quarter Ended High  Low 
December 31 $52.89
 $40.42
September 30 $44.36
 $36.81
June 30 $45.99
 $29.44
March 31 $46.70
 $31.34
As of March 1, 2014,February 10, 2016, we had approximately 3836 stockholders of record of our common stock. The number of record holders does not include holders of shares in “street names”name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
Dividend Policy
We have not declared or paid any cash dividends on our common stock and currently do not anticipate paying any cash dividends in the foreseeable future. Instead, we intend to retain all available funds and any future earnings for use in the operation and expansion of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors that our board of directors deems relevant. In addition, our credit facility restricts our ability to make or pay dividends.dividends (other than certain intercompany dividends) unless no potential or actual event of default has occurred or would be triggered.
Equity Compensation Plan Information
See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III of this annual report for our equity compensation plan information.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Index and a Peer Group Index (capitalization weighted) for the period beginning February 8, 2012, which is the date of our initial public offering, and ending on the last day of our last completed fiscal year. The stock performance shown on the graph below is not indicative of future price performance. The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

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COMPARISON OF CUMULATIVE TOTAL RETURN(1)RETURN (1)(2)
Among EPAM, the S&P 500 Index and a Peer Group Index(3)Index(3) (Capitalization Weighted)

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 Company / Index 
Base Period
 
EPAM Systems,
Inc. 
 
S&P 500
Index 
 
Peer Group
Index 
12/31/2013 $249.57  $136.92  $124.18 
9/30/2013 $246.43  $124.56  $103.03 
6/30/2013 $194.14  $118.99  $80.39 
3/31/2013 $165.93  $116.24  $99.89 
12/31/2012 $129.29  $105.65  $85.86 
9/30/2012 $135.29  $106.72  $89.48 
6/30/2012 $121.36  $100.90  $83.91 
3/31/2012 $146.57  $104.33  $102.94 
2/8/2012 $100  $100  $100 
            
———
  Company / Index 
Base Period 
EPAM Systems,
Inc. 
 
S&P 500
Index 
 
Peer Group
Index 
12/31/2015 $561.57
 $151.41
 $140.47
9/30/2015 $532.29
 $142.23
 $151.74
6/30/2015 $508.79
 $152.83
 $139.89
3/31/2015 $437.79
 $153.18
 $148.89
12/31/2014 $341.07
 $152.52
 $127.74
9/30/2014 $312.79
 $146.10
 $120.55
6/30/2014 $312.50
 $145.21
 $118.41
3/31/2014 $235.00
 $138.70
 $124.76
12/31/2013 $249.57
 $136.92
 $124.18
9/30/2013 $246.43
 $124.56
 $103.03
6/30/2013 $194.14
 $118.99
 $80.39
3/31/2013 $165.93
 $116.24
 $99.89
12/31/2012 $129.29
 $105.65
 $85.86
9/30/2012 $135.29
 $106.72
 $89.48
6/30/2012 $121.36
 $100.90
 $83.91
3/31/2012 $146.57
 $104.33
 $102.94
2/8/2012 $100
 $100
 $100
(1)Graph assumes $100 invested on February 8, 2012, in our common stock, the S&P 500 Index, and the Peer Group Index (capitalization weighted).
(2)Cumulative total return assumes reinvestment of dividends.
(3)We have constructed a Peer Group Index of other information technology consulting firms consisting of Virtusa Corporation (NASDAQ:VRTU), Cognizant Technology Solutions Corp. (NASDAQ:CTSH), Infosys Ltd ADR (NYSE:INFY), Sapient Corporation (NASDAQ:SAPE), Syntel, Inc. (NASDAQ:SYNT) and Wipro Ltd. (ADR) (NYSE:WIT).


27

Equity Compensation Plan Information
The following table sets forth information about awards outstanding asTable of December 31, 2013 and securities remaining available for issuance under our 2012 Long-Term Incentive Plan (the “2012 Plan”), the 2006 Stock Option Plan (the “2006 Plan”) and the 2012 Non-Employee Directors Compensation Plan (the “2012 Directors Plan”) as of December 31, 2013.Contents

Plan Category
 
Number of securities
to be issued upon
exercise of outstanding options, warrants
and rights 
 
Weighted average
exercise price of
outstanding options,
warrants and rights 
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) 
Equity compensation plans approved by security holders(1)  5,823,536 (2) $13.99 (3)  7,609,671 (4)
Equity compensation plans not approved by security holders         
Total  5,823,536  $13.99   7,609,671 

(1)This table includes the following stockholder approved plans: the 2012 Plan, the 2006 Plan and the 2012 Directors Plan. Restricted stock grant made to Mr. Robb on January 16, 2012 is not included.
(2)Represents the number of underlying shares of common stock associated with outstanding options under our stockholder approved plans and is comprised of 3,176,415 shares underlying options granted under our 2012 Plan and 2,647,121 shares underlying options granted under our 2006 Plan.
(3)
(4)
Represents weighted-average exercise price of stock options outstanding under the 2012 Plan and the 2006 Plan.
Represents the number of shares available for future issuances under our stockholder approved equity compensation plans and is comprised of 7,042,568 shares available for future issuance under the 2012 Plan (including (i) any shares that were available for issuance under the 2006 Plan as of its discontinuance date and that became available for issuance under the 2012 Plan and (ii) any shares that were subject to outstanding awards under the 2006 Plan and have expired or terminated or were cancelled between the discontinuance date of the 2006 Plan and December 31, 2013 and therefore became available for issuance under the 2012 Plan) and 567,103 shares available for future issuances under the 2012 Directors Plan. Does not include 2,647,121 shares that are subject to outstanding awards as of December 31, 2013 under the 2006 Plan and that will be available for awards to be granted under the 2012 Plan if they expire or terminate for any reason prior to exercise or if they would otherwise return to the 2012 Plan's share reserve. 

Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities by the Company during the quarterly periodyear ended December 31, 2013.2015.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no purchases of equity securities by the issuer and affiliated purchasers during the quarterly period ended December 31, 2013.2015.
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Item 6.6. Selected Financial Data
We have derivedThe following table represents the selected consolidated statements of incomefinancial data for each of the years ended December 31, 2013, 2012 and 2011 and selected consolidated balance sheet data as of December 31, 2013, 2012 and 2011from our audited consolidated financial statements and related notes included in this annual report. We have derived the selected consolidated statements of income data for the years ended December 31, 2009 and the selected consolidated balance sheet data as of December 31, 2010 and 2009 from our audited consolidated financial statements not included in this annual report.last five fiscal years. Our historical results are not necessarily indicative of the results to be expected for any future period. The following selected financial data should be read in conjunction with ��Item“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this annual report.

 
Year Ended December 31
 2015 2014 2013 2012 2011
 
(in thousands, except per share data)
Consolidated Income Statement Data:         
Revenues$914,128
 $730,027
 $555,117
 $433,799
 $334,528
Operating expenses:       
  
Cost of revenues (exclusive of depreciation and amortization)566,913
 456,530
 347,650
 270,361
 205,336
Selling, general and administrative expenses222,759
 163,666
 116,497
 85,868
 64,930
Depreciation and amortization expense17,395
 17,483
 15,120
 10,882
 7,538
Goodwill impairment loss
 2,241
 
 
 1,697
Other operating expenses/(income), net1,094
 3,924
 (643) 682
 19
Income from operations105,967
 86,183
 76,493
 66,006
 55,008
Interest and other income, net4,731
 4,769
 3,077
 1,941
 1,422
Change in fair value of contingent consideration
 (1,924) 
 
 
Foreign exchange loss(4,628) (2,075) (2,800) (2,084) (3,638)
Income before provision for income taxes106,070
 86,953
 76,770
 65,863
 52,792
Provision for income taxes21,614
 17,312
 14,776
 11,379
 8,439
Net income$84,456
 $69,641
 $61,994
 $54,484
 $44,353
Net income per share of common stock(1):
   
  
  
  
Basic$1.73
 $1.48
 $1.35
 $1.27
 $0.69
Diluted$1.62
 $1.40
 $1.28
 $1.17
 $0.63
Shares used in calculation of net income per share of common stock:   
  
  
  
Basic48,721
 47,189
 45,754
 40,190
 17,094
Diluted51,986
 49,734
 48,358
 43,821
 20,473
 
 
Year Ended December 31
 
 2013  2012  2011  2010  2009 
 
 (in thousands, except per share data) 
Consolidated Statements of Income Data: 
  
  
  
  
 
Revenues $555,117  $433,799  $334,528  $221,824  $149,939 
Operating expenses:                    
Cost of revenues (exclusive of depreciation and amortization)  347,650   270,361   205,336   132,528   88,027 
Selling, general and administrative expenses  116,497   85,868   64,930   47,635   39,248 
Depreciation and amortization expense  15,120   10,882   7,538   6,242   5,618 
Goodwill impairment loss        1,697       
Other operating (income)/ expenses, net  (643)  682   19   2,629   1,064 
Income from operations  76,493   66,006   55,008   32,790   15,982 
Interest and other income, net  3,077   1,941   1,422   486   42 
Foreign exchange loss  (2,800)  (2,084)  (3,638)  (2,181)  (1,617)
Income before provision for income taxes  76,770   65,863   52,792   31,095   14,407 
Provision for income taxes  14,776   11,379   8,439   2,787   879 
Net income $61,994  $54,484  $44,353  $28,308  $13,528 
 
                    
Net income per share of common stock(1):                    
Basic (common) $1.35  $1.27  $0.69  $0.84  $0.23 
Basic (puttable common) $  $  $1.42  $0.84  $0.23 
Diluted (common) $1.28  $1.17  $0.63  $0.79  $0.22 
Diluted (puttable common) $  $  $0.77  $0.79  $0.22 
Shares used in calculation of net income per share of common stock:                    
Basic (common)  45,754   40,190   17,094   17,056   16,719 
Basic (puttable common)        18   141   153 
Diluted (common)  48,358   43,821   20,473   19,314   18,474 
Diluted (puttable common)        18   141   153 

(1)In connection with the completion of our initial public offering, we effected an 8-for-1 common stock split as of January 19, 2012. All historical common stock and per share information has been changed to reflect the common stock split.

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As of December 31
 
 2013  2012  2011  2010  2009 
 
 (in thousands) 
Consolidated Balance Sheet Data: 
  
  
  
  
 
Cash and cash equivalents $169,207  $118,112  $88,796  $54,004  $52,927 
Accounts receivable, net  95,431   78,906   59,472   41,488   27,450 
Unbilled revenues  43,108   33,414   24,475   23,883   13,952 
Property and equipment, net  53,315   53,135   35,482   25,338   23,053 
Total assets  432,877   350,814   235,613   170,858   135,407 
Accrued expenses and other liabilities  20,175   19,814   24,782   15,031   4,928 
Deferred revenue  5,076   7,632   6,949   5,151   4,417 
Revolving line of credit              7,000 
Total liabilities  56,776   64,534   54,614   35,900   30,196 
Preferred stock; Series A-1 convertible redeemable preferred stock and Series A-2 convertible redeemable preferred stock        85,940   68,377   87,413 
Total stockholders’ equity  376,101   286,280   95,059   66,249   16,534 

36
  
As of December 31
  2015 2014 2013 2012 2011
  
(in thousands)
Consolidated Balance Sheet Data:          
Cash and cash equivalents $199,449
 $220,534
 $169,207
 $118,112
 $88,796
Time deposits 30,181
 
 
 
 
Accounts receivable, net 174,617
 124,483
 95,431
 78,906
 59,472
Unbilled revenues 95,808
 55,851
 43,108
 33,414
 24,475
Property and equipment, net 60,499
 55,134
 53,315
 53,135
 35,482
Total assets 778,536
 594,026
 432,877
 350,814
 235,613
Accrued expenses and other liabilities 60,384
 32,203
 20,175
 19,814
 24,782
Deferred revenue 3,047
 3,220
 5,076
 7,632
 6,949
Total liabilities 165,313
 129,976
 56,776
 64,534
 54,614
Total stockholders’ equity 613,223
 464,050
 376,101
 286,280
 95,059

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Item 7.7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Special Note Regarding Forward-Looking Statements” and “Item 7A.1A. Risk Factors.” We assume no obligation to update any of these forward-looking statements. Please note that we effected an 8-for-1 common stock split on January 19, 2012, and all historical common stock and per share information has been changed to reflect the common stock split.
Executive Summary
We are a leading global IT services provider focused on complex softwareof product development services,and software engineering solutions offering specialized technological consulting to many of the world’s leading organizations. Our clients depend on us to solve their complex technical challenges and vertically-oriented custom development solutions. Sincerely on our inceptionexpertise in 1993, we have been serving independentcore engineering, advanced technology, digital engagement and intelligent enterprise development. We are continuously venturing into new industries to expand our core industry client base in software vendors, or ISVs, and technology, companies. The foundation wefinancial services, media and entertainment, travel and hospitality, retail and distribution and life sciences and healthcare. Our teams of developers, architects, strategists, engineers, designers, and product experts have built serving ISVsthe capabilities and technology companies has enabled usskill sets to differentiate ourselves in the market for software engineering skills and technology capabilities. Our work with these clients exposes us to their customers’ challenges across a variety of industry “verticals.” This has enabled us to develop vertical-specific domain expertise and grow ourdeliver business in multiple industry verticals, including Banking and Financial Services, Business Information and Media, and Travel and Consumer.results.
We have client management locations in the United States, Canada, the United Kingdom, Germany, Sweden, Russia, Switzerland, Netherlands, Kazakhstan, Singapore, Hong Kong and Australia. Our clients primarily consist of Forbes Global 2000 corporations located in North America, Europe and the Commonwealth of Independent States (the “CIS”). Our delivery centers in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland are strategically located in centers of software engineering talent and educational excellence across the CEE and CIS. The majority of our employees are located in these delivery centers with compensation and benefits related to this pool of resources being the primary component of our operating expenses. Additionally, our global delivery model and centralized support functions, combined with the benefits of scale from the shared use of fixed-cost resources such as computers and office space, enhance our productivity levels and enable us to better manage the efficiency of our global operations by maintaining adequate resource utilization levels and implementing company-wide cost-management programs.operations. As a result, we have managed to createcreated a relatively homogeneous delivery base whereby our applications, tools, methodologies and infrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global clients across all geographies, thereby further strengthening our relationships with them.
Our focusThrough increased specialization in focused verticals and a continued emphasis on delivering qualitystrategic partnerships, we are leveraging our roots in software engineering to our clients is reflected by an average of 93.9%grow as a recognized brand in software development and 78.4% of our revenues in 2013 coming from clients that had used ourend-to-end digital transformation services for at least one and two years, respectively.our clients.
Overview of 20132015
During the year ended December 31, 2013,2015, total revenues grew bywere $914.1 million, an increase of approximately 28.0% compared to 2012, powered by growth25.2% over $730.0 million reported for the same period a year ago. Our revenue grew in North America, Europe and Europe.APAC geographies both organically and through acquisitions. Our performance remained strong in Bankingacross our key verticals, with the Life Sciences and Financial ServicesHealthcare vertical emerging rapidly and ISVs and Technology verticals, which increased 39.7% and 26.3%, respectively, overshowing growth of 72.8% during the corresponding period in 2012.
During 2013, we also managed to reverse a negative growth trend in the Business Information and Media vertical caused by declining revenues from one of our major customers, Thomson Reuters. Revenues from our Business Information and Media vertical increased 21.3% in 2013 asyear ended December 31, 2015, compared to 2012 and, excluding the impact of declining revenues from Thomson Reuters, our Business Information and Media vertical revenues increased 55.6% in 2013 as compared to 2012.
Fiscal 2013 was also the year that showcased success of our strategic acquisitions of Thoughtcorp, Inc. (“Thoughtcorp”) and Empathy Lab, LLC (“Empathy Lab”), which we completed in 2012. Both acquisitions proved to be a natural fit into all of our core verticals and strengthened our value proposition in the North American market. Over a short period, we have managed to realize a number of expected synergies, including acquisition of a major customer within Travel and Consumer vertical, which has been on EPAM’s “top ten” list since the second quarter of 2013.ended December 31, 2014.
We remain committed to maintaining and improving a well-balanced portfolio of clients and seek to grow revenues from our existing clients by continually expanding the scope and size of our engagements, as well as by growing our key client base through both internal business development efforts and strategic acquisitions. During 2013, revenues from2015, we made progress in this strategy and increased the reach of our offerings, both geographically and across industry verticals. During 2015, our top five and top ten customers accounted for 30.6%32.6% and 42.3%, respectively, which represents a decrease in customer concentration for the latter43.8% of approximately 2.1% as compared to 2012.consolidated revenues, respectively.


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ChangeWe continued our growth through strategic acquisitions in Presentation2015.  Through the July 2015 acquisition of Certain Financial Information
As partNavigationArts we added approximately 90 U.S.-based design consultants to EPAM’s headcount.  The addition of NavigationArts enhances our discussiondigital consulting, architecture and analysis,content solutions practice. In November 2015, we analyze revenues by vertical. The compositionacquired AGS, establishing EPAM’s presence in India with over 1,000 IT professionals to enhance our software product development services and organization of our verticals is fluid and the structure changes regularlytest automation services offerings.  We expect these investments in responseEPAM’s strategic growth to overall growth, new business acquisitions and changes in reporting structure. Prior to the third quarter of 2012, certain individually insignificant customers pertaining to acquired operations were aggregated for the purposes of presenting revenue by vertical. Effective third quarter of 2012, we have individually reassigned these customers to corresponding verticals. We believe this change is preferable as it allows us to more effectively analyze our verticals by aligning presentation of existing and acquired customers using a standardized approach. These changes do not result in any adjustments toexpanded service offerings and abilities for our previously issued financial statements and were applied retrospectively beginning on January 1, 2010. In addition, we have revised our disclosures to present Travel and Hospitality and Retail and Consumer verticals as a single Travel and Consumer vertical. Changes for the year ended December 31, 2011 are presented in the table below.clients.

  Year Ended December 31, 2011 
  As Previously Reported  After Reclassification 
  (in thousands, except percent) 
ISVs and Technology $87,369   26.2% $84,246   25.2%
Banking and Financial Services  76,419   22.8   76,645   22.9 
Travel and Consumer  71,706   21.4   71,488   21.4 
Business Information and Media  62,350   18.6   63,988   19.1 
Other verticals  30,508   9.2   31,985   9.6 
Reimbursable expenses and other revenues  6,176   1.8   6,176   1.8 
Revenues $334,528   100.0% $334,528   100.0%
Summary of Results of Operations and Non-GAAP Financial Measures
The following tables presenttable presents a summary of our results of operations by amount and as a percentage of revenues, for the years ended December 31, 2013, 20122015, 2014 and 2011:2013:

 Year Ended December 31, 
 2013  2012  2011 
 (in millions, except percent) 
Revenues $555.1   100.0% $433.8   100.0% $334.5   100.0%
Income from operations  76.5   13.8   66.0   15.2   55.0   16.4 
Net income  62.0   11.2   54.5   12.6   44.4   13.3 
 Year Ended December 31,
 2015 2014 2013
 (in millions, except percentages) 
Revenues$914.1
 100.0% $730.0
 100.0% $555.1
 100.0%
Income from operations106.0
 11.6
 86.2
 11.8
 76.5
 13.8
Net income84.5
 9.2
 69.6
 9.5
 62.0
 11.2
For 2013,2015, we reported results of operations consistent with the continued execution of our strategy. In 2013,During 2015, our operating expenses increased in line with our increase in revenues. Werevenues as we continue to invest in our people, processes and infrastructure to support our goal to deliver high-quality offerings that meet the needs of our customers, differentiate our value proposition from that of our competition, and drive scale and growth across all geographies and verticals.growth.
KeyThe key highlights of our consolidated results for 2015 were as follows:
The European segment continued its strong performance, generating revenue growth of $101.2 million during the year ended December 31, 2015, or 33.8% over 2014;
Revenue increased in 2013all our key verticals in 2015 as compared to 2012 were as follows:
Broad-based revenue growth from clients in our key2014, specifically within the Software and Hi-Tech and Travel and Consumer verticals, and in particular within Banking and Financial Services and ISVs and Technology, which grew $44.4$35.0 million and $28.1$57.5 million respectively,respectively.
Income from operations grew 23.0% during the year ended December 31, 2015, over 2012;
2014, while income from operations as a percentage of revenues decreased by 0.2%. The slight decrease was due to a combination of factors, including an increase of $21.2 million in stock-based compensation expense driven by increases in headcount and acquisitions.
Higher growthNet income increased by 21.3% during 2015 compared with 2014. Expressed as a percentage of revenues, net income remained consistent despite the adverse effect of a higher effective tax rate and significant foreign exchange rate changes in 2015 as compared to 2012 demonstrated2014.
Our organic growth was complemented by two strategic acquisitions completed during 2015, which expanded our Business Informationhighly skilled employee base, geographic footprint and Media, which increased revenues by 21.3%service capabilities. Through acquisitions, we added capabilities in 2013, compared todigital design as well as a declinedelivery center in revenues of 2.5% in 2012 over 2011;
Continued penetration to the European market, where we experienced revenue growth of $45.0 million, or 29.0%, over 2012;
Income from operations was 13.8% of revenues in 2013 and increased by 15.9% compared to 2012. In addition to higher costs associated with compensation and benefits driven by increased headcount, included in income from operations in 2013 included $6.3 million of additional stock-based compensation expense and $0.8 million of social security taxes related to stock option exercises by our employees; and
During 2013, net income increased by 13.8% to 11.2% of revenues as compared to 12.6% in 2012. In addition to the factors affecting our operating expenses, our 2013 results were adversely affected by an increase in the effective tax rate by 1.9% to 19.2% from 17.3% in 2012, which was mainly driven by the changes in geographical distribution of our profits when compared to 2012.
India.
The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
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In our quarterly earnings press releases and conference calls, we discuss the following key measures that are not calculated according to the generally accepted accounting principles (“GAAP”):
Income from operations, as reported on our consolidated and condensed statements of income and comprehensive income, excluding certain expenses and benefits, which we refer to as “non-GAAP income from operations”.
The second measure calculates non-GAAP income from operations as a percentage of reported revenues, which we refer to as “non-GAAP operating margin”.
We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use these measures to establish budgets and operational goals (communicated internally and externally), manage our business, and evaluate our performance. We also believe these measures help investors compare our operating performance with our results in prior periods and compare our operating results with those of similar companies. We exclude certain expenses and benefits from non-GAAP income from operations that we believe are not reflective of these underlying business trends and are not useful measures in determining our operational performance and overall business strategy. Because our reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not be comparable to similarly described non-GAAP measures reported by other companies within our industry. Consequently, our non-GAAP financial measures should not be evaluated in isolation from or supplant comparable GAAP measures, but, rather, should be considered together with our consolidated and condensed financial statements, which are prepared according to GAAP. The following table presents a reconciliation of income from operations as reported on our condensed consolidated statements of income and comprehensive income to non-GAAP income from operations and non-GAAP operating margin for the years ended December 31, 2013, 2012 and 2011:

  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
GAAP Income from operations $76,493  $66,006  $55,008 
Stock-based compensation  13,150   6,826   2,866 
One-time charges  (807)  584    
Goodwill impairment        1,697 
Amortization of purchased intangible assets  2,785   1,024   779 
Acquisition-related costs  218   500   527 
Non-GAAP Income from operations $91,839  $74,940  $60,877 
 
            
GAAP Operating margin  13.8%  15.2%  16.4%
Effect of the adjustments detailed above  2.7   2.1   1.8 
Non-GAAP Operating margin  16.5%  17.3%  18.2%

From time to time, we acquire businesses and incur operating expenses, which we would not otherwise have incurred. Such expenses include acquisition-related costs and amortization of acquired intangible assets. These costs are dependent on a number of factors and are generally inconsistent in amount and frequency, as well as significantly impacted by the timing and size of related acquisitions. Additionally, the size, complexity and volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and volume of future transactions. Amortization of purchased intangible assets is excluded from our non-GAAP measures to allow management to evaluate our operating results as if these assets have been developed internally rather than acquired in a business combination. We believe this approach provides a supplemental measure of performance in which the acquired intangible assets are treated in a manner comparable to the internally developed assets.
Stock-based compensation expense is excluded from our non-GAAP measures because we believe such exclusion allows for a more accurate comparison of our operating results among the periods, as well as enhances comparability with operating results of peer companies.
We also exclude certain other expenses and one-time charges because we believe they are not indicative of what we consider to be organic, continuing operations. Such items include goodwill impairment write-offs, legal settlement expenses, and certain other non-cash one-time charges.
See our “Results of Operations” section below for a more detailed discussion and analysis of these charges.
We have significant international operations, and we earn revenues and incur expenses in multiple currencies. When important to management’s analysis, operating results are compared in “constant currency terms”, a non-GAAP financial measure that excludes the effect of foreign currency exchange rate fluctuations. The effect of rate fluctuations is excluded by translating the current period’s revenues and expenses into U.S. dollars at the weighted average exchange rates of the prior period of comparison. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of this report for a discussion of our exposure to exchange rates.


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Effects of Inflation
Economies in CIS countries, such asparticularly Belarus, Russia, Kazakhstan and Ukraine, have periodically experienced high rates of inflation. In particular, overPeriods of higher inflation may slow economic growth in those countries and as a three-year period ended December 31, 2013, significantresult decrease demand for our services and negatively impact the business of our existing clients. Inflation is likely to increase some of our expenses, which may reduce our profitability, as we may not be able to pass these increases on to our clients. Generally, our largest expense that could be impacted by inflation is wages. We do not rely on borrowed funds for operations in those locations; therefore, increases in interest rates typical for inflationary environments do not currently pose a risk to our business.
Ukraine has been reportedexperiencing political and economic turmoil with no improvement as of the date of this report, severely impacting the Ukrainian economy. The Ukrainian currency has been weakened and the negative outlook in Belarus. The National Statistical Committeethe Ukrainian economy continues. We have not seen a significant impact from the inflation in Ukraine. Additionally, we do not have clients located in Ukraine.
Inflation in Russia increased late in 2014 due to weakening of the Russian ruble and decreasing oil prices. During 2015, inflation in Russia remained steady with some decline observed in recent months. Our operations in Russia have not been affected directly by local inflation; however, we have noted some decline in demand for our services by our clients in Russia.
Belarus estimated that inflation was approximately 118.3% in 2013, 109.7% in 2012 and 153.2% in 2011. In 2013, 2012 and 2011 we had 0.3%, 0.5% and 0.8% of our revenues, respectively, denominated in Belarusian rubles.
has been experiencing hyperinflation over the last several years. The measures currently used by the Belarusian government to control this recent inflation include monetary policy and pricing instruments, including increasing interest rates and the use of anti-monopoly laws to prevent the increase in pricing of goods, as well as privatization and using foreign borrowings to replenish the budget and stabilize the local currency. Inflation, government actions to combat inflation and public speculation about possible additional actions have also contributed materially to economic uncertainty in Belarus. Belarus may experience high levels of inflation in the future. We have not seen a significant impact from the inflation in Belarus as our largest expense there, wages, is denominated in U.S. dollars in order to provide stability in our business and for our employees. Additionally, we do not have significant clients located in Belarus and for the year ended December 31, 2015, we had approximately $1.5, or 0.2%, of our revenues denominated in Belarusian rubles. The Russianfunctional currency for financial reporting purposes in Belarus is US dollars.
Other locations where we have clients or perform services are not experiencing significant inflation and Ukrainian governments have historically implemented similar measures as Belarus to fight inflation.our business is not materially impacted by inflation in those locations.
Periods of higher inflation may slow economic growth in those countries. Inflation also is likely to increase some of our costs and expenses, which we may not be able to pass on to our clients and, as a result, may reduce our profitability. Inflationary pressures could also affect our ability to access financial markets and lead to counter-inflationary measures that may harm our financial condition, results of operations or adversely affect the market price of our securities.

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Results of Operations
The following table sets forth a summary of our consolidated results of operations by amount and as a percentage of our revenues for the periods indicated. This information should be read together with our audited consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 Year Ended December 31,
 2015 2014 2013
 (in thousands, except percentages)
Revenues$914,128
 100.0 % $730,027
 100.0 % $555,117
 100.0 %
Operating expenses:         
  
Cost of revenues (exclusive of depreciation and amortization)(1)
566,913
 62.0
 456,530
 62.5
 347,650
 62.6
Selling, general and administrative expenses(2)
222,759
 24.4
 163,666
 22.4
 116,497
 21.0
Depreciation and amortization expense17,395
 1.9
 17,483
 2.4
 15,120
 2.7
Goodwill impairment loss
 
 2,241
 0.3
 
 
Other operating expenses, net1,094
 0.1
 3,924
 0.6
 (643) (0.1)
Income from operations105,967
 11.6
 86,183
 11.8
 76,493
 13.8
Interest and other income, net4,731
 0.5
 4,769
 0.7
 3,077
 0.5
Change in fair value of contingent consideration
 
 (1,924) (0.3) 
 
Foreign exchange loss(4,628) (0.5) (2,075) (0.3) (2,800) (0.5)
Income before provision for income taxes106,070
 11.6
 86,953
 11.9
 76,770
 13.8
Provision for income taxes21,614
 2.4
 17,312
 2.4
 14,776
 2.6
Net income$84,456
 9.2 % $69,641
 9.5 % $61,994
 11.2 %
  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100.0%
Operating expenses:                        
Cost of revenues (exclusive of depreciation and amortization)(1)  347,650   62.6   270,361   62.3   205,336   61.4 
Selling, general and administrative expenses(2)  116,497   21.0   85,868   19.8   64,930   19.4 
Depreciation and amortization expense  15,120   2.7   10,882   2.5   7,538   2.3 
Goodwill impairment loss              1,697   0.5 
Other operating (income)/ expenses, net  (643)  -0.1   682   0.2   19   0.0 
Income from operations  76,493   13.8   66,006   15.2   55,008   16.4 
Interest and other income, net  3,077   0.5   1,941   0.5   1,422   0.4 
Foreign exchange loss  (2,800)  -0.5   (2,084)  -0.5   (3,638)  -1.1 
Income before provision for income taxes  76,770   13.8   65,863   15.2   52,792   15.7 
Provision for income taxes  14,776   2.6   11,379   2.6   8,439   2.5 
Net income $61,994   11.2% $54,484   12.6% $44,353   13.2%

(1)IncludesIncluded $13,695, $8,648 and $4,823 of stock-based compensation expense of $4,823, $2,809 and $1,365 for the years ended December 31, 2015, 2014 and 2013, 2012 and 2011, respectively.respectively;
(2)IncludesIncluded $32,138, $15,972 and $8,327 of stock-based compensation expense of $8,327, $4,017 and $1,501 for the years ended December 31, 2015, 2014 and 2013, 2012 and 2011, respectivelyrespectively.
Revenues
RevenuesOur revenues are derived primarily from providing software development services to our clients. We discuss below the breakdown of our revenuesrevenue by service offering, vertical, client location, contract type and client concentration. Revenues consist of ITinclude revenue from services revenues andas well as reimbursable expenses and other revenues, which primarily includeconsist of travel and entertainment costs that are chargeable to clients.
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Revenues by Service Offering
Software development includes software product development, custom application development services and enterprise application platforms services, and has historically represented,represents our core competency and we expect to continue to represent, thea substantial majority of our business. The following table sets forth revenues by service offering by amount and as a percentage of our revenues for the periods indicated:
 Year Ended December 31,
 2015 2014 2013
Software development$644,732
 70.6% $504,590
 69.1% $374,426
 67.4%
Application testing services174,259
 19.1
 140,363
 19.2
 109,222
 19.7
Application maintenance and support70,551
 7.7
 58,840
 8.1
 45,971
 8.3
Infrastructure services11,311
 1.2
 14,198
 1.9
 14,433
 2.6
Licensing3,764
 0.4
 3,626
 0.5
 3,439
 0.6
Reimbursable expenses and other revenues9,511
 1.0
 8,410
 1.2
 7,626
 1.4
Revenues$914,128
 100.0% $730,027
 100.0% $555,117
 100.0%

32
  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
Software development $374,426   67.4% $290,139   66.8% $219,211   65.5%
Application testing services  109,222   19.7   85,849   19.8   67,840   20.3 
Application maintenance and support  45,971   8.3   36,056   8.3   29,287   8.8 
Infrastructure services  14,433   2.6   12,424   2.9   8,488   2.5 
Licensing  3,439   0.6   2,914   0.7   3,526   1.1 
Reimbursable expenses and other revenues  7,626   1.4   6,417   1.5   6,176   1.8 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100.0%

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Revenues by Vertical
The foundationWe analyze our revenue by separating our clients into five main industry sectors or verticals as detailed in the following table. Also, we have built with ISVs and technology companies has enabled us to leverage our strong domain knowledge and industry-specific knowledge capabilities to become a premier IT services provider to a range of additional verticals such as Banking and Financial Services, Business Information and Media, and Travel and Consumer. Additionally, we have substantial expertiseserve clients in other industries such as Oiloil and Gas, Telecommunications, Healthcaregas, telecommunications, retail, insurance and several others, which are currently reported in aggregate under Other verticals.Emerging Verticals. The following table sets forth revenues by vertical by amount and as a percentage of our revenues for the periods indicated:

 Year Ended December 31,
 2015 2014 2013
Financial Services$248,526
 27.2% $215,425
 29.5% $156,340
 28.2%
Travel and Consumer215,303
 23.6
 157,756
 21.6
 117,248
 21.1
Software & Hi-Tech192,989
 21.1
 157,944
 21.6
 134,970
 24.3
Media & Entertainment120,616
 13.2
 91,726
 12.6
 75,677
 13.6
Life Sciences and Healthcare73,327
 8.0
 42,428
 5.8
 14,079
 2.5
Emerging Verticals53,856
 5.9
 56,338
 7.7
 49,177
 8.9
Reimbursable expenses and other revenues9,511
 1.0
 8,410
 1.2
 7,626
 1.4
Revenues$914,128
 100.0% $730,027
 100.0% $555,117
 100.0%
  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
Banking and Financial Services $156,340   28.2% $111,941   25.8% $76,645   22.9%
ISVs and Technology  134,970   24.3   106,852   24.6   84,246   25.2 
Travel and Consumer  117,248   21.1   95,965   22.1   71,488   21.4 
Business Information and Media  75,677   13.6   62,398   14.4   63,988   19.1 
Other verticals  63,256   11.4   50,226   11.6   31,985   9.6 
Reimbursable expenses and other revenues  7,626   1.4   6,417   1.5   6,176   1.8 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100.0%
Revenues by Client Location
Our revenues are sourced from threefour geographic markets: North America, Europe, CIS and the CIS.APAC, which we established as a new geographic market in 2014 as a result of an acquisition. We present and discuss our revenues by client location based on the location of the specific client site that we serve, irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed. As such, revenuesRevenue by client location differis different from the revenue by reportable segment information in our audited consolidated financial statements included elsewhere in this annual report, which isreport. Segments are not solely based on the geographic location of the clients but are rather is based on managerial responsibilitythe geography of the management responsible for a particular client regardless of clientthe client’s physical location. The following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated:
41
 Year Ended December 31,
 2015 2014 2013
North America$485,075
 53.1% $367,498
 50.4% $281,738
 50.8%
Europe352,489
 38.6
 284,853
 39.0
 200,137
 36.1
United Kingdom164,301
 18.0
 141,366
 19.4
 108,892
 19.6
Switzerland111,353
 12.2
 87,111
 11.9
 51,941
 9.4
Other76,835
 8.4
 56,376
 7.7
 39,304
 7.1
CIS43,043
 4.7
 55,807
 7.6
 65,616
 11.7
Russia36,506
 4.0
 48,945
 6.7
 53,328
 9.6
Other6,537
 0.7
 6,862
 0.9
 12,288
 2.1
APAC24,010
 2.6
 13,459
 1.8
 
 
Reimbursable expenses and other revenues9,511
 1.0
 8,410
 1.2
 7,626
 1.4
Revenues$914,128
 100.0% $730,027
 100.0% $555,117
 100.0%

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  Year Ended December 31, 
  2013  2012  2011 
  (in thousands, except percent) 
North America $281,738   50.8% $206,901   47.7% $165,126   49.4%
Europe  200,137   36.1   155,168   35.8   107,041   32.0 
United Kingdom  108,892   19.6   98,346   22.7   70,989   21.2 
Other  91,245   16.5   56,822   13.1   36,052   10.8 
CIS  65,616   11.7   65,313   15.0   56,185   16.8 
Russia  53,328   9.6   47,536   11.0   43,799   13.1 
Other  12,288   2.1   17,777   4.0   12,386   3.7 
Reimbursable expenses and other revenues  7,626   1.4   6,417   1.5   6,176   1.8 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100%
Revenues by Contract Type
Our services are performed under both time-and-material and fixed-price arrangements. Our engagement models depend on the type of services provided to a client, the mix and locations of professionals involved and the business outcomes our clients are looking to achieve. Historically, the vast majority of our revenues have been generated under time-and-material contracts. Under time-and-material contracts, we are compensated for actual time incurred by our IT professionals at negotiated hourly, daily or monthly rates. Fixed-price contracts require us to perform services throughout the contractual period and we are paid in installments on pre-agreed intervals. We expect time-and-material arrangements to continue to comprise the majority of our revenues in the future.

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The following table sets forth revenues by contract type by amount and as a percentage of our revenues for the periods indicated:

 Year Ended December 31,
 2015 2014 2013
Time-and-material$784,153
 85.8% $618,725
 84.7% $456,938
 82.3%
Fixed-price116,700
 12.8
 99,266
 13.6
 87,114
 15.7
Licensing3,764
 0.4
 3,626
 0.5
 3,439
 0.6
Reimbursable expenses and other revenues9,511
 1.0
 8,410
 1.2
 7,626
 1.4
Revenues$914,128
 100.0% $730,027
 100.0% $555,117
 100.0%
 
Year Ended December 31, 
 2013  2012  2011 
 (in thousands, except percent) 
Time-and-material $456,938   82.3% $364,853   84.1% $287,965   86.1%
Fixed-price  87,114   15.7   59,615   13.7   36,861   11.0 
Licensing  3,439   0.6   2,914   0.7   3,526   1.1 
Reimbursable expenses and other revenues  7,626   1.4   6,417   1.5   6,176   1.8 
Revenues $555,117   100.0% $433,799   100.0% $334,528   100.0%
Revenues by Client Concentration
We have grown our revenues from our clients by continually expanding the scope and size of our engagements, and we have grown our key client base through internal business development efforts and several strategic acquisitions.
Our focus on delivering quality to our clients is reflected by an average of 93.9%95.1% and 78.4%84.3% of our revenues in 20132015 coming from clients that had used our services for at least one and two years, respectively. In addition, we have significantly grown the size of existing accounts. The number of clients that accounted for over $5.0 millionaccounts including growth in annual revenues increased to 22 in 2013 from 10 in 2010,our top five and the number of clients that generated at least $0.5 million in revenues increased to 147 in 2013 from 72 in 2010.
top ten clients. The following table sets forth revenues contributed by our top one, top five and top ten clients by amount and as a percentage of our revenues for the periods indicated:

 Year Ended December 31,
 2015 2014 2013
Top client$129,818
 14.2% $97,639
 13.4% $53,136
 9.6%
Top five clients298,063
 32.6
 239,396
 32.8
 169,987
 30.6
Top ten clients400,250
 43.8
 320,126
 43.9
 234,955
 42.3
 Year Ended December 31, 
 2013  2012  2011 
 (in thousands, except percent)  
 
Top client $53,136   9.6% $39,854   9.2% $35,903   10.7%
Top five clients  169,987   30.6   134,484   31.0   107,171   32.0 
Top ten clients  234,955   42.3   192,426   44.4   149,094   44.6 
One customer, Thomson Reuters, accounted for over 10% of our revenues in 2011. There were no customers with revenues in excess of 10% in either 2013, or 2012. The volume of work we perform for specific clients is likely to vary from year to year, as we are typically not any client’s exclusive external IT services provider, and a major client in one year may not contribute the same amount or percentage of our revenues in any subsequent year.
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Operating Expenses
Cost of Revenues (Exclusive of Depreciation and Amortization)
The principal components of our cost of revenues (exclusive of depreciation and amortization) are salaries, employee benefits, and stock compensation expense, travel costs and subcontractor fees.fees for IT professionals and subcontractors that are assigned to client projects. Salaries and other compensation expenses of our IT professionals are allocated toreported as cost of revenuesrevenue regardless of whether theythe employees are actually performing client services during a given period.
In addition, costWe manage the utilization levels of revenues is dependentour professionals through hiring and training high-performing IT professionals and efficient staffing of projects. Our staff utilization also depends on utilization levels.the general economy and its effect on our clients and their business decisions regarding the use of our services. Some of our IT professionals are speciallyspecifically hired and trained to work for specific clients or on specific projects, and some of our offshore development centers are dedicated to specific clients or specific projects. Our ability to manage our utilization levels depends significantly on our ability to hire and train high-performing IT professionals and to staff projects appropriately, and on the general economy and its effect on our clients and their business decisions regarding the use of our services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represent expenses associated with promoting and selling our services and general administrative functions of our business. These expenses include such items as senior management, administrative personnel and sales and marketing personnel salaries,salaries; stock compensation expense, and related fringe benefits, commissions and travel costs for those employees; legal and audit expenses, commissions, insurance, operating lease expenses, travel costs and the cost of advertising and other promotional activities. In addition, we pay a membership fee of 1% of revenues collected in Belarus to the administrative organization of the Belarus Hi-Tech Park.
Our selling, general and administrative expenses have increased primarily as a result of our expanding operations, acquisitions, and the hiring of a number of senior managers to support our growth. We expect our selling, general and administrative expenses to continue to increase in absolute terms as our business expands but will generally remain steady or slightly decrease as a percentage of our revenues.

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Provision for Income Taxes
Determining the consolidated provision for income tax expense, deferred income tax assets and liabilities and related valuation allowance, if any, involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the jurisdictions in which we operate. During 2013, 20122015, 2014 and 2011,2013, we had $69.8$113.8 million, $56.6$94.2 million, and $49.9$69.8 million, respectively, in income before provision for income taxes attributed to our foreign jurisdictions. The statutory tax rate in our foreign jurisdictions is lower than the statutory U.S. tax rate. Additionally, we have secured special tax benefits in Belarus and Hungary as described below. As a result, our provision for income taxes is low in comparison to income before taxes due tobecause of the benefit received from increased income earned in low tax jurisdictions. The foreign tax rate differential represents this significant reduction. Changes in the geographic mix or estimated level of annual pre-tax income can also affect our overall effective income tax rate.
Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as the related net interest. Tax exposures can involve complex issues and may require an extended period to resolve. Although we believe we have adequately reserved for our uncertain tax positions, we cannot assure you that the final tax outcome of these matters will not be different from our current estimates. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, statute of limitation lapse or the refinement of an estimate. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.
Our subsidiary in Belarus is a member of the Belarus Hi-Tech Park, in which member technology companies are 100% exempt from the current Belarusian income tax rate of 18%. The “On High-Technologies Park” Decree, which created the Belarus Hi-Tech Park, is in effect for a period of 15 years from July 1, 2006.
Our subsidiary in Hungary benefits from a tax credit of 10% of annual qualified salaries, taken over a four-year period, for up to 70% of the total tax due for that period. We have been able to take the full 70% credit for 2007 to 2012. The Hungarian tax authorities repealed the tax credit beginning with 2012. Credits earned in years prior to 2012, however, will be allowed through 2014. We anticipate full utilization up to the 70% limit until 2014, with full phase out in 2015.
Our domestic income before provision for income taxes differs from the North America segment income before provision for income taxes because segment operating profit is a management reporting measure, which does not take into account most corporate expenses, as well as the majority of non-operating costs and stock compensation expenses. We do not hold our segment managers accountable for these expenses, as they cannot influence these costs within the scope of their operating authority, nor do we believe it is practical to allocate these costs to specific segments, as they are not directly attributable to any specific segment. All our segments are treated consistently with respect to such expenses when determining segment operating profit.
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20132015 Compared to 20122014
Revenues
Revenues were $555.1million and $433.8During 2015, our revenues grew 25.2% over 2014, from $730.0 million in 2013 and 2012, respectively, representing an increase of 28.0%.to a record $914.1 million. The increase was attributable to a combination of factors, including higher salesdeeper penetration to existing customers and acquisitionattainment of new customers, which contributed $98.4both organically and through acquisitions. In 2015, revenue from new customers was $45.7 million, primarily resulting from our acquisitions in 2015, and $21.7 million, respectively, to consolidated revenue growth.does not include new clients that are affiliates of existing customers whom we consider an expansion of existing business. In addition, total revenues in 20132015 and 20122014 included $7.6$9.5 million and $6.4$8.4 million of reimbursable expenses and other revenues, respectively, which increased by 18.8%13.1% in 20132015 as compared to 2012,2014, but remained relatively flat as a percentage of revenues.
During the year ended December 31, 2013, North America,2015, revenues in our largest geography, North America, grew $74.8$117.6 million, or 32.0%, as compared with the year ended December 31, 2014. Expressed as a percentage of consolidated revenues, the North America geography accounted for 53.1% in 2015, which represented an increase of 2.7% over 2014. The increase was primarily a result of growth in business from several of our top clients as well as new revenue from the acquisition of NavigationArts.
Revenues from all major verticals in North America grew during the year ended December 31, 2015 as compared with the year ended December 31, 2014. The largest contributor to revenue growth in North America, was Travel and Consumer vertical, which increased $32.9 million, or 48.6%, as compared with the year ended December 31, 2014. The increase in this vertical was primarily driven by the rapid expansion of our strategic relationship with a large retail chain, a relationship we acquired in 2012.
Our Life Sciences and Healthcare vertical in North America continued its impressive growth since we acquired new clients in the healthcare, insurance and life sciences industries in one of our 2014 acquisitions and created synergies with existing customers in those markets. During the year ended December 31, 2015 combined revenue growth from customers in this vertical accounted for $29.0 million, representing the largest percentage growth of all North America's verticals at 75.9% growth over prior year.
During the year ended December 31, 2015, revenues from the Media and Entertainment vertical in North America increased by $25.3 million, or 36.2%, as compared with the year ended December 31, 2012. As a percentage of revenues, our North American geography accounted for 50.8% in 2013, which represented an increase of 3.1% over 2012.2014. The growth in North America was driven by many realized opportunities in virtually every vertical. In particular, our ISVs and Technology vertical grew 30.0% as compared to 2012, primarily driven by an expansion of existing client relationships, which accounted for $25.9 million, or 91.6%, of the growth of this vertical over 2012. Solid performance of our North American geographyin 2015 was also a reflection of additional revenue streams created by our 2012 acquisitions. This was especially noticeable in the Business Information and Media vertical, which grew 8.9% in 2013 as comparedattributable to 2012 despite a significant decreaseresumed growth in revenues from onecertain long-time major customers who had decreased demand for our services in prior years.
North America’s largest vertical, Software and Hi-Tech, experienced growth of our largest customers, Thomson Reuters. Without the impact of declining revenues from this customer, the Business Information and Media vertical increased $11.6$24.5 million or 43.6% in 2013 over the corresponding periods of 2012. Additionally, our Travel and Consumer vertical grew $18.7 million, or 55.1%, in 2013 as compared to 2012 and accounted for 25.0% of total growth in our North American geography in 2013. Most of this increase was attributable to revenues from one of our strategic customers acquired in 2012, which had been on our “top ten” customer list since the second quarter of 2013. During17.2% during the year ended December 31, 2013, revenues from this customer accounted for 20.7%2015 as compared with the year ended December 31, 2014.

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Table of total revenue growth in North America, respectively.Contents

During the year ended December 31, 2013, the Banking and2015, our Financial Services vertical remained our dominant vertical in Europe and accounted for 78.9% of total revenue growth in thisthe European geography. In 2013,2015 revenues from Banking andthe Financial Services vertical increased $35.5by $28.3 million, or 49.8%19.0%, respectively, over 2012. It was also our largest and fastest growing vertical on a consolidated basis. Strongthe corresponding period of 2014. Continued solid performance of thisthe Financial Services vertical can be attributedwas attributable to an increased demand for our services and ongoing relationshiprelationships with existing top customers located in Europe. In particular, 29.5% of total revenue growth during 2013 over the 2012 results was attributable toWe experienced increased business from certainour top customer located in Switzerland, who was responsible for majority of our largest Banking andthe revenue growth in the Financial Services customers located in the United Kingdom and Switzerland. Additionally, over the course ofvertical during 2015 as compared with the year ended December 31, 2013,2014. Furthermore, we continue to see growing demand for our Business Informationservices from European-based customers within the Travel and Media vertical grew significantly into the European markets.Consumer vertical. During the year ended December 31, 2013,2015 revenues from this vertical increased $7.3by $24.0 million or 86.5%, over 2012,as compared with the year ended December 31, 2014 and accounted for 16.2%35.5% of the total growth in the European geography.this geography during period indicated. Europe’s Software and Hi-Tech vertical experienced a significant increase of 66.5% in 2015 compared to 2014, in part due to business from a new significant customer in Germany engaged in 2015.
Revenues in the CIS geography increased $0.3showed a decrease of $12.8 million or 0.5%, in 2013 as22.9% on a year-to-date bases compared to 2012. A slower growth rate as compared with the performance of other geographies2014. The decrease in 2013revenues was dueprimarily attributable to a combination of factors. Following the addition of a number of new customersdecline in the fourth quarter of 2012, revenues from our Travel and Consumer vertical increased $2.7 million, or 49.1%, in 2013 as compared with 2012. However, that growth in the Travel and Consumer vertical was more than offset by a lower growth rate in the Banking and Financial Services vertical, which is significantly impacted by the largest verticalmicroeconomic situation in this geography, which increased $2.6 million, or 8.1%,the region. Additionally, significant foreign currency fluctuations in 2013 over 2012. In addition, included in 2012 results were $4.0 million ofRussia and CIS countries had a material negative impact on the revenues recognized upon completion of a fixed-priced project that did not recur in 2013.from those locations.
Cost of Revenues (Exclusive of Depreciation and Amortization)
During the years ended December 31, 20132015 and 2012,2014, cost of revenues (exclusive of depreciation and amortization) was $347.7$566.9 million and $270.4$456.5 million, respectively, representing an increase of 28.6% in 201324.2% for the year ended December 31, 2015 over the corresponding period of 2012.2014, mainly due to an increase in headcount of revenue producing personnel. As a percentage of revenues, cost of revenues (exclusive of depreciation and amortization), decreased 0.5% over the corresponding period of 2014, to 62.0% of consolidated revenues.
The increase in cost of revenues (exclusive of depreciation and amortization) in 2013 as compared to 20122015 was primarily driven by a netan increase $107.1 million in compensation costs for revenue producing personnel, including an increase in stock-based compensation expense of 845 IT professionals, from 8,495 as$5.0 million. The increases in all of December 31, 2012, to 9,340 as of December 31, 2013, to supportthese costs were the growth in demand for our services. As a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) increased by 0.3% in 2013, as compared to the corresponding period of 2012, primarily as a result of higher compensation and benefits of our IT professionals.organic increase in headcount as well as personnel additions from acquisitions.
Selling, General and Administrative Expenses
During the year ended December 31, 2013, selling, general and administrative expenses were $116.5 million, representing an increase of 35.7% from $85.9 million in the corresponding period of 2012. As a percentage of revenues, selling, general and administrative expenses increased to 21.0% in 2013, or 1.2%, compared to 2012. Most of this increase was attributable to higher compensation and benefits of our non-production staff in 2013 as compared to 2012 as weWe continued to invest intoin key areas including sales, infrastructure, industry expertise, and other functions supporting global operations. In addition,operations and our growth. During the year ended December 31, 2015, selling, general and administrative expenses included $3.3totaled $222.8 million, representing an increase of additional stock-based compensation expense related to our 2012 acquisitions, which caused our
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Table36.1% from $163.7 million during 2014. As a percentage of Contents
revenue, selling, general and administrative expenses torepresent 24.4% of consolidated revenues, an increase of 2.0% over last year. The increase in selling, general and administrative expenses in 2015 was primarily driven by 0.5%a $48.5 million increase in personnel-related costs, which includes salaries and stock-based compensation expenses. Of these personnel-related costs, stock-based compensation expenses increased $16.2 million during the year ended December 31, 2015. Our selling, general and administrative expenses have increased primarily as a percentageresult of revenuesour expanding operations, acquisitions, and the hiring of a number of senior managers to support our growth.
In addition, we have issued stock to the sellers and/or personnel in 2013 over 2012.connection with our business acquisitions and have been recognizing stock-based compensation expense in the periods after the closing of these acquisitions as part of the selling, general and administrative expenses. Such stock based compensation expenses related to acquisitions comprised 58.2% of total selling, general and administrative stock-based compensation expense for the year ended December 31, 2015 compared to the same period in 2014.
Depreciation and Amortization Expense
Depreciation and amortization expense was $15.1$17.4 million in 2013,2015, representing an increasea decrease of $4.2$0.1 million over 2012. The increase was driven by additional capital expenditures to support headcount growth. As2014. Expressed as a percentage of revenues, depreciation and amortization expense increased to 2.7% in 2013 from 2.5% in 2012 primarily as a result of $1.9 million of additional expenses related tototaled 1.9% and decreased 0.5% compared with 2014. Expense includes amortization of purchasedacquired intangible assets, acquired in 2012.all of which have finite useful lives.
Other Operating (Income)/ Expenses, Net
Net other operating income was $0.6 million in 2013 as compared to $0.7 million of expenses recorded inDuring the corresponding period of 2012. Netyear ended December 31, 2015, other operating expenses recorded in 2012 were primarily attributabledecreased $2.8 million since 2014 to the issuance$1.1 million.

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Table of 53,336 shares of common stock to Instant Information Inc., a 2010 asset acquisition, upon the completion of our initial public offering in the first quarter of 2012, which did not recur in 2013. Additionally, during 2013 we received $0.8 million in connection with prior-year write-offs of other assets.Contents

Interest and Other Income, Net
Net interest and other income was $3.1$4.7 million in 2013,2015, representing an increasea slight decrease of 58.5%0.8% from $1.9$4.8 million received in 2012.2014. The increase was largely driven by an increase inincome consists primarily of interest income earnedreceived on cash accounts in Belarus and, to a lesser extent, interest earned on employee housing loans in 2013 which accounted for $0.3 million.loans.
Provision for Income Taxes
Our worldwideThe Company’s provision for income taxes was $21.6 million in 2015 and $17.3 million in 2014. The effective tax rate was 19.2%increased to 20.4% in 2015 from 19.9% in 2014 primarily due to changes in the geographic mix of our current year earnings and 17.3%discrete tax benefits recorded in 2014 as well as due to elimination of certain income tax holiday benefits in Hungary in 2015.
2014 Compared to 2013
During 2014, our revenues grew in excess of 30.0% over 2013, and 2012, respectively.from $555.1 million to a record $730.0 million. The increase was attributable to a combination of factors, including deeper penetration to existing customers and attainment of new customers, both organically and through acquisitions. In 2014, revenue from new customers was $49.7 million, primarily resulting from our 2014 acquisitions, and does not include new clients that are affiliates of existing customers. Our 2014 acquisitions increased our total revenues by $39.8 million, however, some of the acquired clients are affiliated with our existing clients and, therefore, we consider them an expansion of existing business. In addition, total revenues in the worldwide effective tax rate2014 and 2013 included $8.4 million and $7.6 million of reimbursable expenses and other revenues, respectively, which increased by 10.3% in 2013,2014 as compared to the corresponding period of 2012, was primarily due to (a) a higher portion of pre-tax profits attributable to our North American tax jurisdiction2013, but remained relatively flat as a resultpercentage of an acquisition completed in the second half of 2012; and (b) a relative shift in offshore services performed in Belarus, where we currently entitled to a 100% exemption from Belarusian income tax, to Ukraine, and, to a lesser extent, Russia, both of which have higher income tax rates.revenues.
2012 Compared to 2011
Revenues
Revenues forDuring the year ended December 31, 2012 increased by $99.32014, revenues in our largest geography, North America, grew $85.8 million, or 29.7%30.4%, as compared towith the year ended December 31, 2011. This increase is attributable to2013. Expressed as a $71.3 million increase from deeper penetration into existing customers,percentage of consolidated revenues, the North America geography accounted for 50.4% in 2014, which represented a $20.3 million increase from new customers and a $7.7 million increase from acquisitions.
Revenues in our North American and European geographies grew $41.8 million, or 25.3%, and $48.1 million, or 45.0%, respectively,decrease of 0.4% over 2013. The slight decrease was primarily as a result of strongaccelerated growth in the European geography.
Revenues from all verticals in North America grew during the year ended December 31, 2014 as compared with the year ended December 31, 2013. The largest growth was in North America’s Other vertical due to acquiring new clients in the healthcare, insurance and life sciences industries through a 2014 acquisition as well as creating synergies with existing customers in those markets. During the year ended December 31, 2014 combined revenue growth from customers in the Other vertical accounted for $33.8 million, representing a 94.3%, growth over prior year.
Our Travel and Consumer vertical in North America geography increased by $15.0 million, or 28.4%, as compared with the year ended December 31, 2013. The increase in this vertical was primarily driven by the rapid expansion of our core service verticals.strategic relationship with a large retail chain, a relationship we acquired in 2012. During the year ended December 31, 2014, revenues from the Business Information and Media vertical in North America increased by $12.5 million, or 21.8%, as compared with the year ended December 31, 2013. The growth in this vertical in 2014 was attributable to resumed growth in revenues from certain long-time major customers who had decreased demand for our services in 2013. North America’s largest vertical, ISVs and Technology, experienced growth of $19.8 million or 16.2% during the year ended December 31, 2014 as compared with the year ended December 31, 2013.
Growth inDuring the year ended December 31, 2014, our Banking and Financial Services was the driving force behindvertical remained our revenue growthdominant vertical in Europe and accounted for 63.8% of total revenue growth in this geography. During 2012,In 2014 revenues from the Banking and Financial Services continued to outperform other verticals growing $35.3vertical increased by $42.5 million, or 46.1%39.9%, respectively, over the prior year results. Strongcorresponding periods of 2013. Continued solid performance of thisthe Banking and Financial Services vertical can be attributedwas attributable to an increased demand for our services and ongoing relationships with existing top customers located in Europe. In particular, 30.3% of the consolidated revenue growth in 2012 can be attributed toWe experienced increased business from certain of our largest Banking and Financial Services customerstop customer located in Switzerland, nearly doubling the United Kingdomrevenue during 2014 as compared with the year ended December 31, 2013. Furthermore, we continue to see growing demand for our services from European-based customers within the Travel and Switzerland.
GrowthConsumer and Business Information and Media verticals. During the year ended December 31, 2014 combined revenues from these verticals increased by $30.9 million, respectively, year ended December 31, 2014 and accounted for 36.4% of total growth in this geography during periods indicated. Europe’s Other vertical grew 65.0% or $8.0 million in 2014, mainly due to addition of new clients through our North American2014 acquisitions.

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Revenues in the CIS geography showed a decrease of $9.8 million or 14.9% on a year-to-date bases compared to 2013. The decrease in 2012revenues was primarily attributable to performance of our ISVs and Technology vertical, which grew $23.6 million, or 33.5%,budgetary delays with certain customers located in 2012Russia, as compared to 2011, and, towell as a lesser extent, our 2012 acquisitions, which added $7.7 milliondecline in revenues and approximately 59 new customers primarily within Business Information and Media, and Travel and Consumer verticals. These growth trends were in part offset by a decrease in revenues in Business Information and Media, which declined $2.4 million, or 4.3%, in 2012 as compared to 2011. This decrease was almost entirely attributable to a $9.8 million decrease in revenuebusiness from one of our largest customers Thomson Reuters.
Revenues in theKazakhstan. Additionally, significant foreign currency fluctuations in Russia and CIS region increased $9.1 million, or 16.2%, compared tocountries had a material negative impact on the prior year which was almost entirely attributable to incremental revenues from the completion of a long-term fixed-priced project, as well as the addition of a number of new customers within our Travel and Consumer vertical during the fourth quarter of 2012.those locations.
Cost of Revenues (Exclusive of Depreciation and Amortization)
CostDuring the years ended December 31, 2014 and 2013, cost of revenues (exclusive of depreciation and amortization) was $270.4$456.5 million duringand $347.7 million, respectively, representing an increase of 31.3% for the year ended December 31, 2012, representing an2014 over the corresponding period of 2013, mainly due to increase in hiring of 31.7% over 2011.revenue generating professionals. As a percentage of revenues, cost of revenues (exclusive of depreciation and amortization), decreased 0.1% over the corresponding period of 2013, to 62.5% of consolidated revenues.
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TableThe increase in cost of Contents
revenues (exclusive of depreciation and amortization) increasedin 2014 was primarily driven by 0.9% duringa $107.9 million increase in personnel-related costs, the same period. Anmain component of cost of revenue, as well as an increase in stock-based compensation expense contributed 0.2% as a percentage of revenues for the year ended December 31, 2012.
The remaining increase was mainly due to growth in compensation and benefits of our revenue generating IT professionals during that period.of $3.8 million. The numberincreases in all of IT professionals increased from 6,968 at December 31, 2011 to 8,495 at December 31, 2012, which represented an average growththese costs were the result of 21.9% supporting a 30.2%organic increase in IT services revenue.headcount as well as personnel additions from acquisitions.
Selling, General and Administrative Expenses
Selling, generalWe continued to invest in key areas, including sales, infrastructure, industry expertise, and administrative expenses were $85.9 million duringother functions supporting global operations.
During the year ended December 31, 2012, representing an increase of 32.2% over 2011. The growth was primarily attributable to increased overhead costs and non-production staff required to support the growth in our business. Non-production headcount increased by 391, or 33.8%, from 1,157 at December 31, 2011 to 1,548 at December 31, 2012. Stock compensation expense increased by $2.5 million, or 0.5% as a percentage of revenues during the same period, of which $1.2 million was related to the acquisitions completed in 2012. Excluding stock compensation,2014, selling, general and administrative expenses declined slightlytotaled $163.7 million, representing an increase of 40.5% from $116.5 million during 2013. As a percentage of revenue, selling, general and administrative expenses represent 22.4% of consolidated revenues, an increase of 1.4% over last year. The increase in selling, general and administrative expenses in 2014 was primarily driven by a $30.2 million increase in total personnel-related costs, which include stock based compensation relating to the non-production personnel impact of the four 2014 acquisitions. During the year ended December 31, 2014, we incurred $13.4 million of selling, general and administrative costs related to our 2014 acquisitions, including $4.1 million of stock-based compensation expense, which resulted in a 1.8% increase in selling, general and administrative expenses expressed as a percentage of revenues.
Depreciation and Amortization Expense
Depreciation and amortization expense was $10.9$17.5 million during the year ended December 31, 2012,in 2014, representing an increase of 44.4%$2.4 million over 2011. The increase was primarily attributable to additional capital expenditures of IT equipment to support the growth in headcount,2013. Expressed as well as amortization of intangible assets acquired through the purchase of Thoughtcorp in the second quarter of 2012. As a percentage of revenues, depreciation and amortization expense totaled 2.4% and remained at the same level compared with 2013.
Goodwill Impairment Loss
We performed an annual goodwill impairment test as of October 31, 2014 in accordance with prescribed guidance. In assessing impairment both qualitatively and quantitatively based on the total of the expected future discounted cash flows directly related to the reporting unit, the Company determined that the fair value of the Russia reporting unit was 2.5% comparedbelow the carrying value of the reporting unit. The Company completed the second step of the goodwill impairment test, resulting in an impairment charge of $2.2 million as of December 31, 2014. All assets that related to 2.3% in 2011.the Russia segment, excluding goodwill and including any unrecognized intangible assets, were assessed by management and deemed to not be impaired.
Other Operating Expenses, Net
During the year ended December 31, 2012,2014, we reported $0.7recorded a $2.6 million write-down in prepaid assets and a $1.1 million write-down of other expensescapitalized costs related to the construction of our corporate facilities in Belarus. Please see Note 16 in the notes to our consolidated financial statements of income and comprehensive income. This was almost entirely attributable to the issuance of 53,336 shares of common stock to Instant Information Inc., a 2010 asset acquisition, upon the completion of our initial public offering in the first quarter of 2012.2014 Annual Report on Form 10-K for further information.
Interest and Other Income, Net
Net interest and other income was $1.9 million during the year ended December 31, 2012, compared to $1.4$4.8 million in 2011.2014, representing an increase of 55.0% from $3.1 million received in 2013. The increase was primarily attributable to thedriven by interest received on cash which increased 67.5%accounts in Belarus and, to an average balancea lesser extent, interest earned on employee housing loans.

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Table of $111.6 million during 2012 from $66.6 million in 2011.Contents
Foreign Exchange Loss
Foreign exchange loss incurred during the year ended December 31, 2012 was $2.1 million representing a decrease of foreign exchange loss by $1.6 million. Higher losses in 2011 were primarily driven by the movement of the Russian ruble, Belarusian ruble and the euro against the U.S. dollar in respective periods.

Provision for Income Taxes
ProvisionThe Company’s effective tax rate was 19.9% and 19.2% in 2014 and 2013, respectively. The primary factors that caused this increase in the rate for income taxes was $11.4 million in 2012, increasing from $8.4 million in 2011. The increase was primarilythe above-mentioned periods are: (a) the four acquisitions completed during 2014, which added other tax jurisdictions into the Company’s worldwide effective tax rate analysis; (b) a larger portion of the Company’s pre-tax profits attributable to significant growth in consolidated pre-tax income, an increase in our clients’ need for onsite resources in the North American geography, which increased our consolidatedtax jurisdictions with relatively higher effective tax rate,rates (as compared to effective tax rates within the CIS region) were seen in 2014 and (c) a relative shift in offshore services that were performed in Belarus to other countries in the CIS region (specifically Ukraine and, to a lesser extent, Russia). Both of those locations have higher income tax rates than Belarus, where we arethe Company is currently entitled to a 100% exemption from Belarusian income tax, to Ukraine and, to a lesser extent, Russia, both of which have significantly higher tax rates. In 2012, our effective tax rate was 17.3 % as compared to our effective tax rate of 16.0% in 2011.tax.
Results by Business Segment
Our operations consist of four reportable segments: North America, Europe, Russia and Other. The segments represent components of EPAM for which separate financial information is available that is used on a regular basis by our chief executive officer, who is also our chief operating decision maker (“CODM”), in determining how to allocate resources and evaluate performance. 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. Our reportable segments are based on managerial responsibility for a particular client. 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 our 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 our senior management team. In a case like this, the client’s activity would be reported through the management team’s reportable segment. Our chief operating decision makerCODM evaluates the Company’s performance and allocates resources based on segment revenues and operating profit.
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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. We use globally integrated support organizations to realize economies of scale and efficient use of resources. As a result, a majority of our expenses is shared by all segments. These shared expenses include Delivery, Recruitment and Development, Sales and Marketing, and support functions such as IT, Finance, Legal, and Human Resources. Generally, shared expenses are allocated based on measurable drivers of expense, e.g., recorded hours or headcount. However, certain expenses are not specifically 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 chief operating decision maker. Accordingly, these expenses are separately disclosed as “unallocated” and adjusted only against our total income from operations.
Revenues from external clients and segment operating profit, before unallocated expenses, for the North America, Europe, Russia and Other reportable segments were as follows for the fiscal years ended December 31:31, 2015, 2014 and 2013 were as follows:
 Year Ended December 31,
 2015 2014 2013
 (in thousands) 
Total segment revenues:     
North America$471,603
 $374,509
 $284,636
Europe400,460
 299,279
 204,150
Russia37,992
 50,663
 55,764
Other4,911
 5,552
 10,493
Total segment revenues$914,966
 $730,003
 $555,043
Segment operating profit: 
  
  
North America$112,312
 $90,616
 $66,814
Europe68,717
 50,189
 34,573
Russia5,198
 7,034
 7,077
Other(94) (3,220) 844
Total segment operating profit$186,133
 $144,619
 $109,308

39



  Year Ended December 31, 
  2013  2012  2011 
 
 (in thousands) 
Total segment revenues: 
  
  
 
North America $284,636  $197,271  $151,707 
Europe  204,150   168,913   123,510 
Russia  55,764   50,552   46,219 
Other  10,493   16,986   12,851 
Total segment revenues $555,043  $433,722  $334,287 
Segment operating profit:            
North America $66,814  $38,671  $33,744 
Europe  34,573   32,750   25,098 
Russia  7,077   9,049   10,445 
Other  844   6,985   2,416 
Total segment operating profit $109,308  $87,455  $71,703 
20132015 Compared to 20122014
North America Segment
During the years ended December 31, 20132015 and 2012,2014 revenues from theour North America segment were 51.5% and 51.3% of total revenues representing an increase of $97.1 million, or 25.9%, over the corresponding period in 2014. The North America segment’s operating profits increased by $21.7 million, or 23.9%, as compared to the same period of 2014, to $112.3 million net operating profit. North America remains our most profitable segment with operating profit composing 23.8% of revenues.
The increase in revenues during the year ended December 31, 2015, was primarily driven by continued expansion of existing top customer relationships, as well as our recent acquisitions. Operating results of the North America operating segment benefited from our 2014 acquisitions in the Life Sciences and 45.5%Healthcare industry as well as acquisitions of NavigationArts and AGS during 2015.
Europe Segment
During the years ended December 31, 2015 and 2014, revenues from our Europe segment were 43.8% and 41.0% of total segment revenues, respectively, representing an increase of $87.4$101.2 million, or 44.3%33.8%, in 20132015 over the 20122014 results. The North America segment'sDuring 2015, the Europe segment’s operating profits increased by $28.1$18.5 million, or 72.8%36.9%, as compared to the corresponding period of 2012,2014, to $66.8$68.7 million net profit from the segment’s operations.
Europe continues to be a growing segment in our portfolio as our business model continues to gain considerable traction with European-based clients primarily in the Financial Services and Travel and Consumer verticals. Furthermore, our Europe segment benefited from the continued growth of Jointech, a company we acquired in 2014, with locations in South-East Asia. This extended reach into a new geography created additional options for our existing customers within the Financial Services vertical, particularly in the areas of investment banking and wealth and asset management. We expect that our new and existing customers will use our services in that fast-growing region resulting in possible revenue and operating profit increases to the Europe segment.
Russia and Other Segments
During the years ended December 31, 2015, revenues from the Russia and the Other operating segments decreased by $12.7 million and $0.6 million, respectively, over corresponding period of 2014. Operating profits of the Russia segment decreased $1.8 million and the operating losses of the Other segment decreased $3.1 million when compared with the operating profits/ (losses) of these segments in the corresponding period of 2014.
Revenues and operating profits in the Russia and Other segments are subject to volatility resulting from revenue recognition delays related to finalizing budgets for certain arrangements with major customers in those segments causing instability between revenues and associated profits. Additionally, strong foreign currency fluctuations in 2014 further destabilized the economic situation in the regions that are included in these segments and negatively impacted our business in Russia and CIS countries during 2015. Since 2014, the United States and the European Union have imposed sanctions targeting Russian government and government-controlled interests and certain government officials. While this has not directly impacted our business in Russia, the sanctions aggravated the overall Russian economy and negatively influenced the business of our major clients in the region, decreasing demand for our services.
2014 Compared to 2013
North America Segment
During the years ended December 31, 2014 and 2013, revenues from our North America segment were 51.3% and 51.3% of total revenues representing an increase of $89.9 million, or 31.6%, over the corresponding period in 2013. The North America segment’s operating profits increased by $23.8 million, or 35.6%, as compared to the same period of 2013, to $90.6 million net operating profit.
The increase in revenues during the year ended December 31, 2013,2014, was primarily driven by continued expansion of existing clientcustomer relationships, as well, as by revenues contributed byour recent acquisitions. The largest growth was in the Other vertical due to acquiring new clients includingin the healthcare, insurance and life sciences industries through a 2014 acquisition as well as creating synergies with existing customers in those markets. During the acquisitionsyear ended December 31, 2014, combined revenue growth from customers in the Other vertical accounted for $34.8 million, representing a 97.4% growth over prior year.

40


All other verticals in the North America segment experienced revenue growth and Empathy Lab completedincreases in 2012. Within the segment, revenueoperating profit in 2014 as compared to 2013, mainly due to increased business from our long-term clients with some contribution from the clients acquired in connection with acquisitions. The largest vertical, the ISVs and Technology, vertical increased $29.0grew revenues by $22.1 million, or 32.3%18.6%, in 20132014 as compared to the corresponding period of 2012, representing 33.2% of the overall segment growth. Our2013. Revenues from our Travel and Consumer vertical was the fastest growing vertical in 2013 with revenues increasing2014 increased by $26.5$14.6 million, or 94.6%26.7%, in 2013 as compared to the corresponding period in 2012. The2013. Banking and Financial Services had an increase in the segment’srevenue of $5.9 million or 45.4%, and operating profit increased by 104.9% in 2013this vertical in 2014 compared with the year ended December 31, 2013. Business Information and Media grew in revenue $12.5 million or 20% for the year ended December 31, 2014 as compared to 2012 was primarily driven by increased revenues and improved profitability, partially offset by an increasethe same period in compensation and benefits of our IT professionals primarily as a result of added headcount to support our revenue growth and continued demand for onsite resources.2013.
Europe Segment
During the years ended December 31, 20132014 and 2012,2013, revenues from our Europe segment were 36.8%41.0% and 38.9%36.8% of total segment revenues, respectively, representing an increase of $35.2$95.1 million, or 20.9%46.6%, in 20132014 over the 20122013 results. During 2013,2014, the Europe segment’s operating profits increased by $1.8$15.6 million, or 5.6%45.2%, as compared to the corresponding period of 2012,2013, to $34.6$50.2 million net profit from the segment’s operations.
Europe continues to be a rapidly growing segment in our portfolio, given our nearshore delivery capabilities, and our value proposition in delivering quality software engineering solutions and services is continuingservices. Our business model continues to gain considerable traction with European-based clients. Within the segment, growth was the strongestclients primarily in our Banking and Financial Services vertical, with 2013 revenues increasing by approximately $36.9 million, or 52.0%, over the corresponding period of 2012. The decrease in the segment’s operating profit as a percentage of the European segment’s revenues in 2013 as compared to 2012, was primarily due to an increase in compensation expense relative to recognized service revenues in 2013 as compared to 2012.
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Russia Segment
During the years ended December 31, 2013 and 2012, revenues from our Russia segment were 10.0% and 11.7% of total segment revenues, respectively. In 2013, revenues from the Russia segment were $55.8 million, representing an increase of $5.2 million, or 10.3%, over the 2012 results. During 2013, our Russia segment's operating profits decreased by $2.0 million, or 21.8%, as compared to the corresponding period of 2012, to $7.1 million net profit from the segment’s operations.
Within the segment, 2013 revenues from the Banking and Financial Services and Travel and Consumer verticals. Furthermore, our Europe segment benefited from the acquisition of Jointech, a company with locations in South-East Asia, which created a new value proposition for our existing customers within the Banking and Financial Services vertical, particularly in the areas of investment banking, wealth and asset management, and extended our reach into new geography. We expect that many of our new and existing customers in other business verticals increased $2.4will use our services in that fast-growing region resulting in possible revenue and operating profit increases to the Europe segment.
Russia and Other Segments
During the years ended December 31, 2014, revenues from the Russia and Other operating segments decreased by $5.1 million and $2.8$4.9 million, respectively, accounting for mostover corresponding period of the segment's growth in the period indicated. The decrease in operating2013. Operating profits of the Russia segment showed no changes when compared with the operating profits of this segment in 2013, whenwhile profits of Other segments decreased $4.1 million compared to 2012 was primarily attributable2013.
Revenues and operating profits in the Russia and Other segments are subject to volatility resulting from revenue recognition delays related to fixed-price projects. Revenue recognition on such projects is susceptible to timing delays.finalizing budgets for certain arrangements with major customers in those segments. As a result, there may be instances where we recordrecorded the cost related to the performance of services in 2014 with no associated revenuerevenues recognized in the period that services were rendered. In particular, we estimate a total of $2.5 million of revenues remained unrecognized as of December 31, 2013These business arrangements were further exacerbated by strong foreign currency fluctuations in the Russia segment, with related costs reflected in the segment's operating results for the year then ended. Similarly, we may record revenue in a period where the underlying expenses have been recorded in a previous period, which would significantly improve the operating margin of the Russia segment in the period of recognition. Consequently, a higher concentration of fixed-price projects in the Russia segment affects the period-over-period comparability of the segment’s operating results.
Other Segment
During the year ended December 31, 2013, revenues from the Other segment were $10.5 million, or 1.9% of total segment revenues, representing a decrease of $6.5 million, or 38.2%, from the 2012 results. During 2013, our Other segment's operating profits decreased by $6.1 million, as compared to the corresponding period of 2012, to $0.8 million.
The decrease in revenues and operating profits of the Other segment in 2013, as compared to 2012, was primarily attributable to a completion of a large fixed-priced project in 2012 with $4.6 million revenues and $2.5 million operating profit recognized in 2012 that did not recur in 2013. In addition, the fourth quarter of 2012 benefited significantly from fixed-priced project with one of2014, negatively impacting our largest customersbusiness in that segment that did not recur in 2013.
2012 Compared to 2011
North America Segment
Our North America segment accounted for 45.5% of total segment revenues in both 2012Russia and 2011. North America revenues increased by $45.6 million, or 30.0%, from $151.7 million in 2011 to $197.3 million in 2012. The increase in revenues was primarily driven by continued expansion of existing client relationships as well as revenues contributed by new clients. Additionally, two acquisitions completed in 2012 contributed approximately $7.7 million, or 16.7%, to the overall segment growth during the period. Within the segment, revenue from our ISVs and Technology and Travel and Consumer verticals increased by approximately $22.8 million and $10.8 million, respectively, as compared to 2011, representing 73.7% of the overall segment growth.CIS countries.
Segment operating profit increased by $4.9 million, or 14.6%, from $33.7 million in 2011 to $38.7 million in 2012. The increase in segment operating profit was attributable primarily to increased revenues, partially offset by an increase in compensation and benefit costs resulting primarily from additional headcount to support our revenue growth and continued demand for onsite resources.
Europe Segment
Our Europe segment accounted for 38.9% and 36.9% of total segment revenues in 2012 and 2011, respectively. Europe continues to be a rapidly growing segment in our portfolio, given our nearshore delivery capabilities, and our value proposition in delivering quality software engineering solutions and services is continuing to gain considerable traction with European-based clients. As a result, revenue increased $45.4 million, or 36.8%, from $123.5 million during 2011 to $168.9 million in 2012. Within the segment, growth was the strongest in our Banking and Financial Services and Travel and Consumer verticals, where revenue increased by approximately $30.2 million and $11.2 million, respectively, in 2012 as compared to 2011.
Segment operating profit increased by $7.7 million, or 30.5%, from $25.1 million during 2011 to $32.8 million during 2012. The increase in Europe segment operating profit was mainly attributable to increased revenues, partially offset by an increase in compensation and benefit costs primarily driven by additional headcount to support our revenue growth and continued demand for increase in onsite resources.

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Russia Segment
Our Russia segment comprised 11.7% of total segment revenues in 2012, compared to 13.8% in 2011 with revenues increasing by $4.3 million, or 9.4%, from $46.2 million in 2011 to $50.6 million in 2012. Within the segment, revenue from Travel and Consumer and ISVs and Technology verticals increased by $3.2 million and $0.8 million, respectively, representing 93.0% of the overall segment growth in 2012.
Segment operating profit decreased by $1.4 million, or 13.4%, from $10.4 million in 2011 to $9.0 million in 2012. The decrease in Russia’s operating profit was attributable to a combination of factors, including higher compensation and benefits of our IT professionals in 2012, as compared to 2011, subcontractor costs incurred in connection with initial implementation work on a long-term project with one of Russia’s leading consumer-electronic retail chains, and reduced utilization levels resulting from fluctuations in service volumes.
Other Segment
Revenues from Other segment comprised 3.9% of total segment revenues, compared to 3.8% in 2011 with the majority of revenues derived from clients located in Kazakhstan and Ukraine. Other segment revenues increased by $4.1 million, or 32.2%, from $12.9 million in 2011 to $17.0 million in 2012. The growth was primarily attributable to the successful completion and delivery of a large World Bank sponsored fixed fee project in Ukraine with $3.8 million of incremental revenues recognized in 2012.
Segment operating profit increased by $4.6 million, or 189.1%, from $2.4 million in 2011 to $7.0 million in 2012. The increase in segment operating profit was primarily attributable to the same project noted above.

Liquidity and Capital Resources
Capital Resources
At December 31, 2013,2015, our principal sources of liquidity were cash and cash equivalents totaling $169.2$199.4 million, a one-year time deposit maturing in March 2016 in the amount of $30.0 million and $40.0$65.0 million of available borrowings under our revolving line of credit. As of that date, $143.5$181.9 million of our total cash and cash equivalents was held outside the United States, including $72.5States. Of this amount, $79.3 million was held in U.S. dollar denominated accounts in Belarus, including deposits that accrued interest at an average interest rate of 4.3%4.8% during 2013.2015.
We have a revolving lineIn 2014 we repatriated $75.8 million U.S. dollars from Belarus into our Cyprus entity’s bank in the United Kingdom. In March 2015, $30.0 million of credit with PNC Bank, National Association (the “Bank”). Effective January 15, 2013, we enteredthis amount has been placed into a new agreement withone-year interest bearing time deposit within the Bank (the “2013 Credit Facility”) which increased our borrowing capacity undersame bank. As of December 31, 2015, the revolving lineremaining unrestricted balance of credit from $30.0$28.7 million to $40.0 million and extended maturity of the new facility to January 15, 2015. Advances under the new line of credit accrue interest at an annual rate equal to the London Interbank Offer Rate, or LIBOR, plus 1.25%. The 2013 Credit FacilityU.S. dollars is secured by all of our domestic tangible and intangible assets, as well as by 100% of the stock of our domestic subsidiaries and 65% of the stock of certain of our foreign subsidiaries. The line of credit also contains customary financial and reporting covenants and limitations. We are currentlykept in compliance with all covenants containeda savings account in our revolving line of credit and believe that our revolving line of credit provides sufficient flexibility such that we will remain in compliance with its termsCyprus entity’s bank in the foreseeable future. At December 31, 2013, we had no borrowings outstanding underUnited Kingdom.
Our subsidiaries in the line of credit.CIS or APAC regions do not maintain significant balances denominated in currencies other than U.S. dollars.
The cash and cash equivalents held at locations outside of the United States are for future operating expenses and we have no intention of repatriating those funds. We are not, however, restrictedHowever, as a result of various factors such as any global or regional instability or changes in repatriating thosetax laws in place for a specific time period, we may later decide to repatriate some or all of our funds back to the United States, if necessary.States. If we decide to remit funds to the United States in the form of dividends, $143.2$212.1 million would be subject to foreign withholding taxes, of which $125.2$184.0 million would also be subject to U.S. corporate income tax. We believe that our available cash and cash equivalents held in the United States and cash flow to be generated from domestic operations will be adequate to satisfy our domestic liquidity needs in the foreseeable future. Our ability to expand and grow our business in accordance with current plans and to meet our long-term capital requirements will depend on many factors, including the rate, if any, at which our cash flows increase, our continued intent not to repatriate earnings from outside of the U.S. and the availability of public and private debt and equity financing.
To the extent we pursue one or more significant strategic acquisitions, we may incur debt or sell additional equity to finance those acquisitions.
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TableOn September 12, 2014, we established a revolving credit facility with PNC Bank, National Association; Santander Bank, N.A; and Silicon Valley Bank. This credit facility consists of Contents
a $100.0 million revolving line of credit, with a maturity date of September 12, 2019. There is potential to increase the credit facility up to $200.0 million if certain conditions are met. Borrowings under the 2014 Credit Facility may be denominated in United States dollars or, up to a maximum of $50.0 million in British pounds sterling, Canadian dollars, euros or Swiss francs (or other currencies as may be approved by the lenders). At December 31, 2015, we had outstanding debt of $35.0 million with the balance of the credit limit of $65.0 million remaining available for use.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
 
Year Ended
December 31,
 2015 2014 2013
 (in thousands)
Consolidated Statements of Cash Flow Data:     
Net cash provided by operating activities$76,393
 $104,874
 $58,225
Net cash used in investing activities(125,494) (52,929) (21,820)
Net cash provided by financing activities33,764
 10,347
 15,501
Effect of exchange rate changes on cash and cash equivalents(5,748) (10,965) (811)
Net increase/(decrease) in cash and cash equivalents$(21,085) $51,327
 $51,095
Cash and cash equivalents, beginning of period220,534
 169,207
 118,112
Cash and cash equivalents, end of period$199,449
 $220,534
 $169,207

42
  Year Ended December 31, 
  2013  2012  2011 
  (in thousands) 
Consolidated Statements of Cash Flows Data: 
  
  
 
Net cash provided by operating activities $58,225  $48,499  $54,520 
Net cash used in investing activities  (21,820)  (59,627)  (17,408)
Net cash provided by/(used in) financing activities  15,501   38,847   (1,558)
Effect of exchange-rate changes on cash and cash equivalents  (811)  1,597   (762)
Net increase in cash and cash equivalents $51,095  $29,316  $34,792 
Cash and cash equivalents, beginning of period  118,112   88,796   54,004 
Cash and cash equivalents, end of period $169,207  $118,112  $88,796 

Table of Contents

Operating Activities
Net cash provided by operations increased by $9.7during the year ended December 31, 2015 decreased $28.5 million to $58.2$76.4 million, in 2013 from $48.5as compared to $104.9 million net cash provided by operations in 2012. For 2013, net2014. During 2015, operating cash providedflows were impacted by operations was primarily comprised of net income of $22.3 million before accounting for non-cash items such as stock-based compensation, depreciationincreases in billed and amortization, bad debt expense,unbilled accounts receivable and other items aggregating to $14.8 million. Net increasegreater accrued expenses, which were mostly impacted by increases in operating assetsbonus compensation. During 2015 we have recorded more accounts receivable and liabilities in 2013unbilled revenue as compared to 2012, was primarily related to a reductionthe same period in prepaid and other assets by approximately $1.9 million as a result of non-recurring purchases made2014. The increases in 2012 coupled with a net increase in accrued expenses and trade payables of $2.0 million mainly due to a decrease in third party contractor expenses. This increase in operating cash flows was partially offset by higher billed and unbilled receivables are consistent with our growth in revenue and the majority of $7.6 million, which was mainly driven by increased volumesunbilled receivables are current with nearly 60% recorded in December 2015 and higher ratioover 90% recorded during the fourth quarter of fixed-priced projects in 2013 as compared to 2012, and a $6.1 million decrease in other net liabilities. The decrease in other net liabilities includes the effects of a higher portion of December salaries and related taxes released before the year-end in 2013 when compared to 2012; and a reduction in warranty revenues of $1.6 million related to several large non-recurring projects completed in prior periods.2015.
Net cash provided by operations decreased by $6.0 million to $48.5 million during the year ended December 31, 2012 from $54.52014 increased $46.6 million to $104.9 million, as compared to $58.2 million net cash provided by operations in 2013. During 2014, operating cash flows benefited, in part, from our strong focus on improving working capital efficiencies during the same period in 2011. The increase in net incomelatter part of $11.0 million before accounting2013, including focus on reducing days outstanding for non-cash items in 2012 wasour billed and unbilled receivables. This emphasis more than offset by a decreasethe higher working capital requirements associated with increased revenues, including growth in accruedtotal compensation and benefits of $15.3 million, primarily as a result ofour IT professionals, overhead expenses, and higher bonus payments relating to 2011 performance made in 2012 compared to such payments made in 2011.tax payments.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2013 decreased2015 was $125.5 million and consisted primarily of a $30.0 million interest bearing time deposit set up by $37.8our Cyprus entity in the United Kingdom in March 2015 and $76.9 million to $21.8 million, as compared to $59.6 million of net cash used in investing activities in 2012.the business combinations with NavigationArts and AGS. The decrease in cash spent on investing activitiesacquisitions of businesses in 2013 as2015 increased $39.8 million compared to 2012, was primarily attributable to a $11.1 million decrease in payments made in connection with the construction of corporate facilities in Belarus combined with a $32.9 million decrease in payments made in connection with our 2012 acquisitions. The decrease was partly offset by net payments of $5.8 million made by us in relation to employee loans issued under the Employee Housing Program.2014.
Net cash of $59.6 million was used in investing activities during the year ended December 31, 20122014 increased $31.1 million to $52.9 million as compared to $17.4$21.8 million of net cash used in investing activities during the samecorresponding period in 2011. Capital expenditures decreased by $2.2 million in 2012, as comparedof 2013. The increase was primarily attributable to 2011, however, this decrease was more than offset by an increase of $12.2$37.1 million spent on constructionacquisitions of facilities in Belarus. Additionally, 2012 investing cash flows were impacted by a total of $33.0 million of net cash paid to acquire operations of Thoughtcorp and Empathy Lab. See Note 2 of our consolidated financial statements in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements,” for further information regarding these acquisitions.
Financing Activities
Net cash provided by financing activities in 2013 decreased by $23.3 million to $15.5 million, as compared to $38.8 million provided by financing activities in 2012. This was primarily due to a net $30.6 million received in connection with our initial public offering of common stock in the first quarter of 2012 that did not recur in 2013,businesses, partially offset by an increase of $7.3a net $6.2 million decrease in proceeds received by us in 2013 as a result of stock option exercises and associated tax benefits.loans issued under the Employee Housing Program compared to the corresponding period last year.
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2012 increased by $40.42015 was $33.8 million, as compared to $1.6a decrease of $23.4 million of net cash outflow from financing activities for the same period in 2011. This was2014 primarily due to net $30.6 million
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received in connection with the initial public offering of our common stockdeferred consideration in the first quarteramount of 2012 compared to$30 million as well as a $1.6decrease in excess tax benefit on stock-based compensation plans, partly offset by higher proceeds from stock option exercises.
Net cash provided by financing activities during the year ended December 31, 2014 was $10.3 million, cash outflow related to offering issuance costs ina decrease of $5.2 million from the same period in 2011. Additionally, 2012 financing cash flows improved by $8.32013 primarily due to payment of deferred consideration in the amount of $4 million compared to the same period in 2011as well as a result ofdecrease in excess tax benefit on stock-based compensation plans, partly offset by higher proceeds received by us from stock option exercises and associated tax benefits.exercises.
Contractual Obligations and Future Capital Requirements
Contractual Obligations
Set forth below is information concerning our fixed and determinable contractual obligations as of December 31, 2013.2015.

 Total  
Less than 1
Year 
 1-3 Years  3-5 Years  
More than 5
Years 
 (in thousands) 
Operating lease obligations $31,279  $13,924  $12,354  $4,521  $480 
Other long-term obligations (1)
  1,890   1,890          
Employee Housing Program (2)  35   35          
Total $33,204  $15,849  $12,354  $4,521  $480 

 Total 
Less than 1
Year
 1-3 Years 3-5 Years 
More than 5
Years
 (in thousands)
Operating lease obligations$49,616
 $17,606
 $23,400
 $5,946
 $2,664
Long-term debt obligation$65,000
 $
 $
 $65,000
 $
 $114,616
 $17,606
 $23,400
 $70,946
 $2,664
(1)
On December 7, 2011, we entered into an agreement with IDEAB Project Eesti AS for the construction of a 14,071 square meter office building within the High Technologies Park in Minsk, Belarus. The building is expected to be operational in the first half of 2014. As of December 31, 2013, our total outstanding commitment was $1.9 million.
(2)In the third quarter of 2012, our Board of Directors approved the Employee Housing Program, which assists employees in purchasing housing in Belarus. As part of the program, we will extend financing to employees up to an aggregate amount of $10.0 million.

During the year ended December 31, 2015, the Company completed construction of the office building within the High Technologies Park in Minsk, Belarus, and, therefore, no future capital requirements exist related to this construction. See Note 15in the notes to our consolidated financial statements in this Annual Report on Form 10-K for further information.
Future Capital Requirements

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We believe that our existing cash and cash equivalents combined with our expected cash flow from operations will be sufficient to meet our projected operating and capital expenditure requirements for at least the next twelve months and that we possess the financial flexibility to execute our strategic objectives, including the ability to make acquisitions and strategic investments in the foreseeable future. Our ability to generate cash, however, is subject to our performance, general economic conditions, industry trends and other factors. To the extent that existing cash and cash equivalents and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing stockholders may occur. If we raise cash through the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business. There is no assurance that we would be able to raise additional funds on favorable terms or at all.
Off-Balance Sheet Commitments and Arrangements
We do not have any obligations under guarantee contracts or other contractual arrangements within the scope of FASB ASC paragraph 460-10-15-4 (Guarantees Topic) other than as disclosed in Note 16 of15 in the notes to our consolidated financial statements in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements;” nor dothis Annual Report on Form 10-K. We have not entered into any transactions with unconsolidated entities where we have any investments in special purpose entitiesfinancial guarantees, subordinated retained interests, derivative instruments, or undisclosed borrowings or debt. Accordingly, our results of operations, financial condition and cash flows are not subjectother contingent arrangements that expose us to material off-balance sheet risks.continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us, or engages in leasing, hedging, or research and development services with us.

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Critical Accounting Policies
We prepare our audited consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), which require us to make judgments, estimates and assumptions that affect: (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the end of each reporting period and (iii) the reported amounts of revenues and expenses during each reporting period. We evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. When reviewing our audited consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements as their application places significant demands on the judgment of our management.
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An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the audited consolidated financial statements. We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our audited consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included in this annual report.
Revenue Recognition
We recognize revenue when realized or realizable and earned, which is when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. If there is an uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. At the time revenues are recognized, we provide for any contractual deductions and reduce revenues accordingly. We defer amounts billed to our clients for revenues not yet earned. Such amounts are anticipated to be recorded as revenues as services are performed in subsequent periods. Unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms.
We derive our revenues from a variety of service offerings, which represent specific competencies of our IT professionals. Contracts for these services have different terms and conditions based on the scope, deliverables, and complexity of the engagement, which require management to make judgments and estimates in determining appropriate revenue recognition pattern. Fees for these contracts may be in the form of time-and-materials or fixed-price arrangements.
The majority of our revenues (82.3%(85.8% of revenues in 2013, 84.1%2015, 84.7% in 20122014 and 86.1%82.3% in 2011) is2013) are generated under time-and-material contracts whereby revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly to the client.
Revenues from fixed-price contracts (15.7%(12.8% of revenues in 2013, 13.7%2015, 13.6% in 20122014 and 11.0%15.7% in 2011)2013) are determined using the proportional performance method. In instances where final acceptance of the product, system, or solution is specified by the client, revenues arerevenue is deferred until all acceptance criteria have been met. In absence of a sufficient basis to measure progress towards completion, revenue is recognized upon receipt of final acceptance from the client. In order to estimate the amount of revenue for the period under the proportional performance method, we determine the percentage of actual labor hours incurred as compared to estimated total labor hours and apply that percentage to the consideration allocated to the deliverable. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our consolidated financial statements. A number of internal and external factors can affect such estimates, including labor hours and specification and testing requirement changes. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known. No significant revisions occurred in each of the three years ended December 31, 2013, 20122015, 2014 and 2011.2013. Our fixed price contracts are generally recognized over a period of 12 months or less.
From time to time, we enter into multiple element arrangements with our customers. In the vast majority of cases such multiple-element arrangements represent fixed-priced arrangements to develop a customized IT solution to meet the customer’s needs combined with warranty support over a specified period of time in the future, to which we refer to as the “warranty period.” Our customers retain full intellectual property (IP) rights to the results of our services, and the software element created in lieu of such services is no more than incidental to any of the service deliverables, as defined in accordance with ASC 985-605-15-13. For such arrangements we follow the guidance set forth in ASC 605-25, Revenue Recognition – Multiple Element Arrangements, as to whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. We recognize revenue related to the delivered products only if all revenue recognition criteria are met and the delivered element has a standalone value to the customer and allocate total consideration among the deliverables based on their relative selling prices. Revenue related to the software development services is recognized under the proportional performance method, as described above, while warranty support services are recognized on a straight-line basis over the warranty period. The warranty period is generally three months to two years.
We report gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income.income and comprehensive income as these expenses are billable to our clients.

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Goodwill and Other Intangible Assets
Business Combinations We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of net assets acquired and the related goodwill and other intangible assets.assets in accordance with the FASB ASC Topic 805, “Business Combinations.” We identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. Our acquisitions usually doThere are different valuation models for each component, the selection of which requires considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable, but recognize that the assumptions are inherently uncertain.
If initial accounting for the business combination has not have significantbeen completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported for which the accounting is incomplete, with retrospective adjustment made to such provisional amounts during the measurement period to present new information about facts and circumstances that existed as of tangiblethe acquisition date. Once the measurement period ends, and in no case beyond one year from the acquisition date, revisions of the accounting for the business combination are recorded in earnings.
All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred. Changes in fair value of contingent consideration arrangements that are not measurement period adjustments are recognized in earnings. Payments to settle contingent consideration, if any, are reflected in cash flows from financing activities and the changes in fair value are reflected in cash flows from operating activities in our consolidated statements of cash flows.
The acquired assets as the principal assets we typically acquire areconsist of customer relationships, trade names, non-competition agreements, and workforce. Asworkforce and as a result, a substantial portion of the purchase price is allocated to goodwill and other intangible assets.
Goodwill and Other Intangible Assets Goodwill and intangible assets that have indefinite useful lives are treated consistently with FASB ASC 350, “Intangibles - Goodwill and Other.” We do not amortized but are testedhave any intangible assets with indefinite useful lives.
We assess goodwill for impairment annually, for impairment.and more frequently in certain circumstances. Events or circumstances that might require impairment testing of goodwill and other intangible assets include the loss of a significant client, the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, significant decline in stock price or a significant adverse change in business climate or regulations. Intangible assets that have finite useful lives are amortized over their estimated useful lives onWe initially perform a straight-line basis.
Asqualitative assessment of December 31, 2013 and 2012, all of our intangible assets had finite lives and we did not incur any impairment losses in respect of our intangible assets during the years ended December 31, 2013, 2012 or 2011.
Effective in the fourth quarter of 2013, we changed the annual goodwill impairment assessment date for all of our reporting units from December 31stto October 31st, which represented a voluntary change in the annual goodwill impairment testing date.  We are also required to assess the goodwill of our reporting unitstest for impairment between annualindicators. After applying the qualitative assessment, dates when events or circumstances dictate. This change doesif we conclude that it is not delay, accelerate or avoid an impairment charge andmore likely than not that the fair value of goodwill is preferable as additional resources forless than the preparation, review, and conclusion ofcarrying amount; the annualtwo-step goodwill impairment test are available at this time. Further, this timingis not required.
If we determine that it is more closely aligns with our annual budgeting and planning process. Information prepared duringlikely than not that the annual budgeting and planning process is used extensively in our impairment assessment. We evaluatecarrying amount exceeds the recoverability of goodwill at a reporting unit level and we had three reporting units that were subject to the annual impairment testing in 2013. Our annual impairment review as of October 31, 2013 and December 31, 2012 did not result in an impairment charge for any of these reporting units. It was impracticable to apply this change retrospectively, as we are unable to objectively determine significant estimates and assumptions that would have been used in those earlier periods without the use of hindsight.
For our annual impairment test, we compare the respective fair value, we perform a quantitative impairment test. If an indicator of our reporting units to their respective carrying values in order to determine if impairment is indicated. If so,identified, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount, and the impairment loss is measured by the excess of the carrying value over the fair value. The fair values are estimated using a combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach, which incorporates the use of earnings multiples based on market data. These valuations are considered Level 3 measurements under FASB ASC Topic 820. We utilize estimates to determine the fair value of the reporting units such as future cash flows, growth rates, capital requirements, effective tax rates and projected margins, among other factors. Estimates utilized in the future evaluations of goodwill for impairment could differ from estimates used in the current period calculations. We are also required to assess the goodwill of its reporting units for impairment between annual assessment dates as events or circumstances dictate. Based on our assessment, these operating segments are not at risk for impairment.
Intangible assets that have finite useful lives are amortized over their estimated useful lives on a straight-line basis. When facts and circumstances indicate potential impairment of amortizable intangible assets, we evaluate the recoverability of the asset’s carrying value, using estimates of undiscounted future cash flows that utilize a discount rate determined by ourthe management to be commensurate with the risk inherent in our business model over the remaining asset life. The estimates of future cash flows attributable to intangible assets require significant judgment based on our historical and anticipated results. Any impairment loss is measured by the excess of carrying value over fair value. All of our intangible assets have finite lives.
Effective in the fourth quarter of 2013, we changed the annual goodwill impairment assessment date for all of our reporting units from December 31st to October 31st, which represented a voluntary change in the annual goodwill impairment testing date. 

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Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the audited consolidated financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes. We evaluate the realizability of deferred tax assets and recognize a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The realization of deferred tax assets is primarily dependent on future earnings. Any reduction in estimated forecasted results may require that we record valuation allowances against deferred tax assets. Once a valuation allowance has been established, it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be
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realized. A pattern of sustained profitability will generally be considered as sufficient positive evidence to reverse a valuation allowance. If the allowance is reversed in a future period, the income tax provision will be correspondingly reduced. Accordingly, the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate inStock-Based Compensation — Equity-based compensation cost relating to the future. The American Taxpayer Relief Actissuance of 2012 (the “Act”) was signed into law on January 2, 2013. Because a change in tax law is accounted for in the period of enactment, certain provisions of the Act benefiting our 2012 U.S. federal taxes, including the Subpart F controlled foreign corporation look-through exception were not recognized in our 2012 financial results and instead were reflected in our 2013 financial results.
Accounting for Stock-Based Employee Compensation Plans
Stock-based compensation expense forshare-based awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of the awards ultimately expected to vest. We recognize these compensation costs on a straight-line basisaward at the date of grant, which is expensed ratably over the requisite service period, net of estimated forfeitures. Over time, the forfeiture assumption is adjusted to the actual forfeiture rate and such change may affect the timing of the award, which is generallytotal amount of expense recognized over the option vesting termperiod. Equity-based awards that do not require future service are expensed immediately. Equity-based awards that do not meet the criteria for equity classification are recorded as liabilities and adjusted to fair value at the end of four years.each reporting period.
Recent Accounting Pronouncements
See Note 1 in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We estimate forfeitures at the time of grant and revise our estimates, if necessary, in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on our operating results. The assumptions usedare exposed to certain market risks in the valuation modelordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates, and concentration of credit risks. In addition, our international operations are based on subjective future expectations combined with management judgment. If anysubject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.
Concentration of the assumptions used in the valuation model change significantly, stock-based compensation for future awards may differ materially comparedCredit and Other Credit Risks
Financial instruments that potentially subject us to the awards previously granted.significant concentrations of credit risk consist primarily of employee loans receivable, cash and cash equivalents, trade accounts receivable and unbilled revenues.
Fair ValueAt December 31, 2015, outstanding loans issued to employees were $6.3 million, or 0.8%, of Employee Housing Loans
We issueour total assets. These loans to our employees under the Employee Housing Program (“housing loans”). Housing loans are issued in U.S. Dollars with a 5-year term and carry an interest rate of 7.5%. The program was designed to be a retention mechanism for our employees in Belarus.
Although permitted by authoritative guidance, we did not elect a fair value option for these financial instruments. These housing loans are measured at fair value upon initial recognition and subsequently carried at amortized cost less allowance for loan losses. Any difference between the carrying value and the fair value of a loan upon initial recognition (“day-one” recognition) is charged to expense.
The housing loans were classified as Level 3 measurements within the fair value hierarchy because they were valued using significant unobservable inputs. The estimated fair value of these housing loans upon initial recognition was computed by projecting the future contractual cash flows to be received from the loans and discounting those projected net cash flowspotentially expose us to a present value, which is the estimated fair value (the “Income Approach”). In applying the Income Approach, we analyzed similar loans offered by third-party financial institutions in Belarusian Rubles (“BYR”)risk of non-payment and adjusted the interest rates charged on such loans to exclude the effects of underlying economic factors, such as inflation and currency devaluation. We also assessed the probability of future defaults and associated cash flows impact. In addition, we separately analyzed the rate of return that market participants in Belarus would require when investing in unsecured USD-denominated government bonds with similar maturities (a “risk-free rate”) and evaluated a risk premium component to compensate the market participants for the credit and liquidity risks inherent in the loans’ cash flows, as described in the following paragraph. As a result of the analysis performed, we determined the carrying values of the housing loans issued during the year ended December 31, 2013 approximated their fair values upon initial recognition. We also estimated the fair values of the housing loans that were outstanding as of December 31, 2013 using the inputs noted above and determined their fair values approximated the carrying values as of that date.
loss. Repayment of housingthese loans is primarily dependent on the personal income of borrowers obtained through their employment with EPAM which income is set in U.S. dollars and is not closely correlated with commonmay be adversely affected by macroeconomic risks existing in Belarus,changes, such as inflation, local currency devaluation and decrease in the purchasing power of the borrowers’ income.inflation. Given a large demand for the program among our employees and its advantages as compared to alternative methods of financing available on the market, we expect the borrowers to fulfill their obligations, and we estimate the probability of voluntary termination of employment among the borrowers as de minimis. Additionally, housing loans are capped at $50 thousand per loan and secured by real estate financed through the program. We establish a maximum loan-to-value ratio of 70% and expect a decrease in the ratio over the life of a housing loan due to on-going payments by employees.
Recent Accounting Pronouncements
See Note 1 to the audited consolidated financial statements included in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements,” regarding the impact of certain recent accounting pronouncements on our audited consolidated financial statements.
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Item 7A.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates, and concentration of credit risks. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.
Concentration of Credit and Other Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of employee loans, cash and cash equivalents, trade accounts receivable and unbilled revenues.
At December 31, 2013 loans issued to employees were $6.4 million, or 1.5%, of our total assets. These loans expose us to a risk of non-payment and loss. Repayment of these loans is primarily dependent on personal income of borrowers obtained through their employment with EPAM and may be adversely affected by changes in macroeconomic situations, such as higher unemployment levels, currency devaluation and inflation. Additionally, continuing financial stability of a borrower may be adversely affected by job loss, divorce, illness or personal bankruptcy. We also face the risk that the collateral will be insufficient to compensate us for loan losses, if any, and costs of foreclosure. Decreases in real estate values could adversely affect the value of property used as collateral, and we may be unsuccessful in recovering the remaining balance from either the borrower and/or guarantors.
We maintain our cash and cash equivalents and short-term investments with financial institutions. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties. AsWe hold a significant balance of December 31, 2013, $103.1 million of total cash was held in banks in the CIS countries with $73.9 million of that in Belarus. Bankingwhere banking and other financial systems in the CIS are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of more developed markets and bank deposits made by corporate entities in the CIS region are not insured. As of December 31, 2015, $103.7 million of total cash was held in CIS countries, with $79.5 million of that in Belarus, and $10.5 million in Russia. The CIS banking sector remains subject to periodic instability and the transparency of the banking sector lags behind international standards. Furthermore, bank deposits made by corporate entitiesParticularly in CIS are not insured. AsBelarus, a result, the banking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy or insolvency of banks through which we receivethat process or with which we hold our funds, particularly in Belarus, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in the CIS region, which could materially adversely affect our business and financial condition. Cash in other CIS locations is used for short-term operational needs and cash balances in those banks move with the needs of the entities.

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Trade accounts receivable and unbilled revenues are generally dispersed across our clients in proportion to their revenues. As of December 31, 2013,2015, billed and unbilled revenuestrade receivables from two customersone customer, UBS AG, individually exceeded 10% of total unbilled revenues and jointly accounted for 33.3%12.4% and 19.8% of our total billed and unbilled revenues as of that date; and one customer accounted for over 10% of total accounts receivable as of that date.trade receivables, respectively.
During the yearsyear ended December 31, 2013 and 2012,2015, our top five customers accounted for 30.6% and 31.0%32.6% of our total revenues, and our top ten customers accounted for 42.3% and 44.4%43.8% of our total revenues, respectively. No customerDuring the year ended December 31, 2014, our top five customers accounted for over32.8% of our total revenues, and our top ten customers accounted for 43.9% of our total revenues, respectively.
During the years ended December 31, 2015 and 2014, the Company had one customer, UBS AG, with associated revenues of $129.8 million and $97.6 million, respectively, which accounted for more than 10% of total revenues in 2013 or 2012.the periods indicated.
CreditHistorically, credit losses and write-offs of trade accounts receivable balances have historically not been material to our audited consolidated financial statements.
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Interest Rate Risk
Our exposure to market risk foris mainly influenced by the changes in interest rates relates primarily toreceived on our cash and cash equivalentsequivalent deposits and paid on any outstanding balance on our revolving line of credit, bearingwhich is subject to a variety of rates depending on the type and timing of funds borrowed.
As of December 31, 2015, we have borrowed under the line of credit and have outstanding debt of $35.0 million. The interest atrate for this debt is based on LIBOR, plus 1.25% rate.which is set to change quarterly, according to the 2014 Credit Facility agreement. We do not use derivative financial instrumentsbelieve we are exposed to hedge our risk ofmaterial direct risks associated with changes in interest rate volatility.rates related to this borrowing.
We alsooffer loans under the Employee Housing Program and these loans are designed to be a retention mechanism for our employees in Belarus. These loans are financed with available funds of our Belarusian subsidiary and we do not believe that employee loans issued by us under the Employee Housing Program expose us to significant interest rate risks. These loans are designed to be a retention mechanism for our employees in Belarus and are financed with available funds of our Belarusian subsidiary.
We have not been exposed to material risks due to changes in market interest rates.rates and we do not use derivative financial instruments to hedge our risk of interest rate volatility. However, our future interest expense may increase and interest income may fall due to changes in market interest rates.
Foreign Exchange Risk
Our consolidated financial statements are reported in U.S. dollars. dollars; however, our business is conducted in various currencies. Outside of the United States, we operate primarily through wholly-owned subsidiaries in Canada, Europe, Asia, and the CIS and CEE regions and generate a significant portion of our revenues in currencies other than the U.S. dollar, principally, euros, British pounds sterling, Canadian dollars, Swiss francs and Russian rubles. We incur expenditures in non-U.S. dollar currencies, principally in Hungarian forints, euros, Russian rubles, Polish zlotys, Mexican pesos, Hong Kong dollars and China yuan renminbi (“CNY”) associated with our delivery centers located in the CEE, Europe, Mexico and APAC regions.
Our international operations expose us to foreign currency exchange rate changes that could impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. Our exposure to currency exchange rate changes is diversified due to the number of different countries in which we conduct business. We operate outside the United States primarily through wholly owned subsidiaries in Canada, Europe, and the CIS and CEE regions and generate a significant portion of our revenues in certain non-U.S. dollar currencies, principally, euros, British pounds and Russian rubles. We incur expenditures in non-U.S. dollar currencies, principally in Hungarian forints, euros and Russian rubles associated with our delivery centers located in CEE. We are exposed to fluctuations in foreign currency exchange rates primarily on accounts receivable and unbilled revenues from sales in these foreign currencies and cash flowsoutflows for expenditures in foreign currencies. We do not use derivative financial instruments to hedge the risk of foreign exchange volatility. Our results of operations can be affected if any of the euro, the British pound, Hungarian forint and/or Russian rublecurrencies, which we use materially in our business, appreciate or depreciate against the U.S. dollar. Our exchange rate risk primarily arises from our foreign currency revenues and expenses. Our exposure to currency exchange rate changes is naturally diversified due to the variety of countries and currencies in which we conduct business.
Based on our results of operations for the year ended December 31, 2013, a 1.0% appreciation / (depreciation) of either2015, if currencies were not impacted by foreign exchange fluctuations and results were evaluated on the constant currency basis using rates from the year 2014 our consolidated revenue would have been higher by 5.7%. Revenue has been negatively impacted by all currencies when compared on the constant currency basis to the year 2014 with main differences coming from the decline in the Russian ruble, euro, or the British pound againststerling and Canadian dollar. If compared on the U.S. dollar would result in an estimated increase / (decrease) of approximately $0.3 million insame constant currency basis, our net income and a 1.0% appreciation / (depreciation) ofwould have been lower by 1.5% as the Hungarian forint againstimpact from the U.S. dollar would result in an estimated increase / (decrease) of approximately $0.4 million in net income. Basedcurrency declines also had some favorable impact on the expenses at our results of operationsoffshore delivery centers. Net income for the year ended December 31, 2013, a 1.0% appreciation/ (depreciation)2015 compared on the constant currency basis to the year 2014 was impacted positively by the Russian ruble, Hungarian forint and Polish zloty and was offset mostly by the negative impact from the euro, British pounds sterling and Canadian dollar. Overall, the most significant impact on the 2015 results was from the euro, the Russian ruble and Canadian dollar fluctuations.

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Table of all applicable foreign currencies against the U.S. dollar would result in an estimated increase/ (decrease) of approximately $0.1 million in net income.Contents

To the extent that we need to convert U.S. dollars into foreign currencies for our operations, appreciation of such foreign currencies against the U.S. dollar would adversely affect the amount of such foreign currencies we receive from the conversion. Sensitivity analysis is used as a primary tool in evaluating the effects of changes in foreign currency exchange rates, interest rates and commodity prices on our business operations. The analysis quantifies the impact of potential changes in these rates and prices on our earnings, cash flows and fair values of assets and liabilities during the forecast period, most commonly within a one-year period. The ranges of changes used for the purpose of this analysis reflect our view of changes that are reasonably possible during the forecast period. Fair values are the present value of projected future cash flows based on market rates and chosen prices. Changes in the currency exchange rates resulted in our reporting a net transactional foreign currency exchange losses of $2.5$4.6 million and $1.8$2.2 million during the years ended December 31, 20132015, and 2012,2014, respectively. The increase in net foreign exchange loss for the year ended December 31, 2015 as compared to 2014 was primarily attributable to changes in exchange rates of Russian ruble, euro, British pound sterling and Canadian dollar against U.S. dollar in the periods indicated, including realized losses from foreign currency conversions. These losses are included in theour consolidated statements of income and comprehensive income.
Additionally, foreign currency translation adjustments from translating financial statements of our foreign subsidiaries from functional currency to the U.S. dollars are recorded as a separate component of stockholders’ equity or included in the consolidated statements of income and comprehensive income if local currencies of our foreign subsidiaries differ from their functional currencies. As of December 31, 2013,2015, approximately 21.6%23.6% of our total net assets were subject to foreign currency translation exposure, as compared to 21.1%21.9% as of December 31, 2012;2014. During the years ended December 31, 2015 and 29.6% of our2014, net income in 2013 was generated by foreign subsidiaries for which the functional currency iswas not U.S. dollars as compared to 32.3% in 2012.was 37.0% and 35.1%, respectively. During the years ended December 31, 20132015 and 2012,2014, we recorded translation losses of $0.3$13.1 million within our consolidated income in both periods, and $0.8$20.3 million of translation losses, and $2.5 million of translation gainsrespectively, within our consolidated accumulated otherstatements of income and comprehensive income during the years ended December 31, 2013 and 2012, respectively.income.

Item 8.8. Financial Statements and Supplementary Data
The information required is included in this annual report as set forth in Part IV, “Item 15. Exhibits, Financial Statement Schedules — Audited Consolidated Financial Statements.”Annual Report on Form 10-K beginning on page F-1.
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Item 9.9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A.Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2013, we carried out anBased on management’s evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as toof the effectiveness, designend of the period covered by this report, our CEO and operation ofCFO have concluded that our disclosure controls and procedures. The term “disclosure controls and procedures” as (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the(the Exchange Act, means controls and other procedures of a company thatAct) are designedeffective to ensureprovide reasonable assurance that information required to be disclosed by a companyus in the reports that it fileswe file or submitssubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including itsour principal executive officer and principal financial officers,officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief
Changes in Internal Control Over Financial Officer, does not expect that our disclosure controls and procedures orReporting
There were no changes in our internal controls will prevent and/or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance thatover financial reporting during the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in the Exchange Act Rules 13a- 15(e) and 15d-15(e)) were effective as ofquarter ended December 31, 2013.2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forthcriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial reporting was effective atas of December 31, 2013.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the our independent registered public accounting firm pursuant to the rules of the Securities Exchange Commission that permit us2015 to provide only management’s reportreasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in this annual report.accordance with U.S. generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting
There has been no change inThe effectiveness of our internal control over financial reporting during the quarter endedas of December 31, 2013,2015 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which appears in Part IV. Item 15 of this Annual Report on Form 10-K.

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Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that has materially affected,our disclosure controls or is reasonably likely to materially affect, our internal control over financial reporting.reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Item 9B.Other Information
None.

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PART III
Item 10.10. Directors, Executive Officers and Corporate Governance
TheWe incorporate by reference the information required by this item isItem from the information set forth under the sections “Electioncaptions “Board of Directors,”Directors”, “Corporate Governance”, “Our Executive Officers,”Officers”, and “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in in our definitive Proxy Statement (the “2014 Proxy Statement”)proxy statement for our 2016 annual general meeting of stockholders, to be heldfiled within 120 days after the end of the year covered by this Annual Report on June 13, 2014, which sections are incorporated herein by reference.Form 10-K, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended ( our “2016 Proxy Statement”).

Item 11.11. Executive Compensation
InformationWe incorporate by reference the information required by this item isItem from the information set forth under the sectionscaptions “Executive Compensation Tables”Compensation” and “Compensation Committee Interlocks and Insider Participation” in the 2014our 2016 Proxy Statement, which sections are incorporated herein by reference.Statement.

Item 12.12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersMatters
Information
We incorporate by reference the information required by this item isItem from the information set forth under the sectioncaption “Security Ownership of Certain Beneficial Owners and Management” in our 2016 Proxy Statement.
Equity Compensation Plan Information
The following table sets forth information about awards outstanding as of December 31, 2015 and securities remaining available for issuance under our 2015 Long-Term Incentive Plan (the “2015 Plan”), our 2012 Long-Term Incentive Plan (the “2012 Plan”), the 2014 Proxy Statement, which section is incorporated herein by reference.Amended and Restated 2006 Stock Option Plan (the “2006 Plan”) and the 2012 Non-Employee Directors Compensation Plan (the “2012 Directors Plan”) as of December 31, 2015.

Plan Category 
Number of securities
to be issued upon
exercise of outstanding options, warrants
and rights 
 
Weighted average
exercise price of
outstanding options,
warrants and rights 
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) 
Equity compensation plans approved by security holders: (1)
         7,211,440
 
(4) 
            Stock options 7,450,914
 
(2) 
 $34.07
 
(3) 
    
            Restricted stock unit awards 163,272
   $
 
(5) 
 
 
(5) 
Equity compensation plans not approved by security holders 
 
  
 $
 
  
 
 
  
Total 7,614,186
   $34.07
   7,211,440
  
(1)This table includes the following stockholder approved plans: the 2015 Plan, 2012 Plan, the 2006 Plan and the 2012 Directors Plan.
(2)Represents the number of underlying shares of common stock associated with outstanding options under our stockholder approved plans and is comprised of 134,025 shares underlying options granted under our 2015 Plan; 6,277,028 shares underlying options granted under our 2012 Plan; and 1,039,861 shares underlying options granted under our 2006 Plan.
(3)Represents the weighted-average exercise price of stock options outstanding under the 2015 Plan, the 2012 Plan and the 2006 Plan.
(4)Represents the number of shares available for future issuances under our stockholder approved equity compensation plans and is comprised of 7,450,914 shares available for future issuance under the 2015 Plan and 554,070 shares available for future issuances under the 2012 Directors Plan.
(5)Not applicable.
Item 13.13. Certain Relationships and Related Transactions, and Director Independence
InformationWe incorporate by reference the information required by this item isItem from the information set forth under the sectioncaption “Certain Relationships and Related Transactions and Director Independence” in the 2014our 2016 Proxy Statement, which section is incorporated herein by reference.Statement.

Item 14.14. Principal Accountant Fees and Services
InformationWe incorporate by reference the information required by this item isItem from the information set forth under the sectioncaption “Independent Registered Public Accounting Firm Fees and Other Matters”Firm” in the 2014our 2016 Proxy Statement, which section is incorporated herein by reference.Statement.


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PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a)            We have filed the following documents as part of this annual report:
1.            Audited Consolidated Financial Statements

 Page
Report of Independent Registered Public Accounting FirmF-2
Consolidated Balance Sheets as of December 31, 20132015 and 20122014F-3F-4
Consolidated Statements of Income and Comprehensive Income for Years Ended December 31, 2013, 20122015, 2014 and 20112013F-4F-5
Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity for Years Ended December 31, 2013, 20122015, 2014 and 20112013F-5F-6
Consolidated Statements of Cash Flows for Years Ended December 31, 2013, 20122015, 2014 and 20112013F-7F-8
Notes to Consolidated Financial Statements for Years Ended December 31, 2013, 20122015, 2014 and 20112013F-8F-10
2.            Financial Statement Schedules
Financial statementNone. All schedules are omitted because they are not applicable orhave been included in the required information is shown in theconsolidated financial statements or the notes thereto.
3.            Exhibits
A list of exhibits required to be filed as part of this annual reportAnnual Report is set forth in the Exhibit Index, which immediately precedes such exhibits and is incorporated herein by reference.Index.

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EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of March, 2014.

EPAM SYSTEMS, INC.
By:/s/ Arkadiy Dobkin
Name:Arkadiy Dobkin
Title:Chairman, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
/s/ Arkadiy Dobkin
Chairman, Chief Executive Officer and PresidentExhibit
(principal executive officer)Number
March 10, 2014
Arkadiy Dobkin
/s/ Anthony J. Conte
Vice President, Chief Financial Officer and Treasurer
(principal financial officer and principal accounting officer)
March 10, 2014
Anthony J. Conte
/s/ Karl Robb
Director
March 10, 2014
Karl Robb
/s/ Andrew J. Guff
Director
March 10, 2014
Andrew J. Guff
/s/ Donald P. Spencer
Director
March 10, 2014
Donald P. Spencer
/s/ Richard Michael Mayoras
Director
March 10, 2014
Richard Michael Mayoras
/s/ Robert E. Segert
Director
March 10, 2014
Robert E. Segert
/s/ Ronald Vargo
Director
March 10, 2014
Ronald Vargo
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EXHIBIT INDEX
Exhibit Number Description
3.1 Certificate of incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 10-K for the fiscal year ended December 31, 2011, SEC File No. 001-35418, filed March 30, 2012 (the “2011 Form 10-K”))
3.2 Bylaws (incorporated herein by reference to Exhibit 3.2 to the 2011 Form 10-K)
4.1 Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 6 to Form S-1, SEC File No. 333-174827, filed January 23, 2012 (“Amendment No. 6”))
4.2 Amended and Restated Registration Rights Agreement dated February 19, 2008 (incorporated herein by reference to Exhibit 4.2 to Form S-1, SEC File No. 333-174827, filed June 10, 2011 (the “Registration Statement”))
4.3 Registration Rights Agreement dated April 26, 2010 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement)
10.1Revolving line of credit between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated herein by reference to Exhibit 10.1 to the Registration Statement)
10.2Security Agreement between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated herein by reference to Exhibit 10.2 to the Registration Statement)
10.3Borrowing Base Rider between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement)
10.4First Amendment to loan documents between EPAM Systems, Inc. and PNC Bank, National Association dated September 30, 2010 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement)
10.5Amended and Restated Committed Line of Credit Note dated September 30, 2010 (incorporated herein by reference to Exhibit 10.5 to the Registration Statement)
10.6†10.1† EPAM Systems, Inc. Amended and Restated 2006 Stock Option Plan (incorporated herein by reference to Exhibit 10.6 to Amendment No. 6)
10.7†10.2† Form of EPAM Systems, Inc. 2006 Stock Option Plan Award Agreement (under the EPAM Systems, Inc. Amended and Restated 2006 Stock Option Plan) (incorporated herein by reference to Exhibit 10.7 to Amendment No. 6)
10.8Second Amendment to loan documents between EPAM Systems, Inc. and PNC Bank, National Association dated July 25, 2011 (incorporated by reference to Exhibit 10.11 to Amendment No. 3 to Form S-1, SEC File No. 333-17482, filed September 26, 2011(“Amendment No. 3”))
10.9Second Amended and Restated Committed Line of Credit Note dated July 25, 2011 (incorporated by reference to Exhibit 10.12 to Amendment No. 3)
10.10†10.3† EPAM Systems, Inc. 2012 Long TermLong-Term Incentive Plan (incorporated herein by reference to Exhibit 10.12 to Amendment No. 6)
10.11†10.4† Form of Senior Management Non-Qualified Stock Option Award Agreement (under the EPAM Systems, Inc. 2012 Long TermLong-Term Incentive Plan) (incorporated herein by reference to Exhibit 10.13 to Amendment No. 6)
10.12†10.5† Restricted Stock Award Agreement by and between Karl Robb and EPAM Systems, Inc. dated January 16, 2012 (incorporated herein by reference to Exhibit 10.14 to Amendment No. 6)
10.6†
10.13†Form of Chief Executive Officer Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2012 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, SEC File No. 001-35418, filed May 7, 2014 (the “Q1 2014 Form 10-Q”)
10.7†Form of Senior Management Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2012 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.2 to the Q1 2014 Form 10-Q)
10.8†Form of Chief Executive Officer Non-Qualified Stock Option Award Agreement (under the EPAM Systems, Inc. 2012 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.3 to the Q1 2014 Form 10-Q)
10.9†Form of Chief Executive Officer Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2012 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, SEC File No. 001-35418, filed May 7, 2015 (the “Q1 2015 Form 10-Q”)
10.10†Form of Senior Management Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2012 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.2 to the Q1 2015 Form 10-Q)
10.11† EPAM Systems, Inc. 20122015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, SEC File No. 001-35418, filed June 15, 2015)
10.12†*Form of Chief Executive Officer Non-Qualified Stock Option Award Agreement (under the EPAM Systems, Inc. 2015 Long-Term Incentive Plan)
10.13†*Form of Chief Executive Officer Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2015 Long-Term Incentive Plan)
10.14†*Form of Senior Management Non-Qualified Stock Option Award Agreement (under the EPAM Systems, Inc. 2015 Long-Term Incentive Plan)
10.15†*Form of Senior Management Restricted Stock Unit Award Agreement (under the EPAM Systems, Inc. 2015 Long-Term Incentive Plan)
10.16†Amended and Restated EPAM Systems, Inc. Non-Employee Directors Compensation Plan (incorporated herein by reference to Exhibit 10.1510.3 to Amendment No. 6 tothe Q1 2015 Form S-1 SEC File No. 333-174827, filed January 23, 2012)10-Q)
10.14†10.17† Form of Non-Employee Director Restricted Stock Award Agreement (under the EPAM Systems, Inc. 2012 Non-Employee Directors Compensation Plan) (incorporated herein by reference to Exhibit 10.16 to Amendment No. 6)
10.15†10.18† EPAM Systems, Inc.Amended and Restated Non-Employee Director Compensation Policy (incorporated herein by reference to Exhibit 10.1710.4 to Amendment No. 6)the Q1 2015 Form 10-Q)

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10.16†
10.19† Form of Director Offer Letter (incorporated herein by reference to Exhibit 10.18 to Amendment No. 6)
10.17†10.20† Executive Employment Agreement by and between Arkadiy Dobkin and EPAM Systems, Inc. dated January 20, 2006 (expired except with respect to Section 8) (incorporated herein by reference to Exhibit 10.19 to Amendment No. 6)
10.18†10.21† Offer Letter by and between Ginger Mosier and EPAM Systems, Inc. dated February 24, 2010 (incorporated herein by reference to Exhibit 10.20 to Amendment No. 6)
10.19†10.22† Employment Contract by and between Balazs Fejes and EPAM Systems (Switzerland) GmbH. dated June 15, 2009 (incorporated herein by reference to Exhibit 10.21 to Amendment No. 6)
10.20†10.23† Consultancy Agreement by and between Landmark Business Development Limited, Balazs Fejes and EPAM Systems, Inc. dated January 20, 2006 (expired except with respect to Section 8) (incorporated herein by reference to Exhibit 10.22 to Amendment No. 6)
10.21†10.24† Consultancy Agreement by and between Landmark Business Development Limited, Karl Robb and EPAM Systems, Inc. dated January 20, 2006 (expired except with respect to Section 8) (incorporated herein by reference to Exhibit 10.23 to Amendment No. 6)
10.22†10.25† Form of nondisclosure, noncompete and nonsolicitation agreement (incorporated herein by reference to Exhibit 10.24 to Amendment No. 6)
10.23†10.26† Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.25 to Amendment No. 6)
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Exhibit Number10.27 DescriptionCredit Agreement dated as of September 12, 2014 by and among EPAM Systems, Inc. (as borrower), the lenders and guarantors party thereto, and PNC Bank, National Association, as Administrative Agent (incorporated hereby by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 9, 2014, SEC File No. 001-35418)
10.2418.1 English translation of Agreement with IDEAB Project Eesti ASLetter re Changes in Accounting Principles (incorporated herein by reference to Exhibit 10.26 to Amendment No. 6)
10.25Credit Agreement by and among EPAM Systems, Inc., as Borrower, The Guarantors Parties Hereto, and PNC Bank, National Association, as Lender dated January 15, 2013 (incorporated herein by reference to Exhibit 10.2518.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012,2013, SEC File No. 001-35418, filed March 11, 2013 (the “2012 Form 10-K”))2014).
10.2621.1* Guaranty and Suretyship Agreement between EPAM Systems LLC, a New Jersey limited liability company, and Vested Development, Inc., a Delaware corporation, and PNC Bank, National Association dated January 15, 2013 (incorporated herein by reference to Exhibit 10.26 to the 2012 Form 10-K)
10.27Security Agreement between EPAM Systems, Inc., a Delaware corporation, EPAM Systems LLC, a New Jersey limited liability company, and Vested Development, Inc., a Delaware corporation, and PNC Bank, National Association dated January 15, 2013 (incorporated herein by reference to Exhibit 10.27 to the 2012 Form 10-K)
10.28Pledge Agreement to loan documents between EPAM Systems, Inc. a Delaware corporation, EPAM Systems LLC, a New Jersey limited liability company, and Vested Development, Inc., a Delaware corporation, and PNC Bank, National Association dated January 15, 2013 (incorporated herein by reference to Exhibit 10.28 to the 2012 Form 10-K)
18.1*Letter re Changes in Accounting Principles
23.1*
31.1*
31.2*
32.1*
32.2*
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
  
Indicates management contracts or compensatory plans or arrangements
*
*Exhibits filed herewith
**
**As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: February 22, 2016
EPAM SYSTEMS, INC.
By:/s/ Arkadiy Dobkin
Name: Arkadiy Dobkin
Title: Chairman, Chief Executive Officer and President
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/s/ Arkadiy Dobkin
Chairman, Chief Executive Officer and President
(principal executive officer)
February 22, 2016
Arkadiy Dobkin
/s/ Anthony J. Conte
Senior Vice President, Chief Financial Officer and Treasurer
(principal financial officer and principal accounting officer)
February 22, 2016
Anthony J. Conte
/s/ Karl RobbDirector
February 22, 2016
Karl Robb
/s/ Peter KuerpickDirector
February 22, 2016
Peter Kuerpick
/s/ Richard Michael MayorasDirector
February 22, 2016
Richard Michael Mayoras
/s/ Robert E. SegertDirector
February 22, 2016
Robert E. Segert
/s/ Ronald P. VargoDirector
February 22, 2016
Ronald P. Vargo


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EPAM SYSTEMS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
Audited Consolidated Financial Statements

F-1

Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
EPAM Systems, Inc.
Newtown, PA

We have audited the accompanying consolidated balance sheets of EPAM Systems, Inc. and subsidiaries (the “Company”"Company") as of December 31, 20132015 and 2012,2014, and the related consolidated statements of income and comprehensive income, changes in redeemable preferred stock and stockholders’stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2013.2015. These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of EPAM Systems, Inc. and subsidiaries as of December 31, 20132015 and 2012,2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013,2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.


/s/ DELOITTE & TOUCHE LLP

Philadelphia, PAPennsylvania
March 10, 2014February 22, 2016




F-2

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of EPAM Systems, Inc.

We have audited the internal control over financial reporting of EPAM Systems, Inc. and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying the Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statementsas of and for the year ended December 31, 2015 of the Company and our report dated February 22, 2016 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 22, 2016 



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Table of Contents

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)

 
 
As of
December 31, 2013 
 
As of
December 31, 2012 
Assets 
  
 
Current assets 
  
 
Cash and cash equivalents $169,207  $118,112 
Accounts receivable, net of allowance of $1,800 and $2,203 respectively  95,431   78,906 
Unbilled revenues  43,108   33,414 
Prepaid and other current assets  14,355   11,835 
Employee loans, net of allowance for loan losses of $0 and $0, respectively, current  1,989   429 
Time deposits  1,188   1,006 
Restricted cash, current  298   660 
Deferred tax assets, current  5,392   6,593 
Total current assets  330,968   250,955 
Property and equipment, net  53,315   53,135 
Restricted cash, long-term  225   467 
Employee loans, net of allowance for loan losses of $0 and $0, respectively, long-term  4,401   —  
Intangible assets, net  13,734   16,834 
Goodwill  22,268   22,698 
Deferred tax assets, long-term  4,557   6,093 
Other long-term assets  3,409   632 
Total assets $432,877  $350,814 
 
        
Liabilities        
Current liabilities        
Accounts payable $2,835  $6,095 
Accrued expenses and other liabilities  20,175   19,814 
Deferred revenues, current  4,543   6,369 
Due to employees  12,665   12,026 
Taxes payable  14,171   14,557 
Deferred tax liabilities, current  275   491 
Total current liabilities  54,664   59,352 
Deferred revenues, long-term  533   1,263 
Taxes payable, long-term  1,228   1,228 
Deferred tax liabilities, long-term  351   2,691 
Total liabilities  56,776   64,534 
Commitments and contingencies (See Note 16)        
 
        
Stockholders’ equity        
Common stock, $0.001 par value; 160,000,000 authorized; 47,569,463 and 45,398,523 shares issued, 46,614,916 and 44,442,494 shares outstanding at December 31, 2013 and December 31, 2012, respectively  46   44 
Additional paid-in capital  195,585   166,962 
Retained earnings  190,986   128,992 
Treasury stock  (8,684)  (8,697)
Accumulated other comprehensive loss  (1,832)  (1,021)
Total stockholders’ equity  376,101   286,280 
Total liabilities and stockholders’ equity $432,877  $350,814 

 As of  
 December 31, 
 2015
 As of  
 December 31, 
 2014
Assets   
Current assets   
Cash and cash equivalents$199,449
 $220,534
Time deposits30,181
 
Accounts receivable, net of allowance of $1,729 and $2,181, respectively174,617
 124,483
Unbilled revenues95,808
 55,851
Prepaid and other current assets14,344
 9,289
Employee loans, net of allowance of $0 and $0, respectively, current2,689
 2,434
Deferred tax assets, current11,847
 2,496
Total current assets528,935
 415,087
Property and equipment, net60,499
 55,134
Restricted cash, long-term238
 156
Employee loans, net of allowance of $0 and $0, respectively, long-term3,649
 4,081
Intangible assets, net46,860
 47,689
Goodwill115,930
 57,417
Deferred tax assets, long-term18,312
 11,094
Other long-term assets4,113
 3,368
Total assets$778,536
 $594,026
    
Liabilities 
  
Current liabilities 
  
Accounts payable$2,576
 $4,641
Accrued expenses and other liabilities60,384
 32,203
Deferred revenue, current3,047
 3,220
Due to employees32,067
 24,518
Taxes payable29,472
 24,704
Contingent consideration, current (Note 2 and 16)
 35,524
Deferred tax liabilities, current365
 603
Total current liabilities127,911
 125,413
Long-term debt35,000
 
Deferred tax liabilities, long-term2,402
 4,563
Total liabilities165,313
 129,976
Commitments and contingencies (Note 15)

 

Stockholders’ equity 
  
Common stock, $0.001 par value; 160,000,000 authorized; 50,177,044 and 48,748,298 shares issued, 50,166,537 and 48,303,811 shares outstanding at December 31, 2015 and December 31, 2014, respectively49
 48
Additional paid-in capital303,363
 229,501
Retained earnings345,054
 260,598
Treasury stock(93) (4,043)
Accumulated other comprehensive loss(35,150) (22,054)
Total stockholders’ equity613,223
 464,050
Total liabilities and stockholders’ equity$778,536
 $594,026
The accompanying notes are an integral part of the consolidated financial statementsstatements.

F-3F-4

Table of Contents


EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(US Dollars in thousands, except share and per share data)

 
 For the Years Ended December 31, 
 
 2013  2012  2011 
Revenues $555,117  $433,799  $334,528 
Operating expenses:            
Cost of revenues (exclusive of depreciation and amortization)  347,650   270,361   205,336 
Selling, general and administrative expenses  116,497   85,868   64,930 
Depreciation and amortization expense  15,120   10,882   7,538 
Goodwill impairment loss        1,697 
Other operating (income)/ expenses, net  (643)  682   19 
Income from operations  76,493   66,006   55,008 
Interest and other income, net  3,077   1,941   1,422 
Foreign exchange loss  (2,800)  (2,084)  (3,638)
Income before provision for income taxes  76,770   65,863   52,792 
Provision for income taxes  14,776   11,379   8,439 
Net income $61,994  $54,484  $44,353 
Cumulative translation adjustment  (811)  2,493   (1,250)
Comprehensive income $61,183  $56,977  $43,103 
Accretion of preferred stock        (17,563)
Net income allocated to participating securities     (3,341)  (15,025)
Net income available for common stockholders $61,994  $51,143  $11,765 
 
            
Net income per share of common stock:            
Basic (common) $1.35  $1.27  $0.69 
Basic (puttable common) $  $  $1.42 
Diluted (common) $1.28  $1.17  $0.63 
Diluted (puttable common) $  $  $0.77 
Shares used in calculation of net income per share of common stock:            
Basic (common)  45,754   40,190   17,094 
Basic (puttable common)        18 
Diluted (common)  48,358   43,821   20,473 
Diluted (puttable common)        18 
The accompanying notes are an integral part of the consolidated financial statements
F-4

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY


 
For the Years Ended December 31, 2013, 2012 and 2011
(US Dollars in thousands, except share data) 
 
 Series A-1 and A-2, Convertible Redeemable Preferred Stock   
Puttable Common
Stock  
 
Common
Stock  
 
Series A-3 Convertible
Preferred Stock 
 Additional Paid-in Capital   
Retained
Earnings 
 
Treasury
Stock  
 Accumulated Other Comprehensive Income   Total Stockholders’ Equity  
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   
  
  
  
  
 
Balance, December 31, 2010   
2,439,739
   $68,377   56,896   $332   17,054,408   $17   290,277   $   $36,750   $47,718   $(15,972) (2,264) 66,249 
Accretion of A-2 preferred stock to redemption value        17,563                         (17,563)        (17,563)
Stock-based compensation expense                             2,866            2,866 
Proceeds from stock options exercises                 47,600            72            72 
Put option expiry           (56,896)  (332)  56,896            332            332 
Currency translation adjustment                                      (1,250)  (1,250)
Net income                                44,353         44,353 
Balance, December 31, 2011     2,439,739   85,940         17,158,904   17   290,277      40,020   74,508   (15,972)  (3,514)  95,059 
Conversion to common stock    (2,439,739)  (85,940)        21,840,128   22   (290,277)     85,918            85,940 
Initial public offering of common stock                 2,900,000   3         32,361            32,364 
Offering issuance costs                             (3,395)           (3,395)
Issuance of restricted stock                 213,656                         
Stock issued in connection with acquisition of Instant Information                 53,336            640            640 
Stock issued in connection with acquisition of Thoughtcorp, Inc. (Note 2)              434,546            (346)     3,953      3,607 
Stock issued in connection with acquisition of Empathy Lab, LLC (Note 2)               326,344            (2,969)     2,969       
Stock-based compensation expense                             6,826            6,826 
Proceeds from stock options exercises                 1,515,580   2         4,963            4,965 
Treasury stock retirement                             (353)     353       
Excess tax benefits                             3,297            3,297 
Currency translation adjustment                                      2,493   2,493 
Net income                                54,484         54,484 
Balance, December 31, 2012       $     $   44,442,494  $44     $  $166,962  $128,992  $(8,697) $(1,021) $286,280 

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Table of Contents


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (CONT’D)


  For the Years Ended December 31, 2013, 2012 and 2011
(US Dollars in thousands, except share data)
 
 Common Stock   Additional Paid-in Capital   Retained Earnings   Treasury Stock   Accumulated Other Comprehensive Income   
Total Stockholders’
Equity  
 
 Shares   Amount   
  
  
  
  
 
 
 
 
Balance, December 31, 2012  44,442,494  $44  $166,962  $128,992  $(8,697) $(1,021) $286,280 
Stock issued under the 2012 Non-Employee Directors Compensation Plan (Note 14)  14,041                   
Stock issued in connection with acquisition of Empathy Lab, LLC (Note 14)  1,483      (13)     13       
Stock-based compensation expense        13,150            13,150 
Proceeds from stock options exercises  2,156,898   2   9,285            9,287 
Excess tax benefits        6,201            6,201 
Currency translation adjustment                 (811)  (811)
Net income           61,994         61,994 
Balance, December 31, 2013  46,614,916  $46  $195,585  $190,986  $(8,684) $(1,832) $376,101 
(Concluded)
 For the Years Ended December 31,
 2015 2014 2013
Revenues$914,128
 $730,027
 $555,117
Operating expenses:     
Cost of revenues (exclusive of depreciation and amortization)566,913
 456,530
 347,650
Selling, general and administrative expenses222,759
 163,666
 116,497
Depreciation and amortization expense17,395
 17,483
 15,120
Goodwill impairment loss
 2,241
 
Other operating expenses/(income), net1,094
 3,924
 (643)
Income from operations105,967
 86,183
 76,493
Interest and other income, net4,731
 4,769
 3,077
Change in fair value of contingent consideration
 (1,924) 
Foreign exchange loss(4,628) (2,075) (2,800)
Income before provision for income taxes106,070
 86,953
 76,770
Provision for income taxes21,614
 17,312
 14,776
Net income$84,456
 $69,641
 $61,994
Foreign currency translation adjustments(13,096) (20,251) (811)
Comprehensive income$71,360
 $49,390
 $61,183
      
Net income per share:     
Basic$1.73
 $1.48
 $1.35
Diluted$1.62
 $1.40
 $1.28
Shares used in calculation of net income per share:     
Basic48,721
 47,189
 45,754
Diluted51,986
 49,734
 48,358

The accompanying notes are an integral part of the consolidated financial statementsstatements.


F-6
F-5

Table of Contents


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN
STOCKHOLDERS’ EQUITY
(US Dollars in thousands)

 
 For the Years Ended December 31, 
 
 2013  2012  2011 
Cash flows from operating activities: 
  
  
 
Net Income $61,994  $54,484  $44,353 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  15,120   10,882   7,538 
Bad debt expense  335   662   727 
Deferred taxes  41   (3,933)  497 
Stock-based compensation expense  13,150   6,826   2,866 
Excess tax benefits on stock-based compensation plans  (6,201)  (3,297)   
Non-cash stock charge     640    
Goodwill impairment loss        1,697 
Other  1,199   (66)  777 
Change in operating assets and liabilities (net of effects of acquisitions):            
(Increase)/ decrease in operating assets:            
Accounts receivable  (17,302)  (12,664)  (19,030)
Unbilled revenues  (9,833)  (6,905)  (1,004)
Prepaid expenses and other assets  587   (1,339)  (1,694)
Increase/ (decrease) in operating liabilities:            
Accounts payable  (2,900)  1,407   254 
Accrued expenses and other liabilities  501   (5,825)  9,474 
Deferred revenues  (2,325)  (767)  1,843 
Due to employees  785   2,896   2,796 
Taxes payable  3,074   5,498   3,426 
Net cash provided by operating activities  58,225   48,499   54,520 
Cash flows from investing activities:            
Purchases of property and equipment  (13,360)  (13,376)  (15,548)
Payments for construction of corporate facilities  (2,560)  (13,701)  (1,545)
Issuance of employee housing loans  (7,982)      
Proceeds from repayments of employee housing loans  2,189       
Decrease/(increase) in restricted cash, net (Note 6)  429   470   (144)
Increase in other long-term assets, net  (516)  (69)  (171)
Acquisition of businesses, net of cash acquired (Note 2)  (20)  (32,951)   
Net cash used in investing activities  (21,820)  (59,627)  (17,408)
Cash flows from financing activities:            
Proceeds related to stock options exercises  9,300   4,951   72 
Excess tax benefits on stock-based compensation plans  6,201   3,297    
Net proceeds from issuance of common stock in initial public offering     32,364    
Costs related to stock issue     (1,765)  (1,630)
Proceeds related to line of credit        5,000 
Repayment related to line of credit        (5,000)
Net cash provided by/ (used in) financing activities  15,501   38,847   (1,558)
Effect of exchange-rate changes on cash and cash equivalents  (811)  1,597   (762)
Net increase in cash and cash equivalents  51,095   29,316   34,792 
Cash and cash equivalents, beginning of year-January 1  118,112   88,796   54,004 
Cash and cash equivalents, end of year $169,207  $118,112  $88,796 
Supplemental disclosures of cash flow information:            
Cash paid during the year for:            
Income taxes $10,207  $13,065  $7,007 
Bank interest  26   14   37 

Summary of non-cash investing and financing transactions:thousands, except share data) 
Accretion
  
 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders’ Equity
 Shares Amount          
Balance, December 31, 201244,442,494
 $44
 $166,962
 $128,992
 $(8,697) $(1,021) $286,280
Stock-based compensation expense
 
 13,150
 
 
 
 13,150
Stock issued under the 2012 Non-Employee Directors Compensation Plan14,041
 
 
 
 
 
 
Stock issued in connection with acquisition of Empathy Lab1,483
 
 (13) 
 13
 
 
Proceeds from stock options exercises2,156,898
 2
 9,285
 
 
 
 9,287
Excess tax benefits
 
 6,201
 
 
 
 6,201
Currency translation adjustment
 
 
 
 
 (811) (811)
Net income
 
 
 61,994
 
 
 61,994
Balance, December 31, 201346,614,916
 $46
 $195,585
 $190,986
 $(8,684) $(1,832) $376,101
Stock issued in connection with acquisition of Netsoft (Note 2)2,289
 
 (21) 
 21
 
 
Stock issued in connection with acquisition of Jointech (Note 2)179,104
 
 1,158
 
 1,630
 
 2,788
Stock issued in connection with acquisition of GGA (Note 2)262,277
 
 (2,386) 
 2,386
 
 
Stock issued in connection with acquisition of Great Fridays (Note 2)90,864
 
 (827) 
 827
 
 
Stock issued under the 2012 Non-Employee Directors Compensation Plan (Note 14)7,738
 
 
 
 
 
 
Forfeiture of stock issued in connection with acquisition of Empathy Lab(24,474) 
 223
 
 (223) 
 
Stock-based compensation expense (net of liability awards)
 
 21,397
 
 
 
 21,397
Proceeds from stock options exercises1,171,097
 2
 10,596
 
 
 
 10,598
Excess tax benefits
 
 3,776
 
 
 
 3,776
Prior periods retained earning adjustment
 
 
 (29) 
 29
 
Currency translation adjustment
 
 
 
 
 (20,251) (20,251)
Net income
 
 
 69,641
 
 
 69,641
Balance, December 31, 201448,303,811
 $48
 $229,501
 $260,598
 $(4,043) $(22,054) $464,050
              
              

F-6

Table of Series A-2 convertible redeemable preferred stock was $0 in 2013, $0 in 2012, and $17,563 in 2011.Contents

Total incurred but not paid costs related to stock issue were $0 in 2013, $0 in 2012 and $470 in 2011.
Total incurred but not paid costs related to acquisition of businesses were $0 in 2013, and $96 in 2012 and $0 in 2011.
  
 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders’ Equity
 Shares Amount          
Balance, December 31, 201448,303,811
 $48
 $229,501
 $260,598
 $(4,043) $(22,054) $464,050
Stock issued in connection with acquisition of Netsoft (Note 2)25,503
 
 (232) 
 232
 
 
Forfeiture of stock issued in connection with acquisition of Netsoft(1,482) 
 13
 
 (13) 
 
Stock issued in connection with acquisition of Jointech (Note 2)166,114
 
 3,488
 
 1,512
 
 5,000
Stock issued in connection with acquisition of GGA (Note 2)233,753
 
 (2,127) 
 2,127
 
 
Stock issued in connection with acquisition of Great Fridays (Note 2)10,092
 
 (11) 
 92
 
 81
Stock issued under the 2012 Non-Employee Directors Compensation Plan (Note 13)5,295
 
   
 
 
 
Restricted stock unites vested17,625
 
 574
 
 
 
 574
Stock-based compensation expense (net of liability awards & RSU)
 
 43,120
 
 
 
 43,120
Proceeds from stock options exercises1,405,826
 1
 20,674
 
 
 
 20,675
Excess tax benefits
 
 8,363
 
 
 
 8,363
Currency translation adjustment
 
 
 
 
 (13,096) (13,096)
Net income
 
 
 84,456
 
 
 84,456
Balance, December 31, 201550,166,537
 $49
 $303,363
 $345,054
 $(93) $(35,150) $613,223
The accompanying notes are an integral part of the consolidated financial statements.



F-7

Table of Contents

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                  (US Dollars in thousands) For the Years Ended December 31,
  2015 2014 2013
Cash flows from operating activities:      
Net income $84,456
 $69,641
 $61,994
Adjustments to reconcile net income to net cash provided by operating activities:  
  
  
Depreciation and amortization 17,395
 17,483
 15,120
Bad debt expense 1,407
 817
 335
Deferred taxes (15,328) (3,270) 41
Stock-based compensation expense 45,833
 24,620
 13,150
Impairment charges and acquisition related adjustments (1,183) 7,907
 
Excess tax benefit on stock-based compensation plans (8,363) (3,776) (6,201)
Other 3,883
 735
 1,199
Changes in operating assets and liabilities:  
  
  
(Increase)/ decrease in operating assets:  
  
  
Accounts receivable (47,694) (30,410) (17,302)
Unbilled revenues (38,076) (11,134) (9,833)
Prepaid expenses and other assets (574) 565
 587
Increase/ (decrease) in operating liabilities:  
  
  
Accounts payable (2,781) (2,603) (2,900)
Accrued expenses and other liabilities 26,563
 11,492
 501
Deferred revenues (869) (1,514) (2,325)
Due to employees 2,752
 7,453
 785
Taxes payable 8,972
 16,868
 3,074
Net cash provided by operating activities 76,393
 104,874
 58,225
Cash flows from investing activities:  
  
  
Purchases of property and equipment (13,272) (11,916) (13,360)
Payment for construction of corporate facilities (4,692) (3,924) (2,560)
Employee housing loans (2,054) (1,740) (7,982)
Proceeds from repayments of employee housing loans 2,249
 1,793
 2,189
Increase in restricted cash and time deposits, net (29,944) 1,430
 429
Increase in other long-term assets, net (708) (1,479) (516)
Payments for foreign currency derivatives (165) 
 
Acquisition of businesses, net of cash acquired (Note 2) (76,908) (37,093) (20)
Net cash used in investing activities (125,494) (52,929) (21,820)
Cash flows from financing activities:  
  
  
Proceeds related to stock options exercises 20,675
 10,571
 9,300
Excess tax benefit on stock-based compensation plans 8,363
 3,776
 6,201
Proceeds from borrowing under line of credit (Note 12) 35,000
 
 
Acquisition of business, deferred consideration (Note 2) (30,274) (4,000) 
Net cash provided by financing activities 33,764
 10,347
 15,501
Effect of exchange rate changes on cash and cash equivalents (5,748) (10,965) (811)
Net increase/ (decrease) in cash and cash equivalents (21,085) 51,327
 51,095
Cash and cash equivalents, beginning of period 220,534
 169,207
 118,112
Cash and cash equivalents, end of period $199,449
 $220,534
 $169,207
Supplemental disclosures of cash paid:      
Income taxes $25,071
 $11,756
 $10,207
Bank interest $124
 $7
 $26


F-8

Table of Contents

Noncash operating activities:
For the year 2014, included in the Impairment charges and acquisition related adjustments line reported amount is the goodwill impairment loss of $2,241, contingent consideration fair value adjustment of $1,924, and write off related to the building construction in Minsk, Belarus of $3,742.
Noncash financing activities recorded in connection with acquisitions of businesses:
Deferred consideration payable was $603 in 2015, $1,022 in 2014 and 0 in 2013.
Contingent consideration payable was $0 in 2015, $36,322 in 2014 and 0 in 2013.

The accompanying notes are an integral part of the consolidated financial statements.

F-9

Table of Contents

EPAM SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 20132015 AND 20122014
AND FOR THE YEARS ENDED DECEMBER 31, 2013, 20122015, 2014 AND 20112013
(US Dollars inthousands, except share and per share data)

1.NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EPAM Systems, Inc. (the “Company” or “EPAM”) is a leadingglobal provider of complex software product engineering, solutionstechnology consulting and a leaderdigital expertise to clients located around the world, primarily in CentralNorth America, Europe, Asia and Eastern European IT services delivery.the CIS region. The Company provides these solutions primarily to Fortune Global 2000 companieshas expertise in multiple verticals,various industries, including Independent Software Vendors (“ISVs”)software and Technology, Bankinghi-tech, financial services, media and Financial services, Business Informationentertainment, travel and Media,hospitality, retail and Traveldistribution and Consumer.
Since EPAM’s inception in 1993, the Company has focused on providing software product development services, software engineeringlife sciences and vertically-oriented custom development solutions through its global delivery model. This has served as a foundation for the Company’s other solutions, including custom application development, application testing, platform-based solutions, application maintenance and support, and infrastructure management.healthcare.
The Company is incorporated in Delaware with headquarters in Newtown, PA, with multiplePA. The Company EPAM serves clients worldwide utilizing an award-winning global delivery centers located in Belarus, Ukraine, Russia, Hungary, Kazakhstanplatform and Poland, and client managementits locations in the United States, Canada, the United Kingdom, Germany, Sweden, Switzerland, Netherlands, Russia, Kazakhstan, Singapore, Hong Kongover 20 countries across North America, Europe, Asia and Australia.

Emerging growth company status — In April 2012, several weeks after EPAM’s initial public offering in February 2012, President Obama signed into law the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act contains provisions that relax certain requirements for “emerging growth companies” that otherwise apply to larger public companies. For as long as a company retains emerging growth company status, which may be until the fiscal year-end after the fifth anniversary of its initial public offering, it will not be required to (1) provide an auditor’s attestation report on its management’s assessment of the effectiveness of its internal control over financial reporting, otherwise required by Section 404(b) of the Sarbanes-Oxley Act of 2002, (2) comply with any new or revised financial accounting standard applicable to public companies until such standard is also applicable to private companies, (3) comply with certain new requirements adopted by the Public Company Accounting Oversight Board, (4) provide certain disclosure regarding executive compensation required of larger public companies or (5) hold shareholder advisory votes on matters relating to executive compensation.
EPAM is classified as an emerging growth company under the JOBS Act and is eligible to take advantage of the accommodations described above for as long as it retains this status. However, EPAM has elected not to take advantage of the transition period described in (2) above, which is the exemption provided in Section 7(a)(2)(B) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 (in each case as amended by the JOBS Act) for complying with new or revised financial accounting standards. EPAM will therefore comply with new or revised financial accounting standards to the same extent that a non-emerging growth company is required to comply with such standards.

Principles of Consolidation— The consolidated financial statements include the financial statements of EPAM Systems, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated.

Reclassifications — The Company reclassified certain prior period amounts to conform to the current period presentation. Such reclassifications had no effect on the Company’s results of operations or total stockholders’ equity.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience, knowledge of current conditions and its beliefs of what could occur in the future, given available information. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Business Combinations — The Company allocates the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions about several highly subjective variables, including future cash flows, discount rates, and asset lives. There are also different valuation models for each component, the selection of which requires considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes are reasonable, but recognizes that the assumptions are inherently uncertain. Depending on the size of the purchase price of a particular acquisition and the mix of
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intangible assets acquired, the purchase price allocation could be materially impacted by applying a different set of assumptions and estimates.

Revenue RecognitionThe Company recognizes revenue when realized or realizable and earned, which is when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the sales price is fixed or determinable; and (4) collectability is reasonably assured. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue the Company reports. If there is an uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. At the time revenues are recognized, the Company provides for any contractual deductions and reduces revenues accordingly. The Company defers amounts billed to its clients for revenues not yet earned. Such amounts are anticipated to be recorded as revenues as services are performed in subsequent periods. Unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms.reported.
The Company derives its revenues from a variety of service offerings, which represent specific competencies of its IT professionals. Contracts for these services have different terms and conditions based on the scope, deliverables, and complexity of the engagement, which require management to make judgments and estimates in determining appropriate revenue recognition pattern. Fees for these contracts may be in the form of time-and-materials or fixed-price arrangements. If there is an uncertainty about the project completion or receipt of payment for the consulting services, revenue is deferred until the uncertainty is sufficiently resolved. At the time revenue is recognized, the Company provides for any contractual deductions and reduces the revenue accordingly. The Company reports gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income and comprehensive income.
The Company defers amounts billed to its clients for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods. Unbilled revenue is recorded when services have been provided but billed subsequent to the period end in accordance with the contract terms.
The Company reports gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income and comprehensive income.
The majority of the Company’s revenues (82.3%(85.8% of revenues in 2013, 84.1%2015, 84.7% in 20122014 and 86.1%82.3% in 2011)2013) is generated under time-and-material contracts wherebywhere revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred.revenues. The majority of such revenues are billed on an hourly, daily or monthly basis wherebyas actual time is charged directly to the client.

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Revenues from fixed-price contracts (15.7%(12.8% of revenues in 2013, 13.7%2015, 13.6% in 20122014 and 11.0%15.7% in 2011)2013) are determined using the proportional performance method. In instances where final acceptance of the product, system, or solution is specified by the client, revenues are deferred until all acceptance criteria have been met. In absence of a sufficient basis to measure progress towards completion, revenue is recognized upon receipt of final acceptance from the client. In order to estimate the amount of revenue for the period under the proportional performance method, the Company determines the percentage of actual labor hours incurred as compared to estimated total labor hours and applies that percentage to the consideration allocated to the deliverable. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in the Company’s consolidated financial statements. A number of internal and external factors can affect such estimates, including labor hours and specification and testing requirement changes. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known. No significant revisions occurred in each of the three years ended December 31, 2013, 20122015, 2014 and 2011.2013. The Company’s fixed price contracts are generally recognized over a period of 12 months or less.
From time to time, the Company enters into multiple element arrangements with its customers. In vast majority of cases such multiple-element arrangements represent fixed-priced arrangements to develop a customized IT solution to meet the customer’s needs combined with warranty support over a specified period of time in the future, to which the Company refers to as the “warranty period.” The Company’s customers retain full intellectual property (IP) rights to the results of the Company’s services, and the software element created in lieu of such services is no more than incidental to any of the service deliverables, as defined in accordance with ASC 985-605-15-13. For such arrangements, the Company follows the guidance set forth in ASC 605-25, Revenue Recognition – Multiple Element Arrangements, as to whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. The Company recognizes revenue related to the delivered products only if all revenue recognition criteria are met and the delivered element has a standalone value to the customer and allocates total consideration among the deliverables based on their relative selling prices. Revenue related to the software development services is recognized under the proportional performance method, as described above, while warranty support services are recognized on a straight-line basis over the warranty period. The warranty period is generally three months to two years.
The Company reports gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income.

Cost of Revenues (Exclusive of Depreciation and Amortization) — Consists principally of salaries and bonuses of the revenue producing personnel, as well as employee benefits, and stock compensation expense reimbursable and non-reimbursable travel costs and subcontractor fees.

for these professionals.
Selling, General and Administrative Expenses — Consist mainly of compensation, benefits and travel expenses associated with promoting and sellingof the Company’s services and include such items asofficers, management, sales, and marketing personnel salaries, stock compensation expense and related fringe benefits, commissions, travel, and the cost of advertising and other promotional activities. General and administrative personnel. Other operation expenses include other operating items such as officers’ and administrative personnel salaries, marketing personnel salaries, stock compensation expense and related fringe benefits,advertising, promotional activities, legal and audit expenses, recruitment and development efforts, insurance, provision for doubtful accounts, and operating lease expenses.
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Table In addition, the Company has issued stock to the sellers and/or personnel in connection with business acquisitions and has been recognizing stock-based compensation expense in the periods after the closing of Contents
these acquisitions as part of the selling, general and administrative expenses. Stock option expenses related to acquisitions comprised a significant portion of total selling, general and administrative stock-based compensation expense in 2014 and 2015.
Fair Value of Financial Instruments — The Company makes significant assumptions about fair values of its financial instruments. Fair value is determined based onassets and liabilities in accordance with the assumptions that market participants would use in pricing the asset or liability. The CompanyFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurement,” and utilizes the following fair value hierarchy in determining fair values:inputs used for valuation:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Inputs other than quoted prices within Level 1 that are observable either directly or indirectly, including quoted prices in markets that are not active, quoted prices in active markets for similar assets or liabilities, and observable inputs other than quoted prices such as interest rates or yield curves.
Level 3 — Unobservable inputs reflecting ourmanagement’s view about the assumptions that market participants would use in pricing the asset or liability.
Where the fair values of financial assets and liabilities recorded in the consolidated balance sheetsheets cannot be derived from an active market, they are determined using a variety of valuation techniques. These valuation techniques include a net present value technique, comparison to similar instruments with market observable inputs, options pricing models and other relevant valuation models. InputsTo the extent possible, observable market data is used as inputs into these models are taken from observable market data whenever possible, but in instances wherewhen it is not feasible, a degree of judgment is required to establish fair values.
Financial Assets and Liabilities Measured At Fair Value on a Recurring Basis
The Company had no assets orCompany’s contingent liabilities measured at fair value on a recurring basis are comprised of performance-based awards issued to certain former owners of the acquired businesses in exchange for future services. Contingent liabilities are valued using significant inputs that are not observable in the market, which are defined as of December 31, 2013 or 2012.
Level 3 inputs according to fair value measurement accounting. The Company's financial assets and liabilities, withCompany estimates the exceptions of employee loans described further herein, are all short term in nature; therefore, the carryingfair value of these items approximates theircontingent liabilities based on certain performance milestones of the acquired businesses and estimated probabilities of achievement, then discounts the liabilities to present value using the Company’s cost of debt for the cash component of contingent consideration, and risk free rate for the stock component of a contractual contingency. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. Changes in the fair value.value of contingent consideration liabilities primarily result from changes in the timing and amount of specific milestone estimates and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria. These changes could cause a material impact to, and volatility in the Company’s operating results. See Note 16 for contingent liabilities activity.

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Employee Housing Loans — The Company issues employee housing loans in Belarus and relocation loans to itsassist employees under the Employee Housing Program (“housing loans”). Housingwith relocation needs in connection with intra-company transfers. There are no loans are issued in U.S. Dollars with a 5-year termto principal officers, directors, and carry an interest rate of 7.5%. The program was designed to be a retention mechanism for the Company’s employees in Belarus.
their affiliates. Although permitted by authoritative guidance, the Companywe did not elect a fair value option for these financial instruments. These housing loans arewere measured at fair value upon initial recognition and subsequently carried at amortized cost less allowance for loan losses. Any difference between the carrying value and the fair value of a loan upon initial recognition (“day-one” recognition) is charged to expense.
The housing loans were classified as Level 3 measurements within the fair value hierarchy because they were valued using significant unobservable inputs. The estimated fair value of these housing loans upon initial recognition was computed by projecting the future contractual cash flows to be received from the loans and discounting those projected net cash flows to a present value, which is the estimated fair value (the “Income Approach”). In applying the Income Approach, the Company analyzed similar loans offered by third-party financial institutions in Belarusian Rubles (“BYR”) and adjusted the interest rates charged on such loans to exclude the effects of underlying economic factors, such as inflation and currency devaluation. The Company also assessed the probability of future defaults and associated cash flows impact. In addition, the Company separately analyzed the rate of return that market participants in Belarus would require when investing in unsecured USD-denominated government bonds with similar maturities (a “risk-free rate”) and evaluated a risk premium component to compensate the market participants for the credit and liquidity risks inherent in the loans’ cash flows, as described in the following paragraph. As a result of the analysis performed, the Company determined the carrying values of the housing loans issued during the year ended December 31, 2013 approximated their fair values upon initial recognition. The Company also estimated the fair values of the housing loans that were outstanding as of December 31, 2013 using the inputs noted above and determined their fair values approximated the carrying values as of that date.
Repayment of housing loans is primarily dependent on personal income of borrowers obtained through employment with the Company, which income is set in U.S. dollars and is not closely correlated with common macroeconomic risks existing in Belarus, such as inflation, local currency devaluation and decrease in the purchasing power of the borrowers’ income. Given a large demand for the program among the Company’s employees and its advantages as compared to alternative methods of financing available on the market, the Company expects the borrowers to fulfill their obligations, and the Company estimates the probability of voluntary termination of employment among the borrowers as de minimis. Additionally, housing loans are capped at $50 per loan and secured by real estate financed through the program. The Company establishes a maximum loan-to-value ratio of 70% and expects a decrease in the ratio over the life of a housing loan due to on-going payments by employees.
Employee loans, other — The Company also issues short-term non-interest bearing relocation loans and other employee loans. These loans are considered Level 3 measurements. The Company’s Level 3, unobservable inputs reflect its assumptions about the factors that market participants use in pricing similar receivables, and are based on the best information available in the circumstances. Due to the short-term nature of employee loans (i.e., the relatively short time between the origination of the instrument and its expected realization), the carrying amount is a reasonable estimate of fair value. As of December 31, 2013, the carrying values of these employee loans approximated their fair values.
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Cash and Cash Equivalents — Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with maturities of three months or less at the date acquired. As of December 31, 2013 and 2012 all amounts were in cash.

Restricted Cash — Restricted cash represents cash that is restricted by agreements with third parties for special purposes (see Note 6).

Accounts Receivable — Accounts receivable are recorded at net realizable value. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. The allowance for doubtful accounts is determined by evaluating the relative creditworthiness of each client, historical collections experience and other information, including the aging of the receivables.
Recoveries of losses from accounts receivable written off in prior years are presented within income from operations on the Company’s consolidated statements of income. There were no collections in respect of prior year write-offs during the years ended December 31, 2013, 2012 or 2011.

The table below summarizes movements in qualifying accounts for the years ended December 31, 2013, 2012 and 2011:

  
Balance at
Beginning of
Period 
 
Charged to Costs
and Expenses 
 
Deductions/
Other 
 
Balance at End
of Year 
Allowance for Doubtful Accounts (Billed and Unbilled): 
  
  
  
 
Fiscal Year 2011 $1,671  $1,234  $(655) $2,250 
Fiscal Year 2012  2,250   1,244   (1,291)  2,203 
Fiscal Year 2013  2,203   619   (1,022)  1,800 


Employee Loans — Loans are initially recorded at their fair value, and subsequently measured at their amortized cost, less allowance for loan losses, if any. The Company intends to hold all employee loans until their maturity. Interest income is reported using the effective interest method. Where applicable, loan origination fees, net of direct origination costs, are deferred and recognized in interest income over the life of the loan.
Generally,Employee Housing Loans — The housing loans are placed on non-accrual statusmeasured using the Level 3 inputs within the fair value hierarchy because they are valued using significant unobservable inputs. These housing loans are measured at 90 days past due. The entire balancefair value upon initial recognition through the market approach under ASC Topic 820, “Fair Value Measurement” and subsequently carried at amortized cost less allowance for loan losses. Any difference between the carrying value and the fair value of a loan upon initial recognition is considered delinquent if the minimum payment contractually requiredcharged to be made is not received by the specified due date. All interest accrued but not collected for loans that are placed on non-accrual is reversed against interest income. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

expense.
Allowance for Loan LossesEmployee Loans, Other — The Company issues short-term, non-interest bearing relocation loans to employees that relocated within the company. Due to the short term of these loans and high certainty of repayment, their carrying amount is a reasonable estimate of their fair value.
Business Combinations — The Company accounts for its business combinations using the acquisition accounting method, which requires it to determine the fair value of net assets acquired and the related goodwill and other intangible assets in accordance with the FASB ASC Topic 805, “Business Combinations.” The Company identifies and attributes fair values and estimated lives to the intangible assets acquired and allocates the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. There are different valuation models for each component, the selection of which requires considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes are reasonable, but recognizes that the assumptions are inherently uncertain.
If initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported for which the accounting is incomplete, with retrospective adjustment made to such provisional amounts during the measurement period to present new information about facts and circumstances that existed as of the acquisition date.
All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred. Changes in fair value of contingent consideration arrangements that are not measurement period adjustments are recognized in earnings. Payments to settle contingent consideration, if any, are reflected in cash flows from financing activities and the changes in fair value are reflected in cash flows from operating activities in the Company’s consolidated statements of cash flows.
The acquired assets typically consist of customer relationships, trade names, non-competition agreements, and workforce and as a result, a substantial portion of the purchase price is allocated to goodwill and other intangible assets.
Cash and Cash Equivalents — Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with maturities of three months or less at the date acquired. As of December 31, 2015 and 2014 the Company had no cash equivalents.
Restricted Cash — Restricted cash represents cash that is restricted by agreements with third parties for special purposes and includes time deposits. See Note 6 for items that constitute restricted cash.
Accounts Receivable — Accounts receivable are stated net of an allowance for doubtful accounts. Outstanding accounts receivable are reviewed periodically evaluates loans that exhibit probable or observed credit weaknesses are subject to individual review. Where appropriate, amounts ofand allowances are allocated to individual loans based on management’s estimate ofprovided at such time the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Company.management believes it is probable that such balances will not be collected within a reasonable time. The allowance for loan lossesdoubtful accounts is establisheddetermined by evaluating the relative creditworthiness of each client, historical collections experience and other information, including the aging of the receivables. Accounts receivable are generally written off when lossesthey are deemed to have occurred through a provision for loan losses charged to incomeuncollectible. Bad debts are recorded based on historical experience and represents management’s estimateevaluation of probable credit losses inherent in the loan portfolio. Write-offs of unrecoverable loans are charged against the allowance when management believes the uncollectability of a loan balance and any interest due thereon is confirmed. Subsequent recoveries, if any, are credited to the provision for bad debts.accounts receivable.

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The table below summarizes movements in qualifying accounts for the years ended December 31, 2015, 2014 and 2013:

  
Balance at
Beginning of
Period 
 Charged to Costs and Expenses 
Deductions/
Other 
 Balance at End of Year 
Allowance for Doubtful Accounts (Billed and Unbilled):        
Fiscal Year 2013 $2,203
 $619
 $(1,022) $1,800
Fiscal Year 2014 1,800
 1,325
 (944) 2,181
Fiscal Year 2015 2,181
 1,704
 (2,156) 1,729
Property and Equipment — Property and equipment acquired in the ordinary course of the Company’s operations are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets generally ranging from 3three to 50fifty years. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are expensed as incurred, while renewals and betterments are capitalized.

incurred.
Goodwill and Other Intangible AssetsThe Company accounts for its business combinations using the acquisition accounting method, which requires it to determine the fair value of net assets acquired and the related goodwill and other intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. The Company’s acquisitions usually do not have significant amounts of tangible assets, as the principal assets it typically acquires are customer relationships, trade names, non-competition agreements, and workforce. As a result, a substantial portion of the purchase price is allocated to goodwill and other intangible assets.
Goodwill and intangible assets that have indefinite useful lives are treated consistently with FASB ASC 350, “Intangibles - Goodwill and Other.” The Company does not amortized but are testedhave any intangible assets with indefinite useful lives.
The Company assesses goodwill for impairment annually, for impairment. Events or circumstances that might require impairment testingand more frequently in certain circumstances. The Company initially performs a qualitative assessment of goodwill and other intangible assets include the loss of a significant client, the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, significant decline in stock price or a significant adverse change in business climate or regulations. Intangible assets that have finite useful lives are amortized over their estimated useful lives on a straight-line basis.
As of December 31, 2013 and 2012, all of the Company’s intangible assets had finite lives and the Company did not incur any impairment losses in respect of its intangible assets during the years ended December 31, 2013, 2012 or 2011.
Effective in the fourth quarter of 2013, the Company changed the annual goodwill impairment assessment date for all of its reporting units from December 31stto October 31st, which represented a voluntary change in the annual goodwill impairment testing date.  The Company is also required to assess the goodwill of its reporting unitstest for impairment between annualindicators. After applying the qualitative assessment, dates when events or circumstances dictate. This change doesif the entity concludes that it is not delay, accelerate or avoid an impairment charge andmore likely than not that the fair value of goodwill is preferable as additional resources forless than the preparation, review, and conclusion ofcarrying amount; the annualtwo-step goodwill impairment test are available at this time. Further, this timing more closely aligns with the Company’s annual budgeting and planning process. Information prepared during the annual budgeting and planning process is used extensively in the Company’s impairment assessment. The Company evaluates the recoverability of goodwill at a reporting unit level and it had three reporting units that were subject to the annual impairment testing in 2013. The Company’s annual impairment review as of October 31, 2013 and December 31, 2012 did not result in an impairment charge for any of these reporting units. It was impracticable to apply this change retrospectively, asrequired.
If the Company determines that it is unable to objectively determine significant estimates and assumptionsmore likely than not that would have been used in those earlier periods without the use of hindsight.
Forcarrying amount exceeds the Company’s annual impairment test, it compares the respective fair value, the Company performs a quantitative impairment test. If an indicator of its reporting units to their respective carrying values in order to determine if impairment is indicated. If so,identified, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount, and the impairment loss is measured by the excess of the carrying value over the fair value. The fair values are estimated using a combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach, which incorporates the use of earnings multiples based on market data. These valuations are considered Level 3 measurements under FASB ASC Topic 820. The Company utilizes estimates to determine the fair value of the reporting units such as future cash flows, growth rates, capital requirements, effective tax rates and projected margins, among other factors. Estimates utilized in the future evaluations of goodwill for impairment could differ from estimates used in the current period calculations.
Intangible assets that have finite useful lives are amortized over their estimated useful lives on a straight-line basis. When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the asset’s carrying value, using estimates of undiscounted future cash flows that utilize a discount rate determined by itsthe management to be commensurate with the risk inherent in the Company’s business model over the remaining asset life. The estimates of future cash flows attributable to intangible assets require significant judgment based on the Company’s historical and anticipated results. Any impairment loss is measured by the excess of carrying value over fair value.

Effective in the fourth quarter of 2013, the Company changed the annual goodwill impairment assessment date for all of its reporting units from December 31st to October 31st, which represented a voluntary change in the annual goodwill impairment testing date. See Note 3 for disclosure regarding goodwill and intangible assets.
Impairment of Long-Lived Assets — Long-lived assets, such as property and equipment, and finite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessment for potential impairment is based primarily onrecoverable and exceeds the Company’s ability to recoverasset’s fair value. When the carrying value of its long-lived assets from expected futurean asset is more than the sum of the undiscounted cash flows that are expected to result from its operations on an undiscounted basis at each reporting date. If such assets are determinedthe asset’s use and eventual disposition, it is considered to be impaired, the impairment recognized is the amount by which theunrecoverable. Therefore, when an asset’s carrying value of the assets exceeds thewill not be recovered and it is more than its fair value of the assets. PropertyCompany would deem the asset to be impaired. Property and equipment to be disposed of by sale isheld for disposal are carried at the lower of the then current carrying value or fair value less estimated costs to sell. The Company did not incur any impairment of long-lived assets for 2013, 2012, or 2011.the years ended December 31, 2015, 2014 and 2013.

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Income Taxes — The provision for income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
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taxable income in the year in which the temporary differences are expected to be reversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes. The Company evaluates the realizability of deferred tax assets and recognizes a valuation allowance when it is more likely than not that all, or a portion of, deferred tax assets will not be realized.
The realization of deferred tax assets is primarily dependent on future earnings. Any reduction in estimated forecasted results may require that we record valuation allowances against deferred tax assets. Once a valuation allowance has been established, it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. A pattern of sustained profitability will generally be considered as sufficient positive evidence to reverse a valuation allowance. If the allowance is reversed in a future period, the income tax provision will be correspondingly reduced. Accordingly, the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings. See Note 10 to the consolidated financial statements for further information.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. Because a change in tax law is accounted for in the period of enactment, certain provisions of the Act benefiting the Company’s 2012 U.S. federal taxes, including the Subpart F controlled foreign corporation look-through exception were not recognized in the Company’s 2012 financial results and instead were reflected in the Company’s 2013 financial results.

Earnings per Share (“EPS”) —Basic EPSearnings per share is computed by dividing the net income applicableavailable to common stockholders for the periodshareholders by the weighted averageweighted-average number of shares of common stock outstanding during the same period. The Company’s Series A-1 Preferred, Series A-2 Preferred, and Series A-3 Preferred Stock, that had been outstanding and convertible into common stock until February 13, 2012 (the date of the Company’s initial public offering), and our puttable common stock were considered participating securities since these securities had non-forfeitable rights to dividends or dividend equivalents during the contractual period and thus required the two-class method of computing EPS. When calculating diluted EPS, the numeratorDiluted earnings per share is computed by adding backdividing income available to common shareholders by the undistributed earnings allocated to the participating securities in arriving at the basic EPS and then reallocating such undistributed earnings among ourweighted-average number of shares of common stock participating securities andoutstanding during the potential common shares that result from the assumed exercise of all dilutive options. The denominator isperiod increased to include the number of additional shares of common sharesstock that would have been outstanding hadif the optionspotentially dilutive securities had been issued.

Potentially dilutive securities include outstanding stock options, unvested restricted stock and unvested RSUs. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.
Accounting for Stock-Based Employee Compensation PlansStock-based compensation expense forThe Company recognizes the cost of its share-based incentive awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of the awards ultimately expected to vest.award at the date of grant net of estimated forfeitures. The Company recognizes these compensation costs on a straight-line basiscost is expensed evenly over the requisiteservice period. The service period is the period over which the employee performs the related services, which is normally the same as the vesting period. Over time, the forfeiture assumption is adjusted to the actual forfeiture rate and such change may affect the timing of the award, which is generallytotal amount of expense recognized over the option vesting term of four years (See Note14.)
The Company estimates forfeituresperiod. Equity-based awards that do not require future service are expensed immediately. Equity-based awards that do not meet the criteria for equity classification are recorded as liabilities and adjusted to fair value at the timeend of grant and revises its estimates, if necessary, in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on the Company’s operating results. The assumptions used in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the valuation model changes significantly, stock-based compensation for future awards may differ materially compared to the awards previously granted.

each reporting period.
Off-Balance Sheet Financial InstrumentsOff-balanceThe Company uses the FASB ASC Topic 825, “Financial Instruments.” to identify and disclose off-balance sheet financial instruments, which include credit instruments, such as commitments to make employee loans and related guarantees, standby letters of credit and certain guarantees issued under customer contracts. The face amount for these items represents the exposure to loss, before considering available collateral or the borrower’s ability to repay. Such financial instruments are recorded when they are funded. Loss contingencies arising from off-balance sheet credit exposuresfinancial instruments are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. The Company does not believe there are such matters exists that will have a material effect on the consolidated financial statements.

Foreign Currency Translation — Assets and liabilities of consolidated foreign subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars at period end exchange rates. Revenues and expenses are translated to U.S. dollars at daily exchange rates. The adjustment resulting from translating the financial statements of such foreign subsidiaries to U.S. dollars is reflected as a cumulative translation adjustment and reported as a component of accumulated other comprehensive income.
The Company reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate item in the reconciliation of the changes in cash and cash equivalents during the period. Transaction gains and losses are included in the period in which they occur.

Risks and UncertaintiesPrincipally all of the Company’s IT delivery centers andAs a majorityresult of its employees is located in Central and Eastern Europe. As a result,global operations, the Company may be subject to certain risks associated with international operations, risks associated with the application and imposition of protective legislation and regulations relating to import and export, or otherwise resulting from foreign policy or the variability of foreign economic or political conditions. Additional risks associated with
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international operations include difficulties in enforcing intellectual property rights, the burdens of complying with a wide variety of foreign laws, potential geopolitical and other risks associated with potentially adverse tax consequences, tariffs, quotas and other barriers.inherent risks. 
Concentration of Credit — Financial instruments that potentially subject usthe Company to significant concentrations of credit risk consist primarily of employee loans receivable, cash and cash equivalents, trade accounts receivable and unbilled revenues.
At December 31, 2013, loans issued to employees were $6,390, or 1.5%, of our total assets. These loans expose the Company to a risk of non-payment and loss. Repayment of these loans is primarily dependent on personal income of borrowers obtained through their employment with EPAM and may be adversely affected by changes in macroeconomic situations, such as higher unemployment levels, currency devaluation and inflation. Additionally, continuing financial stability of a borrower may be adversely affected by job loss, divorce, illness or personal bankruptcy. The Company also faces the risk that the collateral will be insufficient to compensate it for loan losses, if any, and costs of foreclosure. Decreases in real estate values could adversely affect the value of property used as collateral, and the Company may be unsuccessful in recovering the remaining balance from either the borrower and/or guarantors.
The Company maintains its cash and cash equivalents and short-term investments with financial institutions. The Company determined that the Company’s credit policies reflect normal industry terms and business risk and there is no expectation of non-performance by the counterparties. As of December 31, 2013, $103.12015, $103.7 million of total cash was held in CIS countries, with $73.9$79.5 million of that in Belarus. Banking and other financial systems in the CIS region are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of more developed markets, and the transparency of the banking sector lags behind international standards. Furthermore, bank deposits made by corporate entities in the CIS region are not insured. As a result, the banking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy or insolvency

F-14


Changes in the lossmarket behavior or decisions of its deposits or adversely affect its ability to complete banking transactions in the CIS, whichCompany’s clients could materially adversely affect the Company’s business and financial condition.
Trade accounts receivable and unbilled revenues are generally dispersed across EPAM’s customers in proportion to their revenues.results of operations. During the years ended December 31, 2013, 20122015, 2014 and 2011,2013, revenues from our top five customers were $169,987, $ 134,484,$298,063, $239,396 and $107,171,$169,987, respectively, representing 30.6%32.6%, 31.0%32.8% and 32.0%30.6%, respectively, of total revenues in the corresponding periods. Revenues from the Company’sour top ten customers were $400,250, $320,126 and $234,955 $192,426in 2015, 2014 and $149,094 in 2013, 2012 and 2011, respectively, representing 42.3%43.8%, 44.4%,43.9% and 44.6%42.3%, respectively, of total revenues in corresponding periods. No customer accounted for over 10% of total revenues in 2013 or 2012. As of December 31, 2013, unbilled revenues from two customers individually exceeded 10% of total unbilled revenues and jointly accounted for 33.3% of total unbilled revenues as of that date; and one customer accounted for over 10% of total accounts receivable as of that date.
During the years ended December 31, 2013, 2012 and 2011 the Company incurred subcontractor costs of $2,078, $3,535 and $4,545, respectively, to a vendor for staffing, consulting, training, recruiting and other logistical / support services provided for the Company’s delivery and development operations in Eastern Europe. Such costs are included in cost of revenues and sales, general and administrative expenses, as appropriate, in the accompanying consolidated statements of income and comprehensive income.
Foreign currency risk — The Company generates revenues in various global markets based on client contracts obtained in non-U.S. dollar, currencies, principally, Euros,euros, British pounds sterling, Canadian dollars, and Russian Rubles. The Company incursrubles. We incur expenditures in non-U.S. dollar currencies, principally in Hungarian Forints, Euros,forints, euros, Russian rubles, Polish zlotys, Mexican pesos, Hong Kong dollars and Russian RublesChina yuan renminbi (“CNY”) associated with the ITour delivery centers located in CEE.the CEE, Europe, Mexico and APAC regions. The Company is exposed to fluctuations in foreign currency exchange rates primarily on accounts receivable and unbilled revenues from sales in these foreign currencies, and cash flows for expenditures in foreign currencies. The Company does not use derivative financial instruments to hedge the risk of foreign exchange volatility.
Interest rate risk — The Company’s exposure to market risk foris influenced primarily by changes in interest rates relates primarily to the Company’son interest payments received on cash and cash equivalentsequivalent deposits and paid on any outstanding balance on the LIBOR plus 1.25% rate long-termCompany’s revolving line of credit, facilitywhich is subject to a variety of rates depending on the type and timing of funds borrowed (see Note 12)12). The Company does not use derivative financial instruments to hedge the risk of interest rate volatility.

Recent Accounting Pronouncements
In January 2013,November 2015, the FASB issued Accounting Standards Update (“ASU”) 2013-01, “Clarifying2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position to simplify disclosure. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the Scope of Disclosures about Offsetting Assets and Liabilities.”amendments in this update. The ASU clarifies that ordinary trade receivables and receivables are not in the scope of ASU 2012-11, “Disclosures about Offsetting Assets and Liabilities.” ASU 2012-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netting arrangement or similar agreement. The ASUamendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update eliminates the current requirement to retrospectively adjust provisional amounts recognized at the acquisition date. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update guides presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The update provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may also elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or after January 1, 2013,made available to be issued, the application of this guidance would be a change in accounting principle. The amendment is effective on November 18, 2014. The implementation of this standard did not have a material effect on the Company’s consolidated financial statements.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The update aims to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for annual period and interim periods within those annual periods, and requires retrospective application for all comparative periods presented.beginning after December 15, 2015 with early adoption permitted. The Company adopted the ASU effective January 1, 2013. The adoptionimplementation of this standard didis not expected to have anya material effect on the Company’s consolidated financial condition, results of operations and cash flows.statements as the Company currently does not issue hybrid instruments.

F-14F-15



In February 2013,August 2014, the FASB issued ASU 2013-02, “Reporting2014-15, Presentation of Amounts Reclassified OutFinancial Statements-Going Concern (Subtopic 205-40): Disclosure of Accumulated Other Comprehensive Income,”Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this update provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. These amendments aim to reduce diversity in the timing and content of footnote disclosures. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718), which adds new disclosure requirementsrequires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for items reclassified outsuch awards. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of accumulated other comprehensive income (“AOCI”.) The ASU is intended to help entities improve the transparencybeginning of changes in other comprehensive income (OCI) and items reclassified out of AOCI in their financial statements. It does not amend any existing requirements for reporting net income or OCIthe earliest annual period presented in the financial statements and to all new or modified awards thereafter. The implementation of this standard is not expected to have a material effect on the Company’s consolidated financial statements. New
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which impacts virtually all aspects of an entity’s revenue recognition. The ASU introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard will be effective for the Company beginning in its first quarter of 2017. In July 2015, the FASB deferred the effective date until the annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. The Company is currently evaluating the impact this new standard will have on its consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements arerequirements. To qualify as a discontinued operation the standard requires a disposal to represent a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The standard also expands the disclosures for discontinued operations and requires new disclosures related to individually material dispositions that do not qualify as discontinued operations. The standard is effective prospectively for fiscal periods beginning after December 15, 2012 and are applied prospectively.2014, including interim periods within that reporting period, with early adoption permitted. The Company adopted the ASU effective January 1, 2013. The adoptionimplementation of this standard did not have any effecta material impact on the Company’s consolidated financial reporting because the only item that had historically affected AOCI and therefore included in cumulative AOCI was currency translation adjustments.statements.
In March 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 updates accounting guidance related to the application of consolidation guidance and foreign currency matters. This guidance resolves the diversity in practice about what guidance applies to the release of the cumulative translation adjustment into net income. This guidance is effective for interim and annual periods beginning after December 15, 2013. The Company does not expect the adoption of this pronouncement to have a material effect on its financial condition, results of operations and cash flows.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 is a new accounting standard on the financial statement presentation of unrecognized tax benefits. The new standard provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new standard becomes effective for the periods commencing January 1, 2014, and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. The Company is currently assessing the impacts of this new standard on its financial conditions, results of operating and cash flows.

2.ACQUISITIONS
Empathy Lab, LLC — OnAcquisitions completed during the year ended December 18, 2012,31, 2015 and December 31, 2014 allowed the Company completed itsto expand into desirable geographic locations, complement the existing vertical markets, increase revenue and create new offerings of services currently provided. The Company used the acquisition method of substantiallyaccounting to record these business combinations. Acquisitions were settled in cash and/or stock where a portion of the settlement price may have been deferred. For some transactions, purchase agreements contain contingent consideration in the form of an earnout obligation.
2015 Acquisition
NavigationArts — On July 10, 2015, the Company acquired all of the assetsoutstanding equity of NavigationArts, Inc. and assumed certain liabilities of Empathy Lab,its subsidiary, NavigationArts, LLC (“Empathy Lab”(collectively “NavigationArts”),. The U.S.-based NavigationArts provides digital consulting, architecture and content solutions and is regarded as a U.S.-based digital strategy and multi-channel experience design firm.leading user-experience agency. The acquisition has enhancedof NavigationArts added approximately 90 design consultants to the Company’s strong capabilities in global delivery of software engineering servicesheadcount. In connection with the proven expertise in two important growth areas-development and execution of enterprise-wide eCommerce initiatives and transformation of media consumption and distribution channels. In addition to strengthening our Travel and Consumer and Business Information and Media verticals, Empathy Lab brings significant expertise in digital marketing strategy consulting and program management.
The total preliminary purchase price of $27,257 was allocated to net tangible and intangible assets based on their estimated fair values as of December 18, 2012. During the second quarter of 2013,NavigationArts acquisition the Company finalized the fair values of the assets acquired and liabilities assumed. As a result, totalpaid $28,747 as cash consideration, transferred was set at $27,172, as presented in the following table. The purchase price was paid in cash, of which approximately 10%$2,670 was placed in escrow for a period of 18 months as a security for the indemnification obligations of the sellers under the assetterms of the stock purchase agreement.

AGS— On November 16, 2015, the Company acquired all of the outstanding equity of Alliance Consulting Global Holdings, Inc including its wholly-owned direct and indirect subsidiaries Alliance Global Services, Inc., Alliance Global Services, LLC, companies organized under the laws of USA, and Alliance Global Services IT India, a company organized under the laws of India (collectively, “AGS”). AGS provides software product development services and test automation solutions and has multiple locations in the United States and India. The purchase price was allocatedacquisition of AGS added 1,151 IT professionals to the assets acquired based on their related fair values, as follows:

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 Amount 
Cash and cash equivalents $1,191 
Trade receivables and other current assets  5,983 
Property and equipment  186 
Deferred tax asset  30 
Acquired intangible assets  11,200 
Goodwill  11,359 
Total assets acquired  29,949 
Accounts payable and accrued expenses  1,113 
Deferred revenue and other liabilities  1,664 
Total liabilities assumed  2,777 
Net assets acquired $27,172 

Company’s headcount in the United States and India. In addition,connection with the AGS acquisition the Company issued to the sellers a totalpaid $51,254 as cash consideration, of 327,827 shares of non-vested (“restricted”) common stock contingent on their continued employment with the Company (Note 14), including 1,483 shares issued on July 11, 2013, to settle the difference between the initial number of shares issued upon acquisition and the total number of shares due in connection with this transaction. Of these shares, 65,500 shares werewhich $5,000 was placed in escrow for a period of 1815 months as a security for the indemnification obligations of the sellers under the assetterms of the stock purchase agreement. The restricted stock had an estimated value of $6,797 at the time of grant and will be
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recorded as a stock-based compensation expense over an associated service period of three years.
The Company also agreed to issue stock options to certain employees acquired through the Empathy Lab acquisition. The stock options were issuedmake a true-up payment in the amount by whichof $603, that is recognized in the acquiree’s revenue exceededform of deferred consideration.

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The following is a summary of the target revenue for the first half of 2013, as defined by the purchase agreement, and were issued under the Company’s current long-term incentive plan. The stock options are subject to all vesting restrictions and other terms and conditions customary for the Company.
The Company performed a valuation analysis to determine theestimated fair values of certain intangiblethe net assets acquired at the date of Empathy Labeach respective acquisition during the year ended December 31, 2015 as originally reported in the quarterly condensed consolidated financial statements and at December 31, 2015:
 NavigationArts AGSTotal
 As Originally Reported At December 31, 2015 At December 31, 2015 As Originally Reported At December 31, 2015
Cash and cash equivalents$1,317
 $1,317
 $1,727
 $3,044
 $3,044
Trade receivables and other current assets3,920
 3,920
 10,600
 14,520
 14,520
Property and equipment and other long-term assets230
 230
 1,665
 1,895
 1,895
Deferred tax asset
 233
 4,996
 4,996
 5,229
Acquired intangible assets1,500
 2,800
 10,000
 11,500
 12,800
Goodwill23,822
 21,764
 33,815
 57,637
 55,579
Total assets acquired30,789
 30,264
 62,803
 93,592
 93,067
Accounts payable and accrued expenses871
 871
 3,087
 3,958
 3,958
Deferred revenue50
 50
 1,049
 1,099
 1,099
Due to employees596
 596
 3,010
 3,606
 3,606
Deferred tax liability525
 
 3,800
 4,325
 3,800
Total liabilities assumed2,042
 1,517
 10,946
 12,988
 12,463
Net assets acquired$28,747
 $28,747
 $51,857
 $80,604
 $80,604

The above estimated fair values of the assets acquired and liabilities assumed are provisional and based on the information that was available as of the acquisition date. As partdate and updated for any changes as of December 31, 2015. During the three months ended on December 31, 2015 the Company received a preliminary independent valuation process,of intangible assets of NavigationArts that resulted in adjustments to goodwill, intangible assets and deferred tax asset and liability with no change to the excess earnings method was usednet assets acquired.
The Company is gathering additional information necessary to determinefinalize the value of customer relationships. Fairestimated fair values of trade namenet assets acquired during 2015. The fair values reflected are subject to change and non-competition agreements were determined using the relief from royalty and discounted earnings methods, respectively.such changes could be significant. The Company expects approximately $11,470 of tax goodwill amortizable over a 15-year period.

to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the respective acquisition dates.
The following table presents the estimated fair values and useful lives of intangible assets acquired as of December 18, 2012:

  
Weighted Average
Useful Life
(in years) 
 Amount 
Customer relationships  10  $6,900 
Trade names  5   3,900 
Non-competition agreements  4   400 
Total     $11,200 

Included in consolidated statements of income and comprehensive income for the year ended December 31, 2012 were $545 of revenues and $104 of net income of the acquiree, respectively.
Total acquisition-related post-combination compensation expense recognized for the year ended December 31, 2012 was $79 and is presented within selling, general and administrative expenses. Total acquisition-related costs were $81 and are presented within selling, general and administrative expenses for the year ended December 31, 2012, respectively.
Pro forma results of operations for the Empathy Lab acquisition completed during the year ended December 31, 2012 have not been presented because2015:
 NavigationArts AGS
 Weighted Average Useful Life (in years) Amount Weighted Average Useful Life (in years) Amount
Customer relationships10 $2,800
 10 $10,000
Total  $2,800
   $10,000

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2014 Acquisitions
The following table discloses details of purchase price consideration of each of the effects2014 acquisitions:
Name of Acquisition Effective Date of Acquisition Common Shares 
Fair Value of Common
Shares
 Cash, Net of Working Capital and Other Adjustments 
Recorded Earnout
Payable
 Total Recorded Purchase Price Maximum Potential Earnout Payable
  Issued Deferred Issued Deferred Paid Deferred Cash Stock  
    (in shares) (in thousands)
Netsoft March 5, 2014 
 
 $
 $
 $2,403
 $1,022
 $1,825
 $
 $5,250
 $1,825
Jointech April 30, 2014 
 89,552
 
 2,788
 10,000
 4,000
 15,000
 5,000
 36,788
 20,000
GGA June 6, 2014 
 
 
 
 14,892
 
 11,400
 
 26,292
  
Great Fridays October 31, 2014 
 
 
 
 10,777
 
 1,173
 
 11,950
 1,173
    
 89,552
 $
 $2,788
 $38,072
 $5,022
 $29,398
 $5,000
 $80,280
  
Common shares issued in connection with acquisitions, if applicable, are valued at closing market prices as of the effective date of the applicable acquisition. The maximum potential earnout payables disclosed in the foregoing table represent the maximum amount of additional consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition. The amounts recorded as earnout payables, which are based upon the estimated future operating results of the acquired businesses within a seven-to twelve-month period subsequent to the acquisition date, are measured at fair value as of the acquisition were not material, individuallydate and are included on that basis in aggregate with otherthe recorded purchase price consideration in the foregoing table. The Company records any subsequent changes in the fair value of the earnout obligations in its consolidated income from operations. Please see Note 16 for discussion around significant inputs and assumptions relating to the earnout obligations. All earnout obligations for these acquisitions completed byhave been settled.
Netsoft — On March 5, 2014, the Company during 2012, to the Company’s consolidated resultscompleted an acquisition of operations.
Thoughtcorp, Inc. — On May 23, 2012, the Company acquired substantially all of the assets and assumed certain specific liabilities of Thoughtcorp, Inc.,U.S.-based healthcare technology consulting firm Netsoft Holdings LLC and Armenia-based Ozsoft, LLC (collectively, “Netsoft”). As a Toronto-based software solutions provider (“Thoughtcorp”result of this transaction, substantially all of the employees of Netsoft, including approximately 40 IT professionals, accepted employment with the Company. In connection with the Netsoft acquisition, the Company agreed to issue 2,289 restricted shares of Company common stock as consideration for future services to key management and employees of Netsoft (the “Netsoft Closing Shares”). The acquisition is intendedCompany agreed to expand the Company’s geographic footprint within North America, and complement its global delivery capabilities with expertise in areas such as agile development, enterprise mobility and business intelligence. In addition, Thoughtcorp brings significant telecommunications expertise, and expands and enhances the Company’s offering within the Banking and Financial Services and Travel and Consumer verticals.
The purchase price was comprisedpay deferred consideration consisting partly of $7,497 paid in cash and 217,2749,154 restricted shares of Company common stock. During the three months ended March 31, 2015, the Company issued 16,349 restricted shares of Company common stock to Netsoft for achieving certain performance targets (collectively with the Netsoft Closing Shares, the “Netsoft Employment Shares”). The Netsoft Employment Shares vest in equal annual installments over a fairthree-year period starting from the date of acquisition. The first such installment vested during the first quarter of 2015. All unvested shares will be forfeited upon termination of services by the Company for cause or by the employee other than for good reason. The Netsoft Employment Shares had an estimated value of $3,607$1,017 at the acquisition date. Halftime of these sharesgrant and were recorded as stock-based compensation expense over an associated service period of three years (Note 13). Under the terms of this agreement, all of the Netsoft Closing Shares, as well as $256, were placed in escrow for a period of 18 months as a security for the indemnification obligations of the sellers under the asset purchase agreement. Additionally,
Jointech — On April 30, 2014, the Company acquired all of the outstanding equity of Joint Technology Development Limited, a company organized under the laws of Hong Kong, including its wholly-owned subsidiaries Jointech Software (Shenzhen) Co., Ltd., a company organized under the laws of China, and Jointech Software Pte. Ltd., a company organized under the laws of Singapore (collectively, “Jointech”). Jointech provides strategic technology services to multi-national organizations in investment banking, wealth and asset management. As a result of this transaction, substantially all employees of Jointech, including approximately 216 IT professionals, accepted employment with the Company. In connection with the Jointech acquisition, the Company issued to the sellers 217,27289,552 shares of non-vested (“restricted”)the Company common stock contingentto a former owner of Jointech as consideration for future services on their continued employmentor about the six-month anniversary from the date of acquisition (the “Jointech Closing Shares”). Furthermore, during the second quarter of 2015, the Company issued 83,057 restricted shares of Company common stock to Jointech for achieving certain performance targets (collectively with the Jointech Closing Shares, the “Jointech Employment Shares”). The Jointech Employment Shares vest in equal annual installments over a three-year period starting from the date of acquisition. The first such installment vested during the second quarter of 2015.
All unvested Jointech Employment Shares will be forfeited upon termination of services for cause by the Company (Note 14). These shares have an estimatedor other than for good reason (as applicable) by either of the two former owners of the acquired business. The aggregate fair value of $3,607the Jointech Employment Shares at the date of grant was $7,788 and will be recorded as stock-based compensation expense over an associated service period of two years. A deferred tax asset has been recognizedthree years (Note 13).

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Under the terms of the agreement, 15% of the total purchase price, in cash and stock, including the Jointech Employment Shares, was placed in an escrow account for a period of 18 months as security for the tax effectindemnification obligations of the sellers under the stock purchase agreement.
GGA — On June 6, 2014, the Company acquired substantially all of the assets and assumed certain specific liabilities of GGA Software Services, LLC, Institute of Theoretical Chemistry, Inc., and GGA’s Russian affiliate (collectively, “GGA”). Established in 1994, GGA develops scientific informatics applications and content databases; creates state-of-the-art algorithms and models; and delivers IT support, maintenance, and QA services to the world’s leading healthcare and life sciences companies. As a result of this transaction, substantially all employees of GGA, including approximately 329 IT professionals and 126 scientists, accepted employment with the Company. In connection with the GGA acquisition, the Company agreed to issue 262,277 shares of the Company common stock to the former owners of GGA as consideration for future services (the “GGA Closing Shares”). Furthermore, during the second quarter of 2015, the Company issued 233,753 restricted shares of Company common stock to the former owners of GGA for achieving certain performance targets (collectively with the GGA Closing Shares, the “GGA Employment Shares”). The GGA Employment Shares vest in equal annual installments over a three-year period starting from the date of acquisition. The first such installment vested during the second quarter of 2015. With respect to each former owner, all unvested shares will be forfeited upon either termination of services by the Company for cause or by the employee other than for good reason. The aggregate fair value of the portionGGA Employment Shares at the date of grant was $20,655 and will be recorded as stock-based expense over an associated service period of three years (Note 13). Under the terms of the shares thatagreement, 102,631 of the GGA Employment Shares were placed into an escrow account for a period of 15 months as security for the indemnification obligations of the sellers under the asset purchase agreement.
Great Fridays — On October 31, 2014, the Company acquired all of the outstanding equity of Great Fridays Limited and its subsidiaries with intent to expand the Company’s product and design service portfolio. Great Fridays Limited, headquartered in escrow.

Manchester, UK, with offices in London, San Francisco and New York, focuses on bridging the gap between business and design. The purchase price was allocatedacquisition of Great Fridays added approximately 50 creative design professionals to the assets acquired based on their relatedCompany’s headcount. In connection with the Great Fridays acquisition, the Company agreed to issue 90,864 shares of the Company common stock to the former owners of Great Fridays as consideration for future services (the “Great Fridays Closing Shares”). Furthermore, during the second quarter of 2015, subject to attainment of specified performance targets, the Company issued to the former owners of Great Fridays 10,092 shares of the Company common stock (collectively with Great Fridays Closing Shares, the “GF Employment Shares”). The GF Employment Shares vest in equal annual installments over a three-year period starting from the date of acquisition. With respect to each former owner, all unvested shares will be forfeited upon either termination of services by the Company for cause or by the employee other than for good reason. The aggregate fair values,value of the GF Employment Shares at the date of grant was $4,823 and will be recorded as follows:stock-based compensation expense over an associated service period of three years (Note 13). Under the terms of the agreement, 28,390 of the GF Employment Shares were placed into an escrow account for a period of 24 months as security for the indemnification obligations of the sellers under the asset purchase agreement.

 
 Amount 
Cash and cash equivalents $1,111 
Trade receivables and other current assets  2,484 
Property and equipment  92 
Deferred tax asset  1,348 
Acquired intangible assets  5,296 
Goodwill  2,935 
Total assets acquired  13,266 
Accounts payable and accrued expenses  461 
Assumed shareholder and director loans  1,290 
Deferred revenue and other liabilities  411 
Total liabilities assumed  2,162 
Net assets acquired $11,104 
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The following is a summary of the estimated fair values of the net assets acquired at the date of each respective acquisition during the year ended December 31, 2014 as originally reported in the quarterly condensed consolidated financial statements and at December 31, 2015:

 Netsoft Jointech GGA Great Fridays Total
 At Originally Reported Final as of March 31, 2015 As Originally Reported Final as of June 30, 2015 As Originally Reported Final as of June 30, 2015 As Originally Reported Final as of December 31, 2015 As Originally Reported Final as of December 31, 2015
Cash and cash equivalents$
 $
 $871
 $871
 $
 $
 $259
 $259
 $1,130
 $1,130
Trade receivables and other current assets788
 788
 784
 784
 5,157
 5,377
 1,825
 1,825
 8,554
 8,774
Property and equipment and other long-term assets52
 52
 338
 338
 444
 306
 262
 262
 1,096
 958
Deferred tax asset351
 
 
 
 4,463
 
 
 
 4,814
 
Acquired intangible assets1,700
 1,700
 25,744
 15,312
 10,959
 16,000
 5,747
 200
 44,150
 33,212
Goodwill2,776
 2,779
 11,033
 23,758
 6,496
 7,306
 6,947
 11,262
 27,252
 45,105
Total assets acquired5,667
 5,319
 38,770
 41,063
 27,519
 28,989
 15,040
 13,808
 86,996
 89,179
Accounts payable and accrued expenses69
 69
 728
 728
 2,593
 2,593
 872
 807
 4,262
 4,197
Deferred revenue
 
 
 
 
 104
 317
 317
 317
 421
Due to employees
 
 1,254
 1,254
 
 
 624
 624
 1,878
 1,878
Deferred tax liability
 
 
 2,293
 
 
 1,200
 110
 1,200
 2,403
Total liabilities assumed69
 69
 1,982
 4,275
 2,593
 2,697
 3,013
 1,858
 7,657
 8,899
Net assets acquired$5,598
 $5,250
 $36,788
 $36,788
 $24,926
 $26,292
 $12,027
 $11,950
 $79,339
 $80,280
The Company performed a valuation analysis to determineAs of December 31, 2015 the fair values of certainthe assets acquired and liabilities assumed and the related purchase price allocation for the 2014 acquisitions have been finalized.
As of December 31, 2015, and during the period since the date of each respective acquisition up through December 31, 2015, or the date purchase accounting was finalized, as applicable, the Company made updates to the initially reported acquired balances and has finalized valuation of the balances of Netsoft, Jointech, GGA and Great Fridays. For Netsoft, the deferred tax asset and goodwill were adjusted and decreased the net assets acquired by $348. For Jointech, intangible assets were adjusted to reflect the final fair value of Thoughtcorp asintangible assets acquired and a deferred tax liability was established, both increasing goodwill with no change to the net assets acquired. For GGA, the final working capital adjustment was completed, deferred tax assets were netted with additional recognized deferred tax liabilities and additional accounts receivable and deferred revenue were recognized. In addition, intangible assets and property and equipment were adjusted to reflect the final fair value of the acquisition date. As part ofassets acquired. These adjustments resulted in an overall increase to goodwill and increased the valuation process, the excess earnings method was used to determinenet assets by $1,366. For Great Fridays, the value of customer relationships. Fair valuesthe intangible assets and associated deferred tax liabilities were reduced based on the final fair value estimates of trade nameacquired intangible assets, which increased goodwill. These adjustments resulted in a decrease in net assets acquired by $77.
The adjustments identified above did not significantly impact our previously reported net income of prior periods and, non-competition agreements were determined using the relief from royalty and discounted earnings methods, respectively. The Company expects approximately $8,310 of tax goodwill, of which 75% is deductible at 7% per annum on a declining basis.

as such, prior period amounts have not been retrospectively adjusted.
The following table presents the estimated fair values and useful lives of intangible assets acquired as of May 23, 2012:

  
Weighted Average
Useful Life
(in years) 
 Amount 
Customer relationships  10  $2,810 
Trade names  5   2,014 
Non-competition agreements  5   472 
Total     $5,296 


Included in consolidated statements of income forduring the year ended December 31, 2012 were $7,1842014:
 Netsoft Jointech GGA Great Fridays
 Weighted Average
Useful Life
(in years) 
 Amount  Weighted Average
Useful Life
(in years) 
 Amount  Weighted Average
Useful Life
(in years) 
 Amount  Weighted Average
Useful Life
(in years) 
 Amount 
Customer relationships10
 $1,700
 10 $15,000
 10
 $16,000
 3
 $200
Trade names
 
 2 312
 
 
 
 
Total  $1,700
   $15,312
   $16,000
   $200

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Table of revenues and $206Contents

As of net losses of the acquiree, respectively.
Total acquisition-related post-combination compensation expense recognized for the year ended December 31, 2012 was $1,2522015, the companies acquired during 2015 and 2014 have been significantly integrated into the Company and as such, it is presented within selling, general and administrative expenses. Total acquisition-related costs were $420 and are presented within selling, general and administrative expenses for the year ended December 31, 2012, respectively.
not possible to precisely report their individual post-acquisition results of operations. Pro forma results of operations for the Thoughtcorp acquisition completed during the year ended December 31, 2012 havetransactions are not been presented because the effects of the acquisition, individually and in aggregate with other acquisitions completed by the Company during 2012, werewould not have been material to the Company’s consolidated results of operations.operations, individually or in the aggregate for the periods presented.
3.GOODWILL AND INTANGIBLE ASSETS — NET

3.GOODWILL AND INTANGIBLE ASSETS — NET

Goodwill by reportable segment was as follows:

  North America  EU  Russia  Other  Total 
Balance as of January 1, 2012 $2,286  $2,864  $3,019  $  $8,169 
Acquisition of Thoughtcorp (Note 2)  2,935            2,935 
Acquisition of Empathy Lab (Note 2)  11,359            11,359 
Effect of net foreign currency exchange rate changes  63      172      235 
Balance as of December 31, 2012  16,643   2,864   3,191      22,698 
Effect of net foreign currency exchange rate changes  (205)     (225)     (430)
Balance as of December 31, 2013 $16,438  $2,864  $2,966  $  $22,268 

 North America Europe Russia Total
Balance as of January 1, 2014$16,438
 $2,864
 $2,966
 $22,268
Acquisition of Netsoft (Note 2)2,749
 
 
 2,749
Acquisition of Jointech (Note 2)
 17,404
 
 17,404
Acquisition of GGA (Note 2)12,115
 
 
 12,115
Acquisition of Great Fridays (Note 2)
 6,947
 
 6,947
Goodwill written-off
 
 (2,241) (2,241)
Net effect of foreign currency exchange rate changes(224) (876) (725) (1,825)
Balance as of December 31, 201431,078
 26,339
 
 57,417
Acquisition of NavigationArts (Note 2)23,822
 
 
 23,822
Acquisition of AGS (Note 2)33,815
 
 
 33,815
Netsoft purchase accounting adjustment (Note 2)30
 
 
 30
Jointech purchase accounting adjustment (Note 2)
 6,181
 
 6,181
GGA purchase accounting adjustment (Note 2)(4,807) 
 
 (4,807)
Great Fridays purchase accounting adjustment (Note 2)
 4,315
 
 4,315
NavigationArts purchase accounting adjustment (Note 2)(2,058) 
 
 (2,058)
Effect of net foreign currency exchange rate changes(416) (2,369) 
 (2,785)
Balance as of December 31, 2015$81,464
 $34,466
 $
 $115,930

Excluded from the table above is the Other segment. As a result of an operating loss in the Other reporting unit for the three months ended June 30, 2011, the Company performed a goodwill impairment test. In assessing impairment in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other,” the Company determined that the fair value of the Other reporting unit, based on the total of the expected future discounted cash flows directly related to the reporting unit, was below the carrying value of the reporting unit. The Company completed the second step of the goodwill impairment test, resulting in an impairment charge of $1,697. $1,697 in the Other operating segment. As of December 31, 2015, 2014 and 2013 the book value of the Other segment was zero.
There Company performed an annual goodwill impairment test as of October 31, 2014 in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other.” In assessing impairment both qualitatively and quantitatively based on the total of the expected future discounted cash flows directly related to the reporting unit, the Company determined that the fair value of the Russia reporting unit was below the carrying value of the reporting unit. The Company completed the second step of the goodwill impairment test, resulting in an impairment charge of $2,241in the Russia segment. As of December 31, 2015 and 2014 the book value of the Russia segment was zero. All existing assets that related to the Russia segment, excluding goodwill and including any unrecognized intangible assets, were assessed by management and deemed to not be impaired.
There were no accumulated impairments losses in any of the North America or Europe or Russiaoperating segments as of December 31, 2013, 20122015, 2014 or 2011.2013.
As part of the ThoughtcorpAGS acquisition in 2015, substantially all of the employees of the acquiree accepted employment with the Company.AGS continued employment. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire Thoughtcorp is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s Canadian operations and is presented within North America.
As part of the Empathy Lab acquisition, substantially all of the employees of the acquiree accepted employment with the Company. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire Empathy LabAGS is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s U.S. operations and is presented within North America.

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Table of Contents

As part of the NavigationArts acquisition in 2015, substantially all of the employees of NavigationArts continued employment. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire NavigationArts is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s U.S. operations and is presented within North America.

As part of the Netsoft acquisition in 2014, substantially all of the employees of Netsoft accepted employment with the Company. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire Netsoft is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s U.S. operations and is presented within North America.
ComponentsAs part of intangible assets were as follows:the Jointech acquisition in 2014, substantially all of the employees of Jointech continued employment. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire Jointech is attributable to the workforce of the acquired business. Based on the determination of the reportable units, Jointech has been placed in the Europe reportable unit based on managerial responsibility and consistent with segment reporting. All of the goodwill was allocated to the Company’s UK operations and is presented within Europe segment.

  2013 
  
Weighted average
life at acquisition
(in years) 
 
Gross
carrying
amount 
 
Accumulated
amortization 
 
Net carrying
amount 
Client relationships  9  $13,432  $(4,885) $8,547 
Trade name  5   6,232   (1,643)  4,589 
Non-competition agreements  5   848   (250)  598 
Total     $20,512  $(6,778) $13,734 

  2012 
  
Weighted average
life at acquisition
(in years) 
 
Gross
carrying
amount 
 
Accumulated
amortization 
 
Net carrying
amount 
Client relationships  9  $13,724  $(3,640) $10,084 
Trade name  5   6,372   (439)  5,933 
Non-competition agreements  5   881   (64)  817 
Total     $20,977  $(4,143) $16,834 

As part of the GGA acquisition in 2014, substantially all of the employees of GGA accepted employment with the Company. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire GGA is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s U.S. operations and is presented within North America.

As part of the Great Fridays acquisition in 2014, substantially all of the employees of Great Fridays continued employment. The Company believes the amount of goodwill resulting from the allocation of purchase price to acquire Great Fridays is attributable to the workforce of the acquired business. All of the goodwill was allocated to the Company’s U.S. operations and is presented within North America.
 2015
 Weighted average life at acquisition (in years) Gross carrying amount Accumulated amortization 
Net 
carrying amount
Client relationships10 $52,974
 $(8,387) $44,587
Trade name5 5,853
 (3,772) 2,081
Non-competition agreements4 746
 (554) 192
Total
 $59,573
 $(12,713) $46,860
 2014
 Weighted average life at acquisition (in years) Gross carrying amount Accumulated amortization 
Net 
carrying amount
Client relationships10 $48,482
 $(4,664) $43,818
Trade name5 6,372
 (2,894) 3,478
Non-competition agreements5 813
 (420) 393
Total  $55,667
 $(7,978) $47,689
All of the intangible assets have finite lives and as such are subject to amortization. Amortization of intangiblesRecognized amortization expense for the years ended December 31 is presented in the table below:

 
 Year Ended December 31, 
  2013  2012  2011 
Client relationships $1,373  $627  $720 
Trade name  1,222   333   59 
Non-competition agreements  190   64    
Total $2,785  $1,024  $779 
  For the Years Ended December 31,
  2015 2014 2013
Client relationships $3,961
 $3,843
 $1,373
Trade name 1,280
 1,319
 1,222
Non-competition agreements 175
 187
 190
Total $5,416
 $5,349
 $2,785

F-23


Estimated amortization expenses of the Company’s existing intangible assets for the next five years ending December 31, were as follows:

  Amount
2016 $6,633
2017 6,240
2018 5,292
2019 5,292
2020 5,292
Thereafter 18,111
Total $46,860
 
 Amount 
2014 $2,503 
2015  2,376 
2016  2,341 
2017  1,865 
2018  977 
Thereafter  3,672 
Total $13,734 


44..PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consisted of the following:

  December 31,
2015
 December 31,
2014
Taxes receivable $7,954
 $3,966
Prepaid expenses 4,693
 3,703
Other 1,697
 1,620
Total $14,344
 $9,289
  
December 31,
2013 
 
December 31,
2012 
Taxes receivable $7,295  $4,522 
Prepaid expenses  3,399   3,825 
Security deposits under operating leases  1,005   837 
Prepaid equipment  986   1,695 
Unamortized software licenses and subscriptions  981   616 
Due from employees  218   104 
Other  471   236 
Total $14,355  $11,835 

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Table of Contents

5.EMPLOYEE LOANS AND ALLOWANCE FOR LOAN LOSSES
5.EMPLOYEE LOANS AND ALLOWANCE FOR LOAN LOSSES
In the third quarter of 2012, the Board of Directors of the Company approved the Employee Housing Program (“the Housing(the “Housing Program”), which assistsprovides employees in purchasingwith loans to purchase housing in Belarus. The housing is sold directly to employees by independent third parties. The Housing Program was designed to beas a retention mechanism for the Company’s employees in Belarus and is available to full-time qualified employees who have been with the Company for at least three years. As partThe aggregate maximum lending limit of the Housing Program, the Company will extend financing to employees up to an aggregate amount of $10,000. The Company does not bear any market risk in connectionprogram is $10,000, with the Housing Program, as the housing will be sold directly to employees by independent third parties.no individual loans exceeding $50. In addition to the housing loans, the Company issues relocation loans in connection with intra-company transfers, as well as certain other individual loans.
During the year ended December 31, 2013,2015, loans issued by the Company under the Housing Program were denominated in U.S. Dollars with a five-year5-year term and carried an interest rate of 7.5%.

At December 31, 20132015 and December 31, 2012,2014, categories of employee loans included in the loan portfolio were as follows:

 
December 31,
2013 
 
December 31,
2012 
December 31,
2015
 December 31,
2014
Housing loans $5,896  $ $5,654
 $5,848
Relocation and other loans  494   429 684
 667
Total employee loans  6,390   429 6,338
 6,515
Less:         
  
Allowance for loan losses      
 
Total loans, net of allowance for loan losses $6,390  $429 $6,338
 $6,515

During the years ended December 31, 2015 and 2014, the Company issued a total of $3,427 and $3,162 of loans to its employees, respectively, and received $3,547 and $3,025 in loan repayments during the same periods, respectively. One of the loans in the amount of $7 was written-off during the year ended December 31, 2015. There were no loans written-off during the year ended December 31, 2014.
There were no loans issued to principal officers, directors, andor their affiliates during the years ended December 31, 2013, 20122015, 2014 and 2011.2013.

F-24


On a quarterly basis, the Company reviews the aging of its loan portfolio to evaluate information aboutand evaluates the ability of employees to servicerepay their debt includingon schedule. Factors considered in the review include historical payment experience, reasons for payment delays and shortfalls, if any, as well as probability of collecting scheduled principal and interest payments based on the knowledge of individual borrowers, among other factors.
payments. As of December 31, 20132015 and December 31, 2012,2014, there were no material past due or non-accrual employee loans. The Company determined no allowance for loan losses was required regarding its employee loans as of December 31, 20132015 and December 31, 2012,2014 and there were no movements in provision for loan losses during the years ended December 31, 2013, 20122015, 2014 and 2011.2013.

6.RESTRICTED CASH AND TIME DEPOSITS
6.RESTRICTED CASH AND TIME DEPOSITS

Restricted cash and time deposits consisted of the following:

  
December 31,
2013 
 
December 31,
2012 
Time deposits $1,188  $1,006 
Short-term security deposits under customer contracts  298   660 
Long-term deposits under employee loan programs  225   360 
Long-term deposits under operating leases     107 
Total $1,711  $2,133 

 December 31,
2015
 December 31,
2014
Time deposits$30,181
 $
Other security deposits238
 156
Total$30,419
 $156

IncludedAs of December 31, 2015, time deposits consisted of a bank deposit of $30,181, earning interest at the rate of 0.74% placed with the Cyprus entity’s bank in the United Kingdom The deposit will mature on March 11, 2016. There were no time deposits as of December 31, 2013, was a bank deposit of $1,188. The deposit matures on October 15, 2014 and earns interest at the rate of 2.05%. The Company does not intend to withdraw the deposit prior to its maturity.
Included in time deposits as of December 31, 2012, was a bank deposit of $1,006, which earned interest at the rate of 2.95%. The deposit matured in September 2013.2014.
At December 31, 20132015 and 2012 short-term2014, security deposits under customerlease contracts included fixedrepresented amounts placed in connection with bank guaranteesretained to secure appropriate performance by the Company. The Company estimates the probability of non-performance under these contracts as remote, therefore, no provision for losses has been recognized in respect of these amounts as of December 31, 20132015 and 2012.2014.
Also included inOther restricted cash as of December 31, 20132015 and 2012 were2014 included loan deposits of $225 and $360, respectively, placed in connection with certain employee loan programs (See Note 16)5).
F-19

Table of Contents


7.PROPERTY AND EQUIPMENT — NET
7.PROPERTY AND EQUIPMENT — NET

Property and equipment consisted of the following:

 
Useful Life
(in years) 
 
December 31,
2013 
 
December 31,
2012 
 
Useful Life
(in years)
 December 31,
2015
 December 31,
2014
Computer hardware  3  $29,884  $24,239  3 $36,612
 $32,374
Leasehold improvements lease term   5,903   5,527  lease term 6,801
 6,287
Furniture and fixtures  7   5,688   4,351  7 8,990
 7,348
Purchased computer software  3   5,042   4,452  3 4,099
 3,606
Office equipment  7   4,679   4,325  7 8,307
 5,043
Building  50   16,534   16,534  50 34,002
 17,123
Construction in progress (Note 16)  n/a   15,749   15,561 
Land improvements 20 1,464
 
Construction in progress (Note 15) n/a 
 17,885
      83,479   74,989  100,275
 89,666
Less accumulated depreciation and amortization      (30,164)  (21,854) (39,776) (34,532)
Total     $53,315  $53,135  $60,499
 $55,134
Depreciation and amortization expense related to property and equipment was $12,335, $9,858$11,979, $12,134 and $6,759$12,335 for the years ended December 31, 2013, 20122015, 2014 and 2011,2013, respectively.


F-25


8.ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses consisted of the following:

  December 31,
2015
 December 31,
2014
Compensation $47,285
 $22,766
Subcontractor costs 4,360
 2,815
Professional fees 2,251
 1,162
Facilities costs 1,538
 757
Acquisition related deferred consideration 603
 1,022
Other 4,347
 3,681
Total $60,384
 $32,203
  
December 31,
2013 
 
December 31,
2012 
Compensation $13,674  $15,450 
Subcontractor costs  2,933   1,915 
Professional fees  947   544 
Facilities costs  334   297 
Other  2,287   1,608 
Total $20,175  $19,814 


9.
9.TAXES PAYABLE

Current taxes payable consisted of the following:

 
December 31,
2013 
 
December 31,
2012 
 December 31,
2015
 December 31,
2014
Corporate profit tax $3,717  $3,315  $15,057
 $7,982
Value added taxes  5,975   6,274  8,553
 6,279
Payroll, social security, and other taxes  4,479   4,968  5,862
 10,443
Total $14,171  $14,557  $29,472
 $24,704

AsThere were no long-term taxes payable as of December 31, 20132015 and 2012, long-term taxes payable included amounts in respect of unrecognized tax benefits and related interest.2014.

10.INCOME TAXES
10.INCOME TAXES

Income before provision for income taxes shown below wasincluded income from domestic operations and income from foreign operations based on the geographic location to which suchas disclosed in the table below:
  For the Years Ended December 31,
  2015 2014 2013
Income before income tax expense:      
Domestic $(7,687) $(7,229) $7,001
Foreign 113,757
 94,182
 69,769
Total $106,070
 $86,953
 $76,770
The provision for income was attributed as follows:taxes consists of the following:
  For the Years Ended December 31,
  2015 2014 2013
Income tax expense (benefit) consists of:      
Current      
Federal $19,851
 $7,741
 $6,150
State 2,563
 338
 310
Foreign 14,528
 12,504
 8,275
Deferred      
Federal (13,361) (3,979) (668)
State (1,891) (43) 14
Foreign (76) 751
 695
Total $21,614
 $17,312
 $14,776

 
 Year Ended December 31, 
  2013  2012  2011 
Income before income tax expense: 
  
  
 
Domestic $7,001  $9,291  $2,872 
Foreign  69,769   56,572   49,920 
Total $76,770   65,863  $52,792 

F-20F-26

Table of Contents


 
 Year Ended December 31, 
  2013  2012  2011 
Income tax expense/ (benefit) consists of: 
  
  
 
Current 
  
  
 
Federal $6,150  $6,881  $4,878 
State  310   319   389 
Foreign  8,275   7,969   2,483 
Deferred            
Federal  (668)  (625)  (1,629)
State  14   24   (72)
Foreign  695   (3,189)  2,390 
Total $14,776  $11,379  $8,439 


Deferred tax assets and liabilities are provided forIncome Taxes
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax basis of an asset and liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

Thepurposes. Significant components of the Company’s deferred tax assets and liabilities wereare as follows:

 
December 31,
2013 
 
December 31,
2012 
 December 31,
2015
 December 31,
2014
Deferred tax assets: 
  
     
Fixed assets $732  $703  $681
 $181
Intangible assets  4,532   4,737  1,428
 3,789
Accrued expenses  3,488   4,042  10,729
 1,282
Net operating loss carryforward 5,233
 844
Deferred revenue  2,050   1,583  2,162
 4,328
Stock-based compensation  407   413  12,484
 6,994
Valuation allowance     (489) 
 (149)
Restricted stock options  1,336   1,616  
 2
Other assets  680   1,214  14
 30
Deferred tax assets  13,225   13,819  32,731
 17,301
Deferred tax liabilities:            
Fixed assets  804   742  646
 800
Intangible assets 1,598
 
Accrued revenue and expenses  846   737  511
 635
Deferred intercompany gain  405   405 
Equity compensation  1,593   2,431 
Deferred inter-company gain 
 405
Stock-based compensation 1,672
 7,013
Other liabilities  254     912
 24
Deferred tax liability  3,902   4,315  5,339
 8,877
Net deferred tax asset $9,323  $9,504  $27,392
 $8,424
At December 31, 2013,2015, the Company had current and non-current deferred tax assets of $5,392$11,847 and $4,557,$18,312, respectively, and current and non-current tax liabilities of $275$365 and $351,$2,402, respectively. At December 31, 2012,2014, the Company had current and non-current deferred tax assets of $6,593$2,496 and $6,093,$11,094, respectively, and current and non-current tax liabilities of $491$603 and $2,691,$4,563, respectively.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the amount of tax holiday the company can use in Hungary before the credit expires in that jurisdiction in 2015. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.
On the basis of this evaluation, as of December 31, 2013, no valuation allowance is required to record the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
At December 31, 2013,2015, the Company had utilized all of its federalhas a net operating losses.loss in China and Singapore related to the acquisition of Jointech and a net operating loss in the US related to the acquisition of AGS. The net operating losses at Jointech will be utilized prior to its expiration and the net operating loss at AGS will be used each year until expiration. No provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, the
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investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. As of December 31, 2013,2015, certain subsidiaries had approximately $249.6$443.2 million of undistributed earnings that we intend to permanently reinvest. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

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The provision for income taxes differs from the amountreconciliation of income tax determined by applying the applicable USfederal statutory federal income tax rate to pretaxour effective income tax rate is as follows:

 
 Year Ended December 31, 
  2013  2012  2011 
Statutory federal tax $26,102  $22,393  $18,482 
Increase/ (decrease) in taxes resulting from:            
State taxes, net of federal benefit  368   280   266 
Provision adjustment for current year uncertain tax position        178 
Effect of permanent differences  2,524   2,177   2,816 
Stock-based compensation  1,948   1,165    
Rate differential between U.S. and foreign  (17,279)  (14,472)  (13,297)
Change in foreign tax rate  (59)  148   (22)
Change in valuation allowance  489   (489)   
Other  683   177   16 
Income tax expense $14,776  $11,379  $8,439 


The growth in the permanent differences in the year ended December 31, 2012 related to goodwill impairment loss and increases in non-deductible expenses incurred by foreign subsidiaries.
  For the Years Ended December 31,
  2015 2014 2013
Statutory federal tax $37,125
 $29,564
 $26,102
Increase/ (decrease) in taxes resulting from:      
State taxes, net of federal benefit 341
 311
 368
Provision adjustment for current year uncertain tax position 
 (1,220) 
Effect of permanent differences 7,314
 8,589
 2,524
Stock-based compensation 7,591
 3,782
 1,948
Rate differential between U.S. and foreign (31,094) (24,772) (17,279)
Change in foreign tax rate 9
 754
 (59)
Change in valuation allowance 
 149
 489
Other 328
 155
 683
Provision for income taxes $21,614
 $17,312
 $14,776
On September 22, 2005, the president of Belarus signed the decree “On the High-Technologies Park” (the “Decree”). The Decree is aimed at boosting the country’s high-technology sector. The Decree stipulates that member technology companies have a 100% exemption from Belarusian income tax of 18% effective July 1, 2006. The Decree is in effect for a period of 15 years from date of signing.
The Company’s subsidiary in Hungary benefits from a tax credit of 10% of annual qualified salaries, taken over a four-year period, for up to 70% of the total tax due for that period. The Company has been able to take the full 70% credit for 2008 - 2013. The Hungarian tax authorities repealed the tax credit beginning with 2012. Credits earned in years prior to 2012, will be allowed until fully utilized. The Company anticipates full utilization up to the 70% limit until 2014, with full phase out in 2015.
July 1, 2006. The aggregate dollar benefits derived from thesethis tax holidaysholiday approximated $9.7$20.8 million, $8.5$16.8 million and $21.0$9.7 million for the years ended December 31, 2015, 2014 and 2013, 2012 and 2011, respectively. The decrease in aggregate dollar benefits derived from these tax holidays in 2013, as compared to 2012, was primarily due to a decrease in statutory tax rate in Belarus. The benefit the tax holiday had on diluted net income per share approximated $0.20, $0.19$0.40, $0.34 and $0.49$0.20 for the years ended December 31, 2015, 2014 and 2013, 2012 and 2011, respectively.
Uncertain Tax Positions
The liability for unrecognized tax benefits is included in income tax liability within the consolidated balance sheets at December 31, 20132015 and 2012.2014. At December 31, 20132015 and 2012,2014, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state tax positions) was $1,271$62 and $1,271,$200, respectively, (excluding penalties and interest of $189zero and $125, respectively)$12 in 2015 and 2014). Of this total, $1,328$62 and $1,354,$212, respectively, (net of the federal benefit on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods.
The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of its provision for income taxes. There was no accrued interest and penalties resulting from such unrecognized tax benefits at December 31, 2015. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $189, $125$12 and $55$189 at December 31, 2013, 20122014 and 2011,2013, respectively.

The beginning to ending reconciliation of the gross unrecognized tax benefits were as follows:

  2013  2012  2011 
Gross Balance at January 1 $1,271  $1,271  $56 
Increases in tax positions in current year        178 
Increases in tax positions in prior year        1,093 
Decreases due to settlement        (56)
Balance at December 31 $1,271  $1,271  $1,271 

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  For the Years Ended December 31,
  2015 2014 2013
Balance at January 1 $200
 $1,271
 $1,271
Increases in tax positions in current year 
 
 
Increases in tax positions in prior year 
 
 
Decreases due to settlement (138) (1,071) 
Balance at December 31 $62
 $200
 $1,271
There were no tax positions for which it was reasonably possible that unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.
The Company files income tax returns in the United States and in various states, local and foreign jurisdictions. The Company’s significant tax jurisdictions are the U.S. Federal, Pennsylvania, Canada, Russia, Denmark, Germany, Ukraine, the United Kingdom, Hungary, Switzerland and Kazakhstan. As a result of 2015 acquisitions, the Company has an additional filing responsibility in India. The tax years subsequent to 20092011 remain open to examination by the Internal Revenue Service. Generally,Service and generally, the tax years subsequent to 20092011 remain open to examination by various state and local taxing authorities and various foreign taxing authorities.

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11.EMPLOYEE BENEFITS
11.EMPLOYEE BENEFITS
The Company has establishedoffers employees a 401(k) retirement plan, which is a tax-qualified self-funded retirement plan covering substantially all of the Company’s U.S. employees. Under this plan, employees may elect to defer their current compensation by up to the statutory limit. Effective January 1, 2013,limit defined by the Internal Revenue Service. The Company provides discretionary matching contributions to the plan up to a maximum of 2.0% of the employee’s eligible compensation.compensation as defined by the plan. Employer contributions are subject to a two year vesting schedule. Employer contributions charged to expense for the yearyears ended December 31, 20132015 and 2014, were $404. $740 and $549, respectively.
The Company does not maintain any defined benefit pension plans or any nonqualified deferred compensation plans.

12.LONG-TERM DEBT
12.LONG-TERM DEBT
Revolving Line of CreditIn November 2006,On September 12, 2014, the Company entered into a revolving loan agreement (the “Credit“2014 Credit Facility”) with PNC Bank, National Association (the “Bank”Association; Santander Bank, N.A; and Silicon Valley Bank (collectively the “Lenders”). to replace its former revolving loan agreement. The 2014 Credit Facility was comprisedprovides for a borrowing capacity of a five-year revolving line of$100,000, with potential to increase the credit pursuant to which the Company could borrowfacility up to $7,000$200,000 if certain conditions are met. The 2014 Credit Facility matures on September 12, 2019.
Borrowings under the 2014 Credit Facility may be denominated in U.S. dollars or, up to a maximum of $50,000 in British pounds sterling, Canadian dollars, euros or Swiss francs (or other currencies as may be approved by the lenders). Borrowings under the 2014 Credit Facility bear interest at any point in timeeither a base rate or Euro-rate plus a margin based on borrowing availability at an annualthe Company’s leverage ratio. Base rate is equal to the London Interbank Offerhighest of (a) the Federal Funds Open Rate, orplus 0.5%, (b) the Prime Rate, and (c) the Daily LIBOR Rate, plus 1.25%1.0%.
The borrowing availability under the Credit Facility was based upon a percentage of eligible accounts receivable and US cash. On July 25, 2011, the Company and the Bank agreed to amend the Credit Facility to increase the maximum borrowing capacity to $30,000.
On January 15, 2013, the Company entered into a new revolving loan agreement (the “2013 Credit Facility”) with the Bank, which expires on January 15, 2015. Under the new agreement, the Company’s maximum borrowing capacity was set at $40,000. Advances under the new line of credit accrue interest at an annual rate equal to the LIBOR, plus 1.25%. The 20132014 Credit Facility is collateralized with: (a) all tangible and intangible assets of the Company, and its U.S.-based subsidiaries including all accounts, general intangibles, intellectual property rights and equipment; and (b) all of the outstanding shares of capital stock and other equity interests in U.S.-based subsidiaries of the Company, and 65.0%65% of the outstanding shares of capital stock and other equity interests in certain of the Company’s foreign subsidiaries. The 2014 Credit Facility includes customary business and financial covenants and restricts the Company’s ability to make or pay dividends (other than certain intercompany dividends) unless no potential or actual event of default has occurred or would be triggered. As of December 31, 2015, the Company was in compliance with all covenants contained in the 2014 Credit Facility.
During the year ended December 31, 2015, the Company borrowed $35,000 denominated in U.S. dollars under the 2014 Credit Facility, with a LIBOR-based interest rate, which resets on a quarterly basis. As of December 31, 2015, the Company had outstanding debt of $35,000.
As of December 31, 2013,2015, the borrowing capacity of the Company under the 20132014 Credit Facility was $40,000.$65,000.
The 2013 Credit Facility contains customary affirmative and negative covenants, including financial and coverage ratios. As of December 31, 2013, the Company was in compliance with all debt covenants as of that date.
As of December 31, 2013 and 2012, the Company had no outstanding borrowing.

13.COMMON AND PREFERRED STOCK
On January 19, 2012, the Company effected an 8-for-1 stock split of the Company’s common stock, on which date the number of authorized common and preferred stock was increased to 160,000,000 and 40,000,000 shares, respectively. All shares of common stock, options to purchase common stock and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock. The ratio by which the then outstanding shares of Series A-1 Preferred, Series A-2 Preferred and Series A-3 Preferred Stock were convertible into shares of common stock was adjusted to reflect the effects of the common stock split, such that each share of preferred stock was convertible into eight shares of common stock.
In February 2012, the Company completed an initial public offering of 6,900,000 shares of its common stock, which included 900,000 shares of common stock sold by the Company pursuant to an over-allotment option granted to the underwriters, which were sold at a price to the public of $12.00 per share. The offering commenced on February 7, 2012 and closed on February 13, 2012. Of the 6,900,000 shares of common stock sold, the Company issued and sold 2,900,000 shares of common stock and its selling stockholders sold 4,000,000 shares of common stock, resulting in gross proceeds to the Company of $34,800 and $28,969 in net proceeds after deducting underwriting discounts and commissions of $2,436 and offering expenses of $3,395. The Company did not receive any proceeds from the sale of common stock by the selling stockholders.
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On August 20, 2010, the Company entered into an agreement with Instant Information Inc. to issue shares of common stock to Instant Information Inc. as consideration for the acquisition of the assets of Instant Information Inc. subject to achievement of certain financial milestones or upon completion of an initial public offering by the Company. A total of 53,336 shares of common stock were issued to Instant Information Inc. upon completion of the Company’s initial public offering for an aggregate value of $640, which was expensed during the first quarter of 2012.

Upon the closing of the initial public offering, all outstanding Series-A1 and Series-A2 convertible redeemable preferred stock, and Series A3 convertible preferred stock were converted into a total of 21,840,128 shares of common stock, as shown in the table below.

Conversion Shares 
Series A-1 Convertible Redeemable Preferred Stock13.16,439,480
Series A-2 Convertible Redeemable Preferred Stock3,078,432
Series A-3 Convertible Preferred Stock2,322,216
Total21,840,128STOCK-BASED COMPENSATION


Series A-1 Convertible Redeemable Preferred Stock (“Series A-1 Preferred”) — On January 20, 2006, Siguler Guff LLC, a New York based private equity investment firm, acting through its affiliated investment funds Russia Partners II LP (“RPII”) and Russia Partners EPAM Fund LP (“RPE”), purchased 657,354 shares of Series A-1 Preferred at $12.17 per share or $8,000. At the same time, RPII and RPE also acquired 11,180,648 shares of the Company’s common stock from existing holders, and the Company enabled RPII and RPE to convert such shares into 1,397,581 shares of Series A-1 Preferred. The difference between the share price of the Series A-1 Preferred ($12.17 per share) and the common stock ($1.13 per share) exchanged of $6,803 has been recorded as a deemed dividend. The Company accreted the 12.5% compounded annual rate of return through April 15, 2010, in accordance with the redemption provision as detailed below. There was no accretion for the years ended December 31, 2013, 2012 and 2011. The ending redemption value was $41,245 at December 31, 2011.
The terms of the Series A-1 Preferred were as follows:
Dividends — No dividends will be paid on the Series A-1 Preferred unless dividends are paid on common stock.
Liquidation — Before any payment to the common stockholders, the Series A-1 Preferred will receive their purchase price of the Series A-1 Preferred ($12.17 per share) plus a 12.5% compounded annual rate of return on the purchase price.
If the assets distributable to the holders of the Series A Preferred upon a liquidation are insufficient to pay the full Series A-1, A-2 and A-3 Preferred liquidation amounts, then such assets or the proceeds shall be distributed among the holders of the Series A-1, A-2 and A-3 Preferred ratably in proportion to the respective amount to which they otherwise would be entitled.
The liquidation amount is equal to the carrying value for all periods presented.
Redemption — At any time after January 1, 2011, if the Company has not affected a qualified public offering, as defined, the holders of at least a majority of the then outstanding shares of Series A-1 Preferred, voting together as a separate class, may by written request, require the Company to redeem all or any number of shares of the Series A-1 Preferred in four equal semi-annual installments beginning thirty calendar days from the date of the redemption election and ending on the date one and one-half years after such date. The Company shall affect such redemptions on the applicable redemption date by paying in cash in exchange for each share of Series A-1 Preferred to be redeemed then outstanding an amount equal to the Series A-1 Preferred liquidation amount ($12.17 per share plus a 12.5% compounded annual rate of return) on such redemption date.
Pursuant to section 6.8 of the Series A-3 convertible preferred stock purchase agreement, the 12.5% compounded annual return related to the Series A-1 Preferred, which has been part of the Series A-1 liquidation amount, ceases after the date of issuance of the Series A-3 Preferred. EPAM terminated the accretion related to this liquidation amount on or about April 15, 2010.
Voting — Each holder of a share of Series A-1 Preferred shall be entitled to voting rights and powers equal to the voting rights and powers of the common stock (except as otherwise expressly provided or as required by law) voting together with the common stock as a single class on an as-converted to common stock basis. Each share of Series A-1 Preferred (including fractional shares) shall be entitled to one vote for each whole share of common stock that would be issuable upon conversion of such shares on the record date for determining eligibility to participate in the action being taken.
Conversion Rights — Any holder of Series A-1 Preferred may convert any share of Series A-1 Preferred held by such holder into a number of shares of common stock determined by dividing (i) the Series A-1 Preferred purchase price ($12.17 per share) by (ii) the Series A-1 conversion price then in effect. The initial conversion price for the Series A-1 Preferred (the “Series A-1 Conversion Price”) shall be equal to the purchase price ($12.17 per share). The Series A-1 Conversion Price from time to time in effect is subject
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to adjustment, as defined. Each share of Series A-1 Preferred shall automatically be converted into shares of common stock at the then effective applicable Series A-1 Conversion Price upon the earliest of (i) the date specified by vote or written consent or agreement of holders of at least a majority of the shares of Series A-1 Preferred then outstanding, (ii) effective immediately before a qualified public offering, as defined, or (iii) effective upon the closing of a liquidation or a reorganization event, as defined, that results in the receipt of a per share amount of cash proceeds or non-cash property valued equal to or greater than the Series A-1 Preferred liquidation amount, as defined.
Series A-2 Convertible Redeemable Preferred Stock (“Series A-2 Preferred”) — On February 19, 2008, the Company completed a private placement and raised net proceeds of $47,601 ($50,000 gross less $2,399 costs) from the sale of 675,081 shares of Series A-2 Preferred at a sale price of $74.07 per share. Annual accretion was $0, $0 and $17,563 for the years ended December 31, 2013, 2012 and 2011, respectively. The ending carrying value was $0, $0 and $44,695 at December 31, 2013, 2012 and 2011, respectively.
In connection with this private placement, the Company designated the Series A-2 Preferred as a new series of preferred stock and renamed the existing series of shares of Series A preferred stock as Series A-1 Preferred.
On January 19, 2010, the Company entered into a stock repurchase agreement with certain stockholders to repurchase 290,277 of Series A-2 Convertible Redeemable Preferred Stock at a per share price of $51.85 for a total consideration of $15,050. On November 10, 2010, Board of Directors of the Company voted to retire these shares.
The Series A-2 Preferred shares had the following rights and preferences:
Dividends — No dividends will be paid on the Series A-2 Preferred unless dividends are paid on common stock.
Liquidation — Before any payment to the common stockholders, the Series A-2 Preferred holders will receive their liquidation preference.
In the event of any liquidation that values 100% of the equity securities of the Company on a fully-diluted basis at an amount that is less than the Series A-2 post-money valuation, as defined, the holders of shares of Series A-2 Preferred shall be entitled to receive either their per share purchase price of the Series A-2 Preferred ($74.07) plus a 12.5% compounded annual rate of return if the purchase price is less than the percentage ceiling amount, defined for purposes of liquidation as 17.1% of cash proceeds or non-cash property received by the Company in the event of any liquidation, or the greater of (1) $74.07 per share and (2) the percentage ceiling amount.
In the event of liquidation that values 100% of the equity securities of the Company on a fully-diluted basis at an amount that is equal to or greater than the Series A-2 post-money valuation, as defined, the holders of shares of Series A-2 Preferred shall be entitled to receive either their per share purchase price of the Series A-2 Preferred ($74.07) plus a 12.5% to 18% compounded annual rate of return on the purchase price, if greater than the percentage ceiling amount, or the percentage ceiling amount.
If the assets distributable to the holders of the Series A Preferred upon a liquidation are insufficient to pay the full Series A-1, A-2 and A-3 Preferred liquidation amounts, then such assets or the proceeds shall be distributed among the holders of the Series A-1, A-2 and A-3 Preferred ratably in proportion to the respective amount to which they otherwise would be entitled.
Redemption — At any time before January 1, 2011, if the Company has not effected a qualified public offering, as defined, the holders of at least a majority of the then outstanding shares of Series A-2 Preferred, may, by written request, require the Company to redeem all or any number of shares of the Series A-2 Preferred in three equal installments payable no later than the 12th, 18th and 24th month following the date of the redemption election. The Company shall effect such redemptions on the applicable redemption date by paying in cash in exchange for each shares of Series A-2 Preferred to be redeemed then outstanding, a per share amount equal to the lesser of (x) an amount that would provide a compounded annual return of 12.5% from the date of initial issuance date and (y) the percentage ceiling amount. At any time on or after January 1, 2011, the redemption per share amount is equal to the lesser of (x) the hurdle amount, an amount that would provide an annual IRR, as defined, from the initial issuance date of such share of at least 17%, provided, however, that the hurdle amount, as defined, shall cease to compound after December 31, 2010 and (y) the percentage ceiling amount, as defined. The percentage ceiling amount means, initially, 17.1% and thereafter adjusted pro rata for any changes in the percentage of capital stock of the Company owned by the holders of shares of Series A-2 Preferred (on a fully diluted basis) multiplied by the aggregate value of all Common Stock (assuming conversion of the Series A Preferred) as reasonably determined by the Board in good faith.
Voting — Each holder of a Series A-2 Preferred shall be entitled to voting rights and powers equal to the voting rights and powers of common stock (except as otherwise expressly provided or as required by law) voting together with the common stock as a single class on an as-converted to common stock basis. Each share of Series A-2 Preferred (including fractional shares) shall be entitled to one vote for each whole share of common stock that would be issuable upon conversion of such shares on the record date for determining eligibility to participate in the action being taken.
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Conversion rights — Any holder of Series A-2 Preferred may convert any share of Series A-2 Preferred held by such holder into a number of shares of common stock determined by dividing (i) the Series A-2 Preferred purchase price ($74.07 per share) by (ii) the Series A-2 conversion price then in effect. The initial conversion price for the Series A-2 Preferred (the “Series A-2 Conversion Price”) shall be equal to the purchase price ($74.07 per share). The Series A-2 Conversion Price from time in effect is subject to adjustment, as defined. Each share of Series A-2 Preferred shall automatically be converted into shares of common stock at the then effective applicable Series A-2 Conversion Price upon the earliest of (i) the date specified by vote or written consent or agreement of holders of at least a majority of the shares of Series A-2 Preferred then outstanding, (ii) effective immediately before a qualified public offering, as defined. or (iii) effective upon the closing of a liquidation or a reorganization event, as defined, that results in the receipt per share of amount of cash proceeds or non-cash property valued equal to or greater than, the lesser of (x) their purchase price of the Series A-2 Preferred ($74.07 per share) plus a 12.5% compounded annual rate of return on the purchase price and (y) the percentage ceiling amount, as defined.
Registration Rights — The holders of at least majority of the Series A-2 Preferred holders, may, by written request, require the Company to file a registration statement with certain limitations.
Series A-3 Convertible Preferred Stock (“Series A-3 Preferred”) — On April 15, 2010, the Company created and issued 290,277 shares of Series A-3 Preferred at $51.85 per share, for a total consideration of $14,971, net of costs.
The Series A-3 Preferred had the following rights and preferences:
Dividends — No dividends will be paid on the Series A-3 Preferred unless dividends are paid on common stock.
Liquidation — Before any payment to the common stockholders, the Series A-3 Preferred holders will receive their liquidation preference.
In the event of liquidation that values 100% of the equity securities of the Company on a fully-diluted basis at an amount that is equal to or greater than the Series A-3 liquidation amount, as defined, the holders of shares of Series A-3 Preferred shall be entitled to receive their pro rata portion based on the per share amount available to common stockholders.
If the assets distributable to the holders of the Series A Preferred upon a liquidation are insufficient to pay the full Series A-1,
A-2 and A-3 Preferred liquidation amounts, then such assets or the proceeds shall be distributed among the holders of the Series A-1, A-2 and A-3 Preferred ratably in proportion to the respective amount to which they otherwise would be entitled.
The liquidation amount is equal to the carrying value for all periods presented.
Voting — Each holder of a Series A-3 Preferred shall be entitled to voting rights and powers equal to the voting rights and powers of common stock (except as otherwise expressly provided or as required by law) voting together with the common stock as a single class on an as-converted to common stock basis. Each share of Series A-3 Preferred (including fractional shares) shall be entitled to one vote for each whole share of common stock that would be issuable upon conversion of such shares on the record date for determining eligibility to participate in the action being taken.
Conversion rights — Any holder of Series A-3 Preferred may convert any share of Series A-3 Preferred held by such holder into a number of shares of common stock determined by dividing (i) the Series A-3 Preferred purchase price ($51.85 per share) by (ii) the Series A-3 conversion price then in effect. The initial conversion price for the Series A-3 Preferred (the “Series A-3 Conversion Price”) shall be equal to the purchase price ($51.85 per share). The Series A-3 Conversion Price from time in effect is subject to adjustment, as defined. Each share of Series A-3 Preferred shall automatically be converted into shares of common stock at the then effective applicable Series A-3 Conversion Price upon the earliest of (i) the date specified by vote or written consent or agreement of holders of at least a majority of the shares of Series A-3 Preferred then outstanding, (ii) effective immediately before a qualified public offering, as defined, or (iii) effective upon the closing of a liquidation or a reorganization event, as defined.
Registration Rights — The holders of at least a majority of the Series A-3 Preferred holders, may, by written request, require the Company to file a registration statement with certain limitations.
Puttable Stock — As part of consideration paid in business combinations, the Company issued common stock to certain stockholders of the acquired companies. The shares had an attached Put Option that provided the holders with the right to put the shares at the original per share value in the event the Company did not have a qualified public offering or reorganization event within a specified period from the acquisition date. During 2011, put options in respect of 56,896 of puttable common stock expired unexecuted.
Treasury Stock — During the years ended December 31, 2013 and 2012, the Company issued treasury stock in connections with acquisitions completed in 2012 (See Note 2). In addition, in May 2012, Board of Directors of the Company voted to retire 38,792 shares of its treasury stock.
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14.STOCK COMPENSATION

The following costs related to the Company’s stock compensation plans were included in the consolidated statements of income and comprehensive income:

 Year Ended December 31,  For the Years Ended December 31,
 2013  2012  2011  2015 2014 2013
Cost of revenues $4,823  $2,809  $1,365  $13,695
 $8,648
 $4,823
Selling, general and administrative  8,327   4,017   1,501 
Selling, general and administrative expenses - Acquisition related 18,690
 8,829
 4,417
Selling, general and administrative expenses - All other 13,448
 7,143
 3,910
Total $13,150  $6,826  $2,866  $45,833
 $24,620
 $13,150

Equity Plans
During2015 Long-Term Incentive Plan— On June 11, 2015, the second quarterCompany’s stockholders approved the 2015 Long-Term Incentive Plan (“2015 Plan”) to be used to issue equity grants to company personnel. As of 2013,December 31, 2015, 6,657,370 shares of common stock remained available for issuance under the Company finalized2015 Plan. In addition, up to 6,277,028 shares that are subject to outstanding awards as of December 31, 2015 under the fair values2012 Plan and up to 1,039,861 shares that are subject to outstanding awards as of December 31, 2015 under the 2006 Plan and that expire or terminate for any reason prior to exercise or that would otherwise have returned to the respective Plan’s share pool under the terms of the net assets acquired from Empathy Lab (See Note 2). As a result, the Company issued an additional 1,483 shares of non-vested (“restricted”) common stock to the sellers of Empathy Lab on July 11, 2013 to settle the difference between the initial number of shares issued upon acquisition and the total number of shares due in connection with this transaction. The shares vest 33.33% on each of the first, second and third anniversaries of the closing date. Upon termination of the recipient’s services with the Company with Cause or without Good Reason (in each case, as defined in the escrow agreement), any unvested sharesPlan, will be forfeited. The fair valueavailable for awards to be granted under the 2015 Plan.

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Table of the restricted shares at the time of grant was $42.Contents

2012 Non-Employee Directors Compensation Plan—On January 11, 2012, the Company approved the 2012 Non-Employee Directors Compensation Plan (“2012 Directors Plan”), which will to be used to issue equity grants to its non-employee directors. The Company authorized 600,000 shares of common stock to be reserved for issuance under the plan. As of December 31, 2015, 554,070 shares of common stock remained available for issuance under the 2012 Directors Plan. The 2012 Directors Plan will expire after ten10 years and will beis administered by the Company’s Board of Directors.
On January 8, 2013, the Company issued 5,257 shares of non-vested (“restricted”) common stock to its new non-employee director under the 2012 Directors Plan. The shares will vest and become unforfeitable 25% on each of the first, second, third and fourth anniversaries of the grant date. Upon termination of service from the Board at any time, a portion of these shares shall vest as of the date of such termination on a pro rata basis determined by the number of days that the participant served on the Board from the grant date through the date of such termination. The fair value of the restricted shares at the time of grant was $101.
On June 13, 2013, the Company issued 8,784 shares of non-vested (“restricted”) common stock to its non-employee directors under the 2012 Non-Employee Directors Compensation Plan. The shares will vest and become unforfeitable on the first anniversary of the grant date. Upon termination of service from the Board at any time, a portion of these shares shall vest as of the date of such termination on a pro rata basis determined by the number of days that the participant served on the Board from the grant date through the date of such termination. The fair value of the restricted shares at the time of grant was $225.
2012 Long-Term Incentive Plan — On January 11, 2012, the Company approved the 2012 Long-Term Incentive Plan (“2012 Plan”), which will to be used to issue equity grants to employees. As of December 31, 2013, 7,042,568 shares of common stock remained available for issuance undercompany personnel. In June 2015, the 2012 Plan. This includes (i) any shares that were available for issuance underPlan was discontinued; however, outstanding awards remain subject to the 2006 Plan (as defined below) asterms of its discontinuance date and that became available for issuance under the 2012 Plan and (ii) any shares that were subject to outstanding awards under the 2006 Plan and have expired or terminated or were cancelled between the discontinuance date of the 2006 Plan and December 31, 2013 and therefore became available for issuance under the 2012 Plan. In addition, up to 2,647,121 shares that are subject to outstanding awards as of December 31, 2013an award that was previously granted under the 2012 or 2006 Plan and that expire or terminate for any reason prior to exercise or that would otherwise have returned to the 2006 Plan’s share reservewill become available for issuance under the terms2015 Plan. All of the 2006 Plan will be available for awardsoptions issued pursuant to be granted under the 2012 Plan.
During the year ended December 31, 2013, the Company issued a total of 1,987,952 shares underlying stock options under the 2012 Plan with an aggregate grant-date fair valueexpire 10 years from the date of $19,473.grant.
2006 Stock Option Plan — Effective May 31, 2006, the Board of Directors of the Company adopted the 2006 Stock Option Plan (the “2006 Plan”). The Company’s stock option plan2006 Plan permitted the granting of options to directors, employees, and certain independent contractors. The Compensation Committee of the Board of Directors generally had the authority to select individuals who were to receive options and to specify the terms and conditions of each option so granted, including the number of shares covered by the option, the exercise price, vesting provisions, and the overall option term. In January 2012, the 2006 Plan was discontinued; however, outstanding awards remain subject to the terms of the 2006 Plan and any shares that are subject to an option award that was previously granted under the 2006 Plan and that will expire or terminate for any reason prior to exercise will become again available for issuance under the 20122015 Plan. All of the options issued pursuant to the 2006 Plan expire ten10 years from the date of grant. All the outstanding shares under 2006 Plan will expire in January 2016.
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Stock Options
Table of Contents


Stock option activity under the Company’s plans is set forth below:

 
Number of
Options 
 
Weighted
Average
Exercise Price 
 
Aggregate
Intrinsic
Value 
Options outstanding at January 1, 2011  6,378,584  $3.79  $19,708 
Options granted  600,000   14.00   1,200 
Options exercised  (47,600)  1.52   (499)
Options forfeited/cancelled  (335,848)  5.30   (2,250)
Options outstanding at December 31, 2011  6,595,136  $4.65  $48,447 
Options granted  1,443,810   16.80   1,877 
Options exercised  (1,552,742)  3.53   (22,623)
Options forfeited/cancelled  (189,495)  11.35   (1,279)
Options outstanding at December 31, 2012  6,296,709  $7.51  $66,682 
Number of
Options 
 
Weighted Average
Exercise Price 
 
Aggregate
Intrinsic Value 
Options outstanding at January 1, 20136,296,709
 $7.51
 $66,682
Options granted  1,987,952   23.60   22,543 1,987,952
 23.60
 22,543
Options exercised  (2,156,898)  4.31   (66,066)(2,156,898) 4.31
 (66,066)
Options forfeited/cancelled  (304,227)  11.50   (7,131)(304,227) 11.50
 (7,131)
Options outstanding at December 31, 2013  5,823,536  $13.99  $122,003 5,823,536
 $13.99
 $122,003
Options granted2,400,500
 32.51
 36,584
Options exercised(1,171,097) 9.05
 (45,321)
Options forfeited/cancelled(214,193) 25.33
 (4,802)
Options outstanding at December 31, 20146,838,746
 $20.98
 $183,073
Options granted2,219,725
 62.18
 36,492
Options exercised(1,405,826) 14.70
 (89,860)
Options forfeited/cancelled(201,731) 34.48
 (8,904)
Options outstanding at December 31, 20157,450,914
 $34.07
 $331,938
                 
Options vested and exercisable at December 31, 2013  2,555,245  $5.89  $74,230 
Options vested and exercisable at December 31, 20152,446,226
 $15.95
 $153,305
Options expected to vest  3,010,762  $20.19  $44,409 4,690,899
 $42.51
 $169,388
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:
a. Expected volatility — the Company estimated the volatility of its common stock at the date of grant using historical volatility of peer public companies for the year ended December 31, 2011. In order to compare volatilities for different interval lengths, the Company expresses volatility in annual terms. TheDuring 2014, the Company appliedbegan including the same approachhistorical volatility for the Company in conjunction with peer public companies to formulate the estimated volatility regarding the stock options issued in 20132015 and 2012 due to insufficiency of historical volatility data of its stock prices at the time of grant.2014. The expected volatility was 46% in both years ended December 31, 2013 and 2012, and 43%34.1% in the year ended December 31, 2011.2015, and 45.9% in the years ended December 31, 2014 and 2013.

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Table of Contents

b. Expected term— the Company estimates the expected term of options granted using the simplified method of determining expected term as outlined in SEC Staff Accounting Bulletin 107 as used for grants.the Company does not have sufficient history in order to develop a more precise estimate. The expected term was 6.25 years in 2015, 6.20 years in 2014, and 6.24 years in 2013, and 6.25 years in both 2012 and 2011.2013.
c. Risk-free interest rate — the Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. The risk-free rate was approximately 1.41%1.8%, 1.13%2.0% and 2.05%1.4% in 2015, 2014 and 2013, 2012 and 2011, respectively.
d. Dividends — the Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its common stock. The Company intends to retain any earnings to fund future growth and the operation of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future.
Additionally, the Company estimates forfeitures at the time of grantdetermines an annual forfeiture rate and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. It uses a combination of historical data and other factors to estimate pre-vesting option forfeitures and recordrecords share-based compensation expense only for those awards that are expected to vest. The Company applies an estimated forfeiture rate at the time of grant and adjusts those estimated forfeitures to reflect actual forfeitures at least annually.
Aggregate grant-date fair value of stock options issued during the year ended December 31, 2015 was $47,973. The options are typically scheduled to vest over four years from the time of grant, subject to the terms of the applicable plan and stock option agreement. In general, in the event of the participant’s termination of service for any reason, unvested options are forfeited as of the date of such termination without any payment to the participant.
As of December 31, 2015, a total of 2,980 shares underlying options exercised through December 31, 2015, were in transfer with the Company’s transfer agent.
As of December 31, 2015, total remaining unrecognized compensation cost related to unvested stock options, net of forfeitures, was approximately $64,816, and is expected to be recognized over a weighted-average period of 1.9 years. The weighted average remaining contractual term of the outstanding options as of December 31, 2015 was 5.7 years for fully vested and exercisable options and 8.4 years for options expected to vest, respectively.
Other Awards
Other awards include awards of restricted stock and restricted stock units (“RSUs”) under the Company’s 2012 Directors Plan, the 2012 Plan and the 2015 Plan, after its adoption. In addition, the Company has issued in the past, and may issue in the future its equity securities to compensate employees of acquired businesses for future services. These issuances are on such terms and at such prices as the Company deems appropriate. Equity-based awards granted in connection with acquisitions of businesses are generally issued in the form of service-based awards dependent on continuing employment only and performance-based awards, which are granted and vest only if certain specified performance conditions are met. The awards issued in connection with acquisitions of businesses are subject to the terms and conditions contained in the applicable award agreement and acquisition documents.

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Table of Contents

Service-Based Awards
Summarized activity related to the Company’s service-based awards for the years ended December 31, 2015, 2014 and 2013 there was $28,921as follows:
 
Number of
Shares 
 
Weighted Average Grant Date
Fair Value Per Share 
Unvested service-based awards outstanding at January 1, 2013659,872
 $17.92
Awards granted15,524
 23.69
Awards vested(330,468) 17.33
Unvested service-based awards outstanding at December 31, 2013344,928
 $18.74
Awards granted523,220
 40.41
Awards vested(217,668) 17.84
Awards forfeited/cancelled(17,038) 21.14
Unvested service-based awards outstanding at December 31, 2014633,442
 $36.88
Awards granted113,614
 67.38
Awards vested(279,129) 33.66
Awards forfeited/cancelled(11,816) 34.47
Unvested service-based awards outstanding at December 31, 2015456,111
 $46.51
For the year ended December 31, 2015, the Company issued a total of 5,295 shares of unvested (“restricted”) common stock under its 2012 Directors Compensation Plan with an aggregate grant date fair value of $375. As of December 31, 2015, the aggregate unrecognized compensation expense related to unvested stock under the 2012 Directors Plan was $262. This cost is expected to be recognized over the next 1.2 years using the weighted average method.
For the year ended December 31, 2015, the Company issued a total of 84,000 RSUs to certain key management personnel under the 2012 and 2015 Plans. The fair value of these RSUs at the time of the grants was $5,492. As of December 31, 2015, the aggregate unrecognized compensation expense for all outstanding service-based RSUs was $5,691. This cost is expected to be recognized over the next 2.1 years using the weighted average method.
For the year ended December 31, 2015, the Company granted a total of 24,319 service-based awards to certain key management personnel of businesses acquired during that period. The aggregate grant date fair value of the awards was $1,789.
As of December 31, 2015, total unrecognized compensation cost related to non-vested share-basedunvested service-based awards was $11,090, which is expected to be recognized over the next 1.5 years using the weighted average method.
Performance -Based Awards
In 2014, the Company granted performance-based awards in connection with the acquisitions completed during that year. The total number of the awards varies based on attainment of certain performance targets pursuant to the terms of the relevant transaction documents. Typically, the vesting period is three years, with one third of the awards granted vesting in equal installments on the first, second and third anniversaries of the grant. If an eligible employee leaves the Company prior to a vesting date, the unvested portion of the award generally will be forfeited. The Company periodically evaluates the achievement of the related performance conditions during the applicable performance measurement period and the number of shares expected to be delivered, and resulting compensation awards.expense is adjusted accordingly. During the year ended December 31, 2015, one-third of the performance-based awards issued in 2014 acquisitions, vested net of any forfeitures.

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Table of Contents

Summarized activity related to the Company’s performance-based awards for the years ended December 31, 2015, was as follows:
 Number of Shares Weighted Average Grant Date Fair Value Per Share
Unvested performance-based awards outstanding at January 1, 2014
 $
Awards granted387,058
 38.18
Awards forfeited/cancelled(2,550) 36.57
Changes in the number of awards expected to be delivered(12,998) 5.47
Unvested performance-based awards outstanding at December 31, 2014371,510
 $39.34
Awards granted14,000
 70.22
Awards vested(117,749) 40.39
Awards forfeited/cancelled(1,360) 36.57
Changes in the number of awards expected to be delivered(19,105) 31.70
Unvested performance-based awards outstanding at December 31, 2015247,296
 $41.19
The aggregated grant date fair value of performance-based awards granted to certain key management personnel of businesses acquired during the year ended December 31, 2015 was $983.
As of December 31, 2015, total unrecognized compensation cost related to unvested performance-based awards was $12,679. That cost is expected to be recognized over the next two1.3 years using the weighted average method.
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Table of Contents


Summary of restricted stock activity is presented below:

 
 
Number of
Shares 
 
Weighted Average
Grant Date Fair
Value Per Share
Unvested restricted stock outstanding at January 1, 2011   $ 
Restricted stock granted   
 
Restricted stock vested   
 
Unvested restricted stock outstanding at December 31, 2011    $ 
Restricted stock granted  757,272   17.15 
Restricted stock vested  (97,400)  12.00 
Unvested restricted stock outstanding at December 31, 2012  659,872  $17.92 
Restricted stock granted  15,524   23.69 
Restricted stock vested  (330,468)  17.33 
Unvested restricted stock outstanding at December 31, 2013  344,928  $18.74 


15.EARNINGS PER SHARE
14.EARNINGS PER SHARE
Basic EPSearnings per share (“EPS”) is computed by dividing the net income applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the same period. Our Series A-1 Preferred, Series A-2 Preferred, Series A-3 Preferred, restricted stock units and puttable common stock were considered participating securities since these securities had non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award and thus required the two-class method of computing EPS. When calculating diluted EPS, the numeratorDiluted earnings per share is computed by adding backdividing income available to common shareholders by the undistributed earnings allocated to the participating securities in arriving at the basic EPS and then reallocating such undistributed earnings among the company’sweighted-average number of shares of common stock participating securities andoutstanding during the potential common shares that result from the assumed exercise of all dilutive options. The denominator isperiod increased to include the number of additional shares of common sharesstock that would have been outstanding hadif the optionspotentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, unvested restricted stock and unvested RSUs. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share of common stock as follows:

 
 Year Ended December 31, 
  2013  2012  2011 
Numerator for common earnings per share: 
  
  
 
Net income $61,994  $54,484  $44,353 
Accretion of preferred stock        (17,563)
Net income allocated to participating securities     (3,341)  (15,025)
Effect on income available from redemption of preferred stock         
Numerator for basic/ (common) earnings per share  61,994   51,143   11,765 
Effect on income available from reallocation of options     261   1,185 
Numerator for diluted/ (common) earnings per share $61,994  $51,404  $12,950 
Numerator for (puttable common) earnings per share:            
Net income allocated to basic (puttable common)        26 
Effect on income available from reallocation of options        (12)
Numerator for diluted (puttable common) earnings per share        14 
Denominator for basic (common) earnings per share:            
Weighted average common shares outstanding  45,754   40,190   17,094 
Effect of dilutive securities:            
Stock options  2,604   3,631   3,379 
Denominator for diluted (common) earnings per share  48,358   43,821   20,473 
Denominator for basic and diluted (puttable common) earnings per share:            
Weighted average puttable common shares outstanding        18 
Earnings per share:            
Basic (common) $1.35  $1.27  $0.69 
Basic (puttable common) $  $  $1.42 
Diluted (common) $1.28  $1.17  $0.63 
Diluted (puttable common) $  $  $0.77 

  For the Years Ended December 31,
  2015 2014 2013
Numerator for common earnings per share:      
Net income $84,456
 $69,641
 $61,994
Numerator for basic and diluted earnings per share $84,456
 $69,641
 $61,994
       
Denominator for basic earnings per share:  
  
  
Weighted average common shares outstanding 48,721
 47,189
 45,754
Effect of dilutive securities:      
Stock options, RSUs and performance-based awards 3,265
 2,545
 2,604
Denominator for diluted earnings per share 51,986
 49,734
 48,358
       
Net income per share:  
  
  
Basic $1.73
 $1.48
 $1.35
Diluted $1.62
 $1.40
 $1.28
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Table of Contents

For the years ended December 31, 2015, 2014 and 2013 2012a total of 1,637, 2,260 and 2011, options to purchase approximately 1,080 1,534, and 572 shares of common stock,underlying equity-based awards, respectively, were outstanding but were not included in the calculationcomputation of the diluted earnings per share in corresponding periods because the effect would have beenwas anti-dilutive.

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Table of Contents

15.COMMITMENTS AND CONTINGENCIES
16.COMMITMENTS, CONTINGENCIES AND GUARANTEES

The Company leases office space under operating leases, which expire at various dates through 2019.dates. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes, and other operating expenses. Rent expense under operating lease agreements for the years ended December 31, 2015, 2014 and 2013 2012was $20,065, $18,200, and 2011 was $15,664 $11,594, and $8,522 respectively. Future minimum rental payments under operating leases that have initial or remaining lease terms in excess of one year as of December 31, 20132015 were as follows:

Year Ending December 31, Operating Leases 
2014 $13,924 
2015  8,218 
2016  4,136 
2017  2,504 
2018  2,017 
Thereafter  480 
Total minimum lease payments $31,279 


Employee Loan Program — Beginning in third quarter of 2006, the Company started to guarantee bank loans for certain of its key employees. Under the conditions of the guarantees, the Company is required to maintain a security deposit (See Note 6). While the program has been discontinued, total commitment of the Company under these guarantees remains at $233 as of December 31, 2013. The Company estimates a probability of material losses under the program as remote, therefore, no provision for losses was recognized for the years ended December 31, 2013, 2012 and 2011.
Year Ending December 31, Operating Leases
2016 $17,606
2017 13,670
2018 9,730
2019 4,657
2020 1,289
Thereafter 2,664
Total minimum lease payments $49,616
Construction in progress — On December 7, 2011, the Company entered into an agreement with IDEAB Project Eesti AS (“IDEAB”) for the construction of an office building within the High Technologies Park in Minsk, Belarus. The building is expectedBelarus (the “Construction Agreement”). At the same time, the Company entered into a related investment agreement with the Minsk Executive Committee acting on behalf of the Republic of Belarus (the “Investment Agreement”) permitting the Company to be operationaluse land located in the first halfgovernment’s High Technologies Park to construct the new office building and granting certain tax benefits. The Construction Agreement committed IDEAB to construct an office building for the Company in Minsk with a completion date of February 28, 2014. In April 2014, IDEAB stopped its construction before the building’s completion, for reasons unrelated to the Company’s performance under the Construction Agreement. In May 2014, IDEAB notified the Company that it was unable to continue as general contractor to complete the construction of the building in time and on the terms agreed. As a result, the Company took control over the construction site. On July 7, 2014, the Company provided IDEAB with notice of termination of the Construction Agreement, effective on or about July 11, 2014. The Company filed a legal action against IDEAB in Belarus in August 2014, claiming breach of contract. In September 2014, the court decided in the Company’s favor and directed IDEAB to pay the Company $1,000 plus reimbursement of certain expenses. The Company is pursuing recovery from IDEAB of this amount. The Company has filed other lawsuits seeking recovery from IDEAB of additional amounts (including future work and construction materials) from IDEAB. These lawsuits are in various stages of litigation and it is not possible to estimate the likelihood of recovery.
The Investment Agreement specified a completion deadline for construction of September 15, 2012 extended by the parties to December 31, 2014, and further extended to October 1, 2015. As of December 31, 2013, total outstanding commitment ofSeptember 30, 2015, the Company was $1,890.had completed the building and began depreciating approximately $22,714 of capitalized construction costs.
Employee Housing ProgramIndemnification Obligations  In the third quarter of 2012, the Board of Directors of the Company approved the Employee Housing Program (“the Housing Program”), which assists employees in purchasing housing in Belarus (See Note 5). As of December 31, 2013, the Company’s total outstanding commitment under the Housing Program was $35. The Company estimates a probability of material losses under the program as remote, therefore, no provision for losses was recognized for the year ended December 31, 2013.
Indemnifications — In the normal course of business, the Company is a party to a variety of agreements under which it may be obligated to indemnify the other party for certain matters. These obligations typically arise in contracts where the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations or covenants for certain matters such as title to assets and intellectual property rights associated with the sale of products.certain arrangements. The duration of these indemnifications varies, and in certain cases, is indefinite.
The Company is unable to reasonably estimate the maximum potential amount of future payments under these or similar agreements due to the unique facts and circumstances of each agreement and the fact that certain indemnifications provide for no limitation to the maximum potential future payments under the indemnification. Management is not aware of any such matters that historically had or would have a material effect on the consolidated financial statements of the Company.
Litigation — From time to time, the Company is involved within litigation, claims or other contingencies. Management is not aware of any such matters that would have a material effect on the consolidated financial statements of the Company.

17.FAIR VALUE MEASUREMENTS
16.FAIR VALUE MEASUREMENTS
The Company accountsAs required by the guidance for certainfair value measurements, financial assets and liabilities at fair value. The authoritative guidance definesare classified in their entirety based on the lowest level of input that is significant to the fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures.measurement. The fair value hierarchy is based onrequires an entity to maximize the use of observable inputs to valuation techniquesand minimize the use of unobservable inputs when measuring fair value. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.(Levels 1 and 2) and

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The following table representsunobservable (Level 3). Significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future operating results of those businesses as developed by the Company’s management and the probability of achievement of those operating forecasts. Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy for its financial assets and liabilities as of December 31 2013, and 2012.

  Fair Value Measurements at December 31, 2013 Using 
  Level 1  Level 2  Level 3 
Cash and cash equivalents $169,207  $  $ 
Time deposits and restricted cash     1,711    
Employee loans        6,390 
Total $169,207  $1,711  $6,390 

 
 Fair Value Measurements at December 31, 2012 Using 
  Level 1  Level 2  Level 3 
Cash and cash equivalents $118,112  $  $ 
Time deposits and restricted cash     2,133    
Employee loans        429 
Total $118,112  $2,133  $429 


levels. During the years ended December 31, 20132015 and 2012, the Company issued a total of $8,963 and $566 of loans to its employees, respectively, and received $3,088 and $640 in loan repayments during the same periods, respectively.
During the years ended December 31, 2013 and 2012,2014, there were no transfers amongstamong Level 1, Level 2, or Level 3 classified financial assets and liabilities.

Changes in the values of these financial liabilities, if any, are typically recorded within selling, general and administrative expenses line on the Company’s consolidated statements of income and comprehensive income.
18.The following table tables show the fair values of the Company’s financial assets and liabilities measured at fair value as of December 31, 2015 and 2014:OPERATING SEGMENTS
  As of December 2015
  Balance Level 1 Level 2 Level 3
Cash and cash equivalents 199,449
 199,449
 
 
Time deposits and restricted cash 30,419
 
 30,419
 
Employee loans 6,338
 
 
 6,338
Total assets measured at fair value $236,206
 $199,449
 $30,419
 $6,338
         
Contingent consideration 
 
 
 
Performance-based equity awards 5,364
 
 
 5,364
Total liabilities measured at fair value $5,364
 $
 $
 $5,364
  As of December 2014
  Balance Level 1 Level 2 Level 3
Cash and cash equivalents 220,534
 220,534
 
 
Time deposits and restricted cash 156
 
 156
 
Employee loans 6,515
 
 
 6,515
Total assets measured at fair value $227,205
 $220,534
 $156
 $6,515
         
Contingent consideration 37,400
 
 
 37,400
Performance-based equity awards 3,223
 
 
 3,223
Total liabilities measured at fair value $40,623
 $
 $
 $40,623
The Company classifies its contingent considerations within Level 3 as those inputs are specific to a given consideration and are not observable in the market. The housing loans are measured at the time of issuance using the Level 3 inputs within the fair value hierarchy because they are valued using significant unobservable inputs. Company issued short-term, non-interest bearing relocation and other loans to employees have a short term and high certainty of repayment, therefore, their carrying amount is a reasonable estimate of their fair value.
The Company analyzes the rate of return that market participants in Belarus would require when investing in unsecured U.S. dollar-denominated government bonds with similar maturities (a “risk-free rate”) and evaluated a risk premium component to compensate the market participants for the credit and liquidity risks inherent in the loans’ cash flows. As of December 31, 2015 and December 31, 2014, the carrying values of outstanding employee loans and loans issued during those years approximated their fair values.
As of December 31, 2014, contingent consideration and performance-based equity awards included amounts payable in cash and stock in connection with the acquisitions of businesses completed in the year ended December 31, 2014 (Note 2). As of December 31, 2015, the only financial liabilities related to acquisitions of businesses included performance-based equity awards.
The fair value of the contingent consideration, which is based on the present value of the expected future payments to be made to the sellers of the acquired businesses, was derived by analyzing the future performance of the acquired businesses using the earnout formula and performance targets specified in each purchase agreement and adjusting those amounts to reflect

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the ability of the acquired entities to achieve the stated targets. The measurement period related to the contingent consideration for each 2014 acquisition was complete as of June 30, 2015, therefore, the amount of total consideration to be paid is no longer subject to change as of December 31, 2015.
A reconciliation of the beginning and ending balances of acquisition-related contractual contingent liabilities using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and 2014, was as follows:
  Amount
Contractual contingent liabilities at January 1, 2014 $
Acquisition date fair value of contractual contingent liabilities — Netsoft 1,825
Acquisition date fair value of contractual contingent liabilities — Jointech 20,000
Acquisition date fair value of contractual contingent liabilities — GGA 11,400
Acquisition date fair value of contractual contingent liabilities — Great Fridays 1,173
Liability-classified stock-based awards 3,088
Changes in fair value of contractual contingent liabilities included in earnings 2,059
Changes in fair value of contractual contingent liabilities recorded against goodwill 1,366
Effect of net foreign currency exchange rate changes (288)
Settlements of contractual contingent liabilities 
Contractual contingent liabilities at December 31, 2014 $40,623
Liability-classified stock-based awards 5,148
Changes in fair value of contractual contingent liabilities included in earnings 4,355
Changes in fair value of contractual contingent liabilities recorded against goodwill 
Effect of net foreign currency exchange rate changes 246
Settlements of contractual contingent liabilities (45,008)
Contractual contingent liabilities at December 31, 2015 $5,364
17.OPERATING SEGMENTS
The Company determines its operating segments and reports segment information in accordance with the management approach, which designates internal reporting used by management to make operating decisions and assess performance as the source of the Company’s reportable segments.
The Company manages its business primarily based on the geographic managerial responsibility for its client base. BecauseAs 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 and is usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In such a case, like this, the client’s activity would be reported through the management team’s reportable segment.
The Company’s reportable segments are North America, Europe, Russia and Other. The Company’s Chief Operating Decision Maker (“CODM”) evaluates its performance and allocates resources based on segmentthe segment’s 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, such as stock-based compensation are not allocated to specific segments, as management does not believe it is practical to allocate such costs to individual segments because theyas these expenses are not directly attributable to any specific segment. Further, stock-based compensation expense issegment and consequently are not allocated to individual segments in internal management reports used by the CODM. Accordingly, theseSuch expenses are separately disclosed as “unallocated” and adjusted only against the Company’s total income from operations.

F-36


Revenues from external clientscustomers and segment operating profit, before unallocated expenses, for the North America, Europe, Russia and Other reportable segments were as follows:

 
 Year Ended December 31, 
  2013  2012  2011 
Total segment revenues: 
  
  
 
North America $284,636  $197,271  $151,707 
Europe  204,150   168,913   123,510 
Russia  55,764   50,552   46,219 
Other  10,493   16,986   12,851 
Total segment revenues $555,043  $433,722  $334,287 
Segment operating profit:            
North America $66,814  $38,671  $33,744 
Europe  34,573   32,750   25,098 
Russia  7,077   9,049   10,445 
Other  844   6,985   2,416 
Total segment operating profit $109,308  $87,455  $71,703 

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Table of Contents

During the years ended December 31, 2013 and 2012, there were no customers that represented at least 10% of total revenues. During the year ended December 31, 2011, revenues from one customer, Thomson Reuters, accounted for 10.7% of total revenues, or $35,903, and were included within our North America segment.
  For the years ended December 31,
  2015 2014 2013
Total segment revenues:      
North America $471,603
 $374,509
 $284,636
Europe 400,460
 299,279
 204,150
Russia 37,992
 50,663
 55,764
Other 4,911
 5,552
 10,493
Total segment revenues $914,966
 $730,003
 $555,043
Segment operating profit:      
North America $112,312
 $90,616
 $66,814
Europe 68,717
 50,189
 34,573
Russia 5,198
 7,034
 7,077
Other (94) (3,220) 844
Total segment operating profit $186,133
 $144,619
 $109,308
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 chief operating decision maker,CODM, nor provided to the chief operating decision makerCODM on a regular basis.

During the year ended December 31, 2015 and 2014, revenues from one customer, UBS AG, were $130,605 and $97,872, respectively and accounted for more than 10% of total revenues. Revenue from this customer is reported in the Company’s Europe segment and includes reimbursable expenses. No customer accounted for over 10% of total revenues in 2013.
Trade accounts receivable and unbilled revenues are generally dispersed across our clients in proportion to their revenues. As of December 31, 2015, billed and unbilled trade receivables from one customer, UBS AG, individually exceeded 10% and accounted for 12.4% and 19.8% of our total billed and unbilled trade receivables, respectively.

F-37


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


 Year Ended December 31,  For the Years Ended December 31,
 2013  2012  2011  2015 2014 2013
Total segment revenues $555,043  $433,722  $334,287  $914,966
 $730,003
 $555,043
Unallocated revenue  74   77   241 
Unallocated (revenue)/loss (838) 24
 74
Revenues $555,117  $433,799  $334,528  $914,128
 $730,027
 $555,117
                  
Total segment operating profit $109,308  $87,455  $71,703 
Unallocated Amounts:            
Other revenue  74   77   241 
Total segment operating profit: $186,133
 $144,619
 $109,308
Unallocated amounts:      
Other (revenues)/loss (838) 24
 74
Stock-based compensation expense  (13,150)  (6,826)  (2,866) (45,833) (24,620) (13,150)
Non-corporate taxes  (3,201)  (2,346)  (2,722) (4,274) (6,882) (3,201)
Professional fees  (3,651)  (2,850)  (2,802) (7,104) (5,312) (3,651)
Depreciation and amortization  (2,829)  (1,100)  (810) (5,581) (7,988) (2,829)
Bank charges  (1,194)  (1,136)  (793) (1,352) (1,049) (1,194)
Goodwill impairment loss (Note 3)        (1,697)
Stock charge     (640)   
One-time charges (747) (5,983) 
Provision for bad debts  (36)       
 
 (36)
Other corporate expenses  (8,828)  (6,628)  (5,246) (14,437) (6,626) (8,828)
Income from operations  76,493   66,006   55,008  105,967
 86,183
 76,493
Interest and other income, net  3,077   1,941   1,422  4,731
 4,769
 3,077
Change in fair value of contingent consideration 
 (1,924) 
Foreign exchange loss  (2,800)  (2,084)  (3,638) (4,628) (2,075) (2,800)
Income before provision for income taxes $76,770  $65,863  $52,792  $106,070
 $86,953
 $76,770
Geographic Area Information

ManagementLong-lived assets include property and equipment, net of accumulated depreciation and amortization, and management has determined that it is not practical to allocate identifiablethese assets by segment since such assets are used interchangeably amongstamong the segments. Geographical information about the Company’s long-lived assets based on physical location of the assets was as follows:
 December 31,
2015
 December 31,
2014
Belarus$44,879
 $41,652
Ukraine4,487
 4,392
Hungary2,485
 2,773
Russia2,084
 2,196
United States1,969
 2,001
India1,099
 
Poland1,088
 747
Other2,408
 1,373
Total$60,499
 $55,134

  
December 31,
2013 
 
December 31,
2012 
Belarus $38,697  $40,095 
Ukraine  5,525   5,357 
Russia  3,414   3,234 
United States  2,217   2,048 
Hungary  2,644   1,744 
Other  818   657 
Total $53,315  $53,135 


Long-lived assets included property and equipment, net of accumulated depreciation and amortization.
F-32F-38



Information about the Company’s revenues by client location is presented below:as follows:

 Year Ended December 31,  For the Years Ended December 31,
 2013  2012  2011  2015 2014 2013
United States $247,979  $197,593  $163,068  $427,433
 $318,304
 $247,979
United Kingdom  108,892   98,346   70,989  164,301
 141,366
 108,892
Russia  53,328   47,507   43,799 
Switzerland  51,941   30,120   15,870  111,353
 87,111
 51,941
Canada  33,759   9,256   2,058  57,643
 49,193
 33,759
Russia 36,506
 48,945
 53,328
Germany  20,261   16,391   7,909  36,089
 25,740
 20,261
Hong Kong 23,117
 13,445
 
Sweden 10,589
 7,892
 5,742
Netherlands 9,989
 8,838
 7,719
Belgium 7,916
 4,198
 
Ireland 5,437
 3,667
 291
Kazakhstan  9,886   11,352   8,845  4,910
 5,238
 9,886
Netherlands  7,719   3,127   4,031 
Sweden  5,742   4,913   5,292 
Spain  1,957   1,710   1,893 
Ukraine  681   4,733   891 
Other locations  5,346   2,334   3,707  9,334
 7,680
 7,693
Reimbursable expenses and other revenues  7,626   6,417   6,176  9,511
 8,410
 7,626
Revenues $555,117  $433,799  $334,528  $914,128
 $730,027
 $555,117
Service Offering Information

Information about the Company’s revenues by service offering is presented below:as follows:
  For the Years Ended December 31,
  2015 2014 2013
Software development $644,732
 $504,590
 $374,426
Application testing services 174,259
 140,363
 109,222
Application maintenance and support 70,551
 58,840
 45,971
Infrastructure services 11,311
 14,198
 14,433
Licensing 3,764
 3,626
 3,439
Reimbursable expenses and other revenues 9,511
 8,410
 7,626
Revenues $914,128
 $730,027
 $555,117

 
 Year Ended December 31, 
  2013  2012  2011 
Software development $374,426  $290,139  $219,211 
Application testing services  109,222   85,849   67,840 
Application maintenance and support  45,971   36,056   29,287 
Infrastructure services  14,433   12,424   8,488 
Licensing  3,439   2,914   3,526 
Reimbursable expenses and other revenues  7,626   6,417   6,176 
Revenues $555,117  $433,799  $334,528 

F-39



18.QUARTERLY FINANCIAL DATA (UNAUDITED)
19.QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly results for the two years ended December 31, 20132015 and 20122014 were as follows:

 Three Months Ended 
2013 March 31  June 30  September 30  December 31  Full Year 
 Three Months Ended 
2015 March 31  June 30  September 30  December 31  Full Year 
Revenues $124,198  $133,184  $140,150  $157,585  $555,117  $200,045
 $217,781
 $236,049
 $260,253
 $914,128
Operating expenses:                       
        
Cost of revenues (exclusive of depreciation and amortization)  77,937   83,547   88,539   97,627   347,650  125,887
 134,256
 148,479
 158,291
 566,913
Selling, general and administrative expenses  27,083   28,541   27,893   32,980   116,497  46,938
 55,976
 55,431
 64,414
 222,759
Depreciation and amortization expense  3,617   3,854   3,906   3,743   15,120  4,200
 3,903
 4,393
 4,899
 17,395
Other operating (income)/ expenses, net  25   (293)  (418)  43   (643)
Goodwill impairment loss 
 
 
 
 
Other operating (income)/expenses, net 200
 40
 (30) 884
 1,094
Income from operations  15,536   17,535   20,230   23,192   76,493  22,820
 23,606
 27,776
 31,765
 105,967
Interest and other income, net  630   769   846   832   3,077  1,158
 1,299
 865
 1,409
 4,731
Foreign exchange loss  (499)  (869)  (720)  (712)  (2,800)
Change in fair value of contingent consideration 
 
 
 
 
Foreign exchange (loss)/income (5,754) (465) 32
 1,559
 (4,628)
Income before provision for income taxes  15,667   17,435   20,356   23,312   76,770  18,224
 24,440
 28,673
 34,733
 106,070
Provision for income taxes  2,987   3,317   3,919   4,553   14,776  3,510
 5,209
 5,800
 7,095
 21,614
Net income $12,680  $14,118  $16,437  $18,759  $61,994  $14,714
 $19,231
 $22,873
 $27,638
 $84,456
Comprehensive income $10,337  $13,073  $19,412  $18,361  $61,183  $11,984
 $22,905
 $14,532
 $21,939
 $71,360
Basic net income per share(1) $0.28  $0.31  $0.36  $0.40  $1.35 
Diluted net income per share(1) $0.27  $0.29  $0.34  $0.38  $1.28 
Basic net income per share(1)
 $0.31
 $0.40
 $0.47
 $0.56
 $1.73
Diluted net income per share(1)
 $0.29
 $0.37
 $0.44
 $0.52
 $1.62
(1)Earnings per share amounts for each quarter may not necessarily total to the yearly earnings per share due to the weighting of shares outstanding on a quarterly and year to date basis.
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Table of Contents

 Three Months Ended  
2012 March 31  June 30  September 30  December 31   Full Year  
 Three Months Ended 
2014 March 31  June 30  September 30  December 31  Full Year 
Revenues $94,383  $103,800  $110,078  $125,538  $433,799  $160,384
 $174,695
 $192,764
 $202,184
 $730,027
Operating expenses:                      
        
Cost of revenues (exclusive of depreciation and amortization)  60,175   63,803   69,099   77,284   270,361  102,454
 110,102
 122,509
 121,465
 456,530
Selling, general and administrative expenses  17,627   20,711   21,153   26,377   85,868  32,359
 38,671
 42,875
 49,761
 163,666
Depreciation and amortization expense  2,211   2,423   3,040   3,208   10,882  3,689
 5,451
 5,510
 2,833
 17,483
Other operating expenses, net  586   33   50   13   682 
Goodwill impairment loss 
 
 
 2,241
 2,241
Other operating (income)/expenses, net 25
 1,995
 35
 1,869
 3,924
Income from operations  13,784   16,830   16,736   18,656   66,006  21,857
 18,476
 21,835
 24,015
 86,183
Interest and other income, net  476   460   486   519   1,941  976
 1,164
 1,261
 1,368
 4,769
Foreign exchange gain/ (loss)  80   (1,394)  (635)  (135)  (2,084)
Change in fair value of contingent consideration 
 
 
 (1,924) (1,924)
Foreign exchange (loss)/income (1,241) (1,239) (718) 1,123
 (2,075)
Income before provision for income taxes  14,340   15,896   16,587   19,040   65,863  21,592
 18,401
 22,378
 24,582
 86,953
Provision for income taxes  2,241   2,575   2,522   4,041   11,379  4,228
 3,587
 3,338
 6,159
 17,312
Net income $12,099  $13,321  $14,065  $14,999  $54,484  $17,364
 $14,814
 $19,040
 $18,423
 $69,641
Comprehensive income $13,711  $10,857  $16,769  $15,640  $56,977  $13,787
 $17,708
 $10,780
 $7,115
 $49,390
Basic net income per share(1) $0.30  $0.31  $0.33  $0.35  $1.27 
Diluted net income per share(1) $0.27  $0.29  $0.30  $0.32  $1.17 
Basic net income per share(1)
 $0.37
 $0.31
 $0.40
 $0.39
 $1.48
Diluted net income per share(1)
 $0.35
 $0.30
 $0.38
 $0.37
 $1.40
(1)Earnings per share amounts for each quarter may not necessarily total to the yearly earnings per share due to the weighting of shares outstanding on a quarterly and year to date basis.


F-40


20.SUBSEQUENT EVENTS
On March 5, 2014, the Company entered into an agreement to acquire substantially all assets and certain specified liabilities of Netsoft Holdings LLC, a U.S.-based information technology services company with a focus on healthcare industry. In connection with this transaction, the Company also acquired substantially all assets of an Armenian-based company Ozsoft LLC. According to the purchase agreement, the aggregate purchase price, including any additional earn-out payments, will not exceed $6,000.
F-34