EPAM Systems Annual Report 2011

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the Fiscal Year Ended December 31, 2011OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Commission file number: 001-35418 EPAM SYSTEMS, INC.(Exact Name of Registrant as Specified in its Charter) Delaware 223536104(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)EPAM Systems, Inc.41 University Drive,Suite 202Newtown, 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 RegisteredCommon Stock, par value $0.01 per share New York Stock ExchangeSecurities 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 ¨ No xIndicate 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 xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes ¨ No xIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired 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 wasrequired to submit and post such files). Yes ¨ 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 thebest 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 thisForm 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨Non-accelerated filer x (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 xThe registrant completed the initial public offering of its common stock on February 13, 2012. Accordingly, there was no public market for the registrant’scommon stock as of June 30, 2011, the last business day of the registrant’s most recently completed second fiscal quarter.As of March 15, 2012, the registrant had 42,392,784 shares of common stock outstanding. Documents Incorporated by Reference: None Table of ContentsEPAM SYSTEMS, INC.FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2011TABLE OF CONTENTS PART I 1 Item 1. Business 1 Item 1A. Risk Factors 14 Item 1B. Unresolved Staff Comments 46 Item 2. Properties 46 Item 3. Legal Proceedings 46 Item 4. Mine Safety Disclosures 46 PART II 47 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 47 Item 6. Selected Financial Data 50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 52 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 66 Item 8. Financial Statements and Supplementary Data 67 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 67 Item 9A. Controls and Procedures 67 Item 9B. Other Information 67 PART III 68 Item 10. Directors, Executive Officers and Corporate Governance 68 Item 11. Executive Compensation 72 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 84 Item 13. Certain Relationships and Related Transactions, and Director Independence 87 Item 14. Principal Accountant Fees and Services 89 PART IV 90 Item 15. Exhibits, Financial Statement Schedules 90 In this annual report, “EPAM,” “EPAM Systems, Inc.,” the “Company,” “we,” “us” and “our” refer to EPAM Systems, Inc. and its consolidatedsubsidiaries. “EPAM” is a trademark of EPAM Systems, Inc. “CMMI” is a trademark of the Software Engineering Institute of Carnegie Mellon University. “ISO9001:2000” and “ISO 27001:2005” are trademarks of the International Organization for Standardization. All other trademarks and servicemarks used hereinare 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 ourgeneral expectations and market position, market opportunity and market share, is based on information from various sources (including industrypublications, surveys and forecasts and our internal research), on assumptions that we have made, which we believe are reasonable, based on those data andother similar sources and on our knowledge of the markets for our services. The projections, assumptions and estimates of our future performance and thefuture 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, includingthose described under “Item 1A. Risk Factors” and elsewhere in this annual report. These and other factors could cause results to differ materially from thoseexpressed in the estimates included in this annual report. iTable of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis 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 mainlybased on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believethat these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are madein light of information currently available to us. Important factors, in addition to the factors described in this annual report, may adversely affect our resultsas indicated in forward-looking statements. You should read this annual report and the documents that we have filed as exhibits hereto completely and with theunderstanding 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 toupdate, 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, theestimates and forward-looking statements discussed in this annual report might not occur and our future results, level of activity, performance orachievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentionedabove, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-lookingstatements. 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.PART IItem 1. BusinessOverviewWe are a leading global IT services provider focused on complex software product development services, software engineering and vertically-orientedcustom development solutions. Since our inception in 1993, we have been serving independent software vendors, or ISVs, and technology companies. Thesecompanies produce advanced software and technology products that demand sophisticated software engineering talent, tools, methodologies and infrastructureto deliver solutions that support functionality and configurability to sustain multiple generations of platform innovation. The foundation we have built servingISVs and technology companies has enabled us to differentiate ourselves in the market for software engineering skills and technology capabilities. Our workwith these clients exposes us to their customers’ challenges across a variety of industry verticals. This has enabled us to develop vertical-specific domainexpertise and grow our business in multiple industry verticals, including Banking and Financial Services, Business Information and Media, Travel andHospitality and Retail and Consumer.Our historical core competency is full lifecycle software development 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 extensive experience ineach of these areas by working collaboratively with leading ISVs and technology companies, creating an unparalleled foundation for the evolution of our otherofferings, which include custom application development, application testing, enterprise application platforms, application maintenance and support, andinfrastructure management. 1Table of ContentsWe believe the quality of our employees underpins our success and serves as a key point of differentiation in how we deliver a superior value propositionto our clients. Our delivery centers in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland are strategically located in centers of software engineeringtalent and educational excellence across Central and Eastern Europe, or CEE, and the Commonwealth of Independent States, or the CIS. CEE includesAlbania, 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 ofconstituents 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 indelivering custom solutions that meet our clients’ pressing business needs, has allowed us to develop a deep culture of software engineering excellence. Webelieve this culture enables us to attract, train and retain talented IT professionals.We employ highly-educated IT professionals, nearly all of whom hold a master’s equivalent university degree in math, science or engineering and areproficient in English. To ensure we attract the best candidates from this deep talent pool, we have developed close relationships with leading technicalinstitutions in CEE, whereby we actively support curriculum development and engage students to identify their talents and interests. We continue to expandthese 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 aspects of ourdelivery process. These applications and tools are effective in reducing risks, such as security breaches and cost overruns, while providing control andvisibility across all project lifecycle stages to both us and our clients. In addition, these applications and tools enable us to provide solutions using the optimalsoftware product development methodologies, including iterative methodologies such as Agile development. Our applications, tools, methodologies andinfrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global clients, thereby further strengthening our relationshipswith them.We believe we are the only ISAE 3000 Type II certified IT services provider with multiple delivery centers in CEE, based on our analysis of publiclyavailable information of IT services providers. This certification is a widely recognized auditing standard developed by the American Institute of CertifiedPublic 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 oftheir sensitive data. Furthermore, this is an important certification for firms in data and information-intensive industries, as well as any organization that issubject to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, internal controls certification requirements. Our ISAE 3000 Type IIcertification, in addition to our multiple ISO/IEC 27001:2005 and ISO 9001:2000 attestations, underscores our focus on establishing stringent securitystandards and internal controls.Our clients primarily consist of Forbes Global 2000 corporations located in North America, Europe and the CIS. We maintain a geographically diverseclient base with 49.4% of our 2011 revenues from clients located in North America, 32.0% from clients in Europe and 16.8% from clients in the CIS. Ourfocus on delivering quality to our clients is reflected by an average of 86.0% and 70.5% of our revenues in 2011 coming from clients that had used ourservices for at least two and three years, respectively. In addition, we have significantly grown the size of existing accounts. For example, from 2008 to 2011the number of clients accounting for over $5.0 million in annual revenues increased from seven to fifteen.Our ApproachSince our inception, we have focused on software product development, 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 ahigh level of 2Table of Contentsproduct configurability and operational performance to address the needs of a diverse set of end-users working in multiple industries and operating in a varietyof deployment environments. This demands a strong focus on upfront design and architecture, strict software engineering practices, and extensive testingprocedures.Our focus on software product development services for ISVs and technology companies requires high-quality software engineering talent, advancedknowledge of up-to-date methodologies and productivity tools, and strong project management practices. As a result, we have developed a culture focused oninnovation, technology leadership and process excellence, which helps us maintain a strong reputation with our clients for technical expertise and high-qualityproject delivery.Our work with ISVs and technology companies, including both global leaders in enterprise software platforms and emerging, innovative technologycompanies focusing on new trends, exposes us to their customers’ business and strategic challenges, allowing us to develop vertical-specific domain expertise.In this sense, our experience with ISV and technology company clients enables us to grow our business in multiple industries, including Banking andFinancial Services, Business Information and Media, Travel and Hospitality and Retail and Consumer.Our ServicesOur service offerings cover the full software development lifecycle from complex software development services through maintenance and support,custom application development, application testing, enterprise application platforms and infrastructure management. Our key service offerings include:Software Product Development ServicesWe provide a comprehensive set of software product development services including product research, design and prototyping, product development,component design and integration, full lifecycle software testing, product deployment and end-user customization, performance tuning, product support andmaintenance, as well as porting and cross-platform migration. We focus on development services for enterprise software products covering a wide range ofbusiness applications as well as product development for multiple mobile platforms and embedded software product services.Custom Application Development ServicesWe offer complete custom application development services to meet the requirements of businesses with sophisticated application development needs notadequately supported by packaged applications or by existing custom solutions. Our custom application development services leverage our experience insoftware product development as well as our industry expertise, prebuilt application solution frameworks and specific software product assets. Our range ofservices includes business and technical requirements analysis, 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 ServicesWe maintain a dedicated group of testing and quality assurance professionals with experience across a wide range of technology platforms and industryverticals. Our Quality Management System complies with global quality standards such as ISO 9001:2000 and we employ industry-recognized andproprietary 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. 3Table of ContentsEnterprise Application PlatformsAs a proven provider of software product development services to major ISVs, we have participated in the development of industry standard technologyand business application platforms and their components in such specific areas as customer relationship management and sales automation, enterpriseresource planning, enterprise content management, business intelligence, e-commerce, mobile, Software-as-a-Service and cloud deployment. Our experience insuch areas allowed us to offer services around Enterprise Application Platforms, which include requirements analysis and platform selection, deep andcomplex customization, cross-platform migration, implementation and integration, as well as support and maintenance. We use our experience, custom toolsand specialized knowledge to integrate our clients’ chosen application platforms with their internal systems and processes and to create custom solutions fillingthe gaps in their platforms’ functionality necessary to address the needs of the clients’ users and customers.Application Maintenance and SupportWe deliver application maintenance and support services through a dedicated team of IT professionals. Our application maintenance and supportofferings meet rigorous CMMI and ISAE 3000 Type II requirements. Our clients benefit from our proprietary distributed project management processes andtools, which reduce the time and costs related to maintenance, enhancement and support activities. Our services include incident management, faultinvestigation diagnosis, work-around provision, application bug fixes, release management, application enhancements and third-party maintenance.Infrastructure Management ServicesGiven the increased need for tighter enterprise integration between software development, testing and maintenance with private, public and mobileinfrastructures, our service offerings also cover infrastructure management services. We have significant expertise in implementing large infrastructuremonitoring solutions, providing real-time notification and control from the low-level infrastructure up to and including applications. Our ISAE 3000 Type II,ISO/IEC 27001:2005 and ISO 9001:2000 certifications provide our clients with third-party verification of our information security policies. Our solutionscover the full lifecycle of infrastructure management including application, database, network, server, storage and systems operations management, as well asincident notification and resolution.Our VerticalsStrong vertical-specific domain knowledge backed by extensive experience merging technology with the business processes of our clients allows us todeliver tailored solutions to the following industry verticals: • ISVs and Technology; • Banking and Financial Services; • Business Information and Media; • Travel and Hospitality; and • Retail and Consumer.We also serve the diverse technology needs of clients in the energy, telecommunications, automotive, manufacturing, insurance and life sciencesindustries and the government. 4Table of ContentsThe 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, 2011 2010 2009 (in thousands, except percent) Vertical ISVs and Technology $87,369 26.2% $68,727 31.0% $57,695 38.5% Banking and Financial Services 76,419 22.8 42,835 19.3 17,069 11.4 Business Information and Media 62,350 18.6 45,749 20.6 28,587 19.1 Travel and Hospitality 40,110 12.0 18,780 8.5 9,869 6.6 Retail and Consumer 31,596 9.4 17,681 8.0 9,856 6.6 Other verticals 30,508 9.2 24,279 10.9 24,732 16.4 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% ISVs and Technology. ISVs and technology companies have a constant need for innovation and rapid time-to-market. Since inception, we havefocused on providing complex software product development services to leading global ISVs and technology companies to meet these demands. Throughour experience with many industry leaders, we have developed rigorous standards for software product development, as well as proprietary internalprocesses, methodologies and IT infrastructure. Our services span the complete software development lifecycle for software product development, testingand performance tuning, deployment and maintenance and support. We offer a comprehensive set of software development methodologies, depending onclient requirements, from linear or sequential methodologies such as waterfall, to iterative methodologies such as Agile. In addition, we are establishingclose partner relationships with many of our ISV and technology company clients and are offering distributed professional services around their productofferings directly to our corporate clients.Banking and Financial Services. We established our Banking and Financial Services vertical in 2006 and have significant experience working withglobal retail and investment banks, investment firms, depositories, corporate treasuries, pension funds and market data providers. We offer a broadportfolio of services in asset and wealth management, corporate and retail banking, cards and payments, investment banking and brokerage, researchand analysis, as well as governance, risk and compliance. We have also established an internal Capital Markets Competency Center, which facilitatesknowledge exchange, education and collaboration across our organization and develops new software products, frameworks and components to furtherenhance our industry-specific solutions and services.Business Information and Media. We have established long term relationships with leading business information and media companies, whichenable us to bring sustainable value creation and enhanced return-on-content for organizations within this vertical. Our solutions help clients developnew revenue sources, accelerate the creation, collection, packaging and management of content and reach broader audiences. We serve clients in a rangeof business information and media sub-sectors, including entertainment media, news providers, broadcasting companies, financial informationproviders, content distributors and advertising networks. Our Business Information Competency Center enables us to provide our clients with solutionsthat help them overcome challenges related to operating legacy systems, manage varied content formats, rationalize their online assets and lower their costof delivery. In addition, we provide knowledge discovery platform services through our InfoNgen business, which combines custom taxonomydevelopment with web crawling, internal file and e-mail classification, newsletter and feed publication and content trend analysis.Travel and Hospitality. We have extensive experience in designing, implementing and supporting solutions for the travel and hospitality industry. Thishas led to the development of a substantial repository of knowledge components and solutions, such as our Loyalty, Marketing and Booking Engineframeworks, 5Table of Contentswhich results in accelerated development and implementation of solutions, while ensuring enterprise-class reliability. Our capabilities span a range ofplatforms, applications and solutions that businesses in travel and hospitality use to serve their customers, capture management efficiencies, controloperating expenses and grow revenues.Retail and Consumer. We work closely with leading companies in the retail and consumer industry to enable our clients to better leverage technologyand address simultaneous pressures of driving value for the consumer and offering a more engaging experience. Our expertise allows us to integrate ourservices with our clients’ existing enterprise resource planning, billing fulfillment and customer relationship management solutions. We have createdrich, interactive user interfaces for a range of applications. We also offer deep expertise across several domains including business-to-business andbusiness-to-consumer e-commerce, customer/partners self service, employee portals, online merchandising and sales, web content management, mobilesolutions and billing.Our Delivery ModelWe have delivery centers located in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland. We have client management locations in the UnitedStates, United Kingdom, Germany, Sweden, Switzerland, Russia and Kazakhstan. We believe the development of a robust global delivery model creates akey competitive advantage, enabling us to better understand and meet our client’s diverse needs and provide a compelling value proposition.Our primary delivery centers with approximately 3,000 IT professionals are located in Belarus, the majority of which are located in Minsk, the capitalof 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 strongindustrial base, good educational infrastructure and legacy as the center of computer science for the former Soviet Union. Furthermore, the IT industry inBelarus 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 approximately 1,700 IT professionals. Ukraine promotes the growth of a domestic IT outsourcing export industrythat is supported by regulation, intellectual property protection and a favorable investment climate.Our delivery centers in Russia have approximately 1,000 IT professionals. Our locations in Ukraine and Russia offer many of the same benefits asBelarus, including educational infrastructure, availability of qualified software engineers and government sponsorship of the IT industry. We believe ourlocations 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 approximately 650 IT professionals and serve as the center for our nearshore delivery capabilities to Europeanclients. Hungary’s geographic proximity, cultural affinity and similar time zones with our clients in Europe enables increased interaction that creates closerclient relationships, increased responsiveness and more efficient delivery of our solutions.Our client management locations maintain account management and production personnel with significant project management capabilities, whichenable us to work seamlessly with our clients and delivery centers. Our onsite and offshore delivery teams are linked together through common processes andcollaboration applications and tools and a communications infrastructure that features a secure and redundant environment enabling global collaboration.Quality and Process ManagementWe have built complex proprietary applications and tools to manage quality, security and transparency of the delivery process in a distributedenvironment. Our proprietary ISO 9001:2000 and CMMI-certified Quality Management System has been documented, implemented and maintained to ensurethe timely delivery of 6Table of Contentssoftware development services to our clients. We have also developed sophisticated project management techniques facilitated through our Project ManagementCenter, a web-based collaborative environment for software development which we consider critical to meeting or exceeding the service levels required by ourclients.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 aredetected 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 reducingrisks 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 documentsand files provided by our Project Management Center promotes collaboration and strengthens our relationships with our clients. Improved traceability enablessignificant time savings and cost reductions for business users and IT management during change management for the software development lifecycle. Thecombination of our Project Management Center with our other proprietary internal applications enhances our offering by reducing errors, increasing qualityand improving maintenance time. Combining applications can lead to more efficient communications and oversight for both clients and our staff.Sales and MarketingOur sales and marketing strategy seeks to increase our revenues from new and existing clients through our account managers, sales and businessdevelopment managers, vertical specialists, technical specialists and subject-matter experts. Given our focus on complex application development and theneeds of our clients, we believe our IT professionals play an integral role in engaging with clients on potential business opportunities. For example, accountmanagers 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 specialistsin responding to RFPs and pursuing opportunities. This sales model has been effective in promoting repeated business and growth from within our existingclient base. 7Table of ContentsIn addition to effective client management, we believe that our reputation as a premium provider of software product development services drivesadditional business from inbound requests, referrals and RFPs. We enjoy published recognition from other third-party industry observers, such as the GlobalOutsourcing Services 100, Global Service Magazine, neoIT 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 ofprogramming competitions to participation in and hosting of industry conferences and events.ClientsOur clients primarily consist of Forbes Global 2000 corporations. During 2011, 2010 and 2009, our largest client, Thomson Reuters, accounted forover 10% of our revenues. No other client represented over 10% of our revenues for 2011, 2010 and 2009.The following table sets forth the percentage of our revenues for the periods presented by client location: % of Revenues for Year Ended December 31, Client Location 2011 2010 2009 North America 49.4% 52.8% 53.5% Europe 32.0 26.4 21.8 CIS 16.8 19.1 23.3 Reimbursable expenses and other revenues 1.8 1.7 1.4 Revenues 100.0% 100.0% 100.0% The following table sets forth the percentage of our revenues by client vertical for the periods presented: % of Revenues for Year Ended December 31, Vertical 2011 2010 2009 ISVs and Technology 26.2% 31.0% 38.5% Banking and Financial Services 22.8 19.3 11.4 Business Information and Media 18.6 20.6 19.1 Travel and Hospitality 12.0 8.5 6.6 Retail and Consumer 9.4 8.0 6.6 Other verticals 9.2 10.9 16.4 Reimbursable expenses and other revenues 1.8 1.7 1.4 Revenues 100.0% 100.0% 100.0% The following table shows the distribution of our clients by revenues for the periods presented: Revenues Greater Than or Equal To 2011 2010 2009 $0.1 million 176 143 131 $0.5 million 98 72 63 $1 million 54 43 37 $5 million 15 10 3 $10 million 8 4 1 8Table of ContentsThe following table sets forth our revenues by service offering by amount and as a percentage of our revenues for the periods presented: Year Ended December 31, Service Offering 2011 2010 2009 (in thousands, except percent) Software development $219,211 65.5% $149,658 67.5% $105,397 70.3% Application testing services 67,840 20.3 44,459 20.0 28,489 19.0 Application maintenance and support 29,287 8.8 19,262 8.7 11,828 7.9 Infrastructure services 8,488 2.5 2,823 1.3 — — Licensing 3,526 1.1 1,849 0.8 2,094 1.4 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% We typically enter into a master services agreement with our clients, which provides a framework for services that is then supplemented by statements ofwork, which specify the particulars of each individual engagement, including the services to be performed, pricing terms and performance criteria.For example, we have entered into a master services agreement with Thomson Reuters. Under this master services agreement, we may not usesubcontractors 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 areowned by Thomson Reuters. Deliverables and services are subject to acceptance testing, and liquidated damages are prescribed for late delivery. Service creditsare prescribed for service-level failures and charges are subject to adjustment for deficiencies in services that are not measured by service levels. The masterservices agreement provides step-in rights, benchmarking, monitoring rights and audit rights. The master services agreement is not a commitment to purchaseour 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 sixmonths’ notice.CompetitionThe 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 in our business include technical expertise and industry knowledge, end-to-end solution offerings, reputationand 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, GlobalLogic, HCL Technologies, InfosysTechnologies, Mindtree, Sapient, Symphony Technology Group, Tata Consultancy Services and Wipro; • Local CEE technology outsourcing IT services providers; • 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, hiSoft Technology International, iSoftStone andVanceInfo Technologies; and • In-house IT departments of our clients and potential clients. 9Table of ContentsWe are a leading global IT services provider of complex software product development and software engineering services in CEE. We believe that ourfocus on complex software product development solutions, our technical employee base, and the development and continuous improvement in processmethodologies, applications and tools position us well to compete effectively in the future. However, we face competition from offshore IT services providers inother outsourcing destinations with low wage costs, such as India and China, and from IT services providers that have more locations or that are based incountries more stable than some CIS and CEE countries. Our present and potential competitors may also have substantially greater financial, marketing ortechnical resources; may also be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greaterresources towards the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperativerelationships among themselves or with third parties that increase their ability to address the needs of our clients.Human CapitalOur 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 ourclients’ needs. We had approximately 8,125, 6,168 and 4,432 employees as of December 31, 2011, 2010 and 2009, respectively. Of these employees,approximately 95.0% were located in the CIS and CEE, 1.9% were located in Western Europe (excluding Hungary) and 3.1% were located in North Americaas of December 31, 2011. We believe that we maintain a good working relationship with our employees and we have not experienced any labor disputes. Ouremployees have not entered into any collective bargaining agreements.Recruitment and RetentionWe believe our company culture and reputation as a leading global IT services provider of complex software product development and softwareengineering services in CEE enhances our ability to recruit and retain highly sought-after employees. We have dedicated full-time employees that oversee allaspects of our human capital management process. Through our proprietary internal tools, we effectively plan our short-term and long-term recruitment needsand deploy the necessary personnel and processes to optimize utilization and to quickly satisfy the demands of our clients.We have developed our base of IT professionals by hiring highly-qualified, experienced IT professionals from this region and by recruiting studentsfrom leading technical institutions in CEE. We have strong relationships with the leading technical institutions in CEE, such as the Belarusian StateUniversity, Saint Petersburg State University of Information Technologies, Mechanics and Optics, Moscow State University of Instrument Engineering andComputer Sciences and National Technical University of Ukraine, and we have established EPAM delivery centers near many of these campuses. Ourongoing involvement with these technical institutions includes supporting EPAM-branded research labs, developing training courses, providing teachingequipment, actively supporting curriculum development and engaging students to identify their talents and interests. Our relationships with these technicalinstitutions provide us access to a highly-qualified talent pool of programmers, and allow us to consistently attract highly-skilled students from theseinstitutions. We also conduct lateral hiring through a dedicated IT professional talent acquisition team whose objective is to locate and attract qualified andexperienced IT professionals within the region.To attract, retain and motivate our IT professionals, we seek to provide an environment and culture that rewards entrepreneurial initiative andperformance. In addition, we offer a challenging work environment, ongoing skills development initiatives and attractive career advancement and promotionopportunities.Training and DevelopmentWe dedicate significant resources to the training and development of our IT professionals. We believe in the importance of supporting educationalinitiatives and we sponsor employees’ participation in internal and external training and certifications. Furthermore, we actively pursue partner engagementswith technical institutions in CEE. 10Table of ContentsWe provide training, continuing education and career development programs for both entry-level and experienced IT professionals. Entry-level ITprofessionals undergo a rigorous training program that consists of approximately three to six months of classroom training, as well as numerous hours ofhands-on training through actual engagements. This comprehensive program results in employees who are highly proficient and possess deep technicalexpertise that enables them to immediately serve our clients’ needs. For our mid-level and senior IT professionals, we offer continuing education programsaimed at helping them advance in their careers. We also provide mentoring opportunities, management and soft skills training, intensive workshops andmanagement and technical advancement programs. We are committed to systematically identifying and nurturing the development of middle and seniormanagement through formal leadership training, evaluation, development and promotion.Intellectual PropertyOur intellectual property rights are important to our business. We rely on a combination of intellectual property laws, trade secrets, confidentialityprocedures and contractual provisions to protect our intellectual property. We require our employees, independent contractors, vendors and clients to enter intowritten confidentiality agreements upon the commencement of their relationships with us. These agreements generally provide that any confidential orproprietary information disclosed or otherwise made available by us be kept confidential.We customarily enter into non-disclosure agreements with our clients with respect to the use of their software systems and platforms. Our clients usuallyown the intellectual property in the software or systems 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 orsystems we developed for them.Protecting our intellectual property rights is critical to our business. We have invested, and will continue to invest, in research and development toenhance our domain knowledge and create complex, specialized solutions for our clients. As of December 31, 2011 we had registered intellectual propertyconsisting of 13 U.S. trademarks, 4 non-U.S. trademarks, 1 Russian copyright and 77 active domain names. In 2005, we entered into a Consent of Use andSettlement Agreement with Princeton Financial Services, Inc., or PFS, whereby we consented to PFS’s use of the mark “ePAM” in connection with the hostingof its software application but solely using a lowercase “e” and uppercase “PAM” and PFS consented to all uses by us of the EPAM mark other than ascapitalized in the foregoing (i.e., “ePAM”). While we consider the intellectual property embodied by certain of our solutions, such as our InfoNgen services,important to our business, we do not believe that any individual registered intellectual property right other than our rights in our name is material to ourbusiness.Long-lived AssetsThe table below sets forth the locations of our long-lived assets: As of December 31, Location 2011 2010 United States $1,445 $386 Belarus 26,001 20,377 Ukraine 4,314 2,223 Russia 2,011 1,263 Hungary 1,108 704 Other 603 385 Total $35,482 $25,338 11Table of ContentsAcquisitionsWe have acquired a number of companies in order to expand our vertical-specific domain expertise, geographic footprint, service portfolio, client baseand management expertise.In May 2009, we acquired the assets of Rodmon Systems Inc., a company with operations in the United States and Belarus and 28 IT professionalsand an experienced management team, in order to secure a large strategic client relationship which further strengthened our Business Information and Mediavertical, our experienced management team and our technical IT professionals.In August 2010, we acquired the assets of Instant Information, Inc., a company with operations in the United States and Belarus with 53 ITprofessionals, in order to acquire an experienced management team and skilled IT professionals, thereby further strengthening our Business Information andMedia vertical, and to acquire the rights to the intellectual property embodied by our InfoNgen services and cloud deployment capabilities.RegulationsDue to the industry and geographic diversity of our operations and services, our operations are subject to a variety of rules and regulations, and severalBelarusian, Russian, Ukrainian, Hungarian, Kazakhstan and U.S. federal and state agencies regulate various aspects of our business. See “Item 1A. RiskFactors — Risks Relating to Our Business — Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, andviolations or unfavorable interpretation by authorities of these regulations could harm our business.” and “Item 1A. Risk Factors — Risks Relating to OurBusiness — We are subject to laws and regulations in the United States and other countries in which we operate concerning our operations, including exportrestrictions, U.S. economic sanctions and the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery laws. If we are not in compliance withapplicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures, which could adversely affect our business,financial condition and results of operations.”We benefit from certain tax incentives promulgated by the Belarusian and Hungarian governments. See “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations — Certain Income Statement Line Items — Provision for Income Taxes.”Corporate InformationEPAM Systems, Inc. was incorporated in the State of Delaware on December 18, 2002. Our predecessor entity was founded in 1993. Our principalexecutive offices are located at 41 University Drive, Suite 202, Newtown, Pennsylvania 18940 and our telephone number is 267-759-9000. We maintain awebsite at http://www.epam.com. Our website and the information accessible through our website are not incorporated into this annual report.We make certain filings with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports onForm 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 InvestorRelations section of our website, http://investors.epam.com, as soon as reasonably practicable after they are filed with the SEC. The filings are also availablethrough 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. Also, these filings areavailable on the internet at http://www.sec.gov. Our press releases and recent analyst presentations are also available on our website. The information on ourwebsite does not constitute a part of this annual report. 12Table of ContentsExecutive Officers of the RegistrantThe following table sets forth certain information concerning our executive officers as of the date of this annual report: Name Age PositionArkadiy Dobkin 51 Chief Executive Officer, President and Chairman of the Board of DirectorsKarl Robb 49 President of EU Operations, Executive Vice President and DirectorIlya Cantor 43 Senior Vice President, Chief Financial Officer and TreasurerBalazs Fejes 36 Chief Technology OfficerGinger Mosier 47 Vice President, General Counsel and Corporate SecretaryArkadiy Dobkin has served as Chairman of our board, Chief Executive Officer and President since December 2002. Mr. Dobkin began his career inMinsk, Belarus, where he worked for several emerging software development companies. After immigrating to the United States, he held thought and technicalleadership positions in Colgate-Palmolive Company and SAP Labs. Mr. Dobkin holds a MS in Electrical Engineering from the Belarusian National TechnicalUniversity. We believe that Mr. Dobkin’s experience as an IT professional and executive in the IT services industry coupled with his in-depth understanding ofour global delivery model provide him with the necessary skills to serve as a member of our board of directors and will enable him to provide valuable insightto the board and our management team regarding operational, strategic and management issues as well as general industry trends.Karl Robb has served as a director of our board, as our President of EU Operations and Executive Vice President since March 2004. Mr. Robb is a 29-year global software engineering industry veteran, having worked nine years in Europe, nine years in the United States and 11 years in Eastern Europe. InMarch of 2004, Fathom Technology, a Hungarian software development outsourcing firm where Mr. Robb was a co-founder and Chief Executive Officer,merged with EPAM Systems, whereupon Mr. Robb became Executive VP, Global Operations, and a member of the Board of Directors of EPAM. Mr. Robbhas been employed as a consultant by Landmark Business Development Limited, or Landmark, a consulting firm, since 1986. We believe that Mr. Robb’sexperience as an executive in the IT services industry and his knowledge of the IT services industry in North America, Europe and CEE as well as hisexperience working with global IT services companies and successfully starting two software companies, provides him with the necessary skills to serve as amember of our board of directors and will enable him to provide valuable insight to the board regarding operational and management issues as well as generalindustry trends.Ilya Cantor has served as our Senior Vice President, Chief Financial Officer and Treasurer since March 2012 and as our Vice President, ChiefFinancial Officer and Treasurer since July 2006. Prior to joining EPAM, Mr. Cantor spent seven years in a variety of financial and operational positions atDow Jones, including Executive Director of Operations of The Wall Street Journal, Chief Financial Officer of The Wall Street Journal and Group FinanceDirector of The Wall Street Journal International. Between 2002 and 2005, Mr. Cantor served on the board of directors of CNBC International, which was atthe time a financial news television joint venture between NBC Capital Corp and Dow Jones in Asia and Europe. Before joining Dow Jones in 1999,Mr. Cantor was the Chief Financial Officer of Independent Media (now Independent Media–Sanoma), a leading publishing house based in Moscow, Russia.Previous to this, Mr. Cantor was an Audit Manager with Coopers & Lybrand, LLP (now PricewaterhouseCoopers) in Moscow. He started his career withCoopers & Lybrand in Los Angeles in 1991, after graduating from California State University at Long Beach.Balazs Fejes has served as our Chief Technology Officer since March 2004. Mr. Fejes joined us when Fathom Technology, a Hungarian softwareengineering 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 13Table of Contentschief software architect of Scala Business Solutions. Mr. Fejes has been employed as a consultant by Redlodge Holdings Limited, a consulting firm, sinceJuly 2007. Between January 2001 and July 2007, Mr. Fejes was employed as a consultant by Landmark. Mr. Fejes currently serves as Managing Director forEPAM Systems Switzerland GmbH, EPAM Systems Kft, EPAM Systems Aps and EPAM Systems Nordic AB.Ginger Mosier has served as our Vice President, General Counsel since March 2010, as our Assistant Corporate Secretary from May 2010 to January2012 and as our Corporate Secretary since January 2012. Prior to joining EPAM, Ms. Mosier spent approximately eight years in a variety of legal positionswith 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 createdfor implementing the acquisition and integration of several software companies. Immediately prior to Hewlett-Packard, Ms. Mosier practiced corporate law atDrinker, Biddle & Reath. Ms. Mosier began her legal career at Baker & Daniels. Ms. Mosier holds a J.D., magna cum laude, from Indiana University Schoolof 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 FactorsRisk factors which could cause actual results to differ from our expectations and which could negatively impact our financial condition andresults of operations are discussed below and elsewhere in this annual report. The risks and uncertainties described below are not the only ones weface. Additional risks and uncertainties not presently known to us or that are currently not believed to be significant to our business may also affect ouractual results and could harm our business, financial condition and results of operations. If any of the risks or uncertainties described below or anyadditional 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.”Risks Relating to Our BusinessWe may be unable to effectively manage our rapid growth, which could place significant strain on our management personnel, systems andresources.We have experienced rapid growth and significantly expanded our business recently. Our revenues grew from $160.6 million in 2008 to $334.5 millionin 2011. We have also supplemented our organic growth with strategic acquisitions. As of December 31, 2011, we had 6,968 IT professionals, as comparedto 2,890 IT professionals as of December 31, 2007. We intend to continue our expansion in the foreseeable future to pursue existing and potential marketopportunities.Our rapid growth has placed and will continue to place significant demands on our management and our administrative, operational and financialinfrastructure. 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; • preserving our culture, values and entrepreneurial environment; and • developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internalsystems. 14Table of ContentsMoreover, as we introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges withwhich we are unfamiliar, and it may require substantial management efforts and skills to mitigate these risks and challenges. As a result of any of theseproblems associated with expansion, our business, financial condition and results of operations could be materially adversely affected.We may not be able to achieve anticipated growth, which could materially adversely affect our business and prospects.We intend to continue our expansion in the foreseeable future to pursue existing and potential market opportunities. As we introduce new services or enterinto new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and we may not be able tomitigate these risks and challenges to successfully grow those services or markets. We may not be able to achieve our anticipated growth, which couldmaterially adversely affect our business and prospects.If we fail to attract and retain highly skilled IT professionals, we may not have the necessary resources to properly staff projects, and failure tosuccessfully compete for such IT professionals could materially adversely affect our ability to provide high quality services to our clients.Our success depends largely on the contributions of our IT professionals and our ability to attract and retain qualified IT professionals. Competition forIT professionals in the markets in which we operate can be intense and, accordingly, we may not be able to retain or hire all of the IT professionals necessaryto meet our ongoing and future business needs. Any reductions in headcount for economic or business reasons, however temporary, could negatively affect ourreputation as an employer and our ability to hire IT professionals to meet our business requirements.The total attrition rates among our IT professionals who have worked for us for at least six months were 9.1%, 9.4% and 11.2% for 2011, 2010 and2009, respectively. We may encounter higher attrition rates in the future. A significant increase in the attrition rate among IT professionals with specializedskills could decrease our operating efficiency and productivity and could lead to a decline in demand for our services. The competition for highly-skilled ITprofessionals may require us to increase salaries, 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, trainand retain skilled IT professionals, including experienced management IT professionals, which enables us to keep pace with growing demands foroutsourcing, evolving industry standards and changing client preferences. If we are unable to attract and retain the highly-skilled IT professionals we need, wemay 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 thequalifications necessary to fulfill the needs of our existing and future clients or to assimilate new IT professionals successfully could materially adverselyaffect our ability to provide high quality services to our clients.Increases in wages and other compensation expense for our IT professionals could prevent us from sustaining our competitive advantage.Wage costs for IT professionals in CIS and CEE countries are lower than comparable wage costs in more developed countries. However, wage costs inthe CIS and CEE IT services industry may increase at a faster rate than in the past, which ultimately may make us less competitive unless we are able toincrease 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 ourprofitability. In addition, the issuance of equity-based compensation to our IT professionals would also result in additional dilution to our stockholders. 15Table of ContentsOur success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may beseverely 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 keyman 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 areunable 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. Inaddition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain our senior executives and keypersonnel 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 joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and keyIT 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 beunauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. If any dispute arises between our senior executives orkey personnel and us, any non-competition, non-solicitation and non-disclosure agreements we have with our senior executives or key personnel might notprovide 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 ofuncertainties with legal systems in CIS and CEE countries.Emerging markets such as the CIS and CEE countries are subject to greater risks than more developed markets, including significant legal,economic, tax and political risks.We have significant operations in CIS countries, including Belarus, Russia, Ukraine and Kazakhstan and in Hungary, which is a CEE country.Investors in emerging markets such as CIS and CEE countries should be aware that these markets are subject to greater risk than more developed markets,including in some cases significant legal, economic, tax and political risks. Investors should also note that emerging economies such as the economies ofBelarus, Russia, Ukraine, Kazakhstan and Hungary are subject to rapid change and that the information set forth in this annual report may become outdatedrelatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light ofthose risks, an investment in our common stock is appropriate. See “— Risks Related to Conducting Business in the CIS and CEE Countries.”We generate a significant portion of our revenues from a small number of clients, and any loss of business from these clients could materiallyreduce our revenues.We have derived, and believe that in the foreseeable future we will continue to derive, a significant portion of our revenues from a small number ofclients. During 2011, 2010 and 2009, our largest client, Thomson Reuters, accounted for over 10% of our revenues. In the aggregate, our top ten clientsaccounted for 44.6%, 42.6%, and 35.3% of our revenues in 2011, 2010 and 2009, respectively.Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business. However, thevolume of work performed for a specific client is likely to vary from year to year, especially since we generally are not our clients’ exclusive IT servicesprovider 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 ofrevenues 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 varyas 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 revenuesmay give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service. 16Table of ContentsIn 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 factorsare not predictable. For example, a client may decide to reduce spending on technology services or sourcing from us due to a challenging economic environmentor 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 tothem, 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 accuratefinancial 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 makeaccurate 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; • the accuracy of estimates of resources, time and fees required to complete fixed-price projects and costs incurred in the performance of eachproject; • changes in pricing in response to client demand and competitive pressures; • changes in the allocation of onsite and offshore staffing; • the business decisions 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 budget and work cycles of our clients; • delays or difficulties in expanding 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. 17Table of ContentsWe do not have long-term commitments from our clients, and our clients may terminate contracts before completion or choose not to renewcontracts.Our clients are generally not obligated for any long-term commitments to us. Although a substantial majority of our revenues are generated from repeatedbusiness, which we define as revenues from a client who also contributed to our revenues during the prior year, our engagements with our clients are typicallyfor 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 successfullycompleted or are terminated as well as maintain relationships with existing clients and secure new clients to expand our business.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: • financial difficulties for the client; • a 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; • the replacement by our clients of existing software with packaged software supported by licensors; and • mergers and acquisitions or significant corporate restructurings.Failure to perform or observe any contractual obligations could result in cancellation or non-renewal of a contract, which could cause us to experience ahigher 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 orreallocate our headcount. The ability of our clients to terminate agreements makes our future revenues uncertain. We may not be able to replace any client thatelects to terminate or not renew its contract with us, which 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 toterminate the agreement. If any future event triggers any change-of-control provision in our client contracts, these master services agreements may beterminated, which would result in loss of revenues.Our revenues are highly dependent on clients primarily located in the United States and Europe. Worsening economic conditions or factorsthat negatively affect the economic health of the United States or Europe could reduce our revenues and thus adversely affect our results ofoperations.The recent crisis in the financial and credit markets in North America, Europe and Asia led to a global economic slowdown, with the economies of thoseregions showing significant signs of weakness. The IT services industry is particularly sensitive to the economic environment, and tends to decline duringgeneral economic downturns. We derive a significant portion of our revenues from clients in North America and Europe. If the North American or Europeaneconomies 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.The current financial crisis in Europe (including concerns that certain European countries may default in payments due on their national debt) and theresulting economic uncertainty could adversely impact our operating results unless and until economic conditions in Europe improve and the prospects ofnational debt defaults in Europe decline. To the extent that these adverse economic conditions continue or worsen, they will likely continue to have a number ofnegative effects on our business. 18Table of ContentsIf we are unable to successfully anticipate changing economic and political conditions affecting the markets in which we operate, we may be unable toeffectively plan for or respond to those changes, and our results of operations could be adversely affected.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 ascomputers and office space, and our ability to increase our productivity levels. We have expanded our operations significantly in recent years through organicgrowth and strategic acquisitions, which has resulted in a significant increase in 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 arededicated 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 regardingthe 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 orfacilities, we may not be able to efficiently reallocate these IT professionals and facilities to other clients and projects to keep their utilization and productivitylevels high. If we are not able to maintain optimal resource utilization levels without corresponding cost reductions or price increases, our profitability willsuffer.We face intense competition from onshore and offshore IT services companies, and increased competition, our inability to compete successfullyagainst 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 inour markets are reputation and track record, industry expertise, breadth and depth of service offerings, quality of the services offered, language, marketingand 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 ascompetition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Clients tend to engage multiple IT servicesproviders instead of using an exclusive IT services provider, which could reduce our revenues to the extent that clients obtain services from other competing ITservices providers. Clients may prefer IT services providers that have more locations or that are based in countries more cost-competitive or more stable thansome 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 toclient needs. Some of our present and potential competitors may have substantially greater financial, marketing or technical resources. Our current andpotential competitors may also be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greaterresources towards the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperativerelationships among themselves or with third parties that increase their ability to address the needs of our clients. Client buying patterns can change if clientsbecome more price sensitive and accepting of low-cost suppliers. Therefore, we cannot assure you that we will be able to retain our clients while competingagainst such competitors. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could materially adverselyaffect our business. 19Table of ContentsWe are investing substantial cash in new facilities and physical infrastructure, and our profitability could be reduced if our business does notgrow proportionately.We have made and continue to make significant contractual commitments related to capital expenditures on construction or expansion of our deliverycenters, such as in Minsk, Belarus. We may encounter cost overruns or project delays in connection with new facilities. These expansions will likely increaseour 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 industriescould reduce our revenues and adversely affect our results of operations.A substantial portion of our clients are concentrated in five specific industry verticals: ISVs and Technology, Banking and Financial Services,Business Information and Media, Travel and Hospitality, and Retail and Consumer. Clients in ISVs and Technology accounted for 26.2%, 31.0%, and38.5% of our revenues in 2011, 2010 and 2009, respectively. Clients in Banking and Financial Services accounted for 22.8%, 19.3%, and 11.4% of ourrevenues in 2011, 2010 and 2009, respectively. Our business growth largely depends on continued demand for our services from clients in these five industryverticals 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 introductionof regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for our services and materially adversely affectour business, financial condition and results of operations. For example, a worsening of economic conditions in the financial services industry and significantconsolidation 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 notbe able to successfully anticipate and prepare for any such changes. For example, consolidation in any of these industries or acquisitions, particularlyinvolving our clients, may decrease the potential number of buyers of our services. Our clients may experience rapid changes in their prospects, substantialprice competition and pressure on their profitability. This, in turn, may result in increasing pressure on us from clients in these key industries to lower ourprices, 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 ofoperations could be adversely affected.To successfully market our service offerings and obtain larger and more complex projects, we need to establish close relationships with our clients anddevelop a thorough understanding of their 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; • maintaining planned resource utilization rates on a consistent basis; • maintaining productivity levels and implementing necessary process improvements; • controlling costs; • maintaining close client contact and high levels of client satisfaction; and • maintaining effective client relationships.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 20Table of Contentscomplex 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 retainus for additional stages or may cancel or delay additional planned engagements. Such cancellations or delays may make it difficult to plan our project resourcerequirements. 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, impact our margins and adversely affect our business and results of operations.If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards we may lose clients and ourbusiness could be materially adversely affected.Rapidly changing technologies, methodologies and evolving industry standards characterize the market for our services. Our future success will dependin part upon our ability to anticipate developments in IT services, enhance our existing services and to develop and introduce new services to keep pace withsuch changes and developments and to meet changing client needs. The process of developing our client solutions is extremely complex and is expected tobecome increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies and methodologies. Ourability 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 ourclients’ 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 changedoperating 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 ormethodologies we develop or implement may not be successful in the marketplace. Further, services, technologies or methodologies that are developed by ourcompetitors may render our services non-competitive or obsolete. Our failure to enhance our existing services and to develop and introduce new services topromptly 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 resourcecommitments 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. Beforecommitting to use our services, potential clients require us to expend substantial time and resources educating them on the value of our services and our abilityto 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 andapproval processes. If our sales cycle unexpectedly lengthens for one or more large projects, it would negatively affect the timing of our revenues and hinder ourrevenues growth. For certain clients, we may begin work and incur costs prior to concluding the contract. A delay in our ability to obtain a signed agreement orother 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 clientsmay experience delays in obtaining internal approvals or delays 21Table of Contentsassociated with technology, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the timeand resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time andresources. Any significant failure to generate revenues or delays in recognizing revenues after incurring costs related to our sales or services process couldmaterially 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 applicableaccounting standards. We recognize revenues when realized or realizable and earned, which is when the following criteria are met: persuasive evidence of anarrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. If there is an uncertainty about theproject 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 thesystem or solution is specified by the client, revenues are deferred until all acceptance criteria have been met. In absence of a sufficient basis to measureprogress towards completion, revenues are recognized upon receipt of final acceptance from the client. Our failure to meet all the acceptance criteria, orotherwise 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 wererendered, but delay the timing of revenue recognition to a future period in which all acceptance criteria have been met.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 internalforecasts 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 notaccurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us. We face a number of risks when pricing ourcontracts, as many of our projects entail the coordination of operations and personnel in multiple locations with different skill sets and competencies. Ourpricing and cost estimates for the work that we perform sometimes include anticipated long-term cost savings from transformational and other initiatives thatwe 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 toaccurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts. In particular, any increased orunexpected 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 definedperformance goals, service levels and completion schedules set forth in the contracts. Our failure to meet such performance goals, service levels or completionschedules 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; 22Table of Contents • bid practices of clients and their use of third-party advisors; • 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 bematerially 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 billand collect on relatively short cycles. We maintain allowances against receivables. Actual losses on client balances could differ from those that we currentlyanticipate 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 macroeconomic conditions and related turmoil in the global financial system could also result in financial difficulties, including limited access to thecredit markets, insolvency, or bankruptcy for our clients, and, as a result, could cause clients to delay payments to us, request modifications to theirpayment arrangements that could increase our receivables balance, or default on their payment obligations to us. Timely collection of client balances alsodepends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractualrequirements, 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 cashflows could be materially adversely affected. Moreover, in the event of delays in payment from our governmental and quasi-governmental clients, we may havedifficulty collecting on receivables owed. In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could bematerially adversely affected.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 uniqueservices and solutions, our corporate reputation is a significant factor in our clients’ evaluation of whether to engage our services. We believe the EPAM brandname and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts torecruit and retain talented employees. However, our corporate reputation is potentially susceptible to damage by actions or statements made by current orformer clients, competitors, vendors, adversaries in legal proceedings, government regulators, as well as members of the investment community and themedia. 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 newengagements, resulting in a loss of business, and could adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce thevalue and effectiveness of the EPAM brand name and could reduce investor confidence in us.We have incurred, and may continue to incur, significant stock-based compensation expenses which could adversely impact our net income.We have granted certain options under our stock incentive plans and entered into certain other stock-based compensation arrangements in the past, as aresult of which we have recorded $2.9 million, $2.9 million and $2.4 million as stock-based compensation expenses for the years ended December 31, 2011,2010 and 2009, respectively. 23Table of ContentsGenerally Accepted Accounting Principles (“GAAP”) prescribes how we account for stock-based compensation which could adversely or negativelyimpact our results of operations or the price of our common stock. GAAP requires us to recognize stock-based compensation as compensation expense in thestatement of operations generally based on the fair value of equity awards on the date of the grant, with compensation expense recognized over the period inwhich the recipient is required to provide service in exchange for the equity award. The expenses associated with stock-based compensation may reduce theattractiveness of issuing equity awards under our equity incentive plan. However, if we do not grant equity awards, or if we reduce the number of equityawards 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 expensesassociated with such additional equity awards could materially adversely affect our results of operations.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 byseveral factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutorytax rates; changing tax laws, regulations and interpretations of such tax laws in multiple jurisdictions; and the resolution of issues arising from tax audits orexaminations 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 havetransfer pricing arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales and deliveryfunctions. U.S. transfer pricing regulations, as well as regulations applicable in CIS and CEE countries in which we operate, require that any internationaltransaction involving associated enterprises be on arm’s-length terms. We consider the transactions among our subsidiaries to be on arm’s-length terms. Thedetermination of our consolidated provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate taxdetermination 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 transferprices and terms we have applied are not appropriate, such an adjustment could have a negative impact on our business. The U.S. Internal Revenue Servicehas recently concluded an examination of our federal income tax returns for the tax year ended December 31, 2008 with no changes, and the State of NewJersey Division of Taxation has begun an examination of our state returns for tax years ended December 31, 2007 through 2011. The results from these andother tax examinations and audits may differ from the liabilities recorded in our audited consolidated financial statements and could materially adversely affectour financial condition and results of operations.Our earnings could be adversely affected if we change our intent not to repatriate earnings in the CIS and CEE or such earnings becomesubject 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 consideredto 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 tochange 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 oftaxes associated with such earnings and pay taxes at a substantially higher rate than our effective income tax rate in 2011. These increased taxes couldmaterially adversely affect our financial condition and results of operations. 24Table of ContentsOur operating results may be negatively impacted by the loss of certain tax benefits provided by the governments of Belarus, Hungary andRussia 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 avariety of taxes, including a 100% exemption from Belarusian income tax (which as of the date of this annual report was 24% and an exemption from the valueadded tax, for a period of 15 consecutive years effective July 1, 2006. In addition, our subsidiary in Hungary benefits from a tax credit of 10% of qualifiedsalaries, 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, 2008, 2009,2010 and 2011. The Hungarian tax authorities repealed the tax credit beginning with 2012. Credits earned in years prior to 2012, however, will be alloweduntil fully utilized. We anticipate full utilization up to the 70% limit until 2014, with full phase out in 2015. Our subsidiary in Russia benefits from asubstantially reduced rate on social contributions and an exemption on value added tax in certain circumstances, which is a benefit to qualified IT companiesin Russia. If the tax holiday relating to our Belarusian subsidiary, the tax incentives relating to our Hungarian subsidiary or the lower tax rates and socialcontributions relating to our Russian subsidiary are changed, terminated, not extended or comparable new tax incentives are not introduced, we expect that oureffective income tax rate and/or our operating expenses would increase significantly, which could materially adversely affect our financial condition and resultsof operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Income Statement Line Items— Provision for Income Taxes.”Our ability to expand our business and procure new contracts or enter into beneficial business arrangements could be affected by non-competition clauses in our agreements with existing clients.Some of our agreements with clients contain time-based restrictions on reassigning personnel from those clients’ accounts to the accounts of competitorsof such clients. These clauses may restrict our ability to offer services to different clients in a specific industry or market. For example, we have agreed that,for periods ranging from six months to one year after the completion of either the services we have provided to certain clients or the termination of our serviceagreements with such clients, we will not assign any of our employees that have worked on services or projects for such clients to the development ordistribution of any services or projects that compete directly or indirectly with the services or projects that we have provided such clients. Moreover, we may inthe future enter into agreements with clients that restrict our ability to accept assignments from, or render similar services to, those clients’ customers, requireus to obtain our clients’ prior written consent to provide services to their customers or restrict our ability to compete with our clients, or bid for or accept anyassignment which our client is bidding for or is negotiating. These restrictions may hamper our ability to compete for and provide services to other clients in aspecific industry in which we have expertise and could materially adversely affect our business, financial condition and results of operations.Our agreement with one of our largest clients gives it the option to assume the operations of one of our offshore development centers, and theexercise 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 isentitled to request us to transfer to it or its designees all of the operating relationships, including employment relationships with the employees dedicated to theoffshore development center and contracts with subcontractors, at a pre-determined transfer price dependent on the experience level of the transferred employeeand 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 ouragreement, 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 theassets to be transferred that have not already been financed by the client. This client accounted for 6.3% and 2.9% of our revenues in 2011 and 2010,respectively. In addition, under our agreement, the client has the right to step in and take over all or part of the offshore 25Table of Contentsdevelopment center in certain instances, including if we are in material default under certain provisions of our agreement, such as those related to the level orquality 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 overany 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 wouldlose 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 fullycovered 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 thatcould materially adversely affect our business.Our software development solutions involve a high degree of technological complexity and have unique specifications and could contain design defects orsoftware 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 ofmarket share, loss of client data, a failure to attract new clients or achieve market acceptance, diversion of development resources and increased support orservice costs. We cannot assure you that, despite testing by us and our clients, errors will not be found in new software product development solutions, whichcould 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 couldresult 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 processingsystems between our clients’ offices, our delivery centers and our client management locations (including our headquarters in Newtown, PA). Our businessactivities may be materially disrupted in the event of a partial or complete failure of any of these internet, IT or communication systems, which could becaused 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 orincreased 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 ourperformance or our ability to complete client projects on time which, in turn, could lead to a reduction of our revenue or otherwise materially adversely affectour 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 couldadversely affect our business.Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses, worms, malicious applications and othersecurity problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measurescould 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 andtransmitted through our computer systems. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter ourclients from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these securitybreaches or to alleviate problems caused by these breaches.Data networks are also vulnerable to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers havebypassed 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 orliabilities that are incurred as a result of any of the foregoing could adversely affect our business. 26Table of ContentsIf we cause disruptions to our clients’ businesses or provide inadequate service, our clients may have claims for substantial damages againstus, 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, theseerrors 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. Inaddition, 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 obligationsincluding maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning procedures, andverifying the integrity of employees that work with our clients by conducting background checks. Any failure in a client’s system or breach of securityrelating 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 ofour equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, couldimpede 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 ofoperations.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. Suchlimitations may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties forwhich we may be required to indemnify our clients, are generally not limited under our contracts. The successful assertion of one or more large claims againstus in amounts greater than those covered by our current insurance policies could materially adversely affect our business, financial condition and results ofoperations. 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 freelancersprimarily 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 tosupplement 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 alsogive 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 clientsexpect us to deliver. Furthermore, we enter into confidentiality agreements with our subcontractors, but we cannot guarantee that they will not breach theconfidentiality of us or our clients and misappropriate our or our clients’ proprietary information and technology in the course of providing service. We, as theparty to the contract with the client, are directly responsible for the losses our subcontractors cause our clients. Under the subcontracting agreements we enterinto, 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.There may be adverse tax and employment law consequences if the independent contractor status of our IT professionals or the exempt statusof 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 asindependent 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 27Table of Contentsthe determination of whether an individual is considered to be an independent contractor or an employee are typically fact sensitive and vary from jurisdictionto jurisdiction. Laws and regulations that govern the status and misclassification of independent contractors are subject to change or interpretation by variousauthorities. If a federal, state, provincial or foreign authority or court enacts legislation or adopts regulations that change the manner in which employees andindependent contractors are classified or makes any adverse determination with respect to some or all of our independent contractors, we could incursignificant 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 materiallyadversely affect our business, financial condition and results of operations. There is also a risk that we may be subject to significant monetary liabilitiesarising from fines or judgments as a result of any such actual or alleged non-compliance with federal, state, provincial or foreign tax laws. Further, if it weredetermined that any of our independent contractors should be treated as employees, we could possibly incur additional liabilities under our applicableemployee benefit plans.In addition, we have classified all of our U.S. employees as “exempt” under the Federal Labor Standards Act, or the FLSA. If it were determined thatany 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, finesor 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 andequipment and business interruption insurance coverage for certain of our operations, we do not insure for all risks in our operations. If any claims for injuryare 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 theagreements, 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. Although to date no clienthas brought any claims against us for such failure, our clients have the right to terminate these agreements as a result of such failure.Our business could be negatively affected if we incur legal liability, including with respect to our indemnification obligations, in connectionwith 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 wecannot or do not perform our obligations, we could face legal liability and our contracts might not always protect us adequately through limitations on thescope 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 isnot adequately limited through the terms of our agreements, we might face significant legal liability and our financial condition and results of operations couldbe materially adversely affected.In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which wemay be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can includeprovisions whereby we agree to defend and hold the indemnified party and certain of their affiliates harmless with respect to claims related to matters includingour breach of certain representations, warranties or covenants, or out of our intellectual 28Table of Contentsproperty infringement, our gross negligence or willful misconduct, and certain other claims. Payments by us under any of these arrangements are generallyconditioned 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 themaximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement, and anyclaims under these agreements may not be subject to liability limits or exclusion of consequential, indirect or punitive damages. Historically, we have not madepayments under these indemnification agreements so they have not had any impact on our operating results, financial position, or cash flows. However, ifevents arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such paymentscould have a material impact on our financial condition and results of operations.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 policiesmay 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 besubject to significant liability from our clients or from our clients’ customers for breaching contractual confidentiality provisions or privacy laws. Theprotection of the intellectual property rights and other confidential information or personally identifiable information of our clients is particularly important forus since our operations are mainly based in CIS and CEE countries. CIS and CEE countries have not traditionally enforced intellectual property protection tothe same extent as countries such as the United States. Despite measures we take to protect the intellectual property and other confidential information orpersonally identifiable information of our clients, unauthorized parties, including our employees and subcontractors, may attempt to misappropriate certainintellectual property rights that are proprietary to our clients or otherwise breach our clients’ confidences. Unauthorized disclosure of sensitive or confidentialclient information, including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach ofour 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 bedifficult 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 ourresponsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client, or poor execution of such services, couldresult 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 inall circumstances, may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. There may be instances whenliabilities for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not covered by ourinsurance.We may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protectour business and competitive position.We rely on a combination of copyright, trademark, unfair competition and trade secret laws, as well as confidentiality agreements and other methods toprotect our intellectual property rights. As of December 31, 2011, we had registered intellectual property consisting of 13 U.S. trademarks, 4 non-U.S.trademarks, 1 Russian 29Table of Contentscopyright and 77 active domain names. Implementation of intellectual property-related laws in CIS and CEE countries has historically been lacking, primarilybecause of ambiguities in the laws and difficulties in enforcement. Accordingly, protection of intellectual property rights and confidentiality in CIS and CEEcountries may not be as effective as that in the United States or other countries.To protect our and our clients’ proprietary information and other intellectual property, we require our employees, independent contractors, vendors andclients to enter into written confidentiality agreements with us. These agreements may not provide meaningful protection for trade secrets, know-how or otherproprietary 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 ofour and our clients’ proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our and our clients’ proprietarytechnologies, tools and applications could enable third parties to benefit from our or our clients’ technologies, tools and applications without paying us fordoing so, and our clients may hold us liable for that act and seek damages and compensation from us, which could harm our business and competitiveposition.We rely on our trademarks, trade names, service marks and brand names to distinguish our services and solutions from the services of ourcompetitors, and have registered or applied to register several 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 ofUse 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. For moreinformation see “Item 1. Business — Intellectual Property.” In the event that our trademarks are successfully challenged, we could be forced to rebrand ourservices 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.We may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful andmight 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 bedifficult to replace and it may be costly to do so.We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves againstsuch 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 intellectualproperty rights of third parties, including patents, copyrights, trade secrets and trademarks. We may be subject to litigation involving claims of patentinfringement or violation of other intellectual property rights of third parties. We typically indemnify clients who purchase our services and solutions againstpotential infringement of intellectual property rights, which subjects us to the risk of indemnification claims. These claims may require us to initiate or defendprotracted 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 ofconsequential, indirect or punitive damages. If any of these claims succeed, we may be forced to pay damages on behalf of our clients, redesign or ceaseoffering our allegedly infringing services or solutions, or obtain licenses for the intellectual property such services or solutions allegedly infringe. If we cannotobtain 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 licenseon commercially acceptable terms. Also, we may be unaware of 30Table of Contentsintellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. There may also betechnologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage ourability 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 courseof 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 employeesduring the course, and within the scope, of their employment, but the employer may be required to satisfy additional legal requirements in order to makefurther use and dispose of such works. While we believe that we have complied with all such requirements, and have fulfilled all requirements necessary toacquire 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/orsubcontractors challenging our exclusive rights over the use and transfer of works those employees, independent contractors and/or subcontractors created orrequesting 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 misappropriateintellectual 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 termand scope and may therefore provide little or no protection from these risks. Parties making infringement claims may be able to obtain an injunction to preventus 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 agreementsthat 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’sintellectual property rights. Protracted litigation could also result in existing or potential clients deferring or limiting their purchase or use of our softwareproduct development services or solutions until resolution of such litigation, or could require us to indemnify our clients against infringement claims in certaininstances. Any intellectual property claim or litigation in this area, whether we ultimately win or lose, could damage our reputation and materially adverselyaffect 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 unfavorableinterpretation 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 diverseas 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 theCIS 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 competeeffectively with those offered by our non-CIS or -CEE based competitors and generally available worldwide. Violations of these laws or regulations in theconduct of our business could result in fines, criminal sanctions against us or our officers, prohibitions on doing business, damage to our reputation andother unintended consequences such as liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability toprocess information and allegations by our clients that we have not performed our contractual obligations. Due to the varying degrees of development of thelegal systems of the countries in which we operate, local laws might be insufficient to protect our rights. Our failure to comply with applicable legal andregulatory requirements could materially adversely affect our business. 31Table of ContentsWe are subject to laws and regulations in the United States and other countries in which we operate concerning our operations, includingexport restrictions, U.S. economic sanctions and the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery laws. If we are not incompliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures.Our operations are subject to laws and regulations restricting our operations, including activities involving restricted countries, organizations, entitiesand 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, orother international economic sanctions that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations andindividuals. We are subject to the FCPA, which prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtainingor keeping business or otherwise obtaining favorable treatment, and other laws concerning our international operations. The FCPA’s foreign counterpartscontain similar prohibitions, although varying in both scope and jurisdiction. We operate in many parts of the world that have experienced governmentalcorruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.We have recently developed and are in the process of implementing formal controls and procedures to ensure that we are in compliance with the FCPA,OFAC sanctions, and similar sanctions, laws and regulations. The implementation of such procedures may be time consuming and expensive, and couldresult in the discovery of issues or violations with respect to the foregoing by us or our employees, independent contractors, subcontractors or agents of whichwe were previously unaware.Any violations of these laws, regulations and procedures by our employees, independent contractors, subcontractors and agents could expose us toadministrative, civil or criminal penalties, fines or 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 investmentin our company under certain state laws. If we are not in compliance with export restrictions, U.S. or international economic sanctions or other laws andregulations that apply to our operations, we may be subject to civil or criminal penalties and other remedial measures.Anti-outsourcing legislation, if adopted, could harm our ability to compete effectively and impair our ability to service our clients.The issue of companies outsourcing services to organizations operating in other countries is a topic of political discussion in many countries, includingthe United States, which is our largest source of revenues. Many organizations and public figures in the United States and Europe have publicly expressedconcern about a perceived association between offshore outsourcing IT services providers and the loss of jobs in their home countries. For example, measuresaimed at limiting or restricting outsourcing by U.S. companies are periodically considered in Congress and in numerous state legislatures to address concernsover the perceived association between offshore outsourcing and the loss of jobs in the United States. A number of U.S. states have passed legislation thatrestricts state government entities from outsourcing certain work to offshore IT services providers. Given the ongoing debate over this issue, the introductionand consideration of other restrictive legislation is possible. If enacted, such measures may broaden restrictions on outsourcing by federal and state governmentagencies and on government contracts with firms that outsource services directly or indirectly, impact private industry with measures such as taxdisincentives or intellectual property transfer restrictions, and/or restrict the use of certain business visas. In the event that any of these measures becomes law,our ability to service our clients could be impaired and our business, financial condition and results of operations could be materially adversely affected.Legislation enacted in certain European jurisdictions and any future legislation in Europe or any other country in which we have clients restricting theperformance of services from an offshore location could also materially adversely affect our business, financial condition and results of operations. Forexample, legislation 32Table of Contentsenacted in the United Kingdom, based on the 1977 EC Acquired Rights Directive, has been adopted in some form by many European Union countries, andprovides 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 employeesof 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 andconditions as their original employment. In addition, dismissals of employees who were employed by the company or the previous IT services providerimmediately prior to that transfer are automatically considered unfair dismissals that entitle such employees to compensation. As a result, in order to avoidunfair dismissal claims, we may have to offer, and become liable for, voluntary redundancy payments to the employees of our clients who outsource businessto us in the United Kingdom and other European Union countries who have adopted similar laws. This legislation could materially affect our ability to obtainnew business from companies in the United Kingdom and European Union and to provide outsourced services to companies in the United Kingdom andEuropean 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 andmisappropriation of sensitive client data. Current or prospective clients may elect to perform certain services themselves or may be discouraged fromtransferring services from onshore to offshore IT services providers to avoid negative perceptions that may be associated with using an offshore IT servicesprovider. Any slowdown or reversal of the existing industry trends toward offshore outsourcing would seriously harm our ability to compete effectively withcompetitors 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 48.8% and 45.5% of our revenues for 2011 and 2010, respectively. We anticipate that clientsoutside North America will continue to account for a material portion of our revenues in the foreseeable future and may increase as we expand our internationalpresence, particularly in Europe and the CIS. In addition, the majority of our employees, along with our development and delivery centers, are located in theCIS and CEE. As a result, we may be subject to risks inherently associated with international operations, including risks associated with foreign currencyexchange rate fluctuations, which may cause volatility in our reported income, and risks associated with the application and imposition of protectivelegislation 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 ofcomplying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers and potential difficulties in collectingaccounts receivable. In addition, we may face competition in other countries from companies that may have more experience with operations in such countriesor with international operations. Additionally, such companies may have long-standing or well-established relationships with desired clients, which may putus at a competitive disadvantage. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integratingemployees that we hire in different countries into our existing corporate culture. Our international expansion plans may not be successful and we may not beable to compete effectively in other countries. There can be no assurance that these and other factors will not impede the success of our international expansionplans or limit our ability to compete effectively in other countries.Restrictions on immigration may affect our ability to compete for and provide services to clients in the United States or other countries, whichcould hamper our growth and cause our revenues to decline.The vast majority of our employees are nationals of CIS and CEE countries. Some of our projects require a portion of the work to be undertaken at ourclients’ facilities which are sometimes located outside the CIS and CEE. The ability of our employees to work in the United States, Europe, the CIS and othercountries outside the CIS and CEE depends on their ability to obtain the necessary visas and work permits. Historically, the process 33Table of Contentsfor obtaining visas for nationals of CIS and CEE countries to certain countries, including the United States and Europe, has been lengthy and cumbersome.Immigration laws in the United States and in other countries are subject to legislative change, as well as to variations in standards of application andenforcement due to political forces and economic conditions. Particularly given the recent global economic downturn, it is possible that there could be a changein the existing laws or the enactment of new legislation imposing restrictions on the deployment of work visa holders at client locations, which could adverselyimpact our ability to do business in the jurisdictions in which we have clients. However, it is generally difficult to predict the political and economic eventsthat could affect immigration laws, or the restrictive impact they could have on obtaining or maintaining business visas for our employees. Our reliance onvisas 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 notcitizens of the country where the work is to be performed. As a result, we may not be able to obtain a sufficient number of visas for our employees or we mayencounter delays or additional costs in obtaining or maintaining such visas in which case we may not be able to provide services to our clients on a timely andcost-effective basis or manage our sales and delivery centers as efficiently as we otherwise could, any of which could hamper our growth and cause ourrevenues to decline.If we fail to integrate or manage acquired companies efficiently, or if the acquired companies are difficult to integrate, divert managementresources or do not perform to our expectations, we may not be able to realize the benefits envisioned for such acquisitions, and our overallprofitability 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 anacquired 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 besuccessful in seeking indemnification; • 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-outcalculations 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 acquiredoperations; • 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; 34Table of Contents • entry into unfamiliar markets; and • increased complexity from potentially operating additional geographically dispersed sites, particularly if we acquire a company or business withfacilities 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 establishedclient relationships. Transitioning these types of assets to our business can be particularly difficult due to different corporate cultures and values, geographicdistance 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 ourcompany 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 itmore difficult and complex for our management to effectively manage our operations. If we are not able to successfully integrate an acquired entity and itsoperations 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 orreduce the number of new service orders we receive and impair our ability to service our clients.Hostilities involving the United States and acts of terrorism, violence or war, such as the attacks of September 11, 2001 in the United States, theattacks of July 7, 2005 in the United Kingdom, the attacks of April 11, 2011 in Belarus, the continuing conflict in Iraq and Afghanistan, the recent conflictin Libya, natural disasters, global health risks or pandemics or the threat or perceived potential for these events could materially adversely affect ouroperations and our ability to provide services to our clients. We may be unable to protect our people, facilities and systems against any such occurrences. Suchevents may cause clients to delay their decisions on spending for IT services and give rise to sudden significant changes in regional and global economicconditions and cycles. These events also pose significant risks to our people and to physical facilities and operations around the world, whether the facilitiesare ours or those of our clients, which could materially adversely affect our financial results. By disrupting communications and travel, giving rise to travelrestrictions, and increasing the difficulty of obtaining and retaining highly-skilled and qualified IT professionals, these events could make it difficult orimpossible 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 orcould restrain our ability to retain the skilled IT professionals we need for our operations. In addition, any extended disruptions of electricity, other publicutilities or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could also adversely affect ourability 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 growour 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 atleast the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including anyinvestments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equityor debt securities or obtain another credit facility. The sale of additional equity securities could result in dilution to our stockholders. The incurrence ofindebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict ouroperations. 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; 35Table of Contents • 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 achange of control.As of March 15, 2012, to our knowledge, our greater than 5% stockholders, directors and executive officers and entities affiliated with them ownapproximately 70.9% of the outstanding shares of our common stock, which includes approximately 42.3% of the outstanding shares of our common stockowned by affiliates of Siguler Guff & Company. As a result, these stockholders, if acting together, would be able to influence or control matters requiringapproval by our stockholders, including the election of directors, the approval of merger, consolidation or sale of all or substantially all of our assets and othersignificant business or corporate transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and whichmay 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 themarket price of our common stock.Risks Related to Conducting Business in the CIS and CEE CountriesCompanies 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 togreater risks than more developed markets, including significant economic risks. 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., includingArmenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. The economiesof CIS and CEE countries, like other emerging economies, are vulnerable to market downturns and economic slowdowns elsewhere in the world. Theeconomies of Belarus, Russia, Ukraine, Hungary and other CIS and CEE countries where we operate have experienced periods of considerable instability andhave been subject to abrupt downturns. Although economies in CIS and CEE countries showed positive trends until 2008, including annual increases in thegross domestic product, relatively stable currencies, strong domestic demand, rising real wages and a reduced rate of inflation, these trends were interruptedby the global financial crisis in late 2008, in which CIS and CEE countries experienced adverse economic and financial effects including a substantialdecrease in the gross domestic product’s growth rate, depreciation of local currencies and a decline in domestic and international demand for their products andservices, particularly natural resources products on which they are dependent. More recently, the negative trends of the global economy and volatility in thefinancial markets, partially due to the recent debt crisis in Europe, have resulted in decreased growth outlooks for CIS and CEE countries, particularly thosedependent on Western Europe for trade.Belarus inherited a heavy industrial base from the Soviet era and managed to grow its economy between 2000 and 2010 despite very tight state control ofthe economy and limited private enterprise. While Belarus managed to avoid the worst effects of the global economic downturn in 2008, facilitated by years ofconsiderable government spending and cheap oil imports from Russia. In 2011, Belarus has faced a serious balance-of-payment crisis as a result of theupward revision of gas import prices and increased public sector salaries. This has led to inflation, a shortage of goods and has required the government tosignificantly devalue its currency and move to a flexible exchange rate policy, to raise interest rates and to launch the privatization of a number of state-ownedenterprises. Belarus has also sought financial assistance from the International Monetary 36Table of ContentsFund, or the IMF, Russia and other CIS countries, but as of March 2012, there was uncertainty whether Belarus would receive the financial assistance itpreviously requested from the IMF, due to political disagreements regarding Belarus’ commitments to the reforms requested by the IMF. It is uncertain whetherthe government will be able to effectively manage the current financial crisis and implement the reforms requested by the IMF.From 2000 to 2008, the Russian economy experienced positive trends, such as annual increases in the gross domestic product, a relatively stableRussian ruble, strong domestic demand, rising real wages and a reduced rate of inflation. However, these trends were interrupted by the global financial crisisin late 2008, which led to a substantial decrease in the growth rate of Russia’s gross domestic product, significant depreciation of the Russian ruble and adecline in domestic demand. The Russian government has taken certain anti-crisis measures using the “stabilization fund” and hard currency reserves inorder to soften the impact of the global economic downturn on the Russian economy and support the value of the Russian ruble. More recently, the weakerglobal economic landscape and financial market volatility threatened to put pressure on Russia’s operating environment, affecting its credit environment andfinancial sector. The full impact of the previous global economic downturn and the current volatility in the global economy and financial markets is not yetclear, and, should global economic conditions deteriorate significantly, it is possible that the Russian economy could continue to decline in the near future.Despite political instability in Ukraine between 2000 and 2008, its economy made significant progress during this period. However, the global financialcrisis in 2008 had a significant impact on Ukraine’s economy, including the collapse or bailout of certain Ukrainian banks and significant liquidityconstraints for others. The negative outlook in Ukraine’s economy may continue as commodity prices of Ukrainian exports remain low and access to foreigncredit is limited, which contributes to exchange rate volatility, high inflation and a growing budget deficit. Continuing political instability also adds to theeconomic instability.In Hungary, budget deficits as a percentage of GDP have remained relatively high over the last several years and the Hungarian economy has beenmarked by a large current account deficit, rapid credit growth and a reliance of Hungarian businesses and consumers on foreign currency loans. These factorsleft Hungary especially vulnerable to the global financial crisis. At the end of October 2008, the Hungarian government adopted a set of policies agreed uponwith the European Union, the European Central Bank and the IMF to bolster Hungary’s near-term stability and improve its long-term growth potential byensuring fiscal sustainability and strengthening the financial sector. These challenging economic conditions, the continuing turmoil in the global economy,financial markets and macroeconomic policies made by the government in response to these conditions could materially adversely affect our business inHungary.As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies such as in theCIS and CEE could dampen foreign investment in these markets and materially adversely affect their economies. In addition, a deterioration in macroeconomicconditions, such as the recent debt crisis in Europe, could require us to reassess the value of goodwill for potential impairment. This goodwill is subject toimpairment tests on an ongoing basis. Weakening macroeconomic conditions in the countries in which we operate and/or a significant difference between theperformance 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 aportion of such value.These risks may be compounded by incomplete, unreliable or unavailable economic and statistical data on CIS and CEE countries, including elementsof the information provided in this annual report. Similar statistics may be obtainable from other non-official sources, although the underlying assumptionsand methodology, and consequently the resulting data, may vary from source to source. Further economic instability in Belarus, Russia, Ukraine, Hungaryor other CIS or CEE countries where we operate and any future deterioration in the international economic situation could materially adversely affect ourbusiness, financial condition and results of operations. 37Table of ContentsInflation in Belarus, Russia, Ukraine and other CIS countries and government efforts to combat inflation may contribute significantly toeconomic uncertainty in the CIS and could materially adversely affect our financial condition, results of operations and the market value ofour shares of common stock.Economies in CIS countries such as Belarus, Russia and Ukraine have periodically experienced high rates of inflation. In particular, in 2011,significant inflation has been reported in Belarus. The National Statistical Committee of Belarus estimated that inflation was approximately 153.2% in 2011.In 2011 and 2010 we had 0.8% and 1.2% of our revenues, respectively, denominated in Belarusian rubles.The measures currently used by the Belarusian government to control this recent inflation include monetary policy and pricing instruments, includingincreasing 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 toreplenish the budget and stabilize local currency. Inflation, government actions to combat inflation and public speculation about possible additional actionshave also contributed materially to economic uncertainty in Belarus. Belarus may experience high levels of inflation in the future. The Russian and Ukrainiangovernments have historically implemented similar measures as Belarus to fight inflation.Periods of higher inflation may slow economic growth in those countries. For instance, in October 2011, the government of Belarus implemented aflexible exchange rate policy, which devalued the currency against the U.S. dollar and could cause inflation in Belarus over time. Inflation also is likely toincrease 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. Inflationarypressures could also affect our ability to access financial markets and lead to counter-inflationary measures that may harm our financial condition, results ofoperations or adversely affect the market price of our securities.Fluctuations in currency exchange rates could materially adversely affect our financial condition and results of operations.The Belarusian ruble, the Russian ruble, the Ukrainian hryvnia, the Hungarian forint and other CIS currencies have experienced significantfluctuations against foreign currencies, including the U.S. dollar, in recent years. For example, in February 2009 and May 2011, the National Bank of theRepublic of Belarus devalued the exchange rate of the Belarusian ruble against the U.S. dollar by 20.5% and 56.3%, respectively and in October 2011 theNational Bank adopted a free floating rate policy, triggering 52.0% additional depreciation in the Belarusian ruble against the U.S. dollar.The majority of our revenues are in U.S. dollars, British pounds, Russian rubles and euros, and the majority of our expenses, particularly salaries ofIT 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.However, to the extent that we increase our business and revenues which are denominated in Belarusian rubles, Ukrainian hryvnia, Hungarian forints or otherlocal currencies, we will also increase our receivables denominated in those currencies and therefore also increase our exposure to fluctuations in their exchangerates against the U.S. dollar, our reporting currency. Similarly, any capital expenditures, such as for computer equipment, which are payable in the localcurrency 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 bydepreciation of the local currency against the U.S. dollar and the effect of such depreciation on the local economy. See “Item 7A. Quantitative and QualitativeDisclosures About Market Risk” and “— Inflation in Belarus, Russia, Ukraine and other CIS countries and government efforts to combat inflation maycontribute significantly to economic uncertainty in the CIS and could materially adversely affect our financial condition, results of operations and the marketvalue of our shares of common stock.” 38Table of ContentsThe banking and financial systems in the CIS remain less developed than those in some more developed markets, and a banking crisis couldplace 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 banksand bank accounts is subject to varying interpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of moredeveloped 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 bankingcrisis, 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 ourdeposits or adversely affect our ability to complete banking transactions in the CIS, which could materially adversely affect our business and financialcondition.Political and governmental instability in CIS and CEE countries could materially adversely affect our business and operations in thesecountries.Since the early 1990s, Belarus, Russia, Ukraine, Hungary and other CIS and CEE countries have sought to transform from one-party states with acentrally planned economy to democracies with a market economy of various degrees. As a result of the sweeping nature of various reforms, and the failure ofsome of them, the political systems of many CIS and CEE countries remain vulnerable to popular dissatisfaction, including demands for autonomy fromparticular regional and ethnic groups.We have significant operations in Minsk, the capital of Belarus. Belarus has been governed since 1994 by President Alexander Lukashenko, who wasmost recently reelected in December 2010. The president has a wide range of powers including the power to call elections, appoint the executive arms of thegovernment, make judicial appointments and appointments to local executive and administrative bodies and issue edicts, orders and decrees which have theforce of law. Progress on structural reform and a reduction in the extent of direct state support in the economy has been slow in Belarus, and reforms of thisnature are likely to be politically unpopular. No assurance, however, can be given that Belarus will implement further structural reform policies or reduce statesupport of the economy.We have significant operations in Russia. Since 1991, Russia has sought to transform itself from a single party state with a centrally-planned economyto a market economy. Political conditions in Russia were highly volatile in the 1990s, as evidenced by the frequent conflicts among executive, legislative andjudicial authorities, which negatively affected Russia’s business and investment climate. During the presidency of Vladimir Putin and Dmitry Medvedev, thepolitical and economic situation in Russia has generally become more stable. However, there is still a risk of significant changes to the political and economicenvironment, potential changes in the direction of the reforms or reversal of the reforms. On December 4, 2011, parliamentary elections took place in Russia,as a result of which United Russia, the ruling party, gained 53% of seats, compared to 70% in the previous parliament. Following the elections, a number ofnon-violent public protests took place in Moscow and other Russian cities, claiming violations and fraud during the elections, and demanding, among otherthings, cancellation of the election results and re-elections. On March 4, 2012, Vladimir Putin, supported by Dmitry Medvedev and United Russia, waselected president. The outcome of the presidential election and the potential shift in government policy may affect the direction and speed of economic andpolitical reforms and negatively impact the economic and political environment in RussiaWe have delivery centers in Ukraine. Since obtaining independence in 1991, Ukraine has undergone substantial political transformation to become anindependent sovereign state and has been on the path of economic transition to a market economy. The 2010 presidential election and the subsequent removal ofthe Ukrainian prime minister from office created tensions between the Ukrainian president, Viktor Yanukovych, the government and the parliament. Anumber of factors could adversely affect political stability in Ukraine, 39Table of Contentsincluding political polarization in Ukrainian society resulting from what is seen as insufficiently balanced or controversial positions of the president and thegovernment on various domestic and foreign policy issues, and growing opposition of certain factions in the parliament and certain political parties andassociations which are not represented in the parliament to what are broadly seen as significant concessions made by the president and the government toRussia. Recent political developments have also highlighted potential inconsistencies between Ukraine’s constitution and various laws and presidential decrees.After Ukraine’s refusal to join the Customs Union was ratified by Russia, Kazakhstan and Belarus in June 2011, the Customs Union has taken a number ofadditional restrictive measures with respect to imports from Ukraine. If political instability continues or heightens, it may have negative effects on theUkrainian economy and our operations in Ukraine.We have delivery centers in Hungary. Hungary was established as a parliamentary republic in 1989 and joined the European Union in 2004. In April2010, Prime Minister Viktor Orbán’s political party won a two-thirds parliamentary majority and has sought to centralize power, to make changes to formerlyindependent government institutions, to draft a new constitution and to impose taxes on telecommunications, energy, retail and banking institutions in an effortto meet budget deficit targets. The politics of Hungary remain volatile, as shown by large protests in May 2011 against the ruling party’s actions. Politicalinstability as a reaction to the government’s actions could negatively affect the Hungarian economy and political environment.Current and future changes in the Belarusian, Russian, Ukrainian, Hungarian and other CIS and CEE governments, major policy shifts or lack ofconsensus between various branches of the government and powerful economic groups could disrupt or reverse economic and regulatory reforms. Anydisruption or reversal of reform policies could lead to political or governmental instability or the occurrence of conflicts among powerful economic groups,which could materially adversely affect our business and operations in CEE and the CIS.A deterioration in political and economic relations among the CIS countries in which we operate and/or between CIS countries and the UnitedStates and the European Union could materially adversely affect our business and operations in the CIS.Political and economic relations between Belarus, Russia, Ukraine and the other countries in which we operate are complex, and recent conflicts havearisen between their governments. Political, ethnic, religious, historical and other differences have, on occasion, given rise to tensions and, in certain cases,military conflict between countries of the CIS which can halt normal economic activity and disrupt the economies of neighboring regions.A significant portion of Belarus energy imports come from Russia, and Russia is Belarus’ most significant trading partner. A number of oil and gaspipelines from Russia to European Union member states run through Belarus, and a significant portion of Russian energy exports are delivered throughBelarus. Russia is also one of Belarus’ main sovereign lenders. Belarus and Russia have had a number of disagreements regarding the level of duty to beimposed on Russian crude oil exports to Belarus, which comprise a significant part of Belarus’ energy resources and are important for Belarus’ oil refineryindustry. In June 2010, Belarus and Russia had a dispute regarding the timing of payments due from Belarus to Russia for gas supplied by Russia and fromRussia to Belarus for the transit of Russian gas to the European Union, which resulted in a disruption of gas flows to the European Union.The relationship between Russia and Ukraine has been historically strained due to, among other things, disagreements over the prices and methods ofpayment for gas delivered by Russia to, or for transportation through, Ukraine, issues relating to the temporary stationing of the Russian Black Sea Fleet inthe territory of Ukraine and a Russian ban on imports of meat and milk products from Ukraine and anti-dumping investigations conducted by Russianauthorities in relation to certain Ukrainian goods. Results of the current litigation against ex-Prime Minister Yulia Timoshenko, who was sentenced to 7 yearsin prison, could add to political instability and tension in relationships with the European Union and the United States. The possible accession by Ukraine tothe North Atlantic Treaty Organization has also been a significant source of tension between Russia and Ukraine. 40Table of ContentsFollowing the presidential election in February 2010, Ukraine’s relations with Russia have generally improved; however, any further adverse changes inUkraine’s relations with Russia, in particular any such changes adversely affecting supplies of energy resources from Russia to Ukraine or Ukraine’srevenues derived from transit charges for Russian oil and gas, may have negative effects on the Ukrainian economy as a whole.Although we operate in the CIS through local subsidiaries, governmental officials and consumers may associate us and our brand with a particular CIScountry or with the United States. Any deterioration in political and economic relations among CIS countries in which we operate could materially adverselyaffect our business, financial condition and results of operations.The conflicts among CIS countries and conflicts within CIS countries have, in some instances, also strained their relationship with the United Statesand the European Union which, at times, has negatively impacted their financial markets. For instance, the December 2010 Belarus presidential electionscoincided with large-scale street protests and were criticized as anti-democratic by the foreign ministers of some European nations and by the United States andCanada. In January 2011, the European Union and the United States announced financial and travel sanctions against the Belarusian government andBelarusian state-owned enterprises. In June 2011, the European Union agreed to a series of new sanctions against certain additional Belarusian individuals andenterprises. In August 2011, the United States imposed further economic sanctions against certain additional Belarusian individuals and enterprises, and, inresponse, Belarus announced it would suspend an agreement with the United States to reduce certain uranium stockpiles held in Belarus. The United Statespassed further sanctions against certain Belarusian individuals and enterprises in January 2012. No assurance can be given that Belarus will improverelations with the European Union and the United States or that further restrictions will not be imposed by the European Union or the United States in relationto these points of tension or that such frictions will not affect the political and economic environment in Belarus. Trade and economic sanctions, includingexisting European Union and United States sanctions and asset freezes, prevent us from dealing with certain entities and persons in Belarus and impose legalcompliance costs and risks on our business operations in that country.The emergence of new or escalated tensions among CIS countries could further exacerbate tensions between CIS countries and the United States and theEuropean Union, which may have a negative effect on their economy, our ability to obtain financing on commercially reasonable terms, and the level andvolatility of the trading price of our shares of common stock. Any of the foregoing circumstances could materially adversely affect our business and operationsin the CIS.The legal systems in CIS countries can create an uncertain environment for business activity, which could materially adversely affect ourbusiness 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, theselegal 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 financialconsiderations; • 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; 41Table of Contents • 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 andcourt decisions in CIS countries are readily available to the public or organized in a manner that facilitates understanding. Enforcement of court orders can inpractice be very difficult. All of these factors make judicial decisions difficult to predict and effective redress uncertain. Additionally, court claims andgovernmental 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 inambiguities, inconsistencies and anomalies in the application and interpretation of laws and regulations. Any of these factors may affect our ability to enforceour rights under our contracts or to defend ourselves against claims by others, or result in our being subject to unpredictable requirements, and couldmaterially adversely affect our business and operations in the CIS.These uncertainties also extend to property rights. For example, during the transformation of Russia, Belarus, Ukraine and other CIS countries fromcentrally planned economies to market economies, legislation has generally been enacted in each of these countries to protect private property againstuncompensated expropriation and nationalization. However, there is a risk that due to the lack of experience in enforcing these provisions and due to politicalfactors, these protections would not be enforced in the event of an attempted expropriation or nationalization. Expropriation or nationalization of any of ourentities, their assets or portions thereof, potentially without adequate compensation, could materially adversely affect our business, financial condition andresults of operations.Selective or arbitrary government action, including in connection with agreements to provide services to local governments, could materiallyadversely affect our business and operations in the CIS.Many commercial laws and regulations in the CIS are relatively new and have been subject to limited interpretation. As a result, their application can beunpredictable. Government authorities have a high degree of discretion in Belarus, Russia, Ukraine and other CIS countries and have at times exercised theirdiscretion in ways that may be perceived as selective or arbitrary, and sometimes in a manner that is seen as being influenced by political or commercialconsiderations. These governments also have the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts. Selectiveor arbitrary actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and localgovernment entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions,apparently for political purposes. We cannot assure you that regulators, judicial authorities or third parties in Belarus, Russia, Ukraine and other CIScountries will not challenge our compliance (including that of our subsidiaries) with applicable laws, decrees and regulations. Selective or arbitrary governmentaction could materially adversely affect our business, financial condition and results of operations.The Russian government has taken various actions in recent years against business people and companies operating in Russia that have been perceivedas having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, such asviolations of tax laws. In 2008, for example, government officials publicly criticized transfer pricing arrangements used by a Russian-based company that ispublicly traded in the United States, claiming that such arrangements constituted tax evasion. These claims resulted in a steep decline in that company’s stockprice. Such actions have on occasion resulted in significant fluctuations in the market prices of the securities of businesses operating in Russia, a weakeningof investor confidence in Russia and doubts about the progress of market and political reforms in Russia. Government officials may apply contradictory orambiguous laws or regulations in ways that could materially adversely affect our business and operations in the CIS. 42Table of ContentsWe must comply with laws and regulations relating to the formation, administration and performance of government contracts in the CIS and CEEcountries where we provide services to the local governments, including Belarus, Russia and Ukraine. Any failure to comply with applicable local laws,regulations and procedures could result in contract termination, damage to our reputation, price or fee reductions or suspension or debarment from contractingwith the government, each of which could materially adversely affect our business, financial condition and results of operations. In addition, governmentsmay revise existing contract rules and regulations or adopt new contract rules and regulations at any time and for any reason. Any of these changes couldimpair our ability to obtain new contracts or renew or enforce contracts under which we currently provide services. Any new contracting methods could becostly or administratively difficult for us to implement, which could materially adversely affect our business and operations in the CIS.Changes in the tax system in CIS or CEE countries or arbitrary or unforeseen application of existing rules could materially adversely affectour financial condition and results of operations.There have been significant changes to the taxation systems in CIS countries in recent years as the authorities have gradually replaced legislationregulating the application of major taxes such as corporate income tax, VAT, corporate property tax and other taxes with new legislation. Tax authorities in CISand CEE countries, including Belarus, Russia and Ukraine, have also been aggressive in their interpretation of tax laws and their many ambiguities, as wellas in their enforcement and collection activities. Technical violations of contradictory laws and regulations, many of which are relatively new and have notbeen subject to extensive application or interpretation, can lead to penalties. High-profile companies can be particularly vulnerable to aggressive application ofunclear requirements. Many companies must negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide.Our tax liability may become greater than the estimated amount that we have expensed to date and paid or accrued on our balance sheets, particularly if the taxbenefits we receive in Belarus and Hungary are changed or removed. See “— Risks Relating to Our Business — Our operating results may be negativelyimpacted by the loss of certain tax benefits provided by the governments of Belarus, Hungary and Russia to companies in our industry.” Any additional taxliability, as well as any unforeseen changes in tax laws, could materially adversely affect our future results of operations, financial condition or cash flows ina particular period.The tax environment in Russia historically has been complicated by contradictions in Russian tax law. For example, tax laws are unclear with respect tothe deductibility of certain expenses, and tax authorities may disagree with positions we have taken that we consider to be in compliance with current law. Thisuncertainty could result in a greater than expected tax burden and potentially exposes us to significant fines and penalties and enforcement measures, despiteour best efforts at compliance.In October 2006, the Supreme Arbitration Court of Russia issued a ruling that introduced the concept of an “unjustified tax benefit,” which is a benefitthat may be disallowed for tax purposes. Specific examples cited by the court include benefits obtained under transactions lacking a business purpose (i.e.,when the only purpose of a deal or structure is to derive tax benefits). The tax authorities have actively sought to apply this concept when challenging taxpositions taken by taxpayers. Although the intention of the ruling was to combat tax abuse, in practice there is no assurance that the tax authorities will notseek to apply this concept in a broader sense than may have been intended by the court. In addition, the tax authorities and the courts have indicated awillingness to interpret broadly the application of criminal responsibility for tax violations.Historically, Ukraine had a number of laws related to various taxes imposed by both central and regional governmental authorities. These taxes includevalue added tax, corporate income tax (profits tax), customs duties and payroll (social) taxes. In January 2011, the majority of the new tax code in Ukrainecame into effect, and aims to create a comprehensive legal framework for tax reform and provide for a wide range of changes to the existing tax system in theareas of tax collection and administration. Among other things, the new Ukraine tax code provides for a decrease in the rate of the corporate income tax over thenext several years, a decrease in the VAT rate beginning in 2014 and for taxation of interest accrued on bank deposits beginning in 2015. There can 43Table of Contentsbe no assurance that the adoption of the tax code will have a positive effect on the Ukrainian tax system, in which differing opinions regarding legalinterpretations often exist both among and within governmental ministries and organizations, including the tax administration, creating uncertainties and areasof conflict. Tax declarations or returns, together with other matters of legal compliance, such as customs and currency control matters, are subject to reviewand investigation by a number of authorities, which may impose fines, penalties and interest charges for noncompliance. In practice, the Ukrainian taxauthorities tend to interpret the tax laws in an arbitrary way that rarely favors taxpayers. These circumstances generally create tax risks in Ukraine that aremore significant than those typically found in countries with more developed tax systems.Our subsidiaries in Ukraine also currently benefit from regulations that permit companies in the IT services industry to employ independent contractorsand significantly reduce our social security tax obligations in Ukraine. Substantially all of our IT professionals in Ukraine are independent contractors.Should Ukraine change its tax regulations and no longer permit the IT services industry to employ independent contractors, our operating expenses in Ukrainewould substantially increase, which could materially adversely affect our financial condition and results of operations.The tax systems in CIS and CEE countries in which we operate impose additional burdens and costs on our operations in such countries, andcomplicate our tax planning and related business decisions. The uncertainty involved potentially exposes us to significant fines, penalties and enforcementmeasures despite our best efforts at compliance, which could result in a greater than expected tax burden on our subsidiaries. These factors raise the risk of asudden imposition of arbitrary or onerous taxes on our operations in these countries. This could adversely affect our financial condition and results ofoperations.We may be exposed to liability for actions taken by our subsidiaries.In certain cases (in particular, under the laws of Russia) we may be jointly and severally liable for obligations of our subsidiaries. We may also incursecondary liability and, in certain cases, liability to creditors for obligations of our subsidiaries in certain instances involving bankruptcy or insolvency. Thistype of liability could result in significant obligations and could materially adversely affect our 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 countriesmay 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.For example, in Russian corporate law, if the net assets of a Russian joint stock company calculated on the basis of Russian accounting standards arelower 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 thecompany fails to comply with these requirements, governmental or local authorities can seek the involuntary liquidation of such company in court, and thecompany’s creditors will have the right to accelerate their claims or demand early performance of the company’s obligations as well as demand compensationof 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 withprovisions 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 uncertainlegal environment, which makes the decisions of a court or a governmental authority difficult, if not impossible, to predict. If involuntary liquidation of anyof our subsidiaries were to occur, such liquidation could materially adversely affect our financial condition and results of operations. 44Table of ContentsCrime and corruption could disrupt our ability to conduct our business.Political and economic changes in the CIS countries where we operate in recent years have resulted in significant dislocations of authority. The local andinternational press have reported the existence of significant organized criminal activity, particularly in large metropolitan centers. Property crime in large citieshas increased substantially. In addition, the local and international press have reported high levels of corruption, including the bribing of officials for thepurpose of initiating investigations by government agencies. Press reports have also described instances in which state officials have engaged in selectiveinvestigations and prosecutions to further the interests of the state and individual officials, as well as private businesses, including competitors and corporateraiders. Corruption in the CIS countries in which we operate is pervasive and, in some cases, is worsening. The governments in CIS countries, includingBelarus, Russia and Ukraine have recently pursued campaigns against corruption, the results of which are currently uncertain. For example, the Ukrainianparliament is currently considering new anti-corruption legislation which contains provisions relating to measures to prevent corruption, introduces a moredetailed regulation of responsibility for involvement in corruption and provides for international cooperation in combating corruption. In addition, in August2010, a new anti-money laundering law entered into force in Ukraine extends the list of entities that are required to monitor financial transactions, extends thelist of state agencies authorized to conduct state financial monitoring, and broadens the list of reasons on the basis of which a financial transaction may besubject to monitoring. However, there is no assurance that such laws or other laws enacted elsewhere will be applied with any effectiveness by the localauthorities, and the continuing effects of corruption, money laundering and other criminal activity could have a negative effect on the economies of thesecountries and could materially adversely affect our business in the CIS.Additionally, some members of the media in the countries in which we operate regularly publish disparaging articles in return for payment. Thedepredations of organized or other crime, demands of corrupt officials or claims that we have been involved in official corruption could result in negativepublicity which could disrupt our ability to conduct our business.Social instability in CIS countries could lead to increased support for centralized authority and a rise in nationalism, which could harm ourbusiness.Social instability in CIS countries, coupled with difficult economic conditions, could lead to labor and social unrest. Labor and social unrest may havepolitical, social and economic consequences, such as increased support for centralized authority and a rise in nationalism. These sentiments could lead torestrictions on foreign ownership of companies in our industry or large-scale nationalization or expropriation of foreign-owned assets or businesses. There isrelatively little experience in enforcing legislation enacted to protect private property against nationalization or expropriation. As a result, we may not be able toobtain proper redress in the courts, and we may not receive adequate compensation if in the future CIS governments decide to nationalize or expropriate some orall of our assets. If this occurs, our business could be harmed.In addition, ethnic, religious, historical, regional and other divisions have, on occasion, given rise to tensions and, in certain cases, military conflict.The spread of violence, or its intensification, could have significant political consequences, including the imposition of a state of emergency in some parts orthroughout CIS countries. These events could materially adversely affect the investment environment in CIS countries.Any U.S. or other foreign judgments that may be obtained against us may be difficult to enforce in Belarus, Russia, Ukraine and other CIScountries.Although we are a Delaware corporation, subject to suit in the United States and other courts, many of our assets are located in Belarus, Russia,Ukraine and other CIS countries and one of our directors and his assets are located outside the United States. Although arbitration awards are generallyenforceable in CIS countries, judgments obtained in the United States or in other foreign courts, including those with respect to U.S. federal securities lawclaims, may not be enforceable in many CIS countries, including Belarus, Russia and Ukraine. 45Table of ContentsThere 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 otherforeign court judgment obtained against any of our operating subsidiaries in CIS countries.We face risks similar to those in Belarus, Russia and Ukraine in other CIS or CEE countries or elsewhere.We currently have operations in Belarus, Russia, Ukraine, Kazakhstan, Poland and Hungary. We may acquire additional operations in other CIS orCEE countries or elsewhere. As with Belarus, Russia, Ukraine, Kazakhstan, Poland and Hungary, such countries are emerging markets subject to greaterpolitical, economic, social, tax and legal risks than more developed markets. In many respects, the risks inherent in transacting business in such countries aresimilar to those in Belarus, Russia and Ukraine, especially those risks set out above in “— Risks Related to Conducting Business in the CIS and CEECountries.”Item 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesWe are incorporated in Delaware with headquarters in Newtown, PA, with multiple delivery centers located in Belarus, Ukraine, Russia, Hungary,Kazakhstan and Poland, and client management locations in the United States, United Kingdom, Germany, Sweden, Switzerland, Russia and Kazakhstan.The table below sets forth our principal properties: Location SquareMetersLeased SquareMetersOwned Total SquareMeters Delivery Centers and Client Management Locations: Belarus 21,645 7,655 29,300 Ukraine 20,207 — 20,207 Russia 11,589 — 11,589 Hungary 6,918 — 6,918 Kazakhstan 2,410 — 2,410 United States 1,168 — 1,168 Switzerland 379 — 379 Sweden 153 — 153 United Kingdom 126 — 126 Poland 86 — 86 Germany 15 — 15 Total 64,696 7,655 72,351 Executive Office: Newtown, PA, United States 932 — 932 We believe that our existing facilities are adequate to meet our current requirements, and that suitable additional or substitute space will be available, ifnecessary.Item 3. Legal ProceedingsAlthough we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are notcurrently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplatedto be brought against us.Item 4. Mine Safety DisclosuresNot applicable. 46Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol “EPAM.” On March 29, 2012, the last reported saleprice for our common stock on the NYSE was $20.10 per share. Our shares have only been publicly traded since February 8, 2012; as a result, we have notset forth quarterly information with respect to the high and low prices for our common stock. Between February 8, 2012 and March 29, 2012, the closingprice of our common stock on the NYSE ranged from a high of $21.11 per share to a low of $13.40 per share.As of March 15, 2012, we had approximately 52 stockholders of record of our common stock. The number of record holders does not include holdersof shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained bydepositories.Capital StockOur authorized capital stock consists of 160,000,000 shares of common stock, par value $.001 per share, and 40,000,000 shares of preferred stock, parvalue $.001 per share.Holders of common stock are entitled to one vote per share on all matters which stockholders generally are entitled to vote, except on matters relatingsolely to terms of preferred stock. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled toreceive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor.In the event of liquidation, dissolution or winding up of EPAM, the holders of common stock are entitled to share ratably in all assets remaining afterpayment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicableto the common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued uponcompletion of this offering will be fully paid and non-assessable.Our board of directors has the authority to issue preferred stock in one or more series and to fix the rights, preferences, privileges and restrictionsthereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and thenumber of shares constituting any series or the designation of such series, without further vote or action by the stockholders. No preferred stock isoutstanding as of March 30, 2012.Limits on Written ConsentsAny action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may notbe effected by any consent in writing in lieu of a meeting of such stockholders.Stockholder MeetingsSpecial meetings of the stockholders may be called at any time only by the board of directors acting pursuant to a resolution adopted by a majority of thewhole board, subject to the rights of the holders of any series of preferred stock. 47Table of ContentsAmendments to Our Governing DocumentsGenerally, the amendment of our certificate of incorporation requires approval by our board of directors and a majority vote of stockholders. However,certain material amendments (including amendments with respect to provisions governing board composition, actions by written consent, and specialmeetings) require the approval of at least 66/3% of the votes entitled to be cast by the outstanding capital stock in the elections of our board of directors. Anyamendment to our bylaws requires the approval of either a majority of our board of directors or approval of at least 66/3% of the votes entitled to be cast bythe holders of our outstanding capital stock in elections of our board of directors.Requirements for Advance Notification of Stockholder Nominations and ProposalsOur bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors.Forum SelectionThe Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of EPAM,(ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of EPAM to EPAM or its stockholders, (iii) anyaction asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by theinternal affairs doctrine.Limitation of Liability of Directors and OfficersOur certificate of incorporation provides that no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciaryduty as a director, except as required by applicable law, as in effect from time to time. Currently, Delaware law requires that liability be imposed for thefollowing: • any breach of the director’s duty of loyalty to our company or our stockholders; • any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; • unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General CorporationLaw; and • any transaction from which the director derived an improper personal benefit.Our certificate of incorporation provides that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against alldamages, claims and liabilities arising out of the fact that the person is or was our director or officer, or served any other enterprise at our request as a directoror officer. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment.Equity Compensation Plan InformationOur equity compensation plan information required by this item is incorporated by reference to the information in Part III, “Item 12. Security Ownershipof Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information” of this annual report.Dividend PolicyWe have not declared or paid any cash dividends on our common stock and currently do not anticipate paying any cash dividends in the foreseeablefuture. Instead, we intend to retain all available funds and any future earnings for us in the operation and expansion of our business. Any future determinationrelating to dividend 48 2 2Table of Contentspolicy will be made at the discretion of our board of directors and will depend on our future earnings, capital requirements, financial condition, futureprospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors that our board ofdirectors deems relevant. In addition, our credit facility restricts our ability to pay dividends.Unregistered Sales of SecuritiesDuring the year ended December 31, 2011, we granted options in unregistered transactions to purchase an aggregate of 600,000 shares of common stockat a weighted average exercise price of $14.00 per share to our employees and consultants. During such period, options were exercised in unregisteredtransactions to purchase 47,600 shares for cash consideration in the aggregate amount of $72,000. The sales of the above securities were exempt fromregistration under Rule 701 promulgated under the Securities Act as transactions pursuant to a compensatory benefit plan or a written contract relating tocompensation. Shares of common stock to be issued pursuant to awards (including options) under our equity compensation plans were registered on ourRegistration Statement on Form S-8 filed with the SEC on February 7, 2012.None of these transactions involved any underwriters or any public offerings, and we believe that each of these transactions was exempt from theregistration requirements pursuant to Section 3(a)(9) or Section 4(2) of the Securities Act of 1933, as amended. The recipients of the securities in thesetransactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distributionthereof.Purchases of Equity Securities by the Issuer and Affiliated PurchasersWe did not purchase any of our equity securities during the period covered by this annual report.Use of Proceeds from the Sales of Registered SecuritiesOn February 13, 2012, we completed our initial public offering of common stock pursuant to a Registration Statement on Form S-1, as amended (Reg.No. 333-174827) that was declared effective on February 7, 2012. Under the registration statement, we registered the offering and sale of an aggregate of6,900,000 shares of common stock. All of the 6,900,000 shares of common stock registered under the registration statement, which included 900,000 sharesof common stock sold by us pursuant to an over-allotment option granted to the underwriters, were sold at a price to the public of $12.00 per share. CitigroupGlobal Markets Inc., UBS Securities LLC, Barclays Capital Inc. and Renaissance Securities (Cyprus) Limited acted as co-managers of the offering and asrepresentatives of the underwriters. Of the 6,900,000 shares of common stock sold, we issued and sold 2,900,000 shares of common stock and the sellingstockholders sold 4,000,000 shares of common stock, resulting in gross proceeds to us of $34.8 million, and $29.5 million in net proceeds after deductingunderwriting discounts and commissions of $2.3 million and offering expenses of approximately $3.0 million. The offering expenses include SEC registrationfees, FINRA filing fees, NYSE listing fees and expenses, legal fees and expenses, printing expenses, transfer agent fees and expenses, accounting fees andexpenses as well as other miscellaneous fees and expenses. We did not receive any proceeds from the sale of common stock by the selling stockholders.None of the net proceeds we received from our initial public offering were paid directly or indirectly to any of our directors or officers (or their associates)or persons owning ten percent or more of any class of our equity securities or to any other affiliate, other than in the form of wages or salaries and bonusespaid out in the ordinary course of business. The net proceeds we received from our initial public offering have been and will be used for general corporatepurposes, such as for working capital, for acquiring facilities, and for potential strategic acquisitions of, or investments in, other businesses or technologiesthat we believe will complement our current business and expansion strategies. 49Table of ContentsItem 6. Selected Financial DataWe have derived the selected consolidated statements of income data for the years ended December 31, 2011, 2010 and 2009 and selected consolidatedbalance sheet data as of December 31, 2011 and 2010 from our audited consolidated financial statements and related notes included in this annual report. Wehave derived the selected consolidated statements of income data for the years ended December 31, 2008 and 2007 and the selected consolidated balance sheetdata as of December 31, 2009, 2008 and 2007 from our audited consolidated financial statements not included in this annual report. Our historical results arenot necessarily indicative of the results to be expected for any future period. The following selected financial data should be read in conjunction with “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notesincluded elsewhere in this annual report. Year Ended December 31, 2011 2010 2009 2008 2007 (in thousands, except per share data) Consolidated Statements of Income Data: Revenues $ 334,528 $ 221,824 $ 149,939 $ 160,632 $ 114,045 Operating expenses: Cost of revenues (exclusive of depreciation and amortization) 205,336 132,528 88,027 91,205 59,759 Selling, general and administrative expenses 64,930 47,635 39,248 53,913 36,466 Depreciation and amortization expense 7,538 6,242 5,618 4,889 2,537 Goodwill impairment loss 1,697 — — — — Other operating expenses, net 19 2,629 1,064 400 190 Income from operations $55,008 $32,790 $15,982 $10,225 $15,093 Interest income 1,315 562 227 1,474 738 Interest (expense) (37) (76) (185) (129) (181) Other income 144 — — — — Foreign exchange gain (loss) (3,638) (2,181) (1,617) (3,819) (220) Income before provision for income taxes $52,792 $31,095 $14,407 $7,751 $15,430 Provision for income taxes 8,439 2,787 879 3,701 3,462 Net income $44,353 $28,308 $13,528 $4,050 $11,968 Net income per share of common stock(1): Basic (common) $0.69 $0.84 $0.23 $0.00 $0.24 Basic (puttable common) $1.42 $0.84 $0.23 $0.00 $0.24 Diluted (common) $0.63 $0.79 $0.22 $0.00 $0.23 Diluted (puttable common) $0.77 $0.79 $0.22 $0.00 $0.23 Shares used in calculation of net income per share of common stock: Basic (common) 17,094 17,056 16,719 16,050 16,831 Basic (puttable common) 18 141 153 114 20 Diluted (common) 20,473 19,314 18,474 17,980 18,671 Diluted (puttable common) 18 141 153 114 20 (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 historicalcommon stock and per share information has been changed to reflect the common stock split. 50Table of Contents As of December 31, 2011 2010 2009 2008 2007 (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $88,796 $54,004 $52,927 $30,658 $26,495 Accounts receivable, net 59,472 41,488 27,450 28,224 28,942 Unbilled revenues, net 24,475 23,883 13,952 9,777 5,444 Property and equipment, net 35,482 25,338 23,053 19,136 5,778 Total assets 235,613 170,858 135,407 106,924 86,116 Accrued expenses and other liabilities 24,782 15,031 4,928 7,103 11,075 Deferred revenue 6,949 5,151 4,417 990 4,733 Revolving line of credit — — 7,000 — 6,903 Total liabilities 54,614 35,900 30,196 18,793 35,731 Preferred stock; Series A-1 convertible redeemable preferred stock andSeries A-2 convertible redeemable preferred stock 85,940 68,377 87,413 82,990 31,448 Total stockholders’ equity $95,059 $66,249 $16,534 $4,098 $18,324 51Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidatedfinancial statements and the related notes included elsewhere in this annual report. In addition to historical information, this discussion containsforward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’sexpectations. Factors that could cause such differences are discussed in the sections entitled “Special Note Regarding Forward-Looking Statements”and “Item 7A. Risk Factors.” We assume no obligation to update any of these forward-looking statements. Please note that we effected an 8 for 1common stock split on January 19, 2012, and all historical common stock and per share information has been changed to reflect the common stocksplit.OverviewWe are a leading global IT services provider focused on complex software product development services, software engineering and vertically-orientedcustom development solutions. Since our inception in 1993, we have been serving independent software vendors, or ISVs, and technology companies. Thefoundation we have built serving ISVs and technology companies has enabled us to differentiate ourselves in the market for software engineering skills andtechnology capabilities. Our work with these clients exposes us to their customers’ challenges across a variety of industry “verticals.” This has enabled us todevelop vertical-specific domain expertise and grow our business in multiple industry verticals, including Banking and Financial Services, BusinessInformation and Media, Travel and Hospitality and Retail and Consumer.Our delivery centers in Belarus, Ukraine, Russia, Hungary, Kazakhstan and Poland are strategically located in centers of software engineering talentand educational excellence across CEE or the CIS. Our applications, tools, methodologies and infrastructure allow us to seamlessly deliver services andsolutions from our delivery centers to global clients, thereby further strengthening our relationships with them. We also have client management locations in theUnited States, United Kingdom, Germany, Sweden, Russia, Switzerland and Kazakhstan.Our clients primarily consist of Forbes Global 2000 corporations located in North America, Europe and the CIS. Our focus on delivering quality to ourclients is reflected by an average of 86.0% and 70.5% of our revenues in 2011 coming from clients that had used our services for at least two and three years,respectively.Recent DevelopmentsOn February 13, 2012, we completed our initial public offering of 6,900,000 shares of our common stock, which included 900,000 shares of ourcommon stock sold by us pursuant to an over-allotment option granted to the underwriters, were sold at a price to the public of $12.00 per share. Of the6,900,000 shares of common stock sold, we issued and sold 2,900,000 shares of common stock and our selling stockholders sold 4,000,000 shares ofcommon stock, resulting in gross proceeds to us of $34.8 million, and $29.5 million in net proceeds to us after deducting underwriting discounts andcommissions of $2.3 million and estimated offering expenses of approximately $3.0 million. We did not receive any proceeds from the sale of common stockby the selling stockholders.Factors Affecting Our Results of OperationsWe have benefited significantly from growth in the global software development services industry. Growth in the industry is driven by the needs ofmajor corporations to maintain and upgrade the technology and services required to operate in a cost-efficient manner. Software companies are also increasinglyoutsourcing work to IT services providers in order to streamline and reduce the cost of the software development process. The CEE 52Table of Contentssoftware development services market is growing rapidly due to its large pool of skilled IT professionals, highly-developed infrastructure, strong governmentsupport and incentives, the geographic and cultural proximity between CEE countries and Europe and the desire of clients to diversify their use of softwaredevelopment services to multiple delivery locations.The growth in the global software development services industry has also increased the cost of attracting and retaining high quality IT professionals inCEE and the CIS at a higher rate than we have historically faced. In addition, we face competition from offshore IT services providers in emerging outsourcingdestinations with low wage costs such as India and China and our clients’ buying patterns could change if they become more price sensitive and accepting oflow-cost suppliers. We believe the EPAM brand name and our reputation are important corporate assets that help distinguish our services from those of ourcompetitors and also contribute to our efforts to recruit and retain talented employees in CEE and the CIS. We seek to accurately manage our pricing and costestimates when negotiating contract terms with our clients to ensure we are able to maintain appropriate levels of project profitability while providing a highquality of service. We also seek to maintain optimal resource utilization levels and productivity with the efficient allocation of our IT professionals andfacilities in our development centers in CEE and the CIS.We believe that the most significant factors affecting our results of operations include: • market demand for software development services; • economic growth rates in the industries and countries in which our clients operate; • shortages of skilled IT professionals in the United States and Europe; • ISVs and technology companies increasingly outsourcing work to IT service professionals to more efficiently scale their operations with strongsoftware engineering skills; • wage rates in countries where we operate, particularly in CEE countries where most of our employees are based; and • changes in foreign exchange rates, especially relative changes in exchange rates between the U.S dollar and the British pound, euro, Russian rubleand Hungarian forint.Our results of operations in any given period are also directly affected by company-specific factors, including: • our ability to obtain new clients and generate repeat business from existing clients; • our ability to expand the quality, range and delivery of our portfolio of service offerings and our expertise relative to our competitors; • our ability to efficiently manage and utilize our IT professionals; and • our ability to identify, integrate and effectively manage businesses that we acquire.Certain Income Statement Line ItemsRevenuesRevenues are derived primarily from providing software development services to our clients. During the third quarter of 2008, we started to experience adecrease in demand for our services as a result of the global economic downturn, which also continued to adversely affect demand during 2009. However, in2010 and 2011 we experienced rapid growth in demand for our services and significantly expanded our business. In 2010, revenues increased by 47.9% to$221.8 million from $149.9 million in 2009, and increased by 50.8% to $334.5 million in 2011 from $221.8 million in 2010. We discuss below thebreakdown of our revenues by service offering, vertical, client location, contract type and client concentration. Revenues consist of IT services revenues andreimbursable expenses and other revenues, which primarily include travel and entertainment costs that are chargeable to clients. 53Table of ContentsRevenues by Service OfferingSoftware development includes software product development, custom application development services and enterprise application platforms services,and has historically represented, and we expect to continue to represent, the substantial majority of our business. The following table sets forth revenues byservice offering by amount and as a percentage of our revenues for the periods indicated: Year Ended December 31, 2011 2010 2009 (in thousands, except percent) Service Offering Software development $219,211 65.5% $149,658 67.5% $105,397 70.3% Application testing services 67,840 20.3 44,459 20.0 28,489 19.0 Application maintenance and support 29,287 8.8 19,262 8.7 11,828 7.9 Infrastructure services 8,488 2.5 2,823 1.3 — 0.0 Licensing 3,526 1.1 1,849 0.8 2,094 1.4 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% Revenues by VerticalThe foundation we have built with ISVs and technology companies has enabled us to leverage our strong domain knowledge and industry-specificknowledge capabilities to become a premier IT services provider to a range of additional verticals such as Banking and Financial Services, BusinessInformation and Media, Travel and Hospitality and Retail and Consumer. The following table sets forth revenues by vertical by amount and as a percentage ofour revenues for the periods indicated: Year Ended December 31, 2011 2010 2009 (in thousands, except percent) Vertical ISVs and Technology $87,369 26.2% $68,727 31.0% $57,695 38.5% Banking and Financial Services 76,419 22.8 42,835 19.3 17,069 11.4 Business Information and Media 62,350 18.6 45,749 20.6 28,587 19.1 Travel and Hospitality 40,110 12.0 18,780 8.5 9,869 6.6 Retail and Consumer 31,596 9.4 17,681 8.0 9,856 6.6 Other verticals 30,508 9.2 24,279 10.9 24,732 16.4 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% 54Table of ContentsRevenues by Client LocationOur revenues are sourced from three geographic markets: North America, Europe and the CIS. We present our revenues by client location based on thelocation 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 workis performed. As such, revenues by client location differ from the segment information in our audited consolidated financial statements included elsewhere inthis annual report, which is not solely based on the geographic location of the clients but rather is based on managerial responsibility for a particular clientregardless of client location. The following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated: Year Ended December 31, 2011 2010 2009 (in thousands, except percent) Client Location North America $165,126 49.4% $117,027 52.8% $80,168 53.5% Europe $107,041 32.0% $58,567 26.4% $32,635 21.8% United Kingdom 70,989 21.2 32,584 14.7 18,785 12.5 Other 36,052 10.8 25,983 11.7 13,850 9.3 CIS $56,185 16.8% $42,457 19.1% $35,005 23.3% Russia 43,799 13.1 31,488 14.2 24,503 16.3 Other 12,386 3.7 10,969 4.9 10,502 7.0 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% Revenues by Contract TypeOur services are performed under both time-and-material and fixed-price arrangements. Our engagement models depend on the type of services providedto a client, the mix and locations of professionals involved and the business outcomes our clients are looking to achieve. Historically, the majority of ourrevenues have been generated under time-and-material contracts. Under time-and-material contracts, we are compensated for actual time incurred by our ITprofessionals at negotiated hourly, daily or monthly rates. Fixed-price contracts require us to perform services throughout the contractual period and we arepaid in installments on pre-agreed intervals. We expect time-and-material arrangements to continue to comprise the majority of our revenues in the future.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, 2011 2010 2009 (in thousands, except percent) Contract Type Time-and-material $287,965 86.1% $188,961 85.2% $122,514 81.7% Fixed-price 36,861 11.0 27,241 12.3 23,200 15.5 Licensing 3,526 1.1 1,849 0.8 2,094 1.4 Reimbursable expenses and other revenues 6,176 1.8 3,773 1.7 2,131 1.4 Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% Revenues by Client ConcentrationWe have grown our revenues from our clients by continually expanding the scope and size of our engagements, and we have grown our key client basethrough internal business development efforts and several strategic acquisitions. 55Table of ContentsOur focus on delivering quality to our clients is reflected by an average of 86.0% and 70.5% of our revenues in 2011 coming from clients that had usedour services for at least two and three years, respectively. In addition, we have significantly grown the size of existing accounts. The number of clients thataccounted for over $5.0 million in annual revenues increased to 15 in 2011 from 10 in 2010, and the number of clients that generated at least $0.5 million inrevenues increased to 98 in 2011 from 72 in 2010.The following table sets forth revenues contributed by our top five and top ten clients by amount and as a percentage of our revenues for the periodsindicated: Year Ended December 31, 2011 2010 2009 (in thousands, except percent) Top five clients $107,171 32.0% $65,908 29.7% $35,444 23.6% Top ten clients 149,094 44.6 94,529 42.6 53,001 35.3 In 2011, our largest client, Thomson Reuters accounted for over 10% of our revenues. The volume of work we perform for specific clients is likely tovary 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 sameamount or percentage of our revenues in any subsequent year.Operating ExpensesCost 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 compensationexpense, travel costs and subcontractor fees. Salaries and other compensation expenses of our IT professionals are allocated to cost of revenues regardless ofwhether they are actually performing services during a given period.Selling, General and Administrative ExpensesSelling, general and administrative expenses represent expenses associated with promoting and selling our services and include such items as seniormanagement, administrative personnel and sales and marketing personnel salaries, stock compensation expense and related fringe benefits, legal and auditexpenses, commissions, insurance, operating lease expenses, travel costs and the cost of advertising and other promotional activities. In addition, we pay amembership 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 anumber of senior managers to support our growth. We expect our selling, general and administrative expenses to continue to increase in absolute terms as ourbusiness expands but will generally remain steady or slightly decrease as a percentage of our revenues.Provision for Income TaxesDetermining 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. During2011, 2010 and 2009, we had $49.9 million, $30.3 million and $14.3 million, respectively, in income before provision for income taxes attributed to ourforeign jurisdictions. The statutory tax rate in our foreign jurisdictions is lower than the statutory U.S. tax rate. Additionally, we have secured special taxbenefits in Belarus and Hungary as described below. As a result, our provision for income taxes is low in comparison to income before taxes due to the benefitreceived from increased income earned in low tax jurisdictions. The foreign tax rate differential represents this significant reduction. Changes in the geographicmix or estimated level of annual pre-tax income can also affect our overall effective income tax rate. 56Table of ContentsOur 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 uncertaintax 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 lightof 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 finaltax outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which suchdetermination 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 currentBelarusian income tax rate of 24%. The “On High-Technologies Park” Decree, which created the Belarus Hi-Tech Park, is in effect for a period of 15 yearsfrom 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 taxdue for that period. We have been able to take the full 70% credit for 2007, 2008, 2009, 2010 and 2011. The Hungarian tax authorities repealed the tax creditbeginning with 2012. Credits earned in years prior to 2012, will be allowed until fully utilized. 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 operating profit because segment operating profit is amanagement reporting measure, which does not take into account most corporate expenses, as well as the majority of non-operating costs and stockcompensation expenses. We do not hold our segment managers accountable for these expenses, as they cannot influence these costs within the scope of theiroperating 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. Allour segments are treated consistently with respect to such expenses when determining segment operating profit.Results of OperationsThe following table sets forth a summary of our consolidated results of operations by amount and as a percentage of our revenues for the periodsindicated. This information should be read together with our audited consolidated financial statements and related notes included elsewhere in this annualreport. 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, 2011 2010 2009 (in thousands, except percent) Revenues $334,528 100.0% $221,824 100.0% $149,939 100.0% Operating expenses: Cost of revenues (exclusive of depreciation and amortization)(1) 205,336 61.4 132,528 59.7 88,027 58.7 Selling, general and administrative expenses(2) 64,930 19.4 47,635 21.5 39,248 26.2 Depreciation and amortization expense 7,538 2.3 6,242 2.8 5,618 3.7 Goodwill impairment loss 1,697 0.5 — — — — Other operating expenses, net 19 0.0 2,629 1.2 1,064 0.7 Income from operations 55,008 16.4% 32,790 14.8% 15,982 10.7% Interest income 1,315 0.4 562 0.3 227 0.2 Interest (expense) (37) -0.0 (76) -0.0 (185) -0.1 Other income 144 0.0 — — — — Foreign exchange (loss) (3,638) -1.1 (2,181) -1.0 (1,617) -1.1 Income before provision for income taxes 52,792 15.7% 31,095 14.1% 14,407 9.7% Provision for income taxes 8,439 2.5 2,787 1.3 879 0.7 Net income $44,353 13.2% $28,308 12.8% $13,528 9.0% 57Table of Contents (1)Includes stock-based compensation expense of $1,365, $1,314 and $785 for the years ended December 31, 2011, 2010 and 2009, respectively.(2)Includes stock-based compensation expense of $1,501, $1,625 and $1,626 for the years ended December 31, 2011, 2010 and 2009, respectively.2011 Compared to 2010RevenuesRevenues were $334.5 million in 2011, representing an increase of 50.8% from $221.8 million in 2010. The increase was primarily driven by thefollowing factors: • strong performance across all of our key verticals. In particular, Banking and Financial Services continued to experience an increase in revenueson strong demand from existing clients, with revenues growing by $33.6 million, or 78.4%, to $76.4 million in 2011 as compared to $42.8million in 2010; • strong performance across all of our geographies. Revenues from Europe grew 82.8% to $107.0 million in 2011 from $58.6 million in 2010, andrevenues from North America grew 41.1% to $165.1 million in 2011 from $117.0 million in 2010. Revenues from Russia increased to $43.8million in 2011 from $31.5 million in 2010; and • revenues from existing clients continued to increase in 2011. Revenues attributable to our top ten clients as of December 31, 2011 increased by57.7% in 2011 as compared to December 31, 2010. This represented 48.4% of the overall increase in revenues in 2011.Cost of Revenues (Exclusive of Depreciation and Amortization)Cost of revenues (exclusive of depreciation and amortization) was $205.3 million in 2011, representing an increase of 54.9% from $132.5 million in2010. The increase was primarily attributable to a net increase of 1,618 IT professionals from December 31, 2010 to December 31, 2011, to support thegrowth in demand for our services. As a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) increased to 61.4% in 2011 from59.7% in 2010.Selling, General and Administrative ExpensesSelling, general and administrative expenses were $64.9 million in 2011, representing an increase of 36.3% from $47.6 million in 2010. The growthwas primarily attributable to increased overhead costs and non-production staff required to support the growth in the business. In 2011, non-production staffheadcount increased by 339, or 41.4%, from 818 at December 31, 2010, stock compensation expense decreased from $1.6 million to $1.5 million andfacilities expenses increased by $2.9 million, or 32.3%, to $12.0 million as compared to 2010. As a percentage of revenues, selling, general and administrativeexpenses decreased to 19.4% in 2011 from 21.5% in 2010.Depreciation and Amortization ExpenseDepreciation and amortization expense was $7.5 million in 2011, representing an increase of 20.8% from $6.2 million in 2010. The increase wasprimarily attributable to additional capital expenditures in IT equipment to support the growth in the headcount. As a percentage of revenues, depreciation andamortization expense decreased to 2.3% in 2011 from 2.8% in 2010.Goodwill Impairment LossAs a result of an operating loss in the Other reporting unit for the three months ended June 30, 2011, we performed a goodwill impairment test. Inassessing impairment in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other,” we determined that thefair value of the Other 58Table of Contentsreporting 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 reportingunit. We completed the second step of the goodwill impairment test, resulting in an impairment charge of $1.7 million. In the fourth quarter of 2011, wecompleted the annual impairment testing of recorded goodwill and determined there was no additional impairment as of December 31, 2011.Interest IncomeInterest income was $1.3 million in 2011, representing an increase of 134.0% from $0.6 million in 2010. The increase was primarily driven by theinterest paid on cash and cash equivalents which increased 64.4% from an average balance of $40.8 million during 2010 to $64.2 million during 2011.Foreign Exchange (Loss)Foreign exchange loss was $3.6 million in 2011, representing an increase of 66.8% from a $2.2 million loss in 2010. The increase was primaryattributable to the movement of the Russian ruble, Belarusian ruble and the euro against the U.S. dollar.Provision for Income TaxesProvision for income taxes was $8.4 million in 2011, increasing from $2.8 million in 2010. The increase was primarily attributable to significantgrowth in consolidated pre-tax income, an increase in our clients’ need for onsite resources in North America and the United Kingdom, which increased ourconsolidated effective tax rate, a relative shift in offshore services performed in Belarus, where we are currently entitled to a 100% exemption from Belarusianincome tax, to Ukraine and, to a lesser extent, Russia, both of which have significantly higher tax rates. In 2011, our effective tax rate was 16.0% ascompared to our effective tax rate of 9.0% in 2010.2010 Compared to 2009RevenuesRevenues were $221.8 million in 2010, representing an increase of 47.9% from $149.9 million in 2009. This increase was primarily driven by thefollowing factors: • strong performance across all of our key verticals, particularly Banking and Financial Services, which increased revenues by $25.8 million, or151.0%, and Business Information and Media, which increased revenues by $17.2 million, or 60.0%, as compared to 2009; • continued penetration of clients in Europe, where revenues grew by 79.5% as compared to 2009. We experienced particularly rapid growth in theUnited Kingdom and Switzerland, where revenues increased by 73.5% and 311.6% respectively, in 2010 as compared to 2009, primarilyattributable to the strength of Banking and Financial Services in these locations; • expansion of our service offerings, which enabled us to cross-sell new services to our clients and meet the rapidly growing demand for complexproduct development solutions; and • growth in our top ten clients increased revenues by 78.4% as compared to 2009, driven by strong demand for our services, particularly fromclients that accounted for over $5.0 million in annual revenues.Cost of Revenues (Exclusive of Depreciation and Amortization)Cost of revenues (exclusive of depreciation and amortization) was $132.5 million in 2010, representing an increase of 50.6% from $88.0 million in2009. The increase was primarily attributable to the net addition of 59Table of Contents1,566 IT professionals in 2010, an increase of 41.4% from 3,784 professionals in 2009, to support growth in demand for our services. As a percentage ofrevenues, cost of revenues (exclusive of depreciation and amortization) increased to 59.7% in 2010 from 58.7% in 2009.Selling, General and Administrative ExpensesSelling, general and administrative expenses were $47.6 million in 2010, representing an increase of 21.4% from $39.2 million in 2009. The increasewas primarily attributable to increased overhead costs as a result of the increase in revenues and overall operations, particularly related to growth in headcount.As a percentage of revenues, selling general and administrative expenses decreased to 21.5% in 2010 from 26.2% in 2009.Depreciation and Amortization ExpenseDepreciation and amortization expense was $6.2 million in 2010, representing an increase of 11.1% from $5.6 million in 2009. The increase wasprimarily attributable to the increase in capital equipment purchases to accommodate the increase in headcount and to support growth in revenues. As apercentage of revenues, depreciation and amortization expense decreased to 2.8% in 2010 from 3.7% in 2009.Other Operating Expenses, NetOther operating expenses, net, were $2.6 million in 2010, an increase from $1.1 million in 2009. The increase was primarily attributable to a litigationsettlement in 2010.Provision for Income TaxesProvision for income taxes was $2.8 million in 2010, an increase from $0.9 million in 2009. The growth in revenues and consolidated pre-tax income in2010, as well as an increase in non-deductible items, resulted in a higher tax expense. Our effective tax rate increased in 2010 to 9.0% compared to 6.1% in2009.Liquidity and Capital ResourcesCapital ResourcesAt December 31, 2011, our principal sources of liquidity were cash and cash equivalents totaling $88.8 million and $30.0 million of availableborrowings under our revolving line of credit.At December 31, 2011, we had cash and cash equivalents of $88.8 million, of which $55.5 million was held outside the United States, including$24.2 million held in U.S. dollar denominated accounts in Belarus, which accrued at an average interest rate of 6.5% during 2010 and 2011. We have a $30.0million revolving line of credit with PNC Bank, National Association. Advances under our revolving line of credit accrue interest at an annual rate equal to theLondon Interbank Offer Rate, or LIBOR, plus 1.25%. Our revolving line of credit is secured by the grant of a security interest in all of our U.S. tradereceivables and cash on hand in favor of the bank and contains customary financial and reporting covenants and limitations. We are currently in compliancewith all covenants contained in our revolving line of credit and believe that our revolving line of credit provides sufficient flexibility so that we will remain incompliance with its terms in the foreseeable future. Our revolving line of credit expires on October 15, 2013. At December 31, 2011, we had no borrowingsoutstanding under our revolving line of credit.The cash and cash equivalents held at locations outside of the United States are for future operating expenses and we have no intention of repatriatingthose funds. We are not, however, restricted in repatriating those funds back to the United States, if necessary. If we decide to remit funds to the United Statesin the form of dividends, $55.1 million would be subject to foreign withholding taxes, of which $46 million would also be 60Table of Contentssubject 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 fromdomestic operations will be adequate to satisfy our domestic liquidity needs in the foreseeable future.We believe that our available cash and cash equivalents and cash flows expected to be generated from operations will be adequate to satisfy our currentand planned operations in the foreseeable future. Our ability to expand and grow our business in accordance with current plans and to meet our long-termcapital requirements will depend on many factors, including the rate, if any, at which our cash flows increase, our continued intent not to repatriate earningsfrom outside the U.S. and the availability of public and private debt and equity financing. To the extent we pursue one or more significant strategicacquisitions, we may incur debt or sell additional equity to finance those acquisitions.Cash FlowsThe following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2011 2010 2009 (in thousands) Consolidated Statements of Cash Flow Data: Net cash provided by operating activities $54,520 $20,473 $26,112 Net cash used in investing activities (17,408) (10,826) (9,030) Net cash (used in) provided by financing activities (1,558) (8,043) 6,460 Effect of exchange-rate changes on cash and cash equivalents (762) (527) (1,273) Net increase in cash and cash equivalents $34,792 $1,077 $22,269 Cash and cash equivalents, beginning of period 54,004 52,927 30,658 Cash and cash equivalents, end of period $88,796 $54,004 $52,927 Operating ActivitiesNet cash provided by operations increased by $34.0 million to $54.5 million during 2011 from $20.5 million net cash provided by operations during2010, primarily attributable to higher net income that increased by $17.7 million before accounting for non-cash items in 2011 as compared to 2010. Revenuesincreased by 50.8% in 2011 as compared to 2010, causing net trade and unbilled accounts receivable to increase $18.6 million, or 28.4%, from $65.4million as of December 31, 2010 to $83.9 million as of December 31, 2011. Amounts due to employees, the majority of which represents payroll costs for themost recent period, increased by $2.5 million, or 44.8%, from $5.7 million as of December 31, 2010 to $8.2 million as of December 31, 2011, driven byheadcount growth.Net cash provided by operations decreased by $5.6 million to $20.5 million during 2010 from $26.1 million during 2009. This was primarilyattributable to increases in trade and unbilled accounts receivable, accrued expenses and taxes payable, and was offset by higher net income. Revenuesincreased 47.9% in 2010 as compared to 2009, causing net trade and unbilled accounts receivable to increase to $65.4 million, or 57.9%, as of December 31,2010, from $41.4 million as of December 31, 2009. Accrued expenses increased to $15.0 million as of December 31, 2010 from $4.9 million as ofDecember 31, 2009, due to an overall growth in operating expenses to support revenue growth and also attributable to a $7.8 million increase in the year-endbonus accrual, as a result of strong overall performance in 2010 as compared to 2009. 61Table of ContentsInvesting ActivitiesNet cash of $17.1 million was used in investing activities during 2011 as compared to $10.8 million of net cash used in investing activities during2010. During 2011, capital expenditures increased by 104.3% to $17.1 million primarily associated with IT equipment acquisitions to support our growth inheadcount and $1.5 million spent on construction of a new building in Belarus.Net cash of $10.8 million was used in investing activities during 2010 as compared to $9.0 million of net cash used in investing activities during 2009.This increase was primarily attributable to an increase in capital expenditures, which primarily consisted of IT equipment, of $7.3 million, related to ourincreased headcount, and a $2.5 million increase in restricted cash related to a client letter of credit, and was partially offset by a payment of $8.4 million forconstruction of a building in Minsk in 2009.Financing ActivitiesNet cash used in financing activities during 2011 decreased by $6.5 million to $1.6 million as compared to $8.0 million net cash used during 2010.This was primarily due to a decrease in the amount outstanding under our revolving line of credit by $7.0 million, partially offset by $1.6 million of publicoffering costs.Net cash of $8.0 million was used in financing activities during 2010 as compared to $6.5 million of net cash provided by financing activities during2009. This decrease was primarily attributable to an increase in purchases of treasury stock of $6.8 million, the partial repurchase of $15.1 million of ourSeries A-2 convertible redeemable preferred stock and a repayment of amounts outstanding under our revolving line of credit of $7.0 million in 2010 whichwas borrowed in 2009. This decrease in 2010 was partially offset by an increase in the proceeds from the sale of treasury stock, net of costs, of $6.3 millionand proceeds from the issuance of $15.0 million of preferred stock in 2010.Contractual Obligations and Future Capital RequirementsContractual ObligationsSet forth below is information concerning our fixed and determinable contractual obligations as of December 31, 2011. Total(1) Less than 1Year 1-3 Years 3-5 Years More than 5years (in thousands) Operating lease obligations $27,728 $10,262 $10,740 $6,384 $342 Other long-term obligations(2) 16,509 16,509 — — — $44,237 $26,771 $10,740 $6,384 $342 (1)Excludes any potential redemption obligations related to our Series A-1 and A-2 convertible redeemable preferred stock. Immediately prior to thecompletion of our initial public offering, our Series A-1 and A-2 convertible redeemable preferred stock automatically converted into shares of commonstock.(2)On December 7, 2011, the Company entered into an agreement with IDEAB Project Eesti AS for approximately $17,209 for the construction of a14,071 square meter office building within the High Technology Zone in Minsk, Belarus. The building is expected to be operational in the second half of2012.Future Capital RequirementsWe believe that our existing cash and cash equivalents combined with our expected cash flow from operations will be sufficient to meet our projectedoperating 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, 62Table of Contentshowever, is subject to our performance, general economic conditions, industry trends and other factors. To the extent that existing cash and cash equivalentsand operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equityor debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing stockholders may occur. If we raise cashthrough the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business. There is no assurance that we wouldbe able to raise additional funds on favorable terms or at all.Off-Balance Sheet Commitments and ArrangementsWe do not have any investments in special purpose entities or undisclosed borrowings or debt. Accordingly, our results of operations, financialcondition and cash flows are not subject to off-balance sheet risks.Critical Accounting PoliciesWe prepare our audited consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), which require us tomake judgments, estimates and assumptions that affect: (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities atthe end of each reporting period and (iii) the reported amounts of revenues and expenses during each reporting period. We evaluate these estimates andassumptions based on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future basedon available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from othersources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of ouraccounting policies require higher degrees of judgment than others in their application. When reviewing our audited consolidated financial statements, youshould consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) thesensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of ouraudited consolidated financial statements as their application places significant demands on the judgment of our management.An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highlyuncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that arereasonably likely to occur periodically, could materially impact the audited consolidated financial statements. We believe that the following critical accountingpolicies 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 financialstatements and other disclosures included in this annual report.Revenue RecognitionWe generate revenues primarily from software development services. We recognize revenues when realized or realizable and earned, which is when thefollowing criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability isreasonably assured. If there is an uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until theuncertainty is sufficiently resolved. At the time revenues are recognized, we provide for client incentive programs 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 insubsequent periods. Unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms. Allsuch amounts are anticipated to be realized in subsequent periods. 63Table of ContentsOur services are performed under both time-and-material and fixed-price contracts arrangements. For revenues generated under time-and-materialcontracts, revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues whenincurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly to the client.We recognize revenues from fixed-price contracts based on 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 measureprogress towards completion, revenues are recognized upon receipt of final acceptance from the client. The complexity of the estimation process and factorsrelating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts ofrevenues and related expenses reported in our audited consolidated financial statements. A number of internal and external factors can affect our estimates,including labor hours and specification and testing requirement changes. The cumulative impact of any revision in estimates is reflected in the financialreporting period in which the change in estimate becomes known. Our fixed price contracts are generally recognized over a period of twelve months or less.We enter into multiple element arrangements with our clients under time-and-material and fixed-fee contracts. In October 2009, the FASB issued a newaccounting standard which provides guidance for arrangements with multiple deliverables. We adopted this standard effective January 1, 2010 for all new oramended contracts, and it did not have a material effect on our financial condition or consolidated results of operations, or change our units of accounting andhow we allocate the arrangement consideration to various units of accounting. These arrangements consist of development services and other servicedeliverables that qualify for separate units of accounting. These other services include maintenance and support services for our time-and-material contractsand separately priced warranties for our fixed-fee contracts. These deliverables qualify for multiple units of accounting and therefore arrangement considerationis allocated among the units of accounting based on their relative selling price. The relative selling price is based on the price charged for the deliverable when itis sold separately. For multiple element arrangements under time-and-material contracts, revenue is recognized as services are performed for each deliverable.For arrangements under fixed-fee contracts, revenue is recognized upon delivery of development services under the proportional performance method and on astraight-line basis over the warranty period. The warranty period is generally six 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.Accounts ReceivableAccounts receivable are recorded at net realizable value. We maintain an allowance for doubtful accounts for estimated losses resulting from the inabilityof our 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 prioryears are presented within income from operations on our consolidated statements of income.Goodwill and Other Intangible AssetsGoodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and intangible assets acquired lessliabilities assumed. The determination of the fair value of the intangible assets acquired involves certain judgments and estimates. These judgments caninclude, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital. 64Table of ContentsWe do not amortize goodwill but perform a test for impairment annually, or when indications of potential impairment exist, utilizing a fair valueapproach at the reporting unit level. We determine fair value using the income approach, which estimates the fair value of our reporting units based on thefuture discounted cash flows. In testing for a potential impairment of goodwill, we estimate the fair value of our reporting units to which goodwill relates anddetermine the carrying value (book value) of the assets and liabilities related to those reporting units.We amortize other intangible assets with determinable lives over their estimated useful lives. We record an impairment charge on these assets when wedetermine that their carrying value may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted future cash flows resulting fromthe use of the asset and its eventual disposition. When there exists one or more indicators of impairment, we measure any impairment of intangible assetsbased on the excess of the carrying value of the asset over its fair value. Its fair value is determined based on projected discounted cash flow method using adiscount rate determined by our management to be commensurate with the risk inherent in our business model. The estimates of future cash flows attributableto our other intangible assets require significant judgment based on our historical and anticipated results.Income TaxesThe provision for income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated futuretax consequences of temporary differences between the audited consolidated financial statement carrying amounts and their respective tax bases. Deferred taxassets 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 bereversed. 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 therealizability 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 berealized.The realization of deferred tax assets is primarily dependent on future earnings. Any reduction in estimated forecasted results may require that we recordvaluation allowances against deferred tax assets. Once a valuation allowance has been established, it will be maintained until there is sufficient positiveevidence 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 consideredas sufficient positive evidence to reverse a valuation allowance. If the allowance is reversed in a future period, the income tax provision will be correspondinglyreduced. Accordingly, the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings.Accounting for Stock-Based Employee Compensation PlansStock-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant-date fairvalue of the awards ultimately expected to vest. We recognize these compensation costs on a straight-line basis over the requisite service period of the award,which is generally the option vesting term of four years.We estimate forfeitures at the time of grant and revise our estimates, if necessary, in subsequent periods if actual forfeitures or vesting differ from thoseestimates. Such revisions could have a material effect on our operating results. The assumptions used in the valuation model are based on subjective futureexpectations combined with management judgment. If any of the assumptions used in the valuation model change significantly, stock-based compensation forfuture awards may differ materially compared to the awards previously granted.Recent Accounting PronouncementsSee Note 1 to the audited consolidated financial statements included in Part IV, “Item 15. Exhibits, Financial Statement Schedules — AuditedConsolidated Financial Statements,” regarding the impact of certain recent accounting pronouncements on our audited consolidated financial statements. 65Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskConcentration of Credit and Other RiskFinancial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, tradeaccounts receivable and unbilled revenues. These financial instruments approximate fair value due to short-term maturities. We maintain our cash and cashequivalents and short-term investments with financial institutions. We believe that our credit policies reflect normal industry terms and business risk. We donot anticipate non-performance by the counterparties and, accordingly, do not require collateral.Trade accounts receivable and unbilled revenues are generally dispersed across our clients in proportion to the revenues. For the years endedDecember 31, 2011 and 2010, our top five clients accounted for 32.0% and 29.7% revenues, respectively. One client, Thomson Reuters, accounted for over10% of revenues in 2011 and 2010. Accounts receivable for this client were 15.9% and 16.9% of total accounts receivable as of December 31, 2011, and2010, respectively. Unbilled revenues for this client were 15.0% and 23.9% of total unbilled revenues as of December 31, 2011 and 2010, respectively.Credit losses and write-offs of trade accounts receivable balances have historically not been material to our audited consolidated financial statements.Interest Rate RiskOur exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents and our revolving line of credit bearinginterest at LIBOR plus 1.25% rate. We do not use derivative financial instruments to hedge our risk of interest rate volatility.We have not been exposed to material risks due to changes in market interest rates. However, our future interest expense may increase and interest incomemay fall due to changes in market interest rates.Foreign Exchange RiskOur audited consolidated financial statements are reported in U.S. dollars. However, we 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 Hungarianforints, euros and Russian rubles associated with our delivery centers located in CEE. We are exposed to fluctuations in foreign currency exchange ratesprimarily on accounts receivable and unbilled revenues from sales in these foreign currencies and cash flows for expenditures in foreign currencies. We do notuse derivative financial instruments to hedge the risk of foreign exchange volatility. Our results of operations can be affected if the euro and/or the Britishpound appreciate or depreciate against the U.S. dollar. Our exchange rate risk primarily arises from our foreign currency revenues and expenses. Based on ourresults of operations for the year ended December 31, 2011, a 1.0% appreciation / (depreciation) of the euro against the U.S. dollar would result in an estimatedincrease / (decrease) of approximately $0.3 million in net income, and 1.0% appreciation / (depreciation) of the British pound against the U.S. dollar wouldresult in an estimated increase / (decrease) of approximately $0.2 million in net income.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 evaluatingthe effects of changes in foreign currency exchange rates, interest rates and commodity prices on our business operations. The analysis quantifies the impactof potential changes in these rates and prices on our earnings, cash flows and fair values of assets and liabilities during the forecast period, most commonlywithin a one-year period. The ranges of changes used for the purpose of this analysis reflect our view of changes that are reasonably possible over the forecastperiod. Fair values are the present value of projected future cash flows based on market rates and chosen prices. 66Table of ContentsItem 8. Financial Statements and Supplementary DataThe information required is included in this annual report as set forth in Part IV, “Item 15. Exhibits, Financial Statement Schedules — AuditedConsolidated Financial Statements.”Item 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresConclusion Regarding the Effectiveness of Disclosure Controls and ProceduresAs of December 31, 2011, we carried out an evaluation under the supervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, as to the effectiveness, design and operation of our disclosure controls and procedures. The term “disclosurecontrols and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, meanscontrols and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosurecontrols and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive andprincipal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officerand Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent and/or detect all errors and allfraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controlsystem 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 consideredrelative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within our company have been detected. Our disclosure controls and procedures are designed to provide reasonable assuranceof achieving their objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined inthe Exchange Act Rules 13a- 15(e) and 15d-15(e)) were effective as of December 31, 2011.Management’s Report on Internal Control Over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of ourregistered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.Changes in Internal Control Over Financial ReportingThere has been no change in our internal control over financial reporting during the quarter ended December 31, 2011, that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNone. 67Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceDirectorsThe following table sets forth certain information concerning our directors: Name Age PositionArkadiy Dobkin 51 Chief Executive Officer, President and Chairman of theBoard of DirectorsKarl Robb 49 President of EU Operations, Executive Vice President andDirectorAndrew J. Guff 51 DirectorDonald P. Spencer 56 DirectorRoss Goodhart 32 DirectorRobert Segert 43 DirectorRonald Vargo 57 DirectorArkadiy Dobkin. Please see Part I, “Item 1. Business — Executive Officers of the Registrant.”Karl Robb. Please see Part I, “Item 1. Business — Executive Officers of the Registrant.”Andrew J. Guff has served as a non-executive director of our board since 2006. Mr. Guff is a Managing Director and founding partner of SigulerGuff & Company (“Siguler Guff”). Prior to founding Siguler Guff, a multi-strategy private equity firm with over $9 billion of assets under management,Mr. Guff was with PaineWebber for ten years in a range of both principal and advisory capacities within PaineWebber’s Merchant Banking and Mergers andAcquisitions groups. In 1994, Mr. Guff founded Russia Partners Company, LP, one of the first private equity funds to operate in Russia and the CIS region.Today, Russia Partners manages approximately $1 billion of investments and commitments to private deals in the region. Mr. Guff sits on the board ofdirectors of a number of portfolio companies owned by Russia Partners. He is a member of the Executive Board of the U.S. — Russia Business Council andis a member of the Council on Foreign Relations. He is also a trustee of the Phillips Academy Institute for the Recruitment of Teachers. Mr. Guff holds aBachelor of Arts in Economics from Harvard College. We believe Mr. Guff’s experience as an investment banker, as a senior officer of an investment firmwith activities in the IT sector and in CEE and the CIS and in evaluating the financial prospects of companies provides him with the necessary skills to serveas a member of our board of directors and enable him to provide valuable insight to the board regarding financial and investor relations issues.Donald P. Spencer has served as a non-executive director of our board since 2006 and as secretary of our board from 2006 until January 2012.Mr. Spencer is a managing director and founding partner of Siguler Guff and is responsible for Siguler Guff’s legal and compliance matters. Prior to joiningSiguler Guff in 1995, Mr. Spencer served as senior vice president of Mitchell Hutchins Institutional Investors Inc. and senior vice president ofAtlanta/Sosnoff Capital Corp. Mr. Spencer was an associate at Shereff, Friedman, Hoffman & Goodman, LLP, where he specialized in representing financialservices companies, and an associate at Sullivan & Cromwell LLP. Mr. Spencer received a Juris Doctor in 1980 from New York University School of Lawand holds a Bachelor of Arts from Wesleyan University. We believe Mr. Spencer’s experience as a lawyer and as a senior officer of an investment firm withactivities in the IT sector and in CEE and the CIS provides him with the necessary skills to serve as a member of our board of directors and enables him toprovide valuable insight to the board regarding legal, financial and investor relations issues.Ross Goodhart has served as a non-executive director of our board since 2009. Mr. Goodhart is a Principal at Siguler Guff and has responsibility forthe portfolio management, investment evaluation, due diligence, structuring and coordination of all aspects of Siguler Guff’s Russian and CIS investmentoperations. Prior to 68Table of Contentsjoining Siguler Guff in 2003, Mr. Goodhart was an Investment Banking Financial Analyst at Peter J. Solomon Company, L.P., where he specialized in mergersand acquisitions and restructuring advisory services within a broad array of industry sectors. He is a member of the board of directors of the U.S. —Ukraine Business Council. Mr. Goodhart holds a Bachelor of Business Administration with high distinction from the Stephen M. Ross School of Business atthe University of Michigan with emphases in Finance and Accounting. We believe Mr. Goodhart’s experience as an investment banker, as an officer of aninvestment firm with activities in the IT sector and in CEE and the CIS and in evaluating the financial prospects of companies provides him with thenecessary skills to serve as a member of our board of directors and enables him to provide valuable insight to the board regarding financial and investorrelations issues.Robert Segert has served as a non-executive director of our board since January 2012. Since 2008, Mr. Segert has been President and Chief ExecutiveOfficer and a director of GXS Worldwide, Inc., or GXS, a leading global provider of business-to-business e-commerce and data integration services thatsimplify and enhance business process integration, data quality and compliance, and collaboration among businesses. Prior to joining GXS in 2008,Mr. Segert spent ten years at Electronic Data Systems Corporation, or EDS, a former $22 billion global technology services company, until EDS wasacquired by Hewlett-Packard Company, in various capacities, including leader of the Global Financial Products Industry, Chief Marketing Officer, GeneralManager of U.S. Financial Services and Managing Director of Corporate Strategy and Planning. He has also held roles at A.T. Kearney and Frito-Lay, Inc.Mr. Segert received a Bachelor of Science degree in Mechanical Engineering from Purdue University and a Masters in Business Administration from HarvardBusiness School. We believe Mr. Segert’s 15 years of experience as an executive in the business services and consulting industry provide him with thenecessary skills to serve as a member of our board of directors and enable him to provide valuable insight to the board regarding financial and investorrelations issues.Ronald P. Vargo has served as a non-executive director of our board since January 2012. Mr. Vargo served as Executive Vice President and ChiefFinancial Officer of ICF International, Inc., or ICF, from April 2010 to May 2011. Prior to joining ICF, Mr. Vargo served as the Executive Vice President, ChiefFinancial Officer and as a member of the Executive Committee of EDS from 2006 to 2008. Prior to his role as Executive Vice President and Chief FinancialOfficer, Mr. Vargo served in the positions of Vice President and Treasurer of EDS from 2004 to 2006 and was promoted to Co-Chief Financial Officer inMarch 2006. Prior to joining EDS, Mr. Vargo was employed from 1991 to 2003 by TRW, Inc., or TRW, a former $17 billion global manufacturing andservice company strategically focused on providing products and services with a high technology or engineering content to the automotive, space and defensemarkets. TRW was acquired by Northrop Grumman Corporation in 2002. Mr. Vargo served TRW in the positions of Vice President of Investor Relations andTreasurer from 1991 to 1994, then Vice President of Strategic Planning and Business Development from 1994 to 1999, and then Vice President of InvestorRelations and Treasurer again from 1999 to 2002. Mr. Vargo serves as a director of Ferro Corporation and as chair of its audit committee. Mr. Vargo holds anMBA in Finance and General Management from Stanford University and a Bachelor of Arts degree in Economics from Dartmouth College. We believeMr. Vargo’s 30 years of experience as a financial and business executive, and his experience as a member of the board of directors of a public company,provide him with the necessary skills to serve as a member of our board of directors and enable him to provide valuable insight to the board regardingfinancial and investor relations issues.Executive OfficersPursuant to Instruction 3 to Item 401(b) of Regulation S-K, the information regarding our executive officers is set forth in Part I, “Item 1. ExecutiveOfficers of the Registrant.” 69Table of ContentsCorporate GovernanceBoard Structure and Compensation of DirectorsOur bylaws provide that our board of directors will consist of no fewer than three and no more than nine persons, and that the exact number of membersof our board of directors will be determined from time to time by resolution of a majority of our entire board of directors. Our board of directors currentlyconsists of seven members. Our board is divided into three classes, with each director serving a three-year term and one class being elected at each year’sannual meeting of stockholders. Karl Robb and Ross Goodhart will serve initially as Class I directors (with a term expiring in 2013). Andrew J. Guff, DonaldP. Spencer and Ronald Vargo will serve initially as Class II directors (with a term expiring in 2014). Arkadiy Dobkin and Robert Segert will serve initially asClass III directors (with a term expiring in 2015).Our board has determined that each of Andrew J. Guff, Donald P. Spencer, Ross Goodhart, Robert Segert and Ronald Vargo is an independent directorwithin the meaning of the applicable rules of the NYSE and that each of Robert Segert and Ronald Vargo is also an independent director under Rule 10A-3under the Exchange Act for the purpose of audit committee membership. In addition, our board has determined that Ronald Vargo is a financial expert withinthe meaning of the applicable rules of the SEC and NYSE.We have adopted the EPAM Systems, Inc. 2012 Non-Employee Directors Compensation Plan. Each of our non-employee directors is eligible to receivean annual cash retainer (which the director may elect to receive in shares) and equity awards under the 2012 Non-Employee Directors Compensation Plan. Theplan defines a “non-employee director” as a member of our board of directors that the board in its sole discretion determines (i) is (or would be, if our commonstock was then listed on the NYSE) “independent” of the Company within the meaning of Section 303A of the NYSE Listed Company Manual and (ii) is notaffiliated with any stockholder or group of stockholders who beneficially own 10% or more of our common stock (calculated on a fully diluted basis andassuming the conversion of all of our preferred stock). Our other directors will receive no compensation for serving as directors. Unless the board of directorsresolves otherwise or unless otherwise agreed between the Company and the board of directors, all non-employee directors will receive an annual retainer of$40,000. Each non-employee director who attends more than six meetings of the board in any calendar year will also receive an additional fee of $2,000 foreach additional meeting attended in person and $1,000 for each additional meeting attended telephonically. In addition, the chairman of the audit committee willreceive an annual fee of $20,000, the chairman of the compensation committee will receive an annual fee of $10,000 and the chairman of the nominating andcorporate governance committee will receive an annual fee of $7,500. Each committee member (other than the chairman) will receive an additional cash retainerin the amount of $8,000, $5,000 and/or $3,000 for his or her service on one or more of the audit, compensation or nominating and corporate governancecommittees, respectively. Beginning at our first annual public meeting of shareholders, each non-employee director will also receive an annual grant ofrestricted stock under our 2012 Non-Employee Directors Compensation Plan having a fair market value (as defined in the plan) of $75,000 in addition to aninitial grant of restricted stock having a fair market value of $100,000 at the time that the director joins our board.Board CommitteesAudit CommitteeThe audit committee consists of Donald P. Spencer, Robert Segert and Ronald Vargo. Ronald Vargo serves as the chair of the audit committee. We arerelying on the phase-in rules of the SEC and NYSE with respect to the independence of our audit committee. These rules permit us to have an audit committeethat has one member that is independent upon the effectiveness of the registration statement relating to our initial public offering, a majority of members thatare independent within 90 days thereafter and all members that are independent within one year thereafter. Our board of directors has determined that Donald P.Spencer is not an independent director under Rule 10A-3 under the Exchange Act for the purpose of audit committee membership, which could materiallyadversely affect the ability of the audit committee to act independently. Mr. Spencer may continue to 70Table of Contentsserve on our audit committee until the one year anniversary of the effective date of our registration statement with respect to the initial public offering of ourcommon stock. Since Mr. Spencer currently sits on our audit committee but does not satisfy the independence standards, in conjunction with our plans toconduct a search for additional qualified persons to be added to, or replace current members of, our board, we plan to add additional independent directors toour board who could become members of our audit committee and remove Mr. Spencer from this committee, such that this committee is fully independent byFebruary 7, 2013, in accordance with Rule 10A-3 under the Exchange Act.The audit committee consists exclusively of directors who are financially literate, and Ronald Vargo is considered an “audit committee financial expert”as defined under Item 407(d)(5) of Regulation S-K. The audit committee is governed by a charter that complies with the rules of the NYSE. The auditcommittee is authorized to: • appoint, compensate, retain and oversee our independent auditor; • review the proposed scope and results of the audit; • review and pre-approve the independent auditors’ audit and non-audit services rendered; • approve the audit fees to be paid (subject to authorization by our shareholders to do so); • review, in conjunction with the Chief Executive Officer and Chief Financial Officer of our company, accounting and financial controls with theindependent auditors and our financial and accounting staff; • recognize and prevent prohibited non-audit services; • establish procedures for complaints received by us regarding accounting matters; • oversee internal audit functions; and • prepare the report of the audit committee that SEC rules require to be included in our annual meeting proxy statement.Compensation CommitteeThe compensation committee consists of Andrew J. Guff, Robert Segert and Donald P. Spencer. Andrew J. Guff serves as the chair of the compensationcommittee. The compensation committee is governed by a charter that complies with the rules of the NYSE. The compensation committee is authorized to: • review and recommend the compensation arrangements for executive officers, including the compensation for our Chief Executive Officer; • identify corporate goals and objectives relevant to executive and director compensation; • review, evaluate and approve our equity-based incentive plan (subject, if applicable, to shareholder approval); and • prepare the report of the compensation committee that SEC rules require to be included in our annual meeting proxy statement.Nominating and Corporate Governance CommitteeThe nominating and corporate governance committee consists of Andrew J. Guff, Robert Segert, Donald P. Spencer and Ronald Vargo. Robert Segertserves as the chair of the nominating and corporate governance committee. The nominating and corporate governance committee is governed by a charter thatcomplies with the rules of the NYSE. The nominating and corporate governance committee is authorized to: • identify and nominate members for election to the board of directors; • develop and recommend to the board of directors a set of corporate governance principles applicable to our company; and • oversee the evaluation of the board of directors and management. 71Table of ContentsThe responsibilities of the audit committee, the compensation committee and the nominating and corporate governance Committees are set forth in eachof their respective charters, which were approved by our board of directors on January 11, 2012 and are reviewed annually. The charters are available on theInvestor Relations section of our website at http://investors.epam.com, and will be provided in print without charge upon written request to our GeneralCounsel and Corporate Secretary at 41 University Drive, Suite 202, Newtown, Pennsylvania 18940. The information on our website is not incorporated byreference into this annual report.Code of Conduct and Corporate Governance GuidelinesOur board of directors has adopted a code of conduct in accordance with applicable U.S. federal securities laws and the corporate governance rules ofthe NYSE that applies to all of our directors, officers and other employees, including our principal executive officer, principal financial officer and principalaccounting officer. Any waiver of the code for directors or executive officers may be made only by our board of directors and will be promptly disclosed to ourstockholders as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE. Amendments to the code must beapproved by our board of directors and will be promptly disclosed (other than technical, administrative or non-substantive changes).Our board of directors adopted corporate governance guidelines in accordance with the corporate governance rules of the NYSE that serve as a flexibleframework within which our board of directors and its committees operate. These guidelines cover a number of areas including the size and composition of theboard, board membership criteria and director qualifications, director responsibilities, board agenda, roles of the Chairman of the Board, Chief ExecutiveOfficer and presiding director, meetings of independent directors, committee responsibilities and assignments, board member access to management andindependent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of seniormanagement and management succession planning.Copies of our code of conduct and corporate governance guidelines are publicly available through the Investor Relations section of our website athttp://investors.epam.com, and will be provided in print without charge upon written request to our General Counsel and Corporate Secretary at 41University Drive, Suite 202, Newtown, Pennsylvania 18940. The information on our website is not incorporated by reference into this annual report.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of ourequity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of EPAM.Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.EPAM was not subject to Section 16(a) of the Exchange Act during 2011 and, consequently, no Section 16(a) filings were required by its officers,directors and greater than ten percent beneficial owners.Item 11. Executive CompensationCompensation Discussion and AnalysisThe purpose of this compensation discussion and analysis section is to provide information about the material elements of compensation that are paid orawarded to, or earned by, our named executive officers, or NEOs, whose compensation is set forth in the “— 2011 Summary Compensation Table” below.Our named executive officers for 2011 were: • Arkadiy Dobkin, Chief Executive Officer and President; • Ilya Cantor, Senior Vice President, Chief Financial Officer and Treasurer; 72Table of Contents • Karl Robb, President of EU Operations and Executive Vice President; • Balazs Fejes, Chief Technology Officer; and • Ginger Mosier, Vice President, General Counsel and Corporate Secretary.Compensation Philosophy and ObjectivesOur philosophy is to provide compensation to each of our NEOs that is commensurate with his or her position and experience, furnish incentivessufficient for the NEO to meet and exceed short-term and long-term corporate objectives and align these officers’ incentives with the long-term interests of ourstockholders. Additionally, our executive compensation program is intended to provide significant motivation for each of our NEOs to remain employed by usunless and until our board of directors and/or, other than for Mr. Dobkin, our CEO, finds that retention of the NEO is no longer in accord with our corporateobjectives.Based on this philosophy, the primary objectives of our board of directors and compensation committee with respect to executive compensation are to: • attract and retain a highly-skilled management team with industry knowledge; • support our culture of innovation and performance; and • align the incentives of our NEOs with the creation of value for stockholders.To achieve these objectives, our compensation committee periodically evaluates our executive compensation program with the goal of establishingcompensation at levels it believes to be generally competitive with other companies in our geographical regions that compete with us for executive talent. Webelieve that our program is competitive based on our ability to attract talented employees and our general sense of the compensation market. As discussed ingreater detail below, the compensation committee does not engage in benchmarking or a formal peer group analysis, but does review publicly availablecompensation information from time to time. Additionally, we design our executive compensation program to tie a portion of each NEO’s overall cashcompensation to key strategic, financial and operational performance considered by our board of directors.We use a mix of short-term compensation in the form of base salaries and cash bonuses and long-term compensation in the form of equity awards as thetotal compensation structure to meet these objectives. This compensation program serves to complement the strong stockholder incentives that exist as a resultof the significant equity interests several of our NEOs have in the company. As we were a non-public company in 2011, we were not required to hold ashareholder advisory “Say-on-Pay” vote.Historical Compensation DecisionsHistorically, our compensation programs have aimed to conserve cash while attracting and retaining executive officers who are highly motivated to growour business in the long term. As with other companies in the information technology services sector generally, we have emphasized equity compensation,primarily in the form of stock options, to supplement cash compensation in the form of base salaries and bonuses. Mr. Dobkin has not been awarded stockoptions due to his direct equity holdings. Our board of directors and compensation committee sought to align the interests of management and stockholders bymotivating the management team, through the granting of equity compensation, to grow our business in the long term. We expect to continue to emphasize thisapproach in the future.Our compensation committee is responsible for establishing and administering executive officer compensation, including salaries, bonuses and equityincentive compensation. Our CEO served on our compensation committee prior to our initial public offering, which closed in February 2012 and in connectionwith which he stepped down from the compensation committee. Mr. Dobkin provided substantial input in determining compensation paid to our NEOs (otherthan for himself). For our CEO, the compensation committee 73Table of Contentsevaluates his performance to determine his compensation. Mr. Dobkin is not present at the meetings where his compensation is determined. The compensationcommittee uses its judgment and experience as well as the recommendations of the CEO to determine the appropriate amount and mix of compensation for eachother NEO. The company does not engage in benchmarking or a formal peer group analysis in determining the amount or components of executivecompensation awarded to our NEOs. In considering compensation, we engage in an informal process of looking at the compensation practices of othercompanies in our industry for perspective. However, we do not target our compensation to fit within ranges relative to such companies.To comply with Rule 16b-3 under the Exchange Act, we expect equity incentive compensation for executive officers to be approved, on therecommendation of the compensation committee, by a committee of our directors who qualify as “non-employee directors” or the full board of directorspursuant to the rule.Except as described below, neither the board of directors nor the compensation committee has adopted any formal or informal policies or guidelines forallocating compensation between cash and non-cash compensation, among different forms of non-cash compensation or with respect to long- and short-termperformance. The determination of our board of directors or compensation committee as to the appropriate use and weight of each component of executivecompensation is subjective, based on their view of the relative importance of each component in meeting our overall objectives and factors relevant to theindividual executive.As a publicly held company, we may periodically engage the services of a compensation consultant to assist us in further aligning our compensationphilosophy with our corporate objectives. In addition, in order to attract and retain key executives, we may be required to modify individual executivecompensation levels to remain competitive in the market for such positions.Elements of CompensationEach NEO’s compensation package is tailored to each individual and is intended to encourage executive performance that supports our organizationalstrategy. When setting the amount of compensation to be awarded to our NEOs, other than our CEO, in a given year, the compensation committee considersthe recommendations of our CEO as well as the relative proportion of total compensation delivered on a current and long-term basis and in the form of cashand equity prior to making changes to compensation levels. The compensation of our CEO is determined by the compensation committee following a review ofcompany and individual performance, rather than through the use of predetermined performance metrics.The fundamental elements of our compensation program are: • base salary; • discretionary performance-based bonuses; • long-term equity incentives; and • other broad-based benefits.Although we expect these to remain the elements of our compensation program going forward, the relative weighting of each element and specific plan andaward designs may evolve as we grow as a public company. Mr. Robb is retained as a consultant to the company and his consulting fees (which include botha fixed payment and a variable payment) are paid directly to his direct employer, Landmark Business Development Limited. Mr. Fejes is employed in part bya subsidiary of the company for which service he receives a base salary and in part as a consultant to the company. Mr. Fejes’ consulting fees (which includeboth a fixed payment and a variable payment) are paid directly to his direct employer, Redlodge Holdings Limited. However, stock option awards are granteddirectly to Mr. Robb and Mr. Fejes. 74Table of ContentsBase SalaryBase salary is the main “fixed” component of our executive compensation program for our U.S.-based NEOs. In 2011, Messrs. Robb and Fejes eachreceived a fixed consulting fee for their services to the company as consultants, and Mr. Fejes also received a base salary. The base salaries of our NEOs,and/or fixed consulting fees in the case of Messrs. Robb and Fejes, for 2011 were determined by the compensation committee, in consultation with our CEO,taking into consideration the qualifications, experience, and 2010 compensation level of each NEO and the particular responsibilities and expectationsassociated with each NEO’s position.The base salaries and/or fixed consulting fees, expressed in U.S. Dollars, for the named executive officers in 2011 are set forth in the table below. Inaddition, for 2012, the Compensation Committee has approved base salaries and/or fixed consulting fees in the amounts set forth in the table below. Name 2011 Base Salary and/orFixed Consulting Fees 2012 Base Salary and/orFixed Consulting Fees Arkadiy Dobkin, Chief Executive Officer and President $260,000 $300,000 Ilya Cantor, Senior Vice President, Chief Financial Officer and Treasurer $240,000 $240,000 Karl Robb, President of EU Operations and Executive Vice President $273,969(1) $268,866(4) Balazs Fejes, Chief Technology Office $314,582(2) $298,096(5) Ginger Mosier, Vice President, General Counsel and Corporate Secretary $180,000(3) $198,000 (1)This amount reflects the fixed consulting fee that was paid directly to Landmark Business Development Limited, Mr. Robb’s direct employer, for hisservice to the company as a consultant in 2011. As such, this amount is reported in the “All Other Compensation” column and not the “Salary” columnof the 2011 Summary Compensation Table. Expressed in local currency, Mr. Robb’s fixed consulting fee was comprised of 195,163 euros and11,187,225 Belarusian rubles. For 2011, the applicable exchange rates were $1.40 per euro and $0.00021 per Belarusian ruble.(2)This amount includes both the base salary Mr. Fejes received directly from the company in his role as an employee and the fixed consulting fee that waspaid directly to Redlodge Holdings Limited, Mr. Fejes’ direct employer, for his service to the company as a consultant in 2011. The amount ofMr. Fejes’ fixed consulting fee is reported in the “All Other Compensation” column of the 2011 Summary Compensation Table. As such, this amountdiffers from the amount reported in the “Salary” Column of the 2011 Summary Compensation Table, which reflects only the base salary that was paiddirectly to Mr. Fejes. Expressed in local currency, the amount of Mr. Fejes’ base salary and fixed consulting fee was comprised of 82,104 euros,176,400 Swiss Francs and 120,000 Hungarian forints. For 2011, the applicable exchange rates were $1.40 per euro, $1.13 per Swiss franc, and$0.0050 per Hungarian forint.(3)This amount represents Ms. Mosier’s current annual base salary rate and differs from the amount in the 2011 Summary Compensation Table, whichreflects the fact that her annual base salary rate was $170,000 through March 1, 2011.(4)This amount reflects the fixed consulting fee expected to be paid directly to Landmark Business Development Limited, Mr. Robb’s direct employer, forhis service to EPAM as a consultant in 2012. Expressed in local currency, Mr. Robb’s fixed consulting fee is comprised of 204,921 euros and11,746,586 Belarusian rubles.(5)This amount includes both the base salary Mr. Fejes is expected to receive directly from the company in his role as an employee and the fixed consultingfee expected to be paid directly to Redlodge Holdings Limited, Mr. Fejes’ direct employer, for his service to EPAM as a consultant in 2012. Expressed inlocal currency, the amount of Mr. Fejes’ base salary and fixed consulting fee is comprised of 82,104 euros, 176,400 Swiss Francs and 120,000Hungarian forints. 75Table of ContentsAnnual Cash BonusIn addition to the base salary, we believe that it is important to incentivize short-term performance by compensating our named executive officers basedupon their individual accomplishments and the general performance of the company under their leadership.For 2011, the overall bonus pool and the individual bonus payments and variable consulting fees were not based on formulaic performance metrics.Instead, bonuses or variable consulting fees were awarded on a discretionary basis by our CEO (other than for himself) in consultation with the compensationcommittee, generally based on the company’s performance, combined with an objective and subjective evaluation of individual performance. The amount ofour CEO’s 2011 bonus was determined by the compensation committee, based on company and individual performance. The aggregate amount of the bonuspayments and variable consulting fees paid to our NEOs in 2011 represented 0.4% of revenues. We believe the responsible exercise of discretion andconsideration of a broad range of factors enables us to retain the flexibility to appropriately reward individual performance while conserving the cash we needas a public company for operational purposes.The following table sets forth the amounts of the annual bonuses or variable consulting fees earned by our NEOs in 2011. Name 2011 Bonus or VariableConsulting Fee Arkadiy Dobkin, Chief Executive Officer and President $490,000 Ilya Cantor, Senior Vice President, Chief Financial Officer and Treasurer $220,000 Karl Robb, President of EU Operations and Executive Vice President $350,000(1) Balazs Fejes, Chief Technology Officer $250,000(1) Ginger Mosier, Vice President, General Counsel and Corporate Secretary $75,000 (1)These amounts reflect the variable consulting fees that were paid directly to Landmark Business Development Limited, Mr. Robb’s direct employer, andRedlodge Holdings Limited, Mr. Fejes’ direct employer, and as such are reported in the “All Other Compensation” column of the SummaryCompensation Table.The amount of each of the bonuses or variable consulting fees was determined based on the following company-wide performance: • 2011 revenue growth of 50.8% over 2010; and • 2011 income from operations growth of 67.8%; and • 2011 net income growth of 56.7% over 2010.In addition, the bonus or variable consulting fee for each of our NEOs was based on the following considerations of individual performance: • Mr. Dobkin’s exemplary leadership of the business culminating in a successful initial public offering, as well as the continuing rapid expansionof the business and customer base during 2011; • Mr. Robb’s overall leadership and contribution to the European segment’s 80.5% growth in revenue and 66.7% growth in operating profit over2010; • Mr. Fejes’ contributions to the 62% growth in one of our largest accounts and for his role in overseeing the excellent technology infrastructurewhich supports our delivery efforts; • Mr. Cantor’s continuous efforts to improve the company’s internal systems and controls and his exemplary work in organizing and implementingour initial public offering; 76Table of Contents • Ms. Mosier’s continued efforts to improve the company’s internal legal systems, outstanding support for executing commercial contracts and thesignificant contribution to the company’s initial public offering process.In addition, in June 2011, Ms. Mosier received a special bonus in the amount of $10,000 for her work related to the preparation of our registrationstatement on Form S-1 related to our initial public offering.Equity AwardsHistorical Equity AwardsTo reward and retain our NEOs in a manner that best aligns their interests with stockholders’ interests, we use stock options as the primary incentivevehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholdervalue because the value of the stock options is tied to our future performance. Because employees are able to profit from stock options only if our stock priceincreases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value ofour stock over time. In addition, stock option awards generally vest ratably over four years, which enhances their retentive value.We generally use stock options to compensate our NEOs, both in the form of initial grants in connection with the commencement of employment andadditional or “refresher” grants. In 2011, however, our NEOs did not receive any equity grants.In 2010, Ms. Mosier received an option award in connection with the commencement of her employment, Mr. Cantor received a refresher grant, andMessrs. Fejes and Robb each received an option grant for the first time as part of their total compensation. To date, there has been no set program for the awardof refresher grants, and our compensation committee retains discretion to make stock option awards to employees at any time, on the recommendation of ourCEO, including in connection with the promotion of an employee, to reward an employee’s performance, for retention purposes or for other circumstancesrecommended by management.In 2010, stock option grants were made under the 2006 Stock Option Plan, or the 2006 Plan, to our NEOs in the amounts set forth in the table below. Name Number ofOptions Granted Arkadiy Dobkin, Chief Executive Officer and President 0 Ilya Cantor, Senior Vice President, Chief Financial Officer and Treasurer 107,152 Karl Robb, President of EU Operations and Executive Vice President 160,000 Balazs Fejes, Chief Technology Officer 160,000 Ginger Mosier, Vice President, General Counsel and Corporate Secretary 35,720 The stock options granted to our NEOs in 2010 vest in equal installments of 25% on each of January 1, 2011, 2012, 2013 and 2014. Under the termsof the 2006 Plan, the compensation committee has the discretion to accelerate the vesting of these stock options in the event of a change in control of thecompany. Although Mr. Dobkin was not granted any stock options in 2010, he has a sizable direct stock ownership in the company.2012 Awards and 2012 Long Term Incentive PlanOn January 16, 2012, we granted 194,800 shares of restricted stock to Mr. Robb. These restricted shares vested 25% on January 16, 2012 and arescheduled to vest 25% on each of January 1, 2013, 2014 and 2015. On termination of Mr. Robb’s service to the company with Cause or without Good Reason(in each case, as defined in the award agreement), any unvested restricted shares will be forfeited. In addition, under the restricted stock award agreement,Mr. Robb is subject to perpetual confidentiality and non-disclosure obligations as well as non-competition and employee and customer non-solicitationobligations that survive for a period of 12 months after the termination of service to the company. 77Table of ContentsOn January 11, 2012, we adopted our 2012 Long Term Incentive Plan, or the 2012 Plan, which permits us to grant stock options, restricted stock,restricted stock units or other types of equity awards to employees of the company, including our NEOs, as the compensation committee deems appropriate.On March 19, 2012 we made equity grants of service-vesting non-qualified stock options to Messrs. Fejes and Cantor and Ms. Mosier (“2012 Grants”)pursuant to awards issued under the 2012 Plan as part or our annual compensation process. The stock options have an exercise price of $16.80, which is theclosing price of a share of our common stock on the trading day prior to the grant date.The following table sets forth the amounts of stock option grants made to our NEOs on March 19, 2012. Name Number ofOptions Granted Arkadiy Dobkin, Chief Executive Officer and President — Ilya Cantor, Senior Vice President, Chief Financial Officer and Treasurer 11,200 Karl Robb, President of EU Operations and Executive Vice President — Balazs Fejes, Chief Technology Officer 11,200 Ginger Mosier, Vice President, General Counsel and Corporate Secretary 9,100 The following terms apply to the 2012 Grants. These stock options will vest 25% on each of March 19, 2013, 2014, 2015 and 2016 and will expire onMarch 19, 2022, the tenth anniversary of the grant date. The options are not transferable prior to exercise, other than by laws of descent or distribution or inconnection with any award transfer program adopted by us. After exercise, the shares are transferable subject to any applicable lock up agreement andsecurities laws.If an NEO’s employment or service terminates due to death or Disability (see definition below), unless otherwise determined by our compensationcommittee or our board of directors in its sole discretion, unvested stock options covered by the 2012 Grant will be forfeited, and vested options will remainexercisable for one year following such termination. If an NEO’s employment or service is terminated by us for Cause (see definition below), unexercisedoptions covered by the 2012 Grant, whether vested or unvested, will be forfeited. If an NEO’s employment or service is terminated by us without Cause or bythe NEO for Good Reason (see definition below) on or within two years after a Change in Control (see definition below), any unvested options will vest, andthe options will remain exercisable for 90 days. If an NEO’s employment or service is terminated for any other reason, unless otherwise determined by ourcompensation committee or our board of directors in its sole discretion, unvested options will be forfeited, and vested options will remain exercisable for 90days.“Disability” generally means “Disability” as defined in the executive’s employment or consulting agreement or, if not so defined, except as otherwiseprovided in the applicable award agreement: • a permanent and total disability that entitles the executive to disability income payments under any long-term disability plan or policy provided byus under which the executive is covered, as such plan or policy is then in effect; or • if the executive is not covered under a long-term disability plan or policy provided by us at such time for whatever reason, then “Disability”means a “permanent and total disability” as defined in Section 22(e)(3) of the Internal Revenue Code and, in this case, the existence of any suchDisability will be certified by a physician acceptable to us.“Cause” generally means our good faith determination of the executive’s: • willful material breach or habitual neglect of the executive’s duties or obligations in connection with the executive’s employment or service; • having engaged in willful misconduct, gross negligence or a breach of fiduciary duty, or the executive’s willful material breach of his or her dutiesto the company or under his or her employment or consulting agreement, if applicable, or of any of our policies; 78Table of Contents • having been convicted of, or having entered a plea bargain or settlement admitting guilt for, a felony or any other criminal offense involving moralturpitude, fraud or, in the course of the performance of the executive’s service to the company, material dishonesty; • unlawful use or possession of illegal drugs on our premises or while performing his or her duties and responsibilities; or • commission of an act of fraud, embezzlement or material misappropriation, in each case, against us or any of our affiliates.In the case of the executive’s willful breach or habitual neglect of his or her duties or obligations, willful misconduct, gross negligence or a breach offiduciary duty, or the executive’s willful breach of his or her employment or consulting agreement or any of our policies, we will provide the executive withwritten notice specifying the circumstances alleged to constitute Cause, and, if possible, the executive will have 30 days following receipt of such notice to curesuch circumstances.“Good Reason” generally means “Good Reason” as defined in the executive’s employment or consulting agreement, if any, or if not so defined, theoccurrence of any of the following events, in each case without the executive’s consent: • a reduction in the executive’s base compensation and cash incentive opportunity, other than any such reduction that applies generally to similarlysituated employees or executives; • relocation of the geographic location of the executive’s principal place of employment or service by more than 50 miles from his or her principalplace of employment or service; or • a material reduction in the executive’s title, duties, responsibilities or authority.In each case, the executive must provide us with written notice specifying the circumstances alleged to constitute Good Reason within 90 days followingthe first occurrence of such circumstances, and if possible, we will have 30 days following receipt of such notice to cure such circumstances. If we have notcured such circumstances within such 30-day period, the executive must terminate his or her employment or service not later than 60 days after the end ofsuch 30-day period.“Change in Control” generally means the occurrence any one or more of the following events: • the acquisition of 50% or more of the combined voting power of our outstanding securities entitled to vote generally in the election of directors; • the replacement of the majority of our directors during any 24-month period (other than by directors approved by at least a majority of ourremaining directors); • the consummation of our or any of our subsidiaries’ merger or consolidation with any other corporation or entity (unless our or our subsidiary’svoting securities outstanding immediately prior to such transaction continue to represent at least 50% of the combined voting power and total fairmarket value of the securities of our company or of the surviving entity or its ultimate parent outstanding immediately after such merger orconsolidation); or • any sale, lease, exchange or other transfer to any person (other than our affiliate) of our assets and/or assets of any of our subsidiaries, in onetransaction or a series of related transactions, having an aggregate fair market value of more than 50% of the fair market value of our companyand our subsidiaries immediately prior to such transaction or transactions, but only to the extent that, in connection with such transaction ortransactions or within a reasonable period thereafter, our stockholders receive distributions of cash and/or assets having a fair market value that isgreater than 50% of the fair market value of our company immediately prior to such transaction or transactions. 79Table of ContentsPerquisitesWe do not provide significant perquisites to our NEOs, because we believe that our compensation objectives are better achieved as a result of thecompensation elements described above. However, there is no firm policy against the provision of such perquisites and our current stance on perquisites maybe re-evaluated at a later date as necessary to ensure that we can attract, retain, and properly motivate our NEOs.Retirement and Other Broad-based Employee BenefitsWe have established a 401(k) retirement plan, which is a tax-qualified self funded retirement plan, in which our U.S. employees, including Messrs.Dobkin and Cantor and Ms. Mosier, may participate. We do not make any employer contributions to the 401(k) retirement plan. Other benefits in which ourU.S. employees, including Messrs. Dobkin and Cantor and Ms. Mosier, may participate include group health insurance (including medical, dental andvision), long and short term disability, group life, AD&D and paid time off. Mr. Robb receives lump sum cash payments in amounts sufficient to cover thecost of obtaining health insurance. Mr. Fejes receives health insurance benefits and a pension contribution that is mandatory under Swiss law. We do notmaintain any defined benefit pension plans or any nonqualified deferred compensation plans although, as noted above, we do make pension plancontributions for Mr. Fejes under Swiss law.Compensation Risk AssessmentOur management team has reviewed our compensation policies and practices for all of our employees with our board of directors. The board of directorshas determined, based on this review, that our compensation policies and practices are not reasonably likely to have a material adverse effect on our company.Severance and Change in Control ArrangementsDuring 2011, none of our NEOs were entitled to protections on a termination of employment or service or a change in control. As a result, the terminationof employment of a NEO and/or a change in control would not have entitled any NEO to the acceleration of any unvested equity interest or any other paymentsor benefits. However, as noted above, on a change in control, the compensation committee may in its discretion accelerate the vesting of any unvested stockoptions issued under the 2006 Plan.Employment Agreements and Other ArrangementsAlthough they are not currently party to employment or consulting agreements with us (other than a standard employment agreement that Mr. Fejes hasentered into with a Swiss sub-entity under Swiss law), pursuant to the terms of the consultancy agreements previously entered into, Messrs. Robb and Fejesare subject to certain confidentiality obligations that survived the expiration of those agreements. Under such obligations, Messrs. Robb and Fejes agree thatthey will not disclose any confidential information relating to us or our business and assign to us their rights to any intellectual property developed within thecourse of their service to us. Mr. Dobkin is subject to similar confidentiality obligations pursuant to an employment agreement he previously entered into andwhich has since expired and that is briefly described below under “— Potential Payments on Termination and Change in Control.”In addition, Ms. Mosier and Mr. Cantor each entered into a non-disclosure and non-solicitation agreement in connection with the commencement of theirrespective employment. Pursuant to these agreements, Ms. Mosier and Mr. Cantor are subject to perpetual confidentiality obligations and employee andcustomer non-solicitation obligations that survive for a period of 12 months after the termination of employment. Mr. Fejes also entered into an agreement inconnection with his option grant, under which he is subject to a perpetual non-disclosure obligation and non-solicitation and non-compete obligations, whichsurvive for a period of 12 months after the 80Table of Contentstermination of employment. Mr. Robb is subject to certain noncompetition, non-solicitation and non-disclosure obligations set forth in his restricted stockagreement. See “— Elements of Compensation — Equity Awards.”Tax Deductibility of Executive CompensationSection 162(m) of the Internal Revenue Code, or the Code, limits to $1 million the federal income tax deduction for compensation paid to any namedexecutive officer of a publicly held corporation, other than the chief financial officer. Compensation in excess of $1 million a year may nonetheless be deductedif such compensation is “performance based” within the meaning of the Code. As a newly public company, our compensation plans and arrangements aregenerally exempt from the application of Section 162(m) until our 2016 annual meeting of shareholders.To the extent 162(m) does apply to any compensation paid by the company, we expect that although we will consider deductibility when structuring thecompensation arrangements of our NEOs, we may in certain circumstances award compensation that is not deductible when such payments are appropriate toattract and retain executive talent.Other provisions of the Code can also affect compensation decisions. Section 409A of the Code, which governs the form and timing of payment ofdeferred compensation, imposes sanctions, including a 20% penalty and an interest penalty, on the recipient of deferred compensation that does not complywith Section 409A. The compensation committee will take into account the implications of Section 409A in determining the form and timing of compensationawarded to our executives and will strive to structure any nonqualified deferred compensation plans or arrangements to be exempt from or to comply with therequirements of Section 409A.Section 280G of the Code disallows a company’s tax deduction for payments received by certain individuals in connection with a change in control tothe extent that the payments exceed an amount approximately three times their average annual compensation, and Section 4999 of the Code imposes a 20%excise tax on those payments. The compensation committee will take into account the implications of Section 280G in determining potential payments to bemade to our executives in connection with a change in control. Nevertheless, to the extent that certain payments upon a change in control are classified as excessparachute payments, such payments may not be deductible pursuant to Section 280G.Compensation Committee Interlocks and Insider ParticipationThe compensation committee’s members are Andrew J. Guff, Robert Segert and Donald P. Spencer. Mr. Dobkin served as a member of ourcompensation committee during 2011 but has stepped down from the compensation committee in connection with our initial public offering, which closed inFebruary 2012. Other than Mr. Dobkin, who during 2011 served and currently continues to serve as our Chief Executive Officer, no member of thecompensation committee is or was during 2011 an employee, or is or ever has been an officer, of our company. None of our executive officers has servedduring 2011 as a director or a member of the compensation committee of another company, one of whose executive officers serves as a member of our board orcompensation committee.Compensation Committee ReportWe have reviewed and discussed with management the Compensation Discussion and Analysis set forth above in this annual report. Based upon ourreview and discussion with management, we have recommended to the board of directors that the Compensation and Discussion and Analysis be included inthis Annual Report on Form 10-K for the year ended December 31, 2011.Respectfully submitted,Andrew J. Guff, ChairRobert SegertDonald P. Spencer 81Table of Contents2011 Summary Compensation TableThe following table summarizes the compensation of our named executive officers, or NEOs, for 2011. Our NEOs are our Chief Executive Officer,Chief Financial Officer, and the three other most highly compensated executive officers as determined by their total compensation set forth in the table below. Name and Principal Position Year Salary($) Bonus($) Option Awards($)(3) All OtherCompensation($) Total($) Arkadiy Dobkin Chief Executive Officer and President 2011 260,000 490,000 — — 750,000 2010 260,000 200,000 — — 460,000 Ilya Cantor(1) Senior Vice President, Chief Financial Officer andTreasurer 2011 240,000 220,000 — — 460,000 2010 240,000 100,000 270,083 — 610,083 Karl Robb President of EU Operations and Executive Vice President 2011 — — — 623,969(4)(5) 623,969 2010 — — 441,993 562,688(4)(5) 1,004,681 Balazs Fejes Chief Technology Officer 2011 200,232(6) — — 364,350(6)(7) 564,582 2010 170,055(6) — 441,993 319,035(6)(7) 931,083 Ginger Mosier Vice President, General Counsel and Corporate Secretary 2011 178,333(8) 85,000(2) — — 263,333 2010 141,667(9) 40,000 90,028 — 271,695 (1)On March 1, 2012, Mr. Cantor became our Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Cantor served as our VicePresident, Chief Financial Officer and Treasurer.(2)For Ms. Mosier, the total bonus includes a special bonus of $10,000, which she received in June 2011 for the work related to the preparation of ourregistration statement on Form S-1 related to our initial public offering.(3)The amounts in this column represent the aggregate grant date fair value of the option awards granted to Messrs. Cantor, Robb and Fejes andMs. Mosier in 2010, computed in accordance with FASB ASC Topic 718. We provide information regarding the assumptions used to calculate the valueof these option awards in Note 13 to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. There can beno assurance that these awards will vest or will be exercised (in which case no value will be realized by the individual), or that the value upon exercisewill approximate the aggregate grant date fair value.(4)For Mr. Robb, this table represents the U.S. dollar equivalent of amounts earned in euros and Belarusian rubles. For 2010, the applicable exchange rateswere $1.33 per euro and $0.00033 per Belarusian ruble. For 2011, the applicable exchange rates were $1.40 per euro and $0.00021 per Belarusian ruble.(5)Mr. Robb provides services to the company in his capacity as a consultant. For 2010, this amount represented amounts of $262,688 and $300,000,which were a fixed consulting fee and a variable consulting fee, respectively, and were paid directly to his direct employer, Landmark BusinessDevelopment Limited. For 2011, this amount represented the amounts of $273,969 and $350,000, which were a fixed consulting fee and a variableconsulting fee, respectively, and were paid directly to his direct employer, Landmark Business Development Limited.(6)For Mr. Fejes, this table represents the U.S. dollar equivalent of amounts earned in euros, Swiss francs and Hungarian forints. For 2010, the applicableexchange rates were $1.33 per euro, $0.96 per Swiss franc, and $0.0048 per Hungarian forint. For 2011, the applicable exchange rates were $1.40 pereuro, $1.13 per Swiss franc, and $0.0050 per Hungarian forint. 82Table of Contents(7)Mr. Fejes provides services to the company partially in his capacity as a consultant and partially in his capacity as an employee. For 2010, the amountincluded under “All Other Compensation” represented amounts of $109,035 and $210,000, which were a fixed consulting fee and a variable consultingfee, respectively, and were paid directly to his direct employer, Redlodge Holdings Limited. For 2011, the amount included under “All OtherCompensation” represented amounts of $114,350 and $250,000, which were a fixed consulting fee and a variable consulting fee, respectively, and werepaid directly to his direct employer, Redlodge Holdings Limited.(8)This amount represents the base salary that Ms. Mosier received in 2011. Her current annual base salary rate is $180,000, which reflects an increasefrom the $170,000 rate effective as of March 1, 2011.(9)This amount is pro-rated to reflect a partial year of service at the company, from March 1, 2010 to December 31, 2010. Ms. Mosier’s annualized salaryfor 2010 was $170,000.2011 Grants of Plan-Based AwardsNone of our NEOs received any equity grants in 2011.Outstanding Equity Awards at December 31, 2011The following table summarizes the number of shares of common stock underlying outstanding stock option awards for each NEO as of December 31,2011. Option Awards Name Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable(#) Number ofSecuritiesUnderlyingUnexercisedOptionsUnexercisable(#) Option ExercisePrice($) OptionExpirationDate Arkadiy Dobkin — — — — Ilya Cantor 112,000 0 1.52 01/20/2016 96,000 0 2.76 02/22/2017 26,800 80,352(1) 6.88 08/13/2020 Karl Robb 40,000 120,000(1) 4.63 08/13/2020 Balazs Fejes 40,000 120,000(1) 4.63 08/13/2020 Ginger Mosier 8,936 26,784(1) 6.88 08/13/2020 (1)The options vest in four equal installments, with 25% vesting on each of January 1, 2011, 2012, 2013 and 2014.2011 Option Exercises and Stock VestedNone of our NEOs exercised stock options in 2011.2011 Pension BenefitsWe do not maintain any defined benefit pension plans, although, as discussed under “— Elements of Compensation — Retirement and Other Broad-based Employee Benefits,” we do make contributions to a pension plan for Mr. Fejes under Swiss law.2011 Nonqualified Deferred CompensationWe do not maintain any nonqualified deferred compensation plans.Potential Payments on Termination and Change in ControlNone of our NEOs would have been entitled to receive any payments or benefits had his or her employment or service terminated or had we undergone achange in control, in each case on December 31, 2011. Mr. Dobkin’s employment agreement, which entitled him to certain payments and benefits on specifiedterminations of employment, expired on January 20, 2011. As noted above, however, the compensation committee has the discretion to accelerate the vesting ofoutstanding stock options under the 2006 Stock Option Plan on a change in control. 83Table of Contents2011 Director CompensationThe following table lists the individuals who served as our non-employee directors during 2011. None of our non-employee directors earned any cash orequity-based compensation for their services on our board during 2011. See “Management — Board Structure and Compensation of Directors” for adiscussion of how we will compensate our non-employee directors now that we are a public company. We have not compensated and do not expect tocompensate our employee directors for their service on our board of directors. Name Fees Earnedor Paid inCash($) Stock Awards($) OptionAwards($) Non-EquityIncentive PlanCompensation($) Change inPension Valueand Non-qualifiedDeferredCompensationEarnings All OtherCompensation($) Total($) Drew Guff — — — — — — — Donald Spencer — — — — — — — Ross Goodhart — — — — — — — Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe following table sets forth information regarding beneficial ownership of our common stock as of March 15, 2012, by: • each person whom we know to own beneficially more than 5% of our common stock; • each of our directors and named executive officers individually; and • all directors and executive officers as a group.In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares ofcommon stock issuable pursuant to stock options that are exercisable within 60 days of March 15, 2012. Shares of common stock issuable pursuant tostock options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage ofany other person. 84Table of ContentsUnless otherwise indicated, the address for each listed stockholder is: c/o EPAM Systems, Inc., 41 University Drive, Suite 202, Newtown,Pennsylvania 18940. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the personsnamed in the table have sole voting and investment power with respect to all shares of common stock. To our knowledge, except as indicated in the footnotes tothis table, the shares of common stock owned by our directors and executive officers are not pledged to secure obligations owed to others. Shares Beneficially Owned Name and Address of Beneficial Owner Number Percent Named Executive Officers and Directors Arkadiy Dobkin 5,121,410 12.1 Karl Robb(5) 942,927 2.2 Ilya Cantor(1) 243,920 * Balazs Fejes(6) 628,649 1.5 Ginger Mosier(2) 16,656 * Andrew J. Guff(3) 17,939,673 42.3 Donald P. Spencer(3) 17,939,673 42.3 Ross Goodhart — — Ronald Vargo 5,882 * Robert Segert 5,882 * All executive officers and directors as a group (10 people) 24,904,997 58.2 5% Stockholders Affiliates of Siguler Guff & Company(3) 17,939,673 42.3 Rainmeadow Holdings Limited(4) 2,615,952 6.2 Leonid Lozner 2,535,758 6.0 *Denotes less than 1% of the shares of common stock beneficially owned.(1)Represents shares of common stock issuable upon exercise of options exercisable within 60 days of March 15, 2012.(2)Represents shares of common stock issuable upon exercise of options exercisable within 60 days of March 15, 2012.(3)Includes (i) 10,656,979 shares of common stock owned by Russia Partners II, LP (“RP II”); (ii) 6,458,749 shares of common stock owned by RussiaPartners II EPAM Fund, LP (“RP II EPAM”); (iii) 315,969 shares of common stock owned by Russia Partners II EPAM Fund B, LP (“RP II EPAMB”) and (iv) 507,976 shares of common stock owned by Russia Partners III, LP (“RP III” and collectively with RP II, RP II EPAM and RP II EPAM B,the “Siguler Guff Holders”). Russia Partners Capital II M, LLC is the general partner of RP II, Russia Partners Capital II E, LLC is the general partnerof RP II EPAM and of RP II EPAM B, and Russia Partners Capital III, LLC is the general partner of RP III. Andrew J. Guff and Donald P. Spencer arethe managing directors of each of Russia Partners Capital II M, LLC, Russia Partners Capital II E, LLC and Russia Partners Capital III, LLC and maybe deemed to have voting and investment control over the shares of our common stock held by the Siguler Guff Holders. The Siguler Guff Holders areall managed by Russia Partners Management, LLC, whose investment committee of Andrew J. Guff, George W. Siguler and Vladimir Andrienko, mayalso be deemed to have voting and investment control over the shares of our common stock held by the Siguler Guff Holders. The Siguler Guff Holders,their general partners and their manager are all affiliates of Siguler Guff & Company. Each of Russia Partners Capital II M, LLC, Russia PartnersCapital II E, LLC, Russia Partners Capital III, LLC, Russia Partners Management, LLC and Messrs. Guff, Spencer, Siguler and Andrienko disclaimsbeneficial ownership of any shares of our common stock owned of record by the Siguler Guff Holders, except to the extent of any pecuniary interesttherein. Ross Goodhart, one of our directors, is an officer of affiliates of the Siguler Guff Holders. The address of each of the Siguler Guff Holders,Russia Partners Capital II M, LLC, Russia Partners Capital II E, LLC, Russia Partners Capital III, LLC, Russia Partners Management, LLC andMessrs. Guff, Spencer, Siguler and Andrienko is c/o Siguler Guff & Company, LP, 825 Third Avenue, 10th Floor, New York, NY 10022. 85Table of Contents(4)Rainmeadow Holdings Limited is a wholly-owned subsidiary of VTB Capital PE Investment Holding (Cyprus) Limited (“VTBC PE Investment”).VTBC PE Investment is a wholly-owned subsidiary of VTB Capital Private Equity Holding AG (“VTBC Private Equity”). VTBC Private Equity is awholly-owned subsidiary of CJSC VTB Capital Holding and CJSC VTB Capital Holding is a wholly-owned subsidiary of JSC VTB Bank and ispart of the VTB Capital group (“VTB Capital”), a group of affiliated entities all owned by JSC VTB Bank. Voting and investment decisions over ourshares of common stock owned by Rainmeadow Holdings Limited is subject to approval by several investment and risk management committees ofVTB Capital, and carried out by Yuri Soloviev and Svetlana Fedorenko, directors of VTBC Private Equity, making recommendations to the directorsof Rainmeadow Holdings Limited, currently Harris Demetriadis and Demetrios Demetriades. Each of Yuri Soloviev, Svetlana Fedorenko, HarrisDemetriadis and Demetrios Demetriades disclaims beneficial ownership of our shares of common stock owned by Rainmeadow Holdings Limited intheir individual capacities. The address of VTBC Private Equity Holding, Mr. Soloviev and Mrs. Fedorenko is c/o VTB Capital Private EquityHolding AG, 4 Lindenstrasse, 6340 Baar, Switzerland and the address of Rainmeadow Holdings Limited is Thasou, 3, Dadlow House, P.C. 1520,Nicosia, Cyprus. Rainmeadow Holdings Limited is an affiliate of VTB Capital Inc., a broker-dealer. Rainmeadow Holdings Limited purchased thesecurities in the ordinary course of business and, at the time of the purchase of the securities to be resold, had no agreements or understandings, directlyor indirectly, with any person to distribute the securities.(5)Includes 191,512 shares of common stock owned by Mr. Robb, 74,600 shares of common stock issuable to Mr. Robb upon exercise of optionsexercisable within 60 days of March 15, 2012 and 676,815 shares of common stock owned by Landmark. Karl Robb, as the shareholder ofLandmark, and David Bryant and Anne-Marie Compton, as the directors of Landmark, may be deemed to have voting and dispositive control over theshares of our common stock held by Landmark. Each of Mr. Bryant and Ms. Compton disclaim beneficial ownership of any shares of our commonstock owned of record by Landmark. The address of Landmark is 11 Bath Street, St. Helier, Jersey, JEZ 4ST, Channel Islands. Landmark providesconsultancy services to us.(6)Includes 74,600 shares of common stock issuable to Mr. Fejes upon exercise of options exercisable within 60 days of March 15, 2012 and 554,049shares of common stock owned by Redlodge Holdings Limited. Mr. Fejes, our Chief Technology Officer, and Stelios Savvides is each a director ofRedlodge Holdings Limited and may be deemed to have voting and dispositive control over the shares of our common stock held by Redlodge HoldingsLimited. The address of Redlodge Holdings Limited is 229 Arch. Makarios III Avenue, Meliza Court, 4th Floor, 3105 Limassol, Cyprus. Redlodgeprovides consultancy services to us. 86Table of ContentsEquity Compensation Plan InformationThe following table summarizes the total shares of our common stock that may be received upon exercise by holders of options outstanding as ofDecember 31, 2011, the weighted average exercise price of those outstanding options, and the number of shares of our common stock that remained availablefor future issuance under our 2006 Stock Option Plan as of December 31, 2011, which, at the end of 2011, was our only equity compensation plan. Plan Category Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights Weighted-averageexercise price ofoutstanding options,warrants and rights Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column(a))(1) (a) (b) (c) Equity compensation plans approved by our stockholders 6,595,136 $4.65 733,808 Equity compensation plans not approved by our stockholders — — — Total 6,595,136 $ 4.65 733,808 (1)As of February 13, 2012, which was the closing date of our initial public offering, no new awards can be made under the 2006 Stock Option Plan.Item 13. Certain Relationships and Related Transactions, and Director IndependenceOur Related Person Transaction PolicyOur board of directors adopted a written policy with respect to related party transactions in January 2012. Under such related person transaction policy,a “Related Person Transaction” is any transaction, arrangement or relationship involving us in which a Related Person has a direct material interest. A “RelatedPerson” is any of our executive officers, directors or director nominees, any stockholder beneficially owning in excess of 5% of our stock or securitiesexchangeable for our stock and any immediate family member of any of the foregoing persons.Pursuant to such related person transaction policy, any Related Person Transaction, including any arrangement or transaction existing on the date of ourinitial public offering that is expected to continue in the future, must be approved or ratified by our board of directors or a designated committee thereofconsisting solely of independent directors. In determining whether to approve or ratify a transaction with a Related Person, our board of directors or thedesignated committee of independent directors will consider all relevant facts and circumstances, including without limitation the commercial reasonablenessof the terms, the benefit and perceived benefit, or lack thereof, to us, opportunity costs of alternate transactions, the materiality and character of the RelatedPerson’s direct or indirect interest, and the actual or apparent conflict of interest of the Related Person. Our board of directors or the designated committee ofindependent directors will not approve or ratify a Related Person Transaction unless it has determined that, upon consideration of all relevant information,such transaction is in, or not inconsistent with, the best interests of us and our shareholders.Below are historical transactions with Related Persons that we believe will continue in the future, subject to our related person transaction policy andsubject to approval or ratification by our board of directors or a designated committee thereof consisting solely of independent directors. Our board of directorsapproved such transactions at the time they were entered into and we believe that each of these transactions were in the best interests of us and our shareholdersat the time they were entered into. 87Table of ContentsRegistration Rights AgreementsUnder the terms of the Amended and Restated Registration Rights Agreement dated February 19, 2008 with our Series A-1 and Series A-2 preferredstockholders and certain common stockholders and the Registration Rights Agreement dated April 26, 2010 with our Series A-3 preferred stockholders,referred to together as the Registration Rights Agreements, our preferred stockholders and certain common stockholders, including Arkadiy Dobkin, KarlRobb and Balazs Fejes, are each entitled to certain registration rights, including demand registration rights.Holders of approximately 23,783,967 shares of our common stock have the right to require us to register the sales of their shares of common stockunder the Securities Act, pursuant to the terms of the Registration Rights Agreements between us and the holders of these securities. Subject to limitationsspecified in such agreements, these registration rights include:Demand registration rights. Holders of a majority of our registrable preferred securities, that were converted into our common stock in connection withour initial public offering, subject to each of the Registration Rights Agreements can request us to file with the SEC and cause to be declared effective aregistration statement covering the resale of all or any portion of the shares of registrable securities that they hold, as long as the anticipated gross proceeds ofsuch offering and registration will be at least $7 million. In addition, holders of registrable preferred securities that did not participate in our initial publicoffering can request us to file with the SEC and cause to be declared effective a registration statement covering the resale of all or any portion of the shares ofregistrable securities that they hold, as long as the anticipated gross proceeds of such offering and registration will be at least $7 million. We are only obligatedto register the registrable securities on three occasions, however our board may, in its good faith judgment, defer any filing for 90 days (which deferral may notbe used more than once in any 12-month period). Furthermore, at any time, the holders of the registrable securities held by parties to the Registration RightsAgreements can require us to file with the SEC and cause to be declared effective (if we are eligible) a short-form registration statement on Form S-3 coveringthe resale of all or any portion of shares of registrable securities held by such persons, except if we have already effected two registration statements on Form S-3 in that year, if the anticipated gross proceeds of such offering and registration would not exceed $1 million or if Form S-3 is not available to us.Piggyback registration rights. If we register any of our securities under the Securities Act for sale to the public, either for our own account or for theaccount of other security holders or both, the holders of shares of registrable securities party to the Registration Rights Agreements are entitled to notice of theintended registration and to include any or all of their registrable securities in the registration.Limitations and expenses. With specified exceptions, a stockholder’s right to include shares in an underwritten registered offering is subject to the rightof the underwriters to limit the number of shares included in such offering. We are generally required to pay all expenses of registration, including the fees andexpenses of legal counsel for us and for the selling stockholders, but excluding underwriters’ discounts and commissions.All registration rights for a holder under the Registration Rights Agreements terminate on the date when all such holder’s registrable securities can beresold pursuant to Rule 144(b)(1) under the Securities Act. Furthermore, as a result of the transfer restrictions contained within various lock-up agreementsand within each of the Registration Rights Agreements, the earliest that holders may exercise these rights is 181 days after the date of our initial public offering,which will be in August 2012.Indemnification AgreementsOur certificate of incorporation includes provisions that authorize and require us to indemnify our officers and directors to the fullest extent permittedunder Delaware law, subject to limited exceptions. We have entered into separate indemnification agreements with each of our directors and executive officers.These agreements 88Table of Contentswill require us to indemnify these individuals to the fullest extent permitted by applicable law against liabilities that may arise by reason of their service to us,and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.Director IndependenceThe provisions of our Corporate Governance Guidelines regarding director independence meet the listing standards of the NYSE. These provisions areincluded in Section 2 to our Corporate Governance Guidelines, which are available through the Investor Relations section of our website athttp://investors.epam.com. Additionally, we have regularly scheduled executive sessions of the nonmanagement/independent directors. The procedure bywhich a presiding director is chosen for each session can also be found in our General Counsel and Corporate Governance Guidelines found on our website.All interested parties (not just shareholders) can communicate directly with the presiding director, as applicable, or with the nonmanagement/independentdirectors as a group by writing to our Corporate Secretary at 41 University Drive, Suite 202, Newtown, Pennsylvania 18940. The information on our websiteis not incorporated by reference into this proxy statement.Further information on director independence is set forth in “Item 10. Directors, Executive Officers and Corporate Governance — CorporateGovernance.”Item 14. Principal Accountant Fees and ServicesThe following table presents aggregate fees billed to us for the years ended December 31, 2011 and 2010, for professional services rendered by Deloitte &Touche LLP, Deloitte and Touche Kft, Deloitte and Touche AB, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates(collectively, the “Deloitte Entities”), our principal accountant for the audit of our annual financial statements and review of our interim financial statements. 2011 2010 (in thousands) Audit Fees $1,569 $627 Audit-Related Fees — — Tax Fees — — All Other Fees 108 111 Total Fees $1,677 $738 Audit Fees. Audit fees consisted of fees billed by Deloitte Entities for professional services rendered in connection with the audit and quarterly reviews ofour audited consolidated financial statements. Such fees included fees associated with the preparation and review of the registration statement on Form S-1relating to our initial public offering.All Other Fees. All other fees primarily consist of fees billed for professional services rendered in connection with SAS 70, ISAE 3000 and ISO 27001audits.Pre-Approval Policies and ProceduresOur audit committee has established procedures for pre-approval of audit and non-audit services as set forth in the audit committee charter. The auditcommittee pre-approves all services performed by Deloitte Entities and discloses such fees under the headings “Audit-Related Fees,” “Tax Fees” and “All OtherFees” above. The audit committee considers whether the provision of the services disclosed under the headings “Audit-Related Fees,” “Tax Fees” and “AllOther Fees” is compatible with maintaining Deloitte Entities’ independence and has so determined that the services provided by Deloitte Entities are compatiblewith maintaining Deloitte Entities’ independence. The audit committee pre-approved audit and non-audit services provided to the Company by Deloitte Entitiesin fiscal year 2011. 89Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules (a)We have filed the following documents are part of this annual report: 1.Audited Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2011 and 2010 F-3 Consolidated Statements of Income for Years Ended December 31, 2011, 2010 and 2009 F-4 Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity for Years Ended December 31, 2011,2010 and 2009 F-5 Consolidated Statements of Cash Flows for Years Ended December 31, 2011, 2010 and 2009 F-7 Notes to Consolidated Financial Statements for Years Ended December 31, 2011, 2010 and 2009 F-8 2.Financial Statement SchedulesFinancial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notesthereto. 3.ExhibitsA list of exhibits required to be filed as part of this annual report is set forth in the Exhibit Index, which immediately precedes such exhibits and isincorporated herein by reference. 90Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized, on the 30 day of March, 2012. EPAM SYSTEMS, INC.By: /s/ Arkadiy Dobkin Name: Arkadiy Dobkin Title: Chairman, Chief Executive Officer andPresidentPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date/s/ Arkadiy DobkinArkadiy Dobkin Chairman, Chief Executive Officer andPresident (principal executive officer) March 30, 2012/s/ Ilya CantorIlya Cantor Senior Vice President, Chief Financial Officer and Treasurer(principal financialofficer and principal accounting officer) March 30, 2012/s/ Karl RobbKarl Robb Director March 30, 2012/s/ Andrew J. GuffAndrew J. Guff Director March 30, 2012/s/ Donald P. SpencerDonald P. Spencer Director March 30, 2012/s/ Ross GoodhartRoss Goodhart Director March 30, 2012/s/ Robert SegertRobert Segert Director March 30, 2012/s/ Ronald VargoRonald Vargo Director March 30, 2012 91thTable of ContentsEXHIBIT INDEX ExhibitNumber Description 3.1 Certificate of incorporation 3.2 Bylaws 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 6 to Form S-1 (Registration No. 333-174827)filed January 23, 2012) 4.2 Amended and Restated Registration Rights Agreement dated February 19, 2008 (incorporated by reference to Exhibit 4.2 of Form S-1(Registration No. 333-174827) filed June 10, 2011) 4.3 Registration Rights Agreement dated April 26, 2010 (incorporated by reference to Exhibit 4.3 of Form S-1 (Registration No. 333-174827) filedJune 10, 2011)10.1 Revolving line of credit between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated byreference to Exhibit 10.1 of Form S-1 (Registration No. 333-174827) filed June 10, 2011)10.2 Security Agreement between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated by referenceto Exhibit 10.2 of Form S-1 (RegistrationNo. 333-174827) filed June 10, 2011)10.3 Borrowing Base Rider between EPAM Systems, Inc. and PNC Bank, National Association dated November 22, 2006 (incorporated byreference to Exhibit 10.3 of Form S-1 (RegistrationNo. 333-174827) filed June 10, 2011)10.4 First Amendment to loan documents between EPAM Systems, Inc. and PNC Bank, National Association dated September 30, 2010(incorporated by reference to Exhibit 10.4 of Form S-1 (Registration No. 333-174827) filed June 10, 2011)10.5 Amended and Restated Committed Line of Credit Note dated September 30, 2010 (incorporated by reference to Exhibit 10.5 of Form S-1(Registration No. 333-174827) filed June 10, 2011)10.6* EPAM Systems, Inc. Amended and Restated 2006 Stock Option Plan (incorporated by reference to Exhibit 10.6 of Amendment No. 6 to FormS-1 (Registration No. 333-174827) filed January 23, 2012)10.7* Form of EPAM Systems, Inc. 2006 Stock Option Plan Award Agreement (under the EPAM Systems, Inc. Amended and Restated 2006 StockOption Plan) (incorporated by reference to Exhibit 10.7 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23,2012)10.8 Series A-2 Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 10.9 of Amendment No. 1 to Form S-1 (Registration No.333-174827) filed July 22, 2011)10.9 Series A-3 Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 10.10 of Amendment No. 1 to Form S-1 (Registration No.333-174827) filed July 22, 2011)10.10 Second Amendment to loan documents between EPAM Systems, Inc. and PNC Bank, National Association dated July 25, 2011(incorporated by reference to Exhibit 10.11 of Amendment No. 3 to Form S-1 (Registration No. 333-174827) filed September 26, 2011)10.11 Second Amended and Restated Committed Line of Credit Note dated July 25, 2011 (incorporated by reference to Exhibit 10.12 of AmendmentNo. 3 to Form S-1 (Registration No. 333-174827) filed September 26, 2011)10.12* EPAM Systems, Inc. 2012 Long Term Incentive Plan (incorporated by reference to Exhibit 10.12 of Amendment No. 6 to Form S-1(Registration No. 333-174827) filed January 23, 2012) 92Table of ContentsExhibitNumber Description10.13* Form of Senior Management Non-Qualified Stock Option Award Agreement (under the EPAM Systems, Inc. 2012 Long Term Incentive Plan)(incorporated by reference to Exhibit 10.13 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.14* Restricted Stock Award Agreement by and between Karl Robb and EPAM Systems, Inc. dated January 16, 2012 (incorporated by reference toExhibit 10.14 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.15* EPAM Systems, Inc. 2012 Non-Employee Directors Compensation Plan (incorporated by reference to Exhibit 10.15 of Amendment No. 6 toForm S-1 (Registration No. 333-174827) filed January 23, 2012)10.16* Form of Non-Employee Director Restricted Stock Award Agreement (under the EPAM Systems, Inc. 2012 Non-Employee DirectorsCompensation Plan) (incorporated by reference to Exhibit 10.16 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filedJanuary 23, 2012)10.17* EPAM Systems, Inc. Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.17 of Amendment No. 6 to FormS-1 (Registration No. 333-174827) filed January 23, 2012)10.18* Form of Director Offer Letter (incorporated by reference to Exhibit 10.18 of Amendment No. 6 to Form S-1 (Registration No. 333-174827)filed January 23, 2012)10.19* Executive Employment Agreement by and between Arkadiy Dobkin and EPAM Systems, Inc. dated January 20, 2006 (expired except withrespect to Section 8) (incorporated by reference toExhibit 10.19 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.20* Offer Letter by and between Ginger Mosier and EPAM Systems, Inc. dated February 24, 2010 (incorporated by reference to Exhibit 10.20 ofAmendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.21* Employment Contract by and between Balazs Fejes and EPAM Systems (Switzerland) GmbH. dated June 15, 2009 (incorporated byreference to Exhibit 10.21 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.22* 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 by reference to Exhibit 10.22 of Amendment No. 6 to Form S-1 (Registration No.333-174827) filed January 23, 2012)10.23* 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 by reference to Exhibit 10.23 of Amendment No. 6 to Form S-1 (Registration No.333-174827) filed January 23, 2012)10.24* Form of nondisclosure, noncompete and nonsolicitation agreement (incorporated by reference to Exhibit 10.24 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.25* Form of Indemnification Agreement (incorporated by reference to Exhibit 10.25 of AmendmentNo. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)10.26 English translation of Agreement with IDEAB Project Eesti AS (incorporated by reference toExhibit 10.26 of Amendment No. 6 to Form S-1 (Registration No. 333-174827) filed January 23, 2012)21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of Form S-1 (Registration No. 333-174827) filed June 10, 2011) 93Table of ContentsExhibitNumber Description23.1 Consent of Independent Registered Public Accounting Firm31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 193431.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 193432.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 200232.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 *Indicates management contracts or compensatory plans or arrangements. 94Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Audited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2011 and 2010 F-3 Consolidated Statements of Income for Years Ended December 31, 2011, 2010 and 2009 F-4 Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity for Years Ended December 31, 2011, 2010 and2009 F-5 Consolidated Statements of Cash Flows for Years Ended December 31, 2011, 2010 and 2009 F-7 Notes to Consolidated Financial Statements for Years Ended December 31, 2011, 2010 and 2009 F-8 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofEPAM Systems, Inc.Newtown, PAWe have audited the accompanying consolidated balance sheets of EPAM Systems, Inc. and subsidiaries (the “Company”) as of December 31, 2011and 2010, and the related consolidated statements of income, changes in redeemable preferred stock and stockholders’ equity, and cash flows for each of thethree years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these 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 standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration ofinternal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit alsoincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of EPAM Systems, Inc. andsubsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2011, in conformity with accounting principles generally accepted in the United States of America./s/ DELOITTE & TOUCHE LLPPhiladelphia, PAMarch 30, 2012 F-2Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS As of December 31, 2011 2010 (in thousands, except shareand per share data) Assets Current assets Cash and cash equivalents $88,796 $54,004 Accounts receivable, net of allowance of $2,250 in 2011 and $1,671 in 2010 59,472 41,488 Unbilled revenues, net of allowance $0 in 2011 and $0 in 2010 24,475 23,883 Prepaid and other current assets 6,436 5,750 Deferred tax assets, current 4,384 3,122 Total current assets 183,563 128,247 Property and equipment, net 35,482 25,338 Restricted cash 2,582 2,438 Intangible assets, net 1,251 2,023 Goodwill 8,169 10,032 Deferred tax assets, long-term 1,875 2,294 Other long-term assets 2,691 486 Total assets $ 235,613 $ 170,858 Liabilities Current liabilities Accounts payable $2,714 $2,001 Accrued expenses and other liabilities 24,782 15,031 Deferred revenue 6,949 5,151 Due to employees 8,234 5,685 Taxes payable 8,712 7,528 Deferred tax liabilities, current 1,736 331 Total current liabilities 53,127 35,727 Taxes payable, long-term 1,204 — Deferred tax liabilities, long-term 283 173 Total liabilities 54,614 35,900 Commitments and Contingencies (Note 15) Preferred stock, $.001 par value; 5,000,000 authorized; 2,054,935 and 2,054,935 Series A-1 convertible redeemablepreferred stock issued and outstanding at December 31, 2011 and 2010; $.001 par value 945,114 authorized,384,804 and 675,081 Series A-2 convertible redeemable preferred stock issued and outstanding at December 31, 2011and 2010 85,940 68,377 Puttable common stock, $.001 par value, 0 and 56,896 shares issued and outstanding at December 31, 2011 and 2010 — 332 Stockholders’ equity Common stock, $.001 par value; 160,000,000 authorized; and 18,810,112 shares issued; 17,158,904 and 17,054,408shares outstanding at December 31, 2011 and 2010, respectively 17 17 Preferred stock, $.001 par value; 290,277 and 0 authorized Series A-3 convertible preferred stock issued andoutstanding at December 31, 2011 and 2010, respectively — — Additional paid-in capital 40,020 36,750 Retained earnings 74,508 47,718 Treasury stock (15,972) (15,972) Accumulated other comprehensive loss (3,514) (2,264) Total stockholders’ equity 95,059 66,249 Total liabilities and stockholders’ equity $235,613 $170,858 The accompanying notes are an integral part of the consolidated financial statements F-3Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2011 2010 2009 (in thousands, except per share data) Revenues $ 334,528 $ 221,824 $ 149,939 Operating expenses: Cost of revenues (exclusive of depreciation and amortization) 205,336 132,528 88,027 Selling, general and administrative expenses 64,930 47,635 39,248 Depreciation and amortization expense 7,538 6,242 5,618 Goodwill impairment loss 1,697 — — Other operating expenses, net 19 2,629 1,064 Income from operations 55,008 32,790 15,982 Interest income 1,315 562 227 Interest expense (37) (76) (185) Other income 144 — — Foreign exchange (loss) (3,638) (2,181) (1,617) Income before provision for income taxes 52,792 31,095 14,407 Provision for income taxes 8,439 2,787 879 Net income $44,353 $28,308 $13,528 Accretion of preferred stock (17,563) (1,432) (4,423) Net income allocated to participating securities (15,025) (17,984) (5,201) Effect on income available from redemption of preferred stock — 5,418 — Net income available for common stockholders 11,765 14,310 3,904 Net income per share of common stock: Basic (common) $0.69 $0.84 $0.23 Basic (puttable common) $1.42 $0.84 $0.23 Diluted (common) $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) 17,094 17,056 16,719 Basic (puttable common) 18 141 153 Diluted (common) 20,473 19,314 18,474 Diluted (puttable common) 18 141 153 The accompanying notes are an integral part of the consolidated financial statements F-4Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES INREDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY For the years ended December 31, 2011, 2010 and 2009 Series A-1 andA-2, ConvertibleRedeemablePreferred Stock PuttableCommon Stock Common Stock Series A-3ConvertiblePreferred Stock AdditionalPaid-inCapital RetainedEarnings TreasuryStock AccumulatedOtherCompre-hensiveIncome TotalStockholders’Equity Compre-hensiveincome Shares Amount Shares Amount Shares Amount Shares Amount (in thousands, except share data) Balance, December 31, 2008 2,730,016 $ 82,990 127,008 $ 1,043 16,378,504 $ 16 — $ — $ 8,526 $ 11,737 $ (14,500) $ (1,681) $ 4,098 Accretion of A-1 convertibleredeemable preferred stock toredemption value — 4,423 — — — — — — — (4,423) — — (4,423) Purchase of common stock — — — — (75,096) — — — — — (540) — (540) Stock issued in connection withacquisition of Rodmon — — 38,784 200 323,160 — — — 1,667 — — — 1,667 Stock issued in connection withacquisition of Plus Micro — — 5,520 21 — — — — — — — — — Stock-based compensationexpense — — — — 433,936 1 — — 2,389 — — — 2,390 Currency translation adjustment — — — — — — — — — — — (186) (186) (186) Net income — — — — — — — — — 13,528 — — 13,528 13,528 Balance, December 31, 2009 2,730,016 87,413 171,312 1,264 17,060,504 17 — — 12,582 20,842 (15,040) (1,867) 16,534 13,342 Repurchase and retirement ofSeries A-2 convertibleredeemable preferred stock (290,277) (20,468) — — — — — — 5,418 — — — 5,418 Issue of Series A-3 convertiblepreferred stock — — — — — — 290,277 — 14,971 — — — 14,971 Accretion of A-1 preferred stock toredemption value — 1,432 — — — — — — — (1,432) — — (1,432) Purchase of common stock(Note 12) — — — — — — — — — — (6,392) — (6,392) Net proceeds from sale ofcommon stock (Note 12) — — — — — — — — (58) — 6,392 — 6,334 Purchase of puttable stock(Note 12) — — (114,416) (932) — — — — 932 — (932) — — Adjustment of shares issued inconnection with acquisition ofRodmon — — — — (11,696) — — — (60) — — (60) Stock-based compensationexpense — — — — — — — — 2,939 — — — 2,939 Proceeds from stock optionsexercise — — — — 5,600 — — — 26 — — — 26 Currency translation adjustment — — — — — — — — — — — (397) (397) (397) Net income — — — — — — — — — 28,308 — — 28,308 28,308 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 27,911 F-5Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES INREDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (CONT’D) For the years ended December 31, 2011, 2010 and 2009 Series A-1 andA-2, ConvertibleRedeemablePreferred Stock PuttableCommon Stock Common Stock Series A-3ConvertiblePreferred Stock AdditionalPaid-inCapital RetainedEarnings TreasuryStock AccumulatedOtherCompre-hensiveIncome TotalStockholders’Equity Compre-hensiveincome Shares Amount Shares Amount Shares Amount Shares Amount (in thousands, except share data) 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 toredemption value — 17,563 — — — — — — (17,563) — — (17,563) Stock-based compensation expense — — — — — — — — 2,866 — — — 2,866 Proceeds from stock options exercise — — — — 47,600 — — — 72 — — — 72 Put option expiry — — (56,896) (332) 56,896 — — — 332 — — — 332 Currency translation adjustment — — — — — — — — — — — (1,250) (1,250) (1,250) Net income — — — — — — — — — 44,353 — — 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 $43,103 (Concluded)The accompanying notes are an integral part of the consolidated financial statements F-6Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS For the Years EndedDecember 31, 2011 2010 2009 (in thousands) Cash flows from operating activities: Net Income $44,353 $28,308 $13,528 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,538 6,242 5,618 Bad debt expense 727 202 1,702 Deferred taxes 497 (2,704) (2,671) Stock-based compensation 2,866 2,939 2,411 Goodwill impairment loss 1,697 — — (Gain)/loss on asset disposals — (7) 162 Non-cash write offs — (41) 707 Other 777 383 1,409 Change in operating assets and liabilities (net of effects of acquisitions): (Increase)/decrease in: Accounts receivable (19,030) (13,791) (2,240) Unbilled revenues (1,004) (10,653) (2,621) Prepaid expenses and other assets (1,694) (2,253) 653 Increase (decrease) in: Accounts payable 254 (2,646) 1,536 Accrued expenses and other liabilities 9,474 10,065 (2,196) Deferred revenue 1,843 209 3,428 Due to employees 2,796 2,545 1,622 Taxes payable 3,426 1,675 3,064 Net cash provided by operating activities 54,520 20,473 26,112 Cash flows from investing activities: Purchases of property and equipment (15,548) (8,365) (1,049) Payment for construction of building in Minsk (1,545) — (8,447) (Increase)/decrease in restricted cash and other long-term assets, net (315) (2,049) 466 Acquisition of businesses, net of cash acquired — (412) — Net cash (used in) investing activities (17,408) (10,826) (9,030) Cash flows from financing activities: Purchase of treasury stock — (7,324) (540) Proceeds from sale of treasury stock, net of costs — 6,334 — Repurchase of Series A-2 convertible redeemable preferred stock — (15,050) — Proceeds from issue of Series A-3 convertible preferred stock, net of costs — 14,971 — Costs related to potential stock issue (1,630) — — Proceeds related to line of credit 5,000 — 7,000 Repayment related to line of credit (5,000) (7,000) — Other 72 26 — Net cash (used in)/provided by financing activities (1,558) (8,043) 6,460 Effect of exchange-rate changes on cash and cash equivalents (762) (527) (1,273) Net increase in cash and cash equivalents 34,792 1,077 22,269 Cash and cash equivalents, beginning of year-January 1 54,004 52,927 30,658 Cash and cash equivalents, end of year $88,796 $54,004 $52,927 Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $7,007 $5,577 $1,233 Bank interest 37 101 185 Summary of non-cash investing and financing transactions: • Common stock issued in connection with acquisitions was $0 in 2011, $0 in 2010, and $1,867 in 2009. • Accretion of Series A-1 convertible redeemable preferred stock was $0 in 2011, $1,432 in 2010 and $4,423 in 2009. • Accretion of Series A-2 convertible redeemable preferred stock was $17,563 in 2011, $0 in 2010 and $0 in 2009. • Total incurred but not paid costs related to stock issue were $470 in 2011, $44 in 2010 and $0 in 2009.The accompanying notes are an integral part of the consolidated financial statements. F-7Table of ContentsEPAM SYSTEMS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2011 AND 2010AND FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIESEPAM Systems, Inc. (the Company or EPAM) is a global IT services provider focused on complex software product development services, softwareengineering and vertically-oriented custom development solutions with delivery centers throughout central and eastern Europe. The Company provides thesesolutions to primarily Fortune Global 2000 companies in multiple verticals, including independent software vendors (ISVs) and technology, banking andfinancial services, business information and media, travel and hospitality and retail and consumer.Since EPAM’s inception in 1993, the Company has focused on providing software product development services, software engineering and vertically-oriented custom development solutions through its global delivery model. This has served as a foundation for the Company’s other solutions, includingcustom application development, application testing, platform-based solutions, application maintenance and support, and infrastructure management.The Company is incorporated in Delaware with headquarters in Newtown, PA, with multiple delivery centers located in Belarus, Ukraine, Russia,Hungary, Kazakhstan and Poland, and client management locations in the United States, United Kingdom, Germany, Sweden, Switzerland, Russia andKazakhstan.Principles of Consolidation — The consolidated financial statements include the financial statements of EPAM Systems, Inc. and its subsidiaries. Allintercompany balances and transactions have been eliminated.Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements, as well as revenues and expenses during the reporting period. TheCompany bases its estimates and judgments on historical experience, knowledge of current conditions and its beliefs of what could occur in the future, givenavailable information. Actual results could differ from those estimates, and such differences may be material to the financial statements.Revenue Recognition — The Company recognizes 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. If there isan 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 client incentive programs and reduce 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 areperformed in subsequent periods. Unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contractterms.The majority of the Company’s revenues (86.1% of revenues in 2011, 85.2% in 2010 and 81.7% in 2009) is generated under time-and-materialcontracts whereby revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues whenincurred. The majority of the revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly to the client. F-8Table of ContentsRevenues from fixed-price contracts (11.0% of revenues in 2011, 12.3% in 2010 and 15.5% in 2009) are determined using the proportional performancemethod. In instances where final acceptance of the product, system, or solution is specified by the client, revenues are deferred until all acceptance criteria havebeen met. In absence of a sufficient basis to measure progress towards completion, revenue is recognized upon receipt of final acceptance from the client. Thecomplexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportionalperformance method of accounting affects the amounts of revenues and related expenses reported in our consolidated financial statements. A number of internaland external factors can affect our estimates, including labor hours and specification and testing requirement changes. In order to estimate the amount ofrevenue for the period under the proportional performance method, the Company determines the percentage of actual labor hours incurred as compared toestimated total labor hours and applies that percentage to the consideration allocated to the deliverable. The cumulative impact of any revision in estimates isreflected in the financial reporting period in which the change in estimate becomes known. Our fixed price contracts are generally recognized over a period oftwelve months or less.The Company enters into multiple element arrangements with our clients under time-and-material and fixed-fee contracts. In October 2009, the FASBissued a new accounting standard which provides guidance for arrangements with multiple deliverables. We adopted this standard effective January 1, 2010for all new or amended contracts, and it did not have a material effect on our financial condition or consolidated results of operations, or change our units ofaccounting and how we allocate the arrangement consideration to various units of accounting. These arrangements consist of development services and otherservice deliverables that qualify for separate units of accounting. These other services include maintenance and support services for our time and materialcontracts and separately priced warranties for our fixed-fee contracts. These deliverables qualify for multiple units of accounting and therefore arrangementconsideration is allocated among the units of accounting based on their relative selling price. The relative selling price is based on the price charged for thedeliverable when it is sold separately. For multiple element arrangements under time-and-material contracts, revenue is recognized as services are performed foreach deliverable. For arrangements under fixed-fee contracts, revenue is recognized upon delivery of development services under the proportional performancemethod and on a straight-line basis over the warranty period. The warranty period is generally six 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 ofincome.Cost of revenues (exclusive of depreciation and amortization) — Consists principally of salaries, employee benefits and stock compensationexpense, reimbursable and non-reimbursable travel costs and subcontractor fees.Selling, general and administrative expenses — Consist of expenses associated with promoting and selling the Company’s services and includesuch items as sales and marketing personnel salaries, stock compensation expense and related fringe benefits, commissions, travel, and the cost of advertisingand other promotional activities. General and administrative expenses include other operating items such as officers’ and administrative personnel salaries,marketing personnel salaries, stock compensation expense and related fringe benefits, legal and audit expenses, insurance, provision for doubtful accounts,and operating lease expenses.Cash and Cash Equivalents — Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with maturities ofthree months or less at the date acquired. As of December 31, 2011 and 2010 all amounts are in cash.Restricted Cash — Restricted cash represents cash that is restricted by agreements with third parties for special purposes (see Note 3).Accounts Receivable — Accounts receivable are recorded at net realizable value. The Company maintains an allowance for doubtful accounts forestimated losses resulting from the inability of its clients to make required F-9Table of Contentspayments. The allowance for doubtful accounts is determined by evaluating the relative credit-worthiness of each client, historical collections experience andother 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 consolidatedstatements of income. Collections in respect of prior year write-offs amounted to $0 for the year ended December 31, 2011, and $1,686 and $0 in each of thetwo years ended December 2010 and 2009, respectively.The table below summarizes movements in qualifying accounts for the years ended December 31, 2011, 2010 and 2009: Balance atBeginning ofPeriod Charged toCostsand Expenses Deductions/Other Balance at Endof Year Allowance for Doubtful Accounts (billed and unbilled): Fiscal Year 2009 $4,432 $2,972 $(4,158) $3,246 Fiscal Year 2010 3,246 1,493 (3,068) 1,671 Fiscal Year 2011 1,671 1,234 (655) 2,250 Property and Equipment — Property and equipment acquired in the ordinary course of the Company’s operations are stated at cost, net ofaccumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets generally ranging from 3 to 50 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.Goodwill and Other Intangible Assets — Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned totangible and intangible assets acquired less liabilities assumed. The determination of the fair value of the intangible assets acquired involves certain judgmentsand estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriateweighted average cost of capital.The Company does not amortize goodwill but performs a test for impairment annually, or when indications of potential impairment exist, utilizing a fairvalue approach at the reporting unit level. The Company determines fair value using the income approach which estimates the fair value of its reporting unitsbased on the future discounted cash flows. In testing for a potential impairment of goodwill, the Company estimates the fair value of its reporting units towhich goodwill relates and estimates the carrying value (book value) of the assets and liabilities related to those reporting units.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 impairmenttest. In assessing impairment in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other,” the Companydetermined 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 chargeof $1,697.In the fourth quarter of fiscal 2011, 2010 and 2009, the Company completed its annual impairment testing of goodwill and determined there was noimpairment.The Company amortizes other intangible assets with determinable lives over their estimated useful lives. The Company records an impairment charge onthese assets when it determines that their carrying value may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted futurecash flows resulting from the use of the asset and its eventual disposition. When there exists one or more indicators of impairment, F-10Table of Contentsthe Company measures any impairment of intangible assets based on the excess of the carrying value of the asset over its fair value. Its fair value is determinedbased on a projected discounted cash flow method using a discount rate determined by the Company’s management to be commensurate with the risk inherentin its business model. The Company’s estimates of future cash flows attributable to its other intangible assets require significant judgment based on theCompany’s historical and anticipated results.All of the Company’s intangible assets have finite lives and the Company did not incur any impairments of its intangible assets for the years endedDecember 31, 2011, 2010 and 2009.Impairment of Long-Lived Assets — Long-lived assets, such as property, plant, and equipment are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessment for potential impairment is based primarily onthe Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis ateach reporting date. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds thefair value of the assets. Property and equipment to be disposed of by sale is carried at the lower of the then current carrying value or fair value less estimatedcosts to sell. The Company did not incur any impairments of long-lived assets for 2011, 2010, or 2009.FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. Thefair value test for impairment of long-lived assets is classified as a Level 3 measurement under FASB ASC Topic 820.Income Taxes — The provision for income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for theestimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assetsand liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to bereversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes. The Companyevaluates 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 assetswill not be realized.The realization of deferred tax assets is primarily dependent on future earnings. Any reduction in estimated forecasted results may require that theCompany record valuation allowances against deferred tax assets. Once a valuation allowance has been established, it will be maintained until there issufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. A pattern of sustained profitability willgenerally be considered as sufficient positive evidence to reverse a valuation allowance. If the allowance is reversed in a future period, the income tax provisionwill be correspondingly reduced. Accordingly, the increase and decrease of valuation allowances could have a significant negative or positive impact on futureearnings. See Note 10 to the consolidated financial statements for further information.Foreign Currency Translation — Assets and liabilities of consolidated foreign subsidiaries, whose functional currency is the local currency, aretranslated to U.S. dollars at period end exchange rates. Revenues and expenses are translated to U.S. dollars at daily exchange rates. The adjustment resultingfrom translating the financial statements of such foreign subsidiaries to U.S. dollars is reflected as a cumulative translation adjustment and reported as acomponent 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 thechanges in cash and cash equivalents during the period. Transaction gains and losses are included in the period in which they occur.Risks and Uncertainties — Principally, all of the Company’s IT delivery centers and a majority of its employees are located in Central and EasternEurope. As a result, the Company may be subject to certain risks associated with international operations, risks associated with the application andimposition of protective F-11Table of Contentslegislation 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 international operations include difficulties in enforcing intellectual property rights, the burdens of complying with a widevariety of foreign laws, potential geo-political and other risks associated with potentially adverse tax consequences, tariffs, quotas and other barriers.At any time after January 1, 2011, the Series A-1 and Series A-2 convertible redeemable preferred stockholders may exercise their redemption optionsubject to all terms as defined in Note 12. As of the financial statement date, no stockholders have expressed any interest in exercising their redemption option(Note 17).Concentration of Credit — The Company maintains its cash and cash equivalents and short-term investments with financial institutions. As ofDecember 31, 2011, $40.0 million of total cash was held in CIS countries, with $24.7 million of that in Belarus. Banking and other financial systems in theCIS are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varyinginterpretations and inconsistent application. Banks in the CIS generally do not meet the banking standards of more developed markets, and the transparencyof the banking sector lags behind international standards. Furthermore, bank deposits made by corporate entities in CIS are not insured. As a result, thebanking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy or insolvency of banks through which we receive or withwhich we hold funds, particularly in Belarus, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in theCIS, which could materially adversely affect our business and financial condition.For the years ended December 31, 2011, 2010 and 2009 the top five clients accounted for 32.0%, 29.7% and 23.6% of revenues, respectively. For theyears ended December 31, 2011, 2010 and 2009 the top ten clients accounted for 44.6%, 42.6% and 35.3% of revenues, respectively. One client accounted for10.7%, 11.7% and 10.2% of revenues in 2011, 2010 and 2009, respectively. Accounts receivable for this client was 15.9% and 16.9% of total accountsreceivable as of December 31, 2011 and 2010, respectively; unbilled revenues for this client was 15.0% and 23.9% of total unbilled revenues as ofDecember 31, 2011 and 2010, respectively.During the years ended December 31, 2011, 2010 and 2009 the Company incurred subcontractor costs of $4,545, $12,219 and $13,199,respectively, to a vendor for staffing, consulting, training, recruiting and other logistical / support services provided for the Company’s delivery anddevelopment operations in Eastern Europe. Such costs are included in cost of revenues in the accompanying consolidated statements of 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, British pounds and Russian Rubles. The Company incurs expenditures in non-U.S. dollar currencies, principally in Hungarian Forints,Euros, and Russian Rubles associated with the IT delivery centers located in Central and Eastern Europe. The Company is exposed to fluctuations in foreigncurrency exchange rates primarily on accounts receivable and unbilled revenues from sales in these foreign currencies, and cash flows for expenditures inforeign currencies. The Company doesn’t use derivative financial instruments to hedge the risk of foreign exchange volatility.Interest rate risk — The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s cash and cash equivalentsand the LIBOR+1.25% rate long-term credit facility (see Note 7). The Company doesn’t use derivative financial instruments to hedge the risk of interest ratevolatility.Fair value of financial instruments — The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable,accounts payable and other current assets and liabilities. The fair values of these instruments approximate their carrying values due to their short-term nature.Accounting for Stock-Based Employee Compensation Plans — Stock-based compensation expense for awards of equity instruments to employeesand non-employee directors is determined based on the grant-date fair F-12Table of Contentsvalue of the awards ultimately expected to vest. The Company recognizes these compensation costs on a straight-line basis over the requisite service period ofthe award, which is generally the option vesting term of four years (See Note 13).The Company estimates forfeitures at the time of grant and revises its estimates, if necessary, in subsequent periods if actual forfeitures or vesting differfrom those estimates. Such revisions could have a material effect on the Company’s operating results. The assumptions used in the valuation model are basedon 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.Recent Accounting Pronouncements — In October 2009, the Financial Accounting Standards Board, or FASB, issued a new accounting standardwhich provides guidance for arrangements with multiple deliverables. Specifically, the new standard requires an entity to allocate consideration at the inceptionof an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidenceof the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices. In addition, the new standardeliminates the use of the residual method of allocation. This guidance is required to be effective no later than the first quarter of 2011 and early adoption ispermitted. The Company adopted this standard effective January 1, 2010. The adoption did not have a material effect on the Company’s financial condition,consolidated results of operations or disclosures.In January 2010, the FASB issued new guidance requiring supplemental fair value disclosures and providing several clarifications regarding existingdisclosure requirements. Specifically, the new guidance requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 andLevel 2 fair value measurements and to describe the reasons for the transfers. In addition, the new standard requires a gross presentation of the Level 3rollforward, stating separately information about purchases, sales, issuances, and settlements. The new guidance also provides clarification regarding theappropriate level of disaggregation of assets and liabilities for the purpose of fair value disclosures as well as the requirement to provide disclosures about thevaluation techniques and inputs used to measure fair value for both recurring and nonrecurring Level 2 and Level 3 measurements. The adoption of thisstandard did not have a material effect on the Company’s financial condition, consolidated results of operations or disclosures.In December 2010, the FASB issued a new accounting standard requiring that Step 2 of the goodwill impairment test be performed for reporting unitswhose carrying value is zero or negative if more likely than not that a goodwill impairment exists. This guidance was effective January 1, 2011. The adoptionof this standard did not have a material effect on the Company’s financial condition or consolidated results of operations.In December 2010, the FASB issued new guidance clarifying some of the disclosure requirements related to business combinations that are material onan individual or aggregate basis. Specifically, the guidance states that if comparative financial statements are presented, the entity should disclose revenuesand earnings of the combined entity as though the business combination(s) that occurred during the current year occurred as of the beginning of thecomparable prior annual reporting period only. Additionally, the new standard expands the supplemental pro forma disclosure required by the authoritativeguidance to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combinationin the reported pro forma revenues and earnings. This guidance was effective January 1, 2011. The adoption of this standard did not have a material effect onthe Company’s financial condition or consolidated results of operations. However, it may result in additional disclosures in the event that the Company entersinto a business combination that is material either on an individual or aggregate basis.In September 2011, the FASB issued new guidance allowing companies testing goodwill for impairment to have the option of performing a qualitativeassessment before calculating the fair value of the reporting unit (i.e. the first step of the goodwill impairment test). If companies determine, on the basis ofqualitative factors, that the F-13Table of Contentsfair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This update is effectivefor annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Companyadopted this standard effective October 1, 2011. The adoption of this standard did not have a material effect on the Company’s financial condition,consolidated results of operations or disclosures.In testing its reporting units for goodwill impairment as of December 31, 2011, the Company bypassed the qualitative assessment option and proceededdirectly to performing the first step of the two-step goodwill impairment test. The Company may resume performing the qualitative assessment in anysubsequent period.In June 2011, the FASB amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability,consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The newaccounting guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) twoseparate but consecutive statements. In December 2011, the FASB deferred the new requirements related to the presentation of reclassification adjustments. Therequirement to present comprehensive income either in a single continuous statement of comprehensive income or in two separate consecutive statements hasnot been deferred and will be effective on a retrospective basis for periods beginning on or after January 1, 2012. The adoption of this standard will not have amaterial effect on the Company’s financial condition, consolidated results of operations or disclosures.2. ACQUISITIONSInstant Information, Inc. — On August 20, 2010 EPAM agreed to acquire certain assets and assume certain liabilities of Instant Information, Inc. Theprimary purpose of this acquisition was to acquire skilled workforce and experienced management, the rights to the intellectual property embodied by ourInfoNgen services and cloud deployment capabilities. The acquisition also considerably strengthens our existing business information and media servicesvertical. The purchase price consisted of $360 cash plus contingent consideration of $1,000 in Company stock. Contingent consideration is dependent uponthe acquiree’s meeting specified level of performance over calendar years of 2010-2012. The Company estimates the fair value of this contingent considerationto be nil as of December 31, 2011 (Note 17). The results of Instant Information, Inc. are included in the Company’s consolidated financial statements fromAugust 21, 2010.Under the acquisition method of accounting the Company has allocated the purchase price to the tangible and intangible assets and liabilities acquiredbased on their fair values. As part of the process, the Company performed a valuation analysis to determine the fair values of certain intangible assets ofInstant Information, Inc. as of the acquisition date. As part of the valuation process, relief from royalty method was used to determine the fair value of the tradename of $216. The intangible is being amortized over a 5 year life. Goodwill is amortizable over 15 years for tax purposes. F-14Table of ContentsThe purchase price was allocated to the assets acquired based on their related fair values, as follows: Cash and cash equivalents $11 Restricted cash 107 Trade receivables 273 Prepaid and other assets 53 Property and equipment 113 Software 19 Trade name 216 Goodwill 838 Total assets acquired 1,630 Accounts payable 580 Accrued expenses 186 Deferred revenue 448 Liability under capital leases 36 Other taxes payable 20 Total liabilities assumed 1,270 Net assets acquired $360 Included in consolidated statements of income for the year ended December 31, 2010 are $677 and $873 of revenues and net losses of the acquiree,respectively.Total service fees related to the acquisition amount to $63 and are presented within selling, general and administrative expenses for the year endedDecember 31, 2010.The pro forma results presented below include the effects of the Instant Information acquisition as if it had been consummated as of January 1, 2009. (unaudited) Pro Forma Year EndedDecember 31, 2010 Pro Forma Year EndedDecember 31, 2009 Revenues $223,313 $158,606 Net income 24,976 11,363 Rodmon Systems, Inc. — On May 31, 2009, EPAM agreed to acquire substantially all the assets of Rodmon Systems Inc. and Rodmon Belarus(combined known as “Rodmon”). The primary purpose of this acquisition was to acquire a strategic client relationship and experienced management andtechnical personnel. The purchase price was set based on 2009 calendar year collected revenue, which resulted in $1,867 in stock. The Company issued323,160 shares of common stock and 38,784 shares of puttable common stock with an estimated fair value determined by management of the Companyusing market prices and multiples generated in similar transactions. The results of Rodmon are included in the Company’s consolidated financial statementsfrom June 1, 2009.Under the acquisition method of accounting the Company has allocated the purchase price to the tangible and intangible assets and liabilities acquiredbased on their fair values. As part of the process, the Company performed a valuation analysis to determine the fair values of certain identifiable assets ofRodmon as of the acquisition date. As part of the valuation process, the income approach was used to determine the fair value of the client relationship of$1,287. The intangible is being amortized over a 5 year life. No goodwill can be deducted for tax purposes. F-15Table of ContentsThe purchase price was allocated to the assets acquired based on their related fair values, as follows: Trade receivables $405 Unbilled revenues 11 Prepaid assets 4 Property and equipment 39 Client relationships 1,288 Goodwill 920 Total assets acquired 2,667 Accounts payable 118 Due to employees 4 Accrued expenses 179 Deferred tax liability — long-term 499 Total liabilities assumed 800 Net assets acquired $1,867 Included in consolidated statements of income for the year ended December 31, 2009 are $1,166 and $101 of revenues and net income of the acquiree,respectively.The pro forma results presented below include the effects of the acquisition as if it had been consummated as of January 1, 2008. (unaudited) Pro Forma Year EndedDecember 31, 2009 Revenues $150,640 Net income 13,523 3. RESTRICTED CASHRestricted cash consists of the following: 2011 2010 Security deposits under client contracts $2,082 $1,819 Deposit under employee loan programs 393 512 Security deposit under operating leases 107 107 Total $2,582 $2,438 At December 31, 2011 and 2010 security deposits under client contracts included fixed amounts placed in respect of letters of credit and a bankguarantee intended to secure appropriate performance under respective contracts. The Company estimates the probability of non-performance under thecontracts as remote, therefore, no provision for losses has been created in respect of these amounts as of December 31, 2011 and 2010.Included in restricted cash as of December 31, 2011 and 2010 were deposits of $393 and $512, respectively, placed in connection with certain employeeloan programs (See Note 16). F-16Table of Contents4. PREPAID AND OTHER CURRENT ASSETSPrepaid and other current assets consist of the following: 2011 2010 Prepaid expenses $2,424 $2,079 Unamortized software licenses and subscriptions 1,076 442 Taxes receivable 783 1,927 Security deposits under operating leases 783 520 Employee loans 503 432 Tender guarantee deposit 422 — Due from employees 193 194 Other 252 156 Total $6,436 $5,750 5. PROPERTY AND EQUIPMENT — NETProperty and equipment consists of the following: Useful Life 2011 2010 Leasehold improvements 9 years $4,107 $1,826 Furniture and fixtures 7 years 3,789 1,875 Office equipment 7 years 3,646 2,548 Purchased computer software 3 years 2,653 1,468 Computer hardware 3 years 19,145 14,662 Building 50 years 16,534 16,532 Construction in progress (Note 16) n/a 1,545 — 51,419 38,911 Less accumulated depreciation and amortization (15,937) (13,573) Total $35,482 $25,338 Depreciation and amortization expense related to property and equipment was $ 6,759, $5,243 and $4,723 for the years ended December 31, 2011,2010 and 2009, respectively. F-17Table of Contents6. GOODWILL AND INTANGIBLE ASSETS — NETGoodwill by reportable segment was as follows: North America EU Russia Other Total Balance as of January 1, 2010 Goodwill $1,448 $2,864 $3,213 $1,697 $9,222 Accumulated impairment losses — — — — — 1,448 2,864 3,213 1,697 9,222 Acquisition of Instant Information (Note 2) 838 — — — 838 Effect of net foreign currency exchange rate changes — — (28) — (28) Balance as of December 31, 2010 Goodwill 2,286 2,864 3,185 1,697 10,032 Accumulated impairment losses — — — — — 2,286 2,864 3,185 1,697 10,032 Goodwill written off — — — (1,697) (1,697) Effect of net foreign currency exchange rate changes — — (166) — (166) Balance as of December 31, 2011 Goodwill 2,286 2,864 3,019 1,697 9,866 Accumulated impairment losses — — — (1,697) (1,697) $2,286 $2,864 $3,019 — $8,169 The Company values goodwill at fair value on a non-recurring basis. When testing for impairment, the Company first compares the fair value of itsreporting units to the recorded values. Valuation methods used to determine fair value are based on the analysis of the discounted future cash flows that areporting unit is expected to generate (“Income Approach”). These valuations are considered Level 3 measurements under FASB ASC Topic 820. TheCompany utilizes estimates to determine the fair value of the reporting units such as future cash flows, growth rates, capital requirements, effective tax ratesand projected margins, among other factors. Estimates utilized in the future evaluations of goodwill for impairment could differ from estimates used in thecurrent period calculations. If the carrying amount of the reporting units exceeds its fair value, goodwill is considered potentially impaired and a second step isperformed to measure the amount of impairment loss.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 impairmenttest. In assessing impairment in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other,” the Companydetermined 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 chargeof $1,697. The Company completed its annual impairment testing in the fourth quarter of fiscal 2011 and found no indication of impairment for its NorthAmerica, EU, and Russia reporting units. F-18Table of ContentsComponents of intangible assets were as follows: 2011 Weightedaverage life atacquisition Grosscarryingamount Accumulatedamortization Net carryingamount Client relationships 5 years $3,918 $(2,976) $942 Trade name 8 years 415 (106) 309 Total $4,333 $(3,082) $1,251 2010 Weightedaverage life atacquisition Grosscarryingamount Accumulatedamortization Net carryingamount Client relationships 5 years $3,994 $(2,339) $1,655 Trade name 8 years 415 (47) 368 Total $4,409 $(2,386) $2,023 All of the intangible assets have finite lives and as such are subject to amortization. Amortization of intangibles for the years ended December 31 ispresented in the table below: 2011 2010 2009 Client relationships $720 $871 $763 Developed technology — 109 119 Trade name 59 19 13 Total $779 $999 $895 Estimated amortization expenses of the Company’s existing intangible assets for the next five years are as follows: Year Ending December 31, Amount 2012 $560 2013 393 2014 166 2015 40 2016 13 Thereafter 79 Total $1,251 7. LONG-TERM DEBTRevolving Line of Credit — In November 2006, the Company entered into a revolving credit loan and security agreement (collectively “Credit Facility”or “Facility”) with a bank (the “Bank”). The Credit Facility is comprised of a five year revolving line of credit pursuant to which the Company can borrowup to $7,000 at any point in time based on borrowing availability, as defined, at LIBOR plus 1.25%. The facility expires on October 15, 2013. Themaximum borrowing availability under the Facility is based upon a percentage of eligible accounts receivable and US cash. On July 25, 2011, the Companyand the Bank agreed to amend the Facility to increase the borrowing capacity to $30,000. As of December 31, 2011and 2010, the borrowing capacity was$30,000 and $15,000, respectively. F-19Table of ContentsThe Facility is collateralized by 85% of US trade receivables, as defined, and US cash representing the lesser of (a) available cash on hand, and(b) $10,000, $5,000 and $0 for the periods ended December 31, 2011, 2012 and 2013, respectively. The Facility contains affirmative and negative covenants,including financial and coverage ratios. As of December 31, 2011 and 2010, the Company had no outstanding borrowing under the facility and was incompliance with all debt covenants as of that date.8. ACCRUED EXPENSES AND OTHER LIABILITIESAccrued expenses consist of the following: 2011 2010 Compensation $ 17,768 $ 7,856 Subcontractor costs 4,635 6,026 Professional fees 611 228 Facilities costs 189 109 Potential stock issue costs 411 — Other 1,168 812 Total $ 24,782 $ 15,031 9. TAXES PAYABLETaxes payable consist of the following: 2011 2010 Corporate profit tax $ 1,918 $ 2,668 Payroll taxes and social security 2,208 1,460 Value added tax 4,586 3,400 Total $ 8,712 $ 7,528 10. INCOME TAXESIncome before provision for income taxes shown below is based on the geographic location to which such income is attributed for years endedDecember 31: 2011 2010 2009 Income (loss) before income tax expense: Domestic $2,872 $809 $122 Foreign 49,920 30,286 14,285 Total $ 52,792 $ 31,095 $ 14,407 Income tax expense (benefit) consists of: Current Federal $4,878 $2,918 $1,652 State 389 160 335 Foreign 2,483 2,573 1,563 Deferred Federal (1,629) (1,016) (1,112) State (72) (76) (146) Foreign 2,390 (1,772) (1,413) Total $8,439 $2,787 $879 F-20Table of ContentsDeferred tax assets and liabilities are provided for the effects of temporary differences between the tax basis of an asset and liability and its reportedamount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.The components of the Company’s deferred tax assets and liabilities are as follows: 2011 2010 Deferred tax assets: Fixed assets $771 $606 Intangible assets 514 458 Accrued expenses 2,412 1,977 Net operating loss carryforward 18 424 Deferred revenue 1,847 1,128 Stock-based compensation 1,226 934 Foreign currency exchanges — 171 Restricted stock options 500 487 Other assets 862 20 Deferred tax assets 8,150 6,205 Deferred tax liabilities: Fixed assets 774 238 Accrued revenue 2,453 299 Deferred intercompany gain 663 707 Other liabilities 20 49 Deferred tax liability 3,910 1,293 Net deferred tax asset $4,240 $4,912 At December 31, 2011, the Company had current and non-current deferred tax assets of $4,384 and $1,875, respectively and current and non-currenttax liabilities of $1,736 and $283, respectively. At December 31, 2010, the Company had current and non-current deferred tax assets of $3,122 and $2,294,respectively and current and non-current tax liabilities of $331 and $173, respectively.At December 31, 2011, the Company had federal net operating losses of $44, which are available to offset future taxable income and expire in 2023 forfederal income tax purposes. These net operating losses are attributed to the B2Bits Corp acquisition. As a result of a change in control of B2Bits Corp inNovember 2007, the Company’s ability to use its federal net operating losses to offset future taxable income is limited under IRC Section 382 to $43 per year.The Company expects to utilize all of its net operating loss carryforwards prior to their expiration. The Company had foreign net operating losses of $0.7 as ofDecember 31, 2011, which are available to offset taxable income for foreign income tax purposes indefinitely.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 liabilitiesfor temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, theinvestments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution ofsuch earnings. As of December 31, 2011, certain subsidiaries had approximately $139.2 million of undistributed earnings that we intend to permanentlyreinvest. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or ifsuch subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basisdifferences related to investments in subsidiaries. F-21Table of ContentsThe provision for income taxes differs from the amount of income tax determined by applying the applicable US statutory federal income tax rate topretax income as follows: 2011 2010 2009 Statutory federal tax $18,482 $10,572 $4,900 Increase (decrease) in taxes resulting from: State taxes, net of federal benefit 266 216 159 Provision adjustment for current year uncertain tax position 178 — — Effect of permanent differences 2,816 1,957 404 Rate differential between U.S. and foreign (13,297) (9,947) (4,403) Change in foreign tax rate (22) 101 39 Foreign taxes, net of federal benefit — — (8) Other 16 (112) (212) Income tax expense $8,439 $2,787 $879 The growth in the permanent differences in the year ended December 31, 2011 related to goodwill impairment loss and increases in non-deductibleexpenses incurred by foreign subsidiaries. The growth in the permanent differences in the year ended December 31, 2010 related to expenses incurred related tothe settlement of litigation that will not be deductible and therefore creates a permanent difference.On September 22, 2005, the president of Belarus signed the decree “On the High-Technologies Park” (the “Decree”). The Decree is aimed at boosting thecountry’s high-technology sector. The Decree stipulates that member technology companies have a 100% exemption from Belarusian income tax of 24%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% ofthe total tax due for that period. The Company has been able to take the full 70% credit for 2008, 2009, 2010 and 2011. The Hungarian tax authorities repealedthe 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 the70% limit until 2014, with full phase out in 2015.The aggregate dollar benefits derived from these tax holidays approximated $21.0 million, $9.0 million and $5.5 million for the years endedDecember 31, 2011, 2010 and 2009, respectively. The benefit the tax holiday had on diluted net income per share approximated $0.49 in the year endedDecember 31, 2011 and $0.22 for the year ended December 31, 2010 and $0.30 for the year ended December 31, 2009.The liability for unrecognized tax benefits is included in income tax liability within the consolidated balance sheets at December 31, 2011 and 2010. AtDecember 31, 2011 and 2010, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state tax positions) was $1,271and $56, respectively, (excluding penalties and interest of $55 and $3, respectively). Of this total, $1,266 and $199, respectively, (net of the federal benefiton 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. The totalamount of accrued interest and penalties resulting from such unrecognized tax benefits was $55, $3 and $129 at December 31, 2011, 2010 and 2009,respectively. F-22Table of ContentsThe beginning to ending reconciliation of the gross unrecognized tax benefits are as follows: 2011 2010 2009 Gross Balance at January 1 $56 $274 $670 Increases in tax positions in current year 178 — — Increases in tax positions in prior year 1,093 — — Decreases due to settlement (56) (218) (396) Balance at December 31 $1,271 $56 $274 There are no tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase or decrease within 12 months ofthe reporting date.The Company files income tax returns in the United States and in various states, local and foreign jurisdictions. The Company’s significant taxjurisdictions are the U.S. Federal, Pennsylvania, Russia, Denmark, Germany, Ukraine, United Kingdom, Hungary, and Kazakhstan. The tax yearssubsequent to 2008 remain open to examination by the Internal Revenue Service. Generally, the tax years subsequent to 2008 remain open to examination byvarious state and local taxing authorities and various foreign taxing authorities.11. OPERATING SEGMENTSOur reportable segments are: North America, Europe, Russia and Other. This determination is based on the unique business practices and marketspecifics of each region and that each region engages in business activities from which it earns revenues and incurs expenses. Our chief operating decisionmaker evaluates the Company’s performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined asincome from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject tosimilar factors, pressures and challenges. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as anallocation of certain shared services expenses. Certain expenses are not specifically allocated to specific segments as management does not believe it is practicalto allocate such costs to individual segments because they are not directly attributable to any specific segment. Further, stock based compensation expense isnot allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, these expenses are separatelydisclosed 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 reportablesegments were as follows for the years ended December 31: 2011 2010 2009 Total segment revenues: North America $151,707 $110,179 $77,068 Europe 123,510 68,420 37,372 Russia 46,219 31,388 24,625 Other 12,851 11,522 10,621 Total segment revenues $334,287 $221,509 $149,686 Segment operating profit (loss): North America $33,744 $28,496 $21,436 Europe 25,098 15,057 6,024 Russia 10,445 3,119 (726) Other 2,416 1,414 (1,069) Total segment operating profit $71,703 $48,086 $25,665 F-23Table of ContentsIntersegment transactions were excluded from the above on the basis they are neither included into the measure of a segment’s profit and loss by the chiefoperating decision maker, nor provided to the chief operating decision maker on a regular basis.Reconciliation of reportable segment revenues and operating profit to the consolidated income from operations for the years ended December 31 ispresented below: 2011 2010 2009 Total segment revenues $334,287 $221,509 $149,686 Unallocated revenue 241 315 253 Revenues $334,528 $221,824 $149,939 2011 2010 2009 Total segment operating profit $71,703 $48,086 $25,665 Unallocated Amounts: Other revenue 241 315 253 Stock-based compensation expense (2,866) (2,939) (2,411) Legal settlement — (2,608) — Non-corporate taxes (2,722) (2,344) (1,896) Professional fees (2,802) (1,229) (1,213) Depreciation and amortization (810) (1,021) (916) Bank charges (793) (548) (449) Provision for bad debts — (265) 2,159 Goodwill impairment loss (1,697) — — Other corporate expenses (5,246) (4,657) (5,210) Income from operations $55,008 $32,790 $15,982 Geographic Area InformationManagement has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably amongst thesegments. Geographical information about the Company’s long-lived assets is based on physical location of the assets at the end of each of the years endedDecember 31: As of December 31,2011 As of December 31,2010 Belarus $26,001 $20,377 Ukraine 4,314 2,223 Russia 2,011 1,263 United States 1,445 386 Hungary 1,108 704 Other 603 385 Total $35,482 $25,338 Long-lived assets include property and equipment, net of accumulated depreciation and amortization. F-24Table of ContentsInformation about the Company’s revenues by client location for each of the three years ended December 31 is as follows: 2011 2010 2009 United States $163,068 $117,027 $80,168 United Kingdom 70,989 32,584 18,785 Russia 43,799 31,488 24,503 Switzerland 15,870 9,751 2,369 Kazakhstan 8,845 7,480 5,253 Germany 7,909 7,239 6,110 Sweden 5,292 3,034 1,010 Netherlands 4,031 5,399 4,013 Other locations 8,549 4,049 5,597 Reimbursable expenses and other revenues 6,176 3,773 2,131 Revenues $334,528 $221,824 $149,939 Revenues by client location differ from the segment information above, which is not solely based on the geographic location of the clients but rather isbased on managerial responsibility for a particular client regardless of where the client is located.Service Offering InformationInformation about the Company’s revenues by service offering for each of the three years ended December 31 is as follows: Year Ended December 31, 2011 2010 2009 Software development $219,211 $149,658 $105,397 Application testing services 67,840 44,459 28,489 Application maintenance and support 29,287 19,262 11,828 Infrastructure services 8,488 2,823 — Licensing 3,526 1,849 2,094 Reimbursable expenses and other revenues 6,176 3,773 2,131 Revenues $334,528 $221,824 $149,939 12. PREFERRED AND COMMON STOCKSeries A-1 Convertible Redeemable Preferred Stock (“Series A-1 Preferred”) — On January 20, 2006, Siguler Guff LLC, a New York basedprivate 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 theCompany’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-1Preferred. 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 $6,803has been recorded as a deemed dividend. The Company accreted the 12.5% compounded annual rate of return through April 15, 2010, in accordance with theredemption provision as detailed below. Annual accretion was $0, $1,432 and $4,423 for the years ended December 31, 2011, 2010 and 2009, respectively.The ending redemption value was $41,245 at December 31, 2011 and 2010, and $39,813 at December 31, 2009. F-25Table of ContentsThe terms of the Series A-1 Preferred are 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 Preferredliquidation 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 tothe 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 amajority 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 allor 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 redemptionelection and ending on the date one and one-half years after such date. The Company shall affect such redemptions on the applicable redemption date bypaying 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 liquidationamount ($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-1Preferred, 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 accretionrelated 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 thecommon 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 tocommon 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 thatwould 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 ofcommon 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. Theinitial 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-1Conversion Price from time to time in effect is subject to adjustment, as defined. Each share of Series A-1 Preferred shall automatically be converted intoshares 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 oragreement 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, asdefined (See Note 17), 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 ofcash 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 privateplacement and raised net proceeds of $47,601 ($50,000 gross less $2,399 costs) F-26Table of Contentsfrom the sale of 675,081 shares of Series A-2 Preferred at a sale price of $74.07 per share. Annual accretion was $17,563, $0 and $0 for the years endedDecember 31, 2011, 2010 and 2009, respectively. The ending carrying value was $44,695, $27,132 and $47,601 at December 31, 2011, 2010 and 2009,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 existingseries 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-2Convertible 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 theCompany voted to retire these shares.The Series A-2 Preferred shares have 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 SeriesA-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 SeriesA-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 purposesof 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 shareand (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 thanthe 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 ofthe 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 Preferredliquidation 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 tothe 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 amajority 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 theSeries A-2 Preferred in three equal installments payable no later than the 12th, 18th and 24th month following the date of the redemption election. TheCompany 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 redeemedthen 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 initialissuance 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) thehurdle 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, thatthe hurdle amount, as defined, shall cease to compound after December 31, 2010 and (y) the percentage ceiling amount, as defined. The percentage ceilingamount means, initially, 17.1% and thereafter adjusted pro rata for any changes in the F-27Table of Contentspercentage 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 valueof 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 stockbasis. 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 beissuable 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-2 Preferred may convert any share of Series A-2 Preferred held by such holder into a number of shares ofcommon 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. Theinitial 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-2Conversion Price from time in effect is subject to adjustment, as defined. Each share of Series A-2 Preferred shall automatically be converted into shares ofcommon 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 ofholders 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 (SeeNote 17), 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 proceedsor 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 aregistration 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 SeriesA-3 Preferred at $51.85 per share, for a total consideration of $14,971, net of costs.The Series A-3 Preferred have 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 thanthe 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 pershare 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 Preferredliquidation 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 tothe respective amount to which they otherwise would be entitled.The liquidation amount is equal to the carrying value for all periods presented. F-28Table of ContentsVoting — 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 stockbasis. 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 beissuable 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 ofcommon 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. Theinitial 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-3Conversion Price from time in effect is subject to adjustment, as defined. Each share of Series A-3 Preferred shall automatically be converted into shares ofcommon 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 ofholders 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 (SeeNote 17), 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 aregistration statement with certain limitations.Puttable Stock — As part of consideration paid in business combinations (see Note 2), the Company issued common stock to certain stockholders ofthe 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 theevent the Company does not have a qualified public offering or reorganization event within a specified period from the acquisition date. The Company issued0, 44,304 and 43,280 shares for the years ending December 31, 2011, 2010 and 2009, respectively. During 2011, put options in respect of 56,896 of puttablecommon stock expired unexecuted.Treasury Stock — During 2010, the Company purchased 114,432 shares of puttable common stock, at a cost of $932, in connection with theexecution of a stockholder put option. During the fourth quarter of 2009, the Company purchased 75,096 shares of common stock, at a cost of $540, inconnection with the execution of a stockholder put option.13. STOCK COMPENSATIONRestricted Stock Units — As of December 31, 2008, 439,448 restricted shares were issued and outstanding. The shares were valued at their fairmarket value on date of grant and vest in accordance with individual agreements. The shares carry a restriction to transferability prior to vesting, and uponvesting are automatically converted into common stock of the Company. The shares vest over a specified period or if issued as part of an acquisition, basedon milestones. In general, the Shares become fully vested upon reorganization or a liquidity event. The stock-based compensation charge related to sharesgranted was $0, $0 and $851 in 2011, 2010 and 2009, respectively. Summary of restricted stock activity as of December 31, 2009, and changes during theyears then ended is presented below: Number ofShares WeightedAverage GrantDate Fair Value Unvested restricted stock outstanding at December 31, 2008 439,448 $2.37 Restricted stock granted — — Restricted stock vested (439,448) 2.37 Unvested restricted stock outstanding at December 31, 2009 — — F-29Table of ContentsAll restricted stock units were fully vested as of December 31, 2009.Stock Option Plan — Effective May 31, 2006, the Board of Directors of the Company adopted the 2006 Stock Option Plan (the “2006 Plan”). TheCompany’s stock option plan permits the granting of options to directors, employees, and certain independent contractors. The Compensation Committee ofthe Board of Directors generally has the authority to select individuals who are to receive options and to specify the terms and conditions of each option sogranted, including the number of shares covered by the option, the exercise price, vesting provisions, and the overall option term. A total of 7,395,840 sharesof common stock have been reserved for issuance under the 2006 Plan. All of the options issued pursuant to the 2006 Plan expire ten years from the date ofgrant.As of December 31, 2011, 2010 and 2009, options to purchase 6,595,136, 6,378,584 and 3,827,312 shares of common stock, respectively, wereissued and outstanding under the 2006 Plan. The stock-based compensation charge related to stock option grants for 2011, 2010 and 2009 was $2,866,$2,939 and $1,560, respectively. A summary of stock option activity as of December 31, 2011, 2010 and 2009, and changes during the years then ended ispresented below: Number ofOptions WeightedAverageExercise Price AggregateIntrinsic Value Options outstanding at January 1, 2009 3,974,560 $2.79 $5,825 Options granted 68,000 4.63 76 Options forfeited/cancelled (215,248) 3.40 (429) Options outstanding at December 31, 2009 3,827,312 $2.30 $13,277 Options granted 2,774,952 5.77 3,064 Options exercised (5,600) 4.63 (13) Options forfeited/cancelled (218,080) 2.98 (850) Options outstanding at December 31, 2010 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 vested and exercisable at December 31, 2011 4,489,698 3.07 40,093 Options expected to vest 1,957,864 7.97 7,887 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 fairvalue of each option as compensation expense ratably using the straight-line method over the service period (generally the vesting period). The Black-Scholesmodel incorporates the following assumptions:a. Expected volatility — the Company estimates the volatility of common stock at the date of grant using historical volatility of peer public companies.The expected volatility was 43%, 43% and 49% in 2011, 2010 and 2009, respectively.b. Expected term — the Company estimates the expected term of options granted using the simplified method of determining expected term as outlined inSEC Staff Accounting Bulletin 107 as used for grants. The expected term was 6.25 years in 2011, 2010 and 2009.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 termof the options in effect at the time of grant. The risk-free rate was approximately 2.05%, 1.78% and 3.0% in 2011, 2010 and 2009. F-30Table of Contentsd. Dividends — the Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its common stock. TheCompany intends to retain any earnings to fund future growth and the operation of its business and, therefore, does not anticipate paying any cash dividendsin the foreseeable future.Additionally, the Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ fromthose estimates. It uses a combination of historical data and other factors to estimate pre-vesting option forfeitures and record share-based compensationexpense only for those awards that are expected to vest.As of December 31, 2011, 2010 and 2009 there was $7,429, $6,650 and $1,837, respectively, of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the plan. That cost is expected to be recognized over the next 2 years using the weighted averagemethod.During the fourth quarter of 2010, the Company modified certain parameters pertaining to the stock option award issued on August 13, 2010. Summaryof the key terms of the modification follows: Aftermodification Beforemodification Number of grantees 20 20 Number of options granted 604,960 552,000 Strike price $6.88 $4.63 The modification had no impact on the estimated costs related to the stock options issued on August 13, 2010.14. EARNINGS PER SHAREBasic EPS is computed by dividing the net income applicable to common stockholders for the period by the weighted average number of shares ofcommon stock outstanding during the same period. Our Series A-1 Preferred, Series A-2 Preferred, Series A-3 Preferred, restricted stock units and puttablecommon stock are considered participating securities since these securities have non-forfeitable rights to dividends or dividend equivalents during thecontractual period of the award and thus require the two-class method of computing EPS. When calculating diluted EPS, the numerator is computed byadding back the undistributed earnings allocated to the participating securities in arriving at the basic EPS and then reallocating such undistributed earningsamong the company’s common stock, participating securities and the potential common shares that result from the assumed exercise of all dilutive options.The denominator is increased to include the number of additional common shares that would have been outstanding had the options been issued. F-31Table of ContentsThe following table sets forth the computation of basic and diluted earnings per share as follows: 2011 2010 2009 Numerator for common earnings per share: Net income $44,353 $28,308 $13,528 Accretion of preferred stock (17,563) (1,432) (4,423) Net income allocated to participating securities (15,025) (17,984) (5,201) Effect on income available from redemption of preferred stock — 5,418 — Numerator for basic (common) earnings per share 11,765 14,310 3,904 Effect on income available from reallocation of options 1,185 996 224 Numerator for diluted (common) earnings per share $12,950 $15,306 $4,128 Numerator for (puttable common) earnings per share: Net income allocated to basic (puttable common) 26 118 36 Effect on income available from reallocation of options (12) (7) (2) Numerator for diluted (puttable common) earnings per share 14 111 34 Denominator for basic (common) earnings per share: Weighted average common shares outstanding 17,094 17,056 16,719 Effect of dilutive securities: Stock options 3,379 2,258 1,755 Denominator for diluted (common) earnings per share 20,473 19,314 18,474 Denominator for basic and diluted (puttable common) earnings per share: Weighted average puttable common shares outstanding 18 141 153 Earnings per share: Basic (common) $0.69 $0.84 $0.23 Basic (puttable common) 1.42 0.84 0.23 Diluted (common) 0.63 0.79 0.22 Diluted (puttable common) 0.77 0.79 0.22 Excluded Options due to Anti-Dilutive 572 1,803 — F-32Table of Contents15. QUARTERLY FINANCIAL DATA (UNAUDITED)Summarized quarterly results for the two years ended December 31, 2011 and 2010 are as follows: Three Months Ended 2011 March 31 June 30 September 30 December 31 Full Year Revenues $ 72,802 $ 80,176 $ 86,423 $ 95,127 $ 334,528 Operating expenses: Cost of revenues (exclusive of depreciation and amortization) 45,505 48,816 51,627 59,388 205,336 Selling, general and administrative expenses 13,793 16,805 15,822 18,510 64,930 Depreciation and amortization expense 1,690 1,959 2,083 1,806 7,538 Goodwill impairment loss — 1,697 — — 1,697 Other operating expenses, net 2 21 — (4) 19 Income from operations 11,812 10,878 16,891 15,427 55,008 Interest income 189 444 353 329 1,315 Interest expense (2) (16) (19) — (37) Other income — — 51 93 144 Foreign exchange (loss) (134) (703) (2,301) (500) (3,638) Income before provision for income taxes 11,865 10,603 14,975 15,349 52,792 Provision for income taxes 2,123 2,326 1,025 2,965 8,439 Net income $9,742 $8,277 $13,950 $12,384 $44,353 Three Months Ended 2010 March 31 June 30 September 30 December 31 Full Year Revenues $ 42,007 $ 49,971 $ 59,072 $ 70,774 $ 221,824 Operating expenses: Cost of revenues (exclusive of depreciation and amortization) 26,186 29,003 37,214 40,125 132,528 Selling, general and administrative expenses 10,594 10,673 10,307 16,061 47,635 Depreciation and amortization expense 1,441 1,552 1,526 1,723 6,242 Other operating expenses, net 39 (60) 2,635 15 2,629 Income from operations 3,747 8,803 7,390 12,850 32,790 Interest income 108 199 175 80 562 Interest expense (49) (11) (4) (12) (76) Foreign exchange (loss) (582) (968) 121 (752) (2,181) Income before provision for income taxes 3,224 8,023 7,682 12,166 31,095 Provision for income taxes 36 598 1,617 536 2,787 Net income $3,188 $7,425 $6,065 $11,630 $28,308 F-33Table of Contents16. COMMITMENTS AND CONTINGENCIESLeases — The Company leases office space under operating leases, which expire at various dates through 2019. Certain leases contain renewalprovisions and generally require the Company to pay utilities, insurance, taxes, and other operating expenses. Rent expense under operating lease agreementsfor the years ended December 31, 2011, 2010 and 2009 was $8,522, $6,724, and $6,399 respectively. Future minimum rental payments under operatingleases that have initial or remaining lease terms in excess of one year as of December 31, 2011 are as follows: Year ending December 31, Operating Leases 2012 $ 10,262 2013 6,319 2014 4,421 2015 2,132 2016 1,454 Thereafter 3,140 Total minimum lease payments $27,728 Construction in progress — On December 7, 2011, the Company entered into an agreement with IDEAB Project Eesti AS for approximately $17,209for the construction of a 14,071 square meter office building within the High Technology Zone in Minsk, Belarus. The building is expected to be operational inthe second half of 2012. In December 2011 the Company made an advance payment to IDEAB of $700.Employee Loan Program — Starting in third quarter of 2006, the Company started to guarantee bank loans for certain of its key employees. Underthe conditions of the guarantees, the Company is required to maintain a security deposit of 30% of the value of loans outstanding at each reporting date. As ofDecember 31, 2011 and 2010, the total commitment of the Company under these guarantees was $823 and $1,222, respectively. The Company estimates aprobability of material losses under the program as remote, therefore, no provision for losses was recognized for the years ended December 31, 2011 and 2010.Litigation — From time to time, the Company is involved with litigation, claims or other contingencies. Management is not aware of any such matters,except as described below, that would have a material effect on the consolidated financial statements of the Company.In September 2010, the Company entered into a Settlement Agreement and Release (“Agreement”) with a former officer and their related parties(“Plaintiffs”). In consideration and exchange for the releases, promises, and other covenants given by the Plaintiffs in this agreement, and for the purchase bythe Company of all the EPAM common stock held by the Plaintiffs, the Company agreed to make a one-time aggregate cash payment of $9 million to thePlaintiffs. The Company has determined that the fair value of 986,352 shares of common stock at the time of settlement was $6.48 per share, or roughly$6.4 million, which was recorded as treasury stock within Stockholders’ Equity. The remaining amount of $2.6 million was recorded as a current periodexpense within other operating expenses. Subsequently, the Company reissued 673,184 shares to the existing A-3 stockholders at $6.48 per share, and313,168 shares to existing A-2 stockholders also at $6.48 per share.17. SUBSEQUENT EVENTSOn January 19, 2012, the Company effected an 8 to 1 stock split of the Company’s common stock. All shares of common stock and stock options topurchase common stock and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on aretroactive basis for all periods presented. There is no change in the par value of the Company’s common stock. The ratio by which shares of preferred stockare convertible into shares of common stock has been adjusted to reflect the effects of the common stock split, such that each share of preferred stock isconvertible into eight shares of common stock. F-34Table of ContentsInitial Public OfferingIn February 2012, the Company completed its initial public offering of 6,900,000 shares of its common stock, which included 900,000 shares of itscommon 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 pershare. 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 issuedand 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 Companyof $34.8 million, and $29.5 million in net proceeds to it after deducting underwriting discounts and commissions of $2.3 million and offering expenses of$3.0 million. The Company did not receive any proceeds from the sale of common stock by the selling stockholders.Upon the closing of the initial public offering, all outstanding Series-A1 and Series-A2 convertible redeemable preferred stock, and Series A3 convertiblepreferred stock were converted into 21,840,128 shares of common stock, as shown in the table below. ConversionShares Series A-1 Convertible Redeemable Preferred Stock 16,439,480 Series A-2 Convertible Redeemable Preferred Stock 3,078,432 Series A-3 Convertible Preferred Stock 2,322,216 Total 21,840,128 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 the completion of aninitial public offering by the Company. 53,336 shares of common stock were issued to Instant Information Inc. upon completion of this offering for anaggregate value of $640.On January 16, 2012 the Company issued 194,800 shares of restricted stock to one of its executives with an unrecognized compensation cost of$2,338.On January 11, 2012 the Company approved the 2012 Long Term Incentive Plan (“2012 Plan”), which will be used to issue equity grants to employees.The Company authorized 9,246,800 shares of common stock to be reserved for issuance under the plan. This is in addition to 733,808 shares that remainedavailable for issuance under the 2006 Plan as of January 11, 2012 and which are available for issuance under the 2012 Plan. In addition, up to 6,595,136shares that are subject to outstanding awards under the 2006 Plan and that expire or terminate for any reason prior to exercise or that would otherwise return tothe 2006 Plan’s share reserve will be available for awards to be granted under the 2012 Plan.On March 19, 2012 the Company issued 1,400,040 options to purchase common stock under the 2012 Plan with total unrecognized compensation costof $10,799.On January 11, 2012 the Company approved the 2012 Non-Employee Directors Compensation Plan (“2012 Directors Plan”), which will be used toissue equity grants to our non-employee directors. The Company authorized 600,000 shares of common stock to be reserved for issuance under the plan. The2012 Directors Plan will expire after ten years and will be administered by the Company’s board of directors. On January 18, 2012, the Company issued11,764 shares of commons stock to its non-employee directors with an unrecognized compensation cost of $141.****** F-35EXHIBIT 3.1THIRD AMENDED AND RESTATEDCERTIFICATE OF INCORPORATIONOFEPAM SYSTEMS, INC.Pursuant to the provisions of § 242 and § 245 of theGeneral Corporation Law of the State of DelawareEPAM Systems, Inc. (the “Corporation”), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:A. The present name of the Corporation is EPAM Systems, Inc. The original Certificate of Incorporation of the Corporation was filed with the Secretaryof State of the State of Delaware on December 18, 2002, was amended and restated on January 19, 2006, was further amended and restated on February 19,2008, was further amended by the Certificate of Designation of the Series A-3 Convertible Redeemable Preferred Stock of the Corporation filed on April 22,2010 and was further amended by the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation filed on January 19, 2012.B. The Second Amended and Restated Certificate of Incorporation of the Corporation is hereby amended in its entirety as set forth in the Third Amendedand Restated Certificate of Incorporation hereinafter provided.C. The Third Amended and Restated Certificate of Incorporation herein certified has been duly adopted by the stockholders in accordance with theprovisions of § 228, §242 and §245 of the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (“DelawareLaw”). Prompt written notice of the adoption of the amendments and of the restatement of the Second Amended and Restated Certificate of Incorporation hereincertified has been given to those stockholders who have not consented in writing thereto, as provided in § 228 of Delaware Law.D. The Third Amended and Restated Certificate of Incorporation shall become effective upon the filing hereof with the Secretary of State of the State ofDelaware.E. The Third Amended and Restated Certificate of Incorporation of the Corporation shall, at the effective time, read as follows:Article 1. NAMEThe name of the Corporation is EPAM Systems, Inc.Article 2. REGISTERED OFFICE AND AGENTThe address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware19808. The name of its registered agent at such address is Corporation Service Company.Article 3. PURPOSE AND POWERSThe purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under Delaware Law.Article 4. CAPITAL STOCK4.1 Authorized SharesThe total number of shares of stock that the Corporation shall have authority to issue is 200,000,000, consisting of 160,000,000 shares of CommonStock, par value $0.001 per share (the “Common Stock”), and 40,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”).On January 19, 2012 (the “Common Stock Split Effective Time”), each share of Common Stock outstanding immediately prior to the CommonStock Split Effective Time was automatically and without any further action on the part of the holder thereof converted into eight (8) shares of Common Stock(the “Stock Split”). Each holder of a certificate representing a share or shares of Common Stock, which certificate (an “Old Certificate”) was issued prior tothe Common Stock Split Effective Time, shall be entitled to receive, upon surrender of such Old Certificate to the Corporation for cancellation, a newcertificate or certificates for shares of Common Stock, which will equal the number of shares represented by the Old Certificate being surrendered multipliedby eight (8); provided that the Board of Directors may instead determine by resolution in accordance with § 158 of Delaware Law that such holder’s shares ofCommon Stock shall be uncertificated, in which case such holder shall not be entitled to receive a new certificate and such holder’s ownership of CommonStock shall be recorded in the books and records of the Corporation. No scrip or fractional share certificate shall be issued in connection with the Stock Split.Old Certificates will be deemed for all purposes to represent the number of shares of Common Stock outstanding after giving effect to the Stock Split, exceptthat the holder of an Old Certificate shall not be entitled to receive any distributions payable by the Corporation after the Common Stock Split Effective Timeuntil such Old Certificate has been surrendered as aforesaid. Such distributions, if any, shall be accumulated and, at the time of surrender of the OldCertificate, all such unpaid distributions shall be paid without interest.The Board of Directors is hereby empowered to authorize by resolution or resolutions from time to time the issuance of one or more classes or series of 2Preferred Stock and to fix the designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitationsor restrictions thereof, if any, with respect to each such class or series of Preferred Stock and the number of shares constituting each such class or series, andto increase or decrease the number of shares of any such class or series to the extent permitted by Delaware Law.4.2 Voting RightsEach holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters onwhich stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall notbe entitled to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designations relating to any series of Preferred Stock) thatrelates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together withthe holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designations relating toany series of Preferred Stock) or pursuant to Delaware Law.Article 5. BYLAWSThe Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation.The stockholders may adopt, amend or repeal the Bylaws only with the affirmative vote of the holders of not less than 66 2/3% of the total voting powerof all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.Article 6. BOARD OF DIRECTORS(1) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than threedirectors, with the exact number of directors to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the WholeBoard. For purposes of this Certificate of Incorporation, the term “Whole Board” shall mean the total number of authorized directors whether or not there existany vacancies in previously authorized directorships.(2) The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible,of one-third of the total number of directors constituting the entire Board of Directors. Each director shall serve for a term ending on the date of the third annualmeeting of stockholders next following the annual meeting at which such director was elected, provided that directors initially designated as Class I 3directors shall serve for a term ending on the date of the 2013 annual meeting, directors initially designated as Class II directors shall serve for a term ending onthe date of the 2014 annual meeting, and directors initially designated as Class III directors shall serve for a term ending on the date of the 2015 annualmeeting. Notwithstanding the foregoing, each director shall hold office until such director’s successor shall have been duly elected and qualified or until suchdirector’s earlier death, resignation or removal. In the event of any change in the number of directors, the Board of Directors shall apportion any newly createddirectorships among, or reduce the number of directorships in, such class or classes as shall equalize, as nearly as possible, the number of directors in eachclass. In no event will a decrease in the number of directors shorten the term of any incumbent director. A majority of the Whole Board shall constitute aquorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise expressly required by law or by this Certificate ofIncorporation, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.(3) The names and mailing addresses of the persons who are to serve initially as directors of each Class are: Name Mailing AddressClass I Karl Robb c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940 Ross Goodhart c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940Class II Andrew J. Guff c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940 Donald P. Spencer c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940 Ronald Vargo c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940Class III Arkadiy Dobkin c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940 Robert Segert c/o EPAM Systems, Inc.41 University Drive, Suite 202Newtown, Pennsylvania 18940 4(4) There shall be no cumulative voting in the election of directors. Election of directors need not be by written ballot unless the Bylaws of theCorporation so provide.(5) Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from anyincrease in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remainingdirector, and each director so elected shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected.(6) No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than a majority ofthe total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.(7) Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, votingseparately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall begoverned by the terms of the resolution or resolutions adopted by the Board of Directors pursuant to Article 4 applicable thereto, and such directors so electedshall not be subject to the provisions of this Article 6 unless otherwise provided therein.Article 7. MEETINGS OF STOCKHOLDERS(1) An annual meeting of stockholders for the election of directors to succeed those whose terms expire and for the transaction of such other business asmay properly come before the meeting shall be held at such place, on such date, and at such time as the Board of Directors shall determine.(2) Special meetings of the stockholders may be called only by the Board of Directors acting pursuant to a resolution adopted by a majority of the WholeBoard. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class orseries, to elect directors, such holders may call, pursuant to the terms of the resolution or resolutions adopted by the Board of Directors pursuant to Article 4hereto, special meetings of holders of such Preferred Stock.(3) Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at anannual or special meeting duly noticed and called in accordance with Delaware Law, as amended from time to time, and this Article 7 and may not be taken bywritten consent of stockholders without a meeting. 5Article 8. INDEMNIFICATION(1) A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a directorto the fullest extent permitted by Delaware Law.(2)(a) Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involvedin any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that suchperson is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation,partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law.The right to indemnification conferred in this Article 8 shall also include the right to be paid by the Corporation the expenses incurred in connection with anysuch proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. The right to indemnification conferred in this Article 8shall be a contract right.(b) The Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation to suchextent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law.(3) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent ofthe Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, jointventure, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of such person’s status assuch, whether or not the Corporation would have the power to indemnify such person against such liability under Delaware Law.(4) The rights and authority conferred in this Article 8 shall not be exclusive of any other right which any person may otherwise have or hereafteracquire.(5) Neither the amendment nor repeal of this Article 8, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of theCorporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall adversely affect any right or protection of any person grantedpursuant hereto existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, adoption ormodification (regardless of when any proceeding (or part thereof) relating to such event, act or omission arises or is first threatened, commenced or completed). 6(6) The Corporation hereby acknowledges that the directors affiliated with Siguler Guff & Company and its affiliates may have certain rights toindemnification, advancement of expenses and/or insurance provided by Siguler Guff & Company and certain of its affiliates (collectively, the “FundIndemnitors”). The Corporation hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to such persons are primary and any obligation ofthe Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such persons are secondary), (ii) that itshall be required to advance the full amount of expenses incurred by such persons and shall be liable for the full amount of all expenses, judgments, penalties,fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Certificate of Incorporation or the Bylaws of theCorporation (or any other agreement between the Corporation and such persons), without regard to any rights such persons may have against the FundIndemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors forcontribution, subrogation or any other recovery of any kind in respect thereof. The Corporation further agrees that no advancement or payment by the FundIndemnitors on behalf of such persons with respect to any claim for which such persons have sought indemnification from the Corporation shall affect theforegoing and the Fund Indemnitors shall be subrogated to the extent of such advancement or payment to all of the rights of recovery of such persons againstthe Corporation. The Corporation and each such person agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Article 8,section 6.Article 9. FORUM SELECTIONThe Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of thecorporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the corporation to the corporation orthe corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governedby the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the corporation shall bedeemed to have notice of and consented to the provisions of this Article 9.Article 10. AMENDMENTSThe Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by Delaware Law and all rights and powersconferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth inArticles 5, 6, 7, 8, 9 and this Article 10 may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed whichwould have the effect of modifying or permitting the circumvention of the provisions set forth in any of Articles 5, 6, 7, 8, 9 or this Article 10, unless such 7action is approved by the affirmative vote of the holders of not less than 66 /3% of the total voting power of all outstanding securities of the Corporation thenentitled to vote generally in the election of directors, voting together as a single class.[Remainder of page intentionally left blank.] 8 2IN WITNESS WHEREOF, the undersigned has executed this Third Amended and Restated Certificate of Incorporation as of this 13th day of February,2012. EPAM SYSTEMS, INC. /s/ Ilya CantorBy: Ilya CantorTitle: Chief Financial OfficerEXHIBIT 3.2AMENDED AND RESTATED BYLAWSOFEPAM SYSTEMS, INC.ARTICLE 1OFFICESSection 1.01. Registered Office. The registered office of EPAM Systems, Inc. (the “Corporation”) shall be in the City of Wilmington, County of NewCastle, State of Delaware.Section 1.02. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board ofDirectors may from time to time determine or the business of the Corporation may require.Section 1.03. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to timedetermine or the business of the Corporation may require.ARTICLE 2MEETINGS OF STOCKHOLDERSSection 2.01. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, onsuch date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board ofDirectors).Section 2.02. Annual Meetings. An annual meeting of stockholders, commencing with the year 2013, shall be held for the election of directors and totransact such other business as may properly be brought before the meeting.Section 2.03. Special Meetings. Special meetings of the stockholders may be called only by the Board of Directors acting pursuant to a resolutionadopted by a majority of the Whole Board.Section 2.04. Notice of Meetings and Adjourned Meetings; Waivers of Notice. (a) Whenever stockholders are required or permitted to take any actionat a meeting, a written notice of the meeting shall be given which shall state the 1place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to bepresent in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwiseprovided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (“Delaware Law”), such notice shall begiven not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. The Board ofDirectors or the chairman of the meeting may adjourn the meeting to another time or place (whether or not a quorum is present), and notice need not be given ofthe adjourned meeting if the time, place and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to bepresent in person and voting at such meeting, are announced at the meeting at which such adjournment is made. At the adjourned meeting, the Corporationmay transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment anew record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.(b) A written waiver of any such notice signed by the person entitled thereto, or a waiver by electronic transmission by the person entitled to notice,whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice ofsuch meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of anybusiness because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposesstated in the notice.Section 2.05. Quorum. Unless otherwise provided under the Third Amended and Restated Certificate of Incorporation of the Corporation (the“Certificate of Incorporation”) or these Bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of theoutstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. If, however,such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority in voting interest of thestockholders present in person or represented by proxy may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shallbe present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted that might have beentransacted at the meeting as originally notified.Section 2.06. Voting. (a) Unless otherwise provided in the Certificate of Incorporation and subject to Delaware Law, each stockholder shall be entitled to 2one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Any share of capital stock of the Corporation held by theCorporation shall have no voting rights. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, in all matters other than theelection of directors, the affirmative vote of the majority of the shares of capital stock of the Corporation present in person or represented by proxy at themeeting and entitled to vote on the subject matter shall be the act of the stockholders. Subject to the rights of the holders of any series of preferred stock to electadditional directors under specific circumstances, directors shall be elected by a plurality of the votes of the shares of capital stock of the Corporation presentin person or represented by proxy at the meeting and entitled to vote on the election of directors.(b) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting mayauthorize another person or persons to act for such stockholder by proxy, appointed by an instrument in writing, subscribed by such stockholder or by hisattorney thereunto authorized, or by proxy sent by cable, telegram or by any means of electronic communication permitted by law, which results in a writingfrom such stockholder or by his attorney, and delivered to the secretary of the meeting. No proxy shall be voted after three (3) years from its date, unless saidproxy provides for a longer period.(c) In determining the number of votes cast for or against a proposal or nominee, shares abstaining from voting on a matter and votes by a broker thathave not been directed by the beneficial owner will be counted for purposes of determining a quorum but not for purposes of determining the number of votescast.Section 2.07. Action by Consent. As set forth in Article 7 of the Certificate of Incorporation, any action required or permitted to be taken at any annualor special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance withDelaware Law and may not be taken by written consent of stockholders without a meeting.Section 2.08. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or in the Chairman’s absenceor if one shall not have been elected, the director designated by the vote of the majority of the directors present at such meeting, shall act as chairman of themeeting. The Secretary (or in the Secretary’s absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting)shall act as secretary of the meeting and keep the minutes thereof. 3Section 2.09. Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting.Section 2.10. Nomination of Directors.(a) Annual Meetings of Stockholders. (i) Nominations of persons for election to the Board of Directors of the Corporation or the proposal of otherbusiness to be transacted by the stockholders at an annual meeting of stockholders may be made only (A) pursuant to the Corporation’s notice of meeting (orany supplement thereto), (B) by or at the direction of the Board of Directors or any committee thereof or (C) by any stockholder of the Corporation who is astockholder of record at the time of giving of notice provided for in this Section 2.10(a) and at the time of the annual meeting, who shall be entitled to vote at themeeting and who complies with the procedures set forth in this Section 2.10(a), and any failure to comply with these procedures shall result in the nullificationof such nomination or proposal.(ii) For nominations or other business to be properly brought before an annual meeting of stockholders by a stockholder pursuant to clause (i)(C)of paragraph (i) of this Section 2.10(a), the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and any suchproposed business (other than the nominations of persons for election to the Board of Directors) must constitute a proper matter for stockholder action.To be timely, a stockholder’s notice shall be delivered to, or mailed and received by, the secretary of the Corporation at the principal executive offices ofthe Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting of stockholders;provided, however, that in the event that the date of the annual meeting is advanced more than 30 days prior to such anniversary date or delayed morethan 70 days after such anniversary date then to be timely such notice must be received by the Corporation no earlier than 120 days prior to such annualmeeting and no later than the later of 70 days prior to the date of the meeting or the 10 day following the day on which public announcement of the dateof the meeting was first made by the Corporation. In no event shall the adjournment or postponement of any meeting, or any announcement thereof,commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.(iii) A stockholder’s notice to the secretary shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelectionas a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwiserequired, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “Exchange Act”) (including 4thsuch person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (B) as to any other businessthat the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of theproposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amendthese Bylaws, the text of the proposed amendment), the reasons for conducting such business and any material interest in such business of suchstockholder and the beneficial owner, if any, on whose behalf the proposal is made and (C) as to the stockholder giving the notice and the beneficialowner, if any, on whose behalf the proposal is made:(1) the name and address of such stockholder (as they appear on the Corporation’s books) and any such beneficial owner;(2) the class or series and number of shares of capital stock of the Corporation which are held of record or are beneficially owned by suchstockholder and by any such beneficial owner;(3) a description of any agreement, arrangement or understanding between or among such stockholder and any such beneficial owner, anyof their respective affiliates or associates, and any other person or persons (including their names) in connection with the proposal of suchnomination or other business;(4) a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any derivative, long orshort positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedgingtransactions and borrowed or loaned shares) that has been entered into by or on behalf of, or any other agreement, arrangement or understandingthat has been made, the effect or intent of which is to create or mitigate loss to, manage risk or benefit of share price changes for, or increase ordecrease the voting power of, such stockholder or any such beneficial owner or any such nominee with respect to the Corporation’s securities;(5) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends toappear in person or by proxy at the meeting to bring such nomination or other business before the meeting; and 5(6) a representation as to whether such stockholder or any such beneficial owner intends or is part of a group that intends to (i) deliver aproxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Corporation’s outstanding capital stockrequired to approve or adopt the proposal or to elect each such nominee and/or (ii) otherwise to solicit proxies from stockholders in support of suchproposal or nomination. If requested by the Corporation, the information required under clauses 2.10(a)(iii)(C)(2), (3) and (4) of the precedingsentence of this Section 2.10 shall be supplemented by such stockholder and any such beneficial owner not later than 10 days after the record datefor the meeting to disclose such information as of the record date.(b) Special Meetings of Stockholders. If the election of directors is included as business to be brought before a special meeting in the Corporation’snotice of meeting, then nominations of persons for election to the Board of Directors of the Corporation at a special meeting of stockholders may be made byany stockholder who is a stockholder of record at the time of giving of notice provided for in this Section 2.10(b) and at the time of the special meeting, whoshall be entitled to vote at the meeting and who complies with the procedures set forth in this Section 2.10(b). For nominations to be properly brought by astockholder before a special meeting of stockholders pursuant to this Section 2.10(b), the stockholder must have given timely notice thereof in writing to thesecretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of theCorporation (A) not earlier than 120 days prior to the date of the special meeting nor (B) later than the later of 90 days prior to the date of the special meeting orthe 10 day following the day on which public announcement of the date of the special meeting was first made. A stockholder’s notice to the secretary shallcomply with the notice requirements of Section 2.10(a)(iii).(c) General. (i) At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to thesecretary of the Corporation the information that is required to be set forth in a stockholder’s notice of nomination that pertains to the nominee. No person shallbe eligible to be nominated by a stockholder to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in thisSection 2.10. No business proposed by a stockholder shall be conducted at a stockholder meeting except in accordance with this Section 2.10. The chairmanof the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed bythese Bylaws or that business was not properly brought before the meeting, and if he should so determine, he shall so declare to the meeting and the defectivenomination shall be disregarded or such business shall not be transacted, as the 6thcase may be. Notwithstanding the foregoing provisions of this Section 2.10, unless otherwise required by law, if the stockholder (or a qualified representativeof the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or other proposed business,such nomination shall be disregarded or such proposed business shall not be transacted, as the case may be, notwithstanding that proxies in respect of suchvote may have been received by the Corporation and counted for purposes of determining a quorum. For purposes of this Section 2.10, to be considered aqualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by awriting executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting ofstockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at themeeting of stockholders.(ii) Without limiting the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of theExchange Act, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.10; provided, however, that any referencesin these Bylaws to the Exchange Act or such rules and regulations are not intended to and shall not limit any requirements applicable to nominations orproposals as to any other business to be considered pursuant to this Section 2.10, and compliance with paragraphs (a)(i)(C) and (b) of this Section 2.10shall be the exclusive means for a stockholder to make nominations or submit other business (other than as provided in paragraph 2.10(c)(iii)).(iii) Notwithstanding anything to the contrary, the notice requirements set forth herein with respect to the proposal of any business pursuant to thisSection 2.10 shall be deemed satisfied by a stockholder if such stockholder has submitted a proposal to the Corporation in compliance with Rule 14a-8under the Exchange Act, and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicitproxies for the meeting of stockholders.ARTICLE 3DIRECTORSSection 3.01. General Powers. Except as otherwise provided in Delaware Law or the Certificate of Incorporation, the business and affairs of theCorporation shall be managed by or under the direction of the Board of Directors. 7Section 3.02. Number, Election and Term Of Office. The Board of Directors shall consist of not less than three nor more than nine directors, with theexact number of directors to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the Whole Board. Forpurposes of these Bylaws, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previouslyauthorized directorships. As set forth in Article 6 of the Certificate of Incorporation, the directors shall be divided into three classes, designated Class I, ClassII and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors.Except as otherwise provided in the Certificate of Incorporation, each director shall serve for a term ending on the date of the third annual meeting ofstockholders next following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director shall hold office until suchdirector’s successor shall have been duly elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders.Section 3.03. Quorum and Manner of Acting. Unless the Certificate of Incorporation or these Bylaws require a greater number, a majority of the WholeBoard shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise expressly required by law orby the Certificate of Incorporation, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board ofDirectors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if thetime and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact anybusiness which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directorspresent thereat shall adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.Section 3.04. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware,and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board ofDirectors).Section 3.05. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of otherbusiness, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held.Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at suchplace 8either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided inSection 3.07 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.Section 3.06. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereofshall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given.Section 3.07. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall becalled by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shallbe given to each director at least two days before the date of the meeting in such manner as is determined by the Board of Directors.Section 3.08. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of theCorporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member atany meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and notdisqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directorsto act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board ofDirectors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of theCorporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power orauthority in reference to the following matter: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required byDelaware Law to be submitted to the stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation. Each committee shallkeep regular minutes of its meetings and report the same to the Board of Directors when required.Section 3.09. Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to betaken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as thecase may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions, are filed with theminutes of proceedings of the Board or committee. Such filing shall be in paper 9form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.Section 3.10. Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors,or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, bymeans of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and suchparticipation in a meeting shall constitute presence in person at the meeting.Section 3.11. Resignation. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or tothe Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in suchnotice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.Section 3.12. Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies on the Board of Directors resulting from death,resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority ofthe directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office for a term that shallcoincide with the term of the Class to which such director shall have been elected. If there are no directors in office, then an election of directors may be held inaccordance with Delaware Law. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board, effectiveat a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies andeach director so chosen shall hold office as provided in the filling of the other vacancies.Section 3.13. Removal. No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not lessthan a majority of the total voting power of all outstanding securities of the corporation then entitled to vote generally in the election of directors, voting togetheras a single class.Section 3.14. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have authorityto fix the compensation of directors, including fees and reimbursement of expenses. 10Section 3.15. Preferred Stock Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series ofPreferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and otherfeatures of such directorships shall be governed by the terms of the resolutions applicable thereto adopted by the Board of Directors pursuant to the Certificateof Incorporation, and such directors so elected shall not be subject to the provisions of Sections 3.02, 3.12 and 3.13 of this Article 3 unless otherwise providedtherein.ARTICLE 4OFFICERSSection 4.01. Principal Officers. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretarywho shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. TheCorporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may holdthe offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President andSecretary.Section 4.02. Election, Term of Office and Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directorsat the annual meeting thereof. Each such officer shall hold office until his or her successor is elected and qualified, or until his or her earlier death, resignationor removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in suchmanner as the Board of Directors shall determine.Section 4.03. Subordinate Officers. In addition to the principal officers enumerated in Section 4.01 herein, the Corporation may have one or moreAssistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directorsmay deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors maydelegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees.Section 4.04. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at anytime, by resolution adopted by the Board of Directors. 11Section 4.05. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board ofDirectors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receiptof notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not benecessary to make it effective.Section 4.06. Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respectiveoffices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors.ARTICLE 5CAPITAL STOCKSection 5.01. Certificates For Stock; Uncertificated Shares. The shares of the Corporation shall be represented by certificates, provided that the Boardof Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificatedshares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Except as otherwiseprovided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of shares represented bycertificates of the same class and series shall be identical. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or inthe name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, or the President or Vice President, and by the Treasurer or anassistant Treasurer, or the Secretary or an assistant Secretary of such Corporation representing the number of shares registered in certificate form. Any or allof the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has beenplaced upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporationwith the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Corporation shall not have power to issue acertificate in bearer form.Section 5.02. Transfer Of Shares. Shares of the stock of the Corporation may be transferred on the record of stockholders of the Corporation by theholder thereof or by such holder’s duly authorized attorney upon surrender of a certificate therefor properly endorsed or upon receipt of proper transferinstructions from the registered holder of uncertificated shares or by such holder’s duly authorized attorney and upon compliance with appropriate proceduresfor transferring shares in uncertificated form, unless waived by the Corporation. 12Section 5.03. Authority for Additional Rules Regarding Transfer. The Board of Directors shall have the power and authority to make all such rulesand regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of the stock of theCorporation, as well as for the issuance of new certificates in lieu of those which may be lost or destroyed, and may require of any stockholder requestingreplacement of lost or destroyed certificates, bond in such amount and in such form as they may deem expedient to indemnify the Corporation, and/or thetransfer agents, and/or the registrars of its stock against any claims arising in connection therewith.ARTICLE 6GENERAL PROVISIONSSection 6.01. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholdersor any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing suchrecord date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If theBoard of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board ofDirectors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shallbe at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next precedingthe day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to anyadjournment of the meeting; provided that the Board of Directors may in its discretion or as required by law fix a new record date for determination ofstockholders entitled to vote at the adjourned meeting, and in such case shall fix the same date or an earlier date as the record date for stockholders entitled tonotice of such adjourned meeting.(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of anyrights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawfulaction, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted,and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such 13purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.Section 6.02. Dividends. Subject to limitations contained in Delaware Law and the Certificate of Incorporation, the Board of Directors may declare andpay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock ofthe Corporation.Section 6.03. Year. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year.Section 6.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words“Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.Section 6.05. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend,vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.Section 6.06. Amendments. These Bylaws or any of them, may be altered, amended or repealed, or new Bylaws may be made, by the stockholdersentitled to vote thereon at any annual or special meeting thereof, or by the Board of Directors. Unless a higher percentage is required by the Certificate ofIncorporation as to any matter that is the subject of these Bylaws, all such amendments must be approved by the affirmative vote of the holders of 662/3% ofthe total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class,or by a majority of the Board of Directors. 14Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in EPAM Systems, Inc.’s Registration Statement No. 333-179409 on Form S-8 of our report dated March30, 2012 relating to the audited consolidated financial statements of EPAM Systems, Inc. and subsidiaries, appearing in this Annual Report on Form 10-K ofEPAM Systems, Inc. for the year ended December 31, 2011./s/ DELOITTE & TOUCHE LLPPhiladelphia, PAMarch 30, 2012EXHIBIT 31.1Certification by Chief Executive OfficerPursuant to Securities Exchange Act Rule 13a-14(a)I, Arkadiy Dobkin, certify that: 1.I have reviewed this annual report on Form 10-K of EPAM Systems, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a)]; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 30, 2012 /s/ Arkadiy Dobkin Arkadiy DobkinChairman, Chief Executive Officer and President(principal executive officer)EXHIBIT 31.2Certification by Chief Financial OfficerPursuant to Securities Exchange Act Rule 13a-14(a)I, Ilya Cantor, certify that: 1.I have reviewed this annual report on Form 10-K of EPAM Systems, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a)]; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 30, 2012 /s/ Ilya Cantor Ilya CantorSenior Vice President, Chief Financial Officer and Treasurer(principal financial officer and principal accounting officer)EXHIBIT 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of EPAM Systems, Inc. (the “Company”) for the year ended December 31, 2011 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Arkadiy Dobkin, as Chief Executive Officer of the Company, hereby certifies,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 30, 2012 /s/ Arkadiy DobkinArkadiy DobkinChairman, Chief Executive Officer and President(principal executive officer)EXHIBIT 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of EPAM Systems, Inc. (the “Company”) for the year ended December 31, 2011 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Ilya Cantor, as Chief Financial Officer of the Company, hereby certifies, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 30, 2012 /s/ Ilya CantorIlya CantorSenior Vice President, Chief Financial Officer and Treasurer(principal financial officer and principal accounting officer)

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