IMPACT OF THE INVASION OF UKRAINE

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

On February 24, 2022, Russian forces attacked Ukraine and its people and EPAM has called for an immediate end to this unlawful and unconscionable attack. As of June 30, 2022, the Company had $70.9 million of Property and equipment, net in Ukraine consisting of a building classified as construction-in-progress located in Kyiv with a net book value of $50.7 million, laptops with a net book value of $12.5 million, most of which are in the possession of employees, various office furniture, equipment and supplies with a net book value of $7.2 million, and leasehold improvements located throughout Ukraine with a net book value of $0.5 million. Additionally, the Company had Operating lease right-of-use assets located throughout Ukraine with a net book value of $14.4 million as of June 30, 2022. Through the issuance date of these interim financial statements, the Company is not aware of any damage to its long-lived assets in Ukraine and the Company expects to continue to use these assets as part of its global delivery model.

On March 4, 2022, in addition to the Company’s donations, and the work of EPAM volunteers on the ground, the Company announced a $100.0 million humanitarian commitment to support its employees and their families in and displaced from Ukraine. During the three and six months ended June 30, 2022, the Company expensed $8.4 million and $34.0 million, respectively, related to this commitment including special cash payments to support impacted employees, financial and medical support for impacted families, travel, meals and lodging expenses, and donations to third-party humanitarian organizations. Of the expensed amount for the three months ended June 30, 2022, $3.3 million is classified in Cost of revenues (exclusive of depreciation and amortization) and $5.1 million is classified in Selling, general and administrative expense on the condensed consolidated financial statements. Of the expensed amount for the six months ended June 30, 2022, $22.4 million is classified in Cost of revenues (exclusive of depreciation and amortization) and $11.6 million is classified in Selling, general and administrative expense on the condensed consolidated financial statements.

The Company continues to execute its business continuity plans to relocate employees residing in Ukraine, Belarus and Russia to other countries and continues to assign delivery personnel in locations outside of the region to serve in unbilled standby or backup capacity to ensure the continuity of delivery for its customers who have substantial delivery exposure to Ukraine or other delivery concerns resulting from the invasion. In addition to costs incurred as part of EPAM’s humanitarian commitment to Ukraine, during the three months ended June 30, 2022, the Company incurred expenses of $14.4 million related to its geographic repositioning efforts, classified as Selling, general and administrative expenses and $9.3 million related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization). During the six months ended June 30, 2022, the Company incurred expenses of $33.1 million related to its geographic repositioning efforts, classified as Selling, general and administrative expenses and $11.8 million related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization). During the six months ended June 30, 2022, the Company also recorded an impairment charge of $1.3 million classified as Other income/(expense) related to a financial asset in Ukraine which the Company believes to be unrealizable due to the events in Ukraine.

In response to the attacks on Ukraine, EPAM announced on March 4, 2022, it would discontinue services to customers located in Russia. Based on this change in facts and circumstances, the long-term cash flow forecast for the Company’s operations in Russia and its Russia reporting unit were significantly reduced. The reduction in the long-term cash flow forecasts indicated that the carrying amounts of goodwill and long-lived assets associated with the Company’s Russia reporting unit and operations in Russia may not be recoverable, and the carrying value of these assets was tested for impairment. The Company relied on the income approach to estimate the fair values of the Russia reporting unit and long-lived assets and considered multiple scenarios including the continuing operation and exit of operations in Russia. Reflecting the negative long-term cash flow forecasts that each of these scenarios produced for these assets, during the three months ended March 31, 2022, the Company recorded impairments of Property and equipment, net of $15.1 million, Operating lease right-of-use assets, net of $3.8 million, and Goodwill of $0.7 million. These asset impairment charges are included in Selling, general and administrative expenses in the interim condensed consolidated financial statements for the six months ended June 30, 2022. Additionally, the Company evaluated trade receivables and contract assets for estimated future credit losses from customers located in Russia and recorded bad debt expense of $8.2 million during the six months ended June 30, 2022, reflecting the deterioration of creditworthiness of its customers in Russia. This expense is included in Selling, general and administrative expenses in the condensed consolidated financial statements.

On April 7, 2022, the Company announced that it would begin the process of a phased exit of its operations in Russia, to be completed in the months following the announcement and in close collaboration with the Company’s employees, contractors, and customers. Through the date of issuance of these condensed consolidated financial statements, the Company continues to explore strategic alternatives for its operations in Russia, including the potential sale or liquidation of its holdings while executing its phased exit. In connection with the exit of its operations in Russia, the Company incurred employee separation costs of $16.2 million during the three and six months ended June 30, 2022, of which $7.4 million is included in Accrued compensation expenses in the condensed consolidated balance sheet as of June 30, 2022. The Company could incur additional significant charges in the future related to the exit of its operations in Russia including, but not limited to, additional restructuring costs and loss on sale, which could be impacted by amounts transferred to settle intercompany receivables and payables and the recognition of the Accumulated currency translation adjustment currently included in Accumulated other comprehensive income/(loss). The timing of completing the exit is subject to completion of regulatory requirements in the country and the Company expects to complete its exit as soon as feasible.

As of June 30, 2022, the Company had the following assets and liabilities in Russia:


Cash and cash equivalents	$	17,160
Trade receivables and contract assets, net of allowance of $10.2 million	18,757
Prepaid and other current assets	5,381
Total assets in Russia	$	41,298
Accounts payable	$	1,201
Accrued compensation and benefits expenses	32,896
Accrued expenses and other liabilities	7,278
Operating lease liabilities	1,309
Other noncurrent liabilities	876
Total liabilities in Russia	$	43,560