IMPACT OF THE INVASION OF UKRAINE

6 Months Ended

Jun. 30, 2023

Discontinued Operations and Disposal Groups [Abstract]

IMPACT OF THE INVASION OF UKRAINEOn February 24, 2022, Russian forces attacked Ukraine and its people and EPAM has repeatedly called for an immediate end to this unlawful and unconscionable attack. As of June 30, 2023, the Company had $67.7 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 $51.5 million, laptops with a net book value of $9.5 million, most of which are in the possession of employees, various office furniture, equipment and supplies with a net book value of $5.1 million, and leasehold improvements located throughout Ukraine with a net book value of $1.6 million. Additionally, as of June 30, 2023, the Company had Operating lease right-of-use assets located throughout Ukraine with a net book value of $9.7 million. 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, the Company announced a $100.0 million humanitarian commitment to support its employees and their families in and displaced from Ukraine. This humanitarian commitment is in addition to donations from EPAM's customers and employees and the work of EPAM volunteers on the ground. During the three and six months ended June 30, 2023, the Company expensed $3.9 million and $10.0 million, respectively, related to this commitment, which included 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 and six months ended June 30, 2023, $2.9 million and $5.3 million, respectively, is classified in Cost of revenues (exclusive of depreciation and amortization), and $1.0 million and $4.7 million, respectively, is classified in Selling, general and administrative expense on the condensed consolidated financial statements. 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, which included 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 this expensed amount for the three and six months ended June 30, 2022, $3.3 million and $22.4 million, respectively, is classified in Cost of revenues (exclusive of depreciation and amortization), and $5.1 million and $11.6 million, respectively, is classified in Selling, general and administrative expense on the condensed consolidated financial statements. As of June 30, 2023, the Company has $45.2 million remaining to be expensed under this humanitarian commitment.

The Company executed its business continuity plans following the invasion to assist relocating employees residing in Ukraine and the surrounding region impacted by the war and geopolitical uncertainty to other countries and to assign delivery personnel in locations outside of the region to serve in unbilled standby or backup capacities to ensure the continuity of delivery for its customers who have substantial delivery exposure to Ukraine or other delivery concerns resulting from the invasion and ongoing war. In addition to costs incurred as part of EPAM’s humanitarian commitment to Ukraine, during the three and six months ended June 30, 2023 the Company incurred expenses of $2.0 million and $9.4 million, respectively, related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization). Also, during the three and six months ended June 30, 2023 the Company incurred expenses of $0.2 million and $0.4 million, respectively, related to its geographic repositioning efforts, classified as Selling, general and administrative expenses.

During the three and six months ended June 30, 2022, the Company incurred expenses of $9.3 million and $11.8 million, respectively, related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization) and $14.4 million and $33.1 million, respectively, related to its geographic repositioning efforts, classified as Selling, general and administrative expenses. During the six months ended June 30, 2022, the Company also recorded an impairment charge of $1.3 million, classified as Interest and other income, net related to a financial asset in Ukraine which the Company believed 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 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 a bad debt expense of $8.2 million reflecting the deterioration of creditworthiness of its customers in Russia during the six months ended June 30, 2022. Amounts recorded to bad debt expense during the three and six months ended June 30, 2023 and three months ended June 30, 2022 related to customers located in Russia were not material.

On April 7, 2023, the Company amended and restated the agreement to sell substantially all of its remaining holdings in Russia to a third party. The timing and completion of the sale is subject to customary closing conditions, including regulatory approvals by the Russian and U.S. governments. The requisite regulatory approvals from the Russian government were received during the second quarter of 2023; however, the U.S. government had not provided the requisite approvals as of June 30, 2023. Due to the significant uncertainty of obtaining the necessary regulatory approvals as of June 30, 2023, the Company did not believe a sale was probable to be completed as of June 30, 2023 and has not reported the assets and liabilities to be sold as held for sale in its condensed consolidated balance sheet. Subsequent to June 30, 2023, the Company received the required approvals from the U.S. government to proceed with the sale and, on July 26, 2023, the sale of the remaining holdings in Russia was completed. The Company expects to record a loss on sale of approximately $18.4 million during the third quarter of 2023, including the recognition of the accumulated currency translation loss related to this subsidiary currently included in Accumulated other comprehensive loss.

As of June 30, 2023, the Company had the following assets and liabilities in Russia:


Cash and cash equivalents	$	24,451
Trade receivables and contract assets, net of allowance of $4,232	3,986
Prepaid and other current assets	264
Total assets in Russia	$	28,701
Accounts payable	$	88
Accrued compensation and benefits expenses	3,369
Accrued expenses and other current liabilities	1,169
Operating lease liabilities, current	86
Other noncurrent liabilities	51
Total liabilities in Russia	$	4,763