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Telford Fire Safety Remediation | 12 Months Ended
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Dec. 31, 2022
Restructuring and Related Activities [Abstract] |
Telford Fire Safety Remediation | Restructuring Activities Efficiency and Cost Reduction - 2022 Activities During the third quarter of 2022, we launched certain cost and operational efficiency initiatives that will further improve the company’s resiliency in an economic downturn while enabling continued operating platform investments that support future growth. The efficiency initiatives include management and workforce structure simplification, occupancy footprint rationalization and certain third-party spending reductions. As part of this, we incurred certain cash and non-cash charges. Non-cash charges are primarily associated with acceleration of depreciation and write-down of lease and related assets as part of our lease termination activities. Cash-based charges are primarily related to employee separation, lease exit costs, and professional fees. During the year ended December 31, 2022, total charges (excluding depreciation) incurred were $117.5 million, related to employee separation, lease termination, and professional fees. Management continues to evaluate and modify these initiatives, which are likely to continue over the next few months. The following table presents the detail of expenses incurred by segment (dollars in thousands):
| Year Ended December 31, 2022
| Advisory Services |  | Global Workplace Solutions |  | Real Estate Investments |  | Corporate |  | Consolidated
Employee separation benefits | $ | 32,594 |  |  | $ | 19,961 |  |  | $ | 9,761 |  |  | $ | 19,198 |  |  | $ | 81,514 |
Lease exit costs | 9,695 |  |  | 2,916 |  |  | — |  |  | — |  |  | 12,611 |
Professional fees and other | 3,446 |  |  | 5,040 |  |  | 2,738 |  |  | 12,185 |  |  | 23,409 |
Subtotal | 45,735 |  |  | 27,917 |  |  | 12,499 |  |  | 31,383 |  |  | 117,534 |
Depreciation expense | 5,564 |  |  | 3,258 |  |  | — |  |  | — |  |  | 8,822 |
Total | $ | 51,299 |  |  | $ | 31,175 |  |  | $ | 12,499 |  |  | $ | 31,383 |  |  | $ | 126,356 |
The following table shows ending liability balance associated with major cash-based charges (dollars in thousands):
| Employee separation benefits |  | Professional fees
Balance at January 1, 2022 | $ | — |  |  | $ | — |
Expense incurred | 81,514 |  |  | 23,409 |
Payments made | (44,500) |  |  | (12,809) |
Balance at December 31, 2022 | $ | 37,014 |  |  | $ | 10,600 |
Ending balance related to employee separation was included in “compensation and employee benefits payable” and the balance related to professional fees and other was included in “accounts payable and accrued expenses” in the accompanying consolidated balance sheets. Of the total charges incurred, net of depreciation expense, $33.4 million was included within the “Cost of revenue” line item and $84.1 million was included in the “Operating, administrative, and other” line item in the accompanying consolidated statement of operations for the year ended December 31, 2022. We did not incur significant restructuring charges during the year ended December 31, 2021. Transformation and Workforce Optimization - 2020 Activities During the third quarter of 2020, management embarked on the implementation of certain transformation initiatives to enable the company to reduce costs, streamline operations and support future growth. As part of these initiatives, we incurred the following costs, primarily in cash, for the year ended December 31, 2020 (dollars in thousands):
| Year Ended December 31, 2020
| Advisory Services |  | Global Workplace Solutions |  | Real Estate Investments |  | Consolidated
Employee separation benefits | $ | 57,550 |  | $ | 57,550 |  | $ | 31,083 |  |  | $ | 2,444 |  |  | $ | 91,077 |
Lease termination costs | 43,225 |  |  | 4,586 |  |  | — |  |  | 47,811 |
Professional fees and other | 13,212 |  |  | 2,510 |  |  | 538 |  |  | 16,260 |
Subtotal | 113,987 |  |  | 38,179 |  |  | 2,982 |  |  | 155,148 |
Depreciation expense | 14,184 |  |  | 166 |  |  | 6,342 |  |  | 20,692 |
Total | $ | 128,171 |  |  | $ | 38,345 |  |  | $ | 9,324 |  |  | $ | 175,840 |
Of the total charges incurred, net of depreciation expense, $42.1 million was included within the “Cost of revenue” line item and $113.0 million was included in the “Operating, administrative, and other” line item in the accompanying consolidated statement of operations for the year ended December 31, 2020.
Environmental Loss Contingency Disclosure | Telford Fire Safety Remediation On April 28, 2022, the United Kingdom (U.K.) passed the Building Safety Act of 2022 (BSA). The BSA introduced new laws related to building safety and the remediation of historic building safety defects, effectively requiring developers to remediate certain buildings with critical fire safety issues. The BSA also retrospectively amended the Defective Premises Act of 1972 (DPA) to allow claims to be made within a 30-year limitation period for dwellings completed before June 28, 2022. The U.K. government had previously established a Building Safety Fund (BSF) and an Aluminum Composite Material (ACM) fund, whereby applicants to the fund would be funded by the government to remediate certain fire safety defects if certain criteria were met. Following a request by the U.K. government to the majority of significant residential developers within the U.K. including Telford Homes, Telford Homes signed the U.K. government’s non-binding Fire Safety Pledge (the Pledge) on April 28, 2022. The Pledge states that subject to entering into mutually acceptable legally binding agreements with the U.K. government, Telford Homes will (1) take responsibility for performing or funding self-remediation works relating to certain life-critical fire-safety issues on all Telford Homes-constructed buildings of 11 meters in height or greater in England constructed in the last 30 years (in-scope buildings) and (2) withdraw Telford Homes-developed buildings from the government-sponsored BSF and ACM Funds or reimburse the government funds for the cost of remediation of in-scope buildings. We believe there is a potential risk of loss attributable to past events, including as a result of retrospective changes in building fire-safety regulations, under the Pledge, and also under existing contracts and/or the BSA or DPA. The estimated costs for in-scope buildings are subjective, highly complex and dependent on a number of variables outside of Telford Homes’ control. These include, but are not limited to, the time required for the remediation to be completed, the size and number of buildings that may require remediation, cost of construction or remediation materials, availability of construction materials, potential discoveries made during remediation that could necessitate incremental work, investigation costs, availability of qualified fire safety engineers, potential business disruption costs, potential changes to or new regulations and regulatory approval. As a result of signing the Pledge, the introduction of the BSA, the extension of liability under the DPA, and the potential for us to be required to pay for remediation under any definitive agreements that may be negotiated by the parties under the Pledge or under existing legal contracts, we recorded charges of approximately $138.9 million and $185.9 million for the three months and twelve months ended December 31, 2022, respectively. Of the $185.9 million in estimated liability as of December 31, 2022, approximately $51.6 million was recorded as a current liability in “accounts payable and accrued expenses” and the remaining was recorded as non-current in “other liabilities” in the accompanying consolidated balance sheets. This potential liability is comprised of two primary components: (1) adjusted amounts the U.K. government has already paid or quantified through the BSF for remediation of Telford-constructed buildings, included as a current liability as described above, and (2) management’s estimate for the potential additional losses that could occur for buildings withdrawn from the BSF (i.e., to be remediated directly by Telford Homes) based on the best available data, including industry data, certain third-party verified cost estimates obtained for remediation for the remaining buildings, as well as a contingency percentage applied per unit to account for unknown remediation costs that may arise in respect of other buildings that we believe may be impacted, included as a non-current liability as described above. While several Telford developed buildings were deemed to be out of scope due to height or an already compliant structure, we believe approximately 84 buildings are at risk of requiring remediation at this time based on information available, suggesting potential fire-safety compliance gaps as a result of the current regulation. Although the foregoing includes significant subjective judgments, management believes that there is enough information to reasonably estimate the potential liability. The potential liability and number of buildings affected may change as new information becomes available and full cost estimates are assessed and tendered for each building, which is anticipated to be a lengthy process due to the various steps required to fully remediate. We will continue to assess new information as it becomes available and adjust our estimated liability accordingly.

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- Definition The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 5.P.4(e)) -URI https://asc.fasb.org/extlink&oid=115931487&loc=d3e140904-122747 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -URI https://asc.fasb.org/topic&trid=2175745 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 + Details
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