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Note 19 - Post-retirement Benefits | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Retirement Benefits [Text Block] | 19. Post-retirement benefits We operate a number of post-retirement benefit plans, primarily consisting of defined contribution plans for U.S. and non-U.S. employees. We also sponsor defined benefit pension plans for certain employees located in the U.K., Norway and Indonesia. The majority of our post-retirement expense relates to defined contribution plans. The assets of the various defined benefit plans are held separately from those of the Company. Our principal retirement savings plans and pension plans are discussed below. Defined contribution plans We offer various defined contribution plans for employees around the globe as per local statute and market practice. Specific to our largest employee populations, for employees in the U.S., we offer a 401(K) plan, which is a defined contribution retirement savings plan to which the employer matches employee contributions up to 4% of eligible earnings. For U.K. employees, we offer the Group Personal Pension plan (“GPP”), which is a portable, personal pension plan to which the employer contributes on a matching basis between a base of 4.5% and a ceiling of 6% of base salary. Expense recognized in respect of these plans were $8.4 million, $7.3 million and $6.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. Defined benefit plans We offer a pension plan to certain of our U.K. employees, which qualifies as a defined benefit plan. Effective October 1, 1999, this plan was closed to new entrants. The contributions to the plan are determined by a qualified external actuary on the basis of an annual valuation. In December 2015, the decision was taken to close the U.K. defined benefit plan (“DB Plan”) to new accruals. The status of the DB Plan’s remaining active members has changed to that of deferred members. This change affected approximately 80 employees. As deferred members, these employees will no longer accrue further benefits under the DB Plan through their service. However, benefits earned through past service are retained and will continue to increase with inflation. In addition, affected individuals were auto-enrolled in the Company’s defined contribution pension plan. On December 28, 2020, the Company, with the written consent of the trustees, amended the DB Plan rules to introduce a new pension option for members who retire before their state pension age, a bridging pension option. Under this new option, a plan member who receives his or her pension before the later of age 65 or their state pension age can elect to have their pension temporarily increased at retirement and then reduced at the time of state pension. Key assumptions The major assumptions, included on a weighted average basis across the defined benefit plans, used to calculate the defined benefit plan liabilities were:
|  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Discount rate |  |  | 4.7 | % |  |  | 1.8 | % |  |  | 1.3 | %
Expected return on plan assets |  |  | 5.6 | % |  |  | 3.2 | % |  |  | 2.7 | %
Expected rate of salary increases |  |  | 0.1 | % |  |  | 0.1 | % |  |  | 0.1 | %
The discount rate has been calculated with reference to AA rated corporate bonds of a suitable maturity. Expected rates of salary increases have been estimated by management following a review of the participant data. Within the U.K. plans pensionable salary was frozen in 2012 resulting in the reduction in the weighted average assumption for salary increases disclosed above. The expected long-term return on cash is based on cash deposit rates available at the reporting date. The expected return on bonds is determined by reference to U.K. long term government bonds and bond yields at the reporting date. The expected rates of return on equities and property have been determined by setting an appropriate risk premium above government bond yields having regard to market conditions at the reporting date. Net periodic benefit cost Amounts recognized in the consolidated statements of operations and in the consolidated statements of comprehensive loss in respect of the defined benefit plans were as follows (in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Current service cost |  | $ | (357 | ) |  | $ | (439 | ) |  | $ | (539 | )
Interest cost |  |  | (4,307 | ) |  |  | (3,407 | ) |  |  | (4,551 | )
Expected return on plan assets |  |  | 6,796 |  |  |  | 5,499 |  |  |  | 6,064 |
Plan curtailment / amendment events recognized in consolidated statements of operations |  |  | - |  |  |  | - |  |  |  | 2,269 |
Amortization of prior service credit |  |  | 249 |  |  |  | 249 |  |  |  | - |
Reclassified net remeasurement (loss) gains |  |  | - |  |  |  | 244 |  |  |  | (104 | )
Amounts included in consolidated statements of operations |  | $ | 2,381 |  |  | $ | 2,146 |  |  | $ | 3,139 |
Actuarial gain (loss) on defined benefit plans |  | $ | 7,440 |  |  | $ | 22,345 |  |  | $ | (9,356 | )
Plan curtailment / amendment credit recognized in consolidated statements of other comprehensive loss |  |  | - |  |  |  | - |  |  |  | 5,510 |
Amortization of prior service credit |  |  | (249 | ) |  |  | (249 | ) |  |  | - |
Reclassified net remeasurement (loss) gains |  |  | - |  |  |  | (244 | ) |  |  | 104 |
Other comprehensive income (loss) |  |  | 7,191 |  |  |  | 21,852 |  |  |  | (3,742 | )
Total comprehensive income (loss) |  | $ | 9,572 |  |  | $ | 23,998 |  |  | $ | (603 | )
The service costs have primarily been included in “Cost of revenue, excluding depreciation and amortization” in the consolidated statements of operations. Interest cost, expected return on plan assets and plan curtailment / amendment events have been recognized in “Other income, net” in the consolidated statements of operations. The actuarial gain (loss) is derived from the components shown in the table below (in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Actuarial (loss) gain on assets |  | $ | (74,332 | ) |  | $ | 11,378 |  |  | $ | 16,678 |
Actuarial gain (loss) on liabilities |  |  | 81,772 |  |  |  | 10,967 |  |  |  | (26,034 | )
Actuarial gain (loss) on defined benefit plans |  | $ | 7,440 |  |  | $ | 22,345 |  |  | $ | (9,356 | )
The actuarial gain on the benefit obligation for the year December 31, 2022 has arisen primarily as a result of increases in corporate bond yields, offset slightly by a loss relating to recognition of known inflation increases over 2022. The gain on the benefit obligation has been further offset by the lower than expected asset returns over the period which again was primarily caused by the increase in corporate and government bond yields. The amount of employer contributions expected to be paid to our defined benefit plans during the years to December 31, 2032 is set out below (in thousands):
Years ending December 31: |  |  |  |
2023 |  | $ | 5,481 |
2024 |  | $ | 5,691 |
2025 |  | $ | 5,886 |
2026 |  | $ | 6,135 |
2027 |  | $ | 6,416 |
Thereafter to December 31, 2032 |  | $ | 22,495 |
The amounts included in the consolidated balance sheets arising from our obligations in respect of defined retirement benefit plans and post-employment benefits was as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Present value of defined benefit obligations |  | $ | (135,182 | ) |  | $ | (241,808 | )
Fair value of plan assets |  |  | 123,840 |  |  |  | 212,688 |
Deficit recognized under non-current liabilities |  | $ | (11,342 | ) |  | $ | (29,120 | )
Changes in the present value of defined benefit obligations were as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Opening balance |  | $ | (241,808 | ) |  | $ | (261,576 | )
Current service cost |  |  | (357 | ) |  |  | (439 | )
Interest cost |  |  | (4,307 | ) |  |  | (3,407 | )
Actuarial gain |  |  | 81,772 |  |  |  | 10,967 |
Exchange differences |  |  | 23,823 |  |  |  | 2,378 |
Benefits paid |  |  | 5,695 |  |  |  | 10,269 |
Ending balance |  | $ | (135,182 | ) |  | $ | (241,808 | )
Movements in fair value of plan assets were as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Opening balance |  | $ | 212,688 |  |  | $ | 203,630 |
Actual return on plan assets |  |  | (67,536 | ) |  |  | 16,877 |
Exchange differences |  |  | (20,776 | ) |  |  | (2,245 | )
Contributions from the sponsoring companies |  |  | 5,159 |  |  |  | 4,695 |
Benefits paid |  |  | (5,695 | ) |  |  | (10,269 | )
Ending balance |  | $ | 123,840 |  |  | $ | 212,688 |
The actual return on plan assets consists of the following (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Expected return on plan assets |  | $ | 6,796 |  |  | $ | 5,499 |  |  | $ | 6,064 |
Actuarial (loss) gain on plan assets |  |  | (74,332 | ) |  |  | 11,378 |  |  |  | 16,678 |
Actual return on plan assets |  | $ | (67,536 | ) |  | $ | 16,877 |  |  | $ | 22,742 |
Information for pension plans with an accumulated benefit obligation in excess of plan assets were as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Accumulated benefit obligation |  | $ | 134,102 |  |  | $ | 240,644 |
Fair value of plan assets |  |  | 123,840 |  |  |  | 212,688 |
The investment strategy of the main U.K. plan (“U.K. Plan”) is set by the trustees and is based on advice received from an investment consultant. The primary investment objective for the U.K. Plan is to achieve an overall rate of return that is sufficient to ensure that assets are available to meet all liabilities as and when they become due. In doing so, the aim is to maximize returns at an acceptable level of risk taking into consideration the circumstances of the U.K. Plan. The investment strategy has been determined after considering the U.K. Plan’s liability profile and requirements of the U.K. statutory funding objective, and an appropriate level of investment risk. Taking all these factors into consideration, approximately 45% of the assets are invested in a growth portfolio, comprising diversified growth funds (“DGFs”) and property, and approximately 55% of the assets in a stabilizing portfolio, comprising corporate bonds and liability driven investments. DGFs are actively managed multi-asset funds. The managers of the DGFs aim to deliver equity like returns in the long term, with lower volatility. They seek to do this by investing in a wide range of assets and investment contracts in order to implement their market views. The present value of the U.K. Plan’s future benefits payments to members is sensitive to changes in long term interest rates and long-term inflation expectations. Liability driven investment (“LDI”) funds are more sensitive to changes in these factors and therefore provide more efficient hedging than traditional bonds. A small proportion of the assets have therefore been invested in LDI funds to help to reduce the volatility of the U.K. Plan’s funding position. The hedging level is expected to be increased over time as the U.K. Plan’s funding position improves. Assets of the other plans are invested in a combination of equity, bonds, real estate and insurance contracts. The analysis of the plan assets and the expected rate of return at the reporting date were as follows (in thousands):
|  | December 31, 2022 |  |  | December 31, 2021 |
|  | Expected rate |  |  | Fair value of |  |  | Expected rate |  |  | Fair value of |
|  | of return % |  |  | asset |  |  | of return % |  |  | asset |
Mutual funds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DGFs |  |  | 7.5 |  |  | $ | 55,633 |  |  |  | 4.6 |  |  | $ | 123,460 |
LDI funds |  |  | 4.0 |  |  |  | 45,170 |  |  |  | 1.1 |  |  |  | 61,163 |
Bond funds |  |  | 4.5 |  |  |  | 21,899 |  |  |  | 1.8 |  |  |  | 26,571 |
Equities |  |  | 1.8 |  |  |  | 188 |  |  |  | 1.5 |  |  |  | 360 |
Other assets |  |  | 2.2 |  |  |  | 950 |  |  |  | 1.5 |  |  |  | 1,134 |
Total |  |  |  |  |  | $ | 123,840 |  |  |  |  |  |  | $ | 212,688 |
The aggregated asset categorization for the plans were as follows (in thousands):
|  | December 31, 2022 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Mutual funds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DGFs |  | $ | 55,633 |  |  | $ | - |  |  | $ | - |  |  | $ | 55,633 |
LDI funds |  |  | 45,170 |  |  |  | - |  |  |  | - |  |  |  | 45,170 |
Bond funds |  |  | 21,899 |  |  |  | - |  |  |  | - |  |  |  | 21,899 |
Equities |  |  | 188 |  |  |  | - |  |  |  | - |  |  |  | 188 |
Other assets |  |  | 172 |  |  |  | 395 |  |  |  | 383 |  |  |  | 950 |
Total |  | $ | 123,062 |  |  | $ | 395 |  |  | $ | 383 |  |  | $ | 123,840 |
|  | December 31, 2021 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Mutual funds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DGFs |  | $ | 123,460 |  |  | $ | - |  |  | $ | - |  |  | $ | 123,460 |
LDI funds |  |  | 61,163 |  |  |  | - |  |  |  | - |  |  |  | 61,163 |
Bond funds |  |  | 26,571 |  |  |  | - |  |  |  | - |  |  |  | 26,571 |
Equities |  |  | 360 |  |  |  | - |  |  |  | - |  |  |  | 360 |
Other assets |  |  | 445 |  |  |  | 329 |  |  |  | 360 |  |  |  | 1,134 |
Total |  | $ | 211,999 |  |  | $ | 329 |  |  | $ | 360 |  |  | $ | 212,688 |
Other assets primarily represent insurance contracts. The fair value is estimated, based on the underlying defined benefit obligation assumed by the insurers. Movements in fair value of Level 3 assets were as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Opening balance |  | $ | 360 |  |  | $ | 292 |
Actual return on plan assets |  |  | 6 |  |  |  | 5 |
Exchange differences |  |  | (6 | ) |  |  | 33 |
Contributions from the sponsoring companies |  |  | 23 |  |  |  | 30 |
Ending balance |  | $ | 383 |  |  | $ | 360 |
Executive Deferred Compensation Plan The Company maintained the Executive Deferred Compensation Plan (the “EDC Plan”) for certain current and former Frank’s employees. Effective during 2015, this plan was closed to new entrants. The purpose of the EDC Plan was to provide participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions were immediately vested. Company contributions vested after five years of service. Participant benefits under the EDC Plan were paid from the general funds of the Company or a grantor trust, commonly referred to as a Rabbi Trust, created for the purpose of informally funding the EDC Plan. The assets of the EDC Plan’s trust were invested in corporate-owned, split-dollar life insurance policies and mutual funds. During 2022, the Company terminated the EDC Plan and settled substantially all remaining obligations under the plan by liquidating the cash surrender value of life insurance policies that were held within the Rabbi Trust. As of December 31, 2021, the total liability related to the EDC Plan was $9.3 million and was included in “Other non-current liabilities” on the consolidated balance sheets. As of December 31, 2021, the cash surrender value of life insurance policies that are held within a Rabbi Trust for the purpose of paying future executive deferred compensation benefit obligations was $18.9 million.

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