As of December 31, 2020, the Company owned an office in Kitchener, Ontario. As of December 31, 2020, the Company leased approximately 240 other office locations under various leases with varying terms. For additional information on the Company's significant operating leases and subleases, see Note 6 "Lease Commitments" of our accompanying consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Other office locations are occupied under various short-term rental arrangements. The Company generally believes that its office locations are sufficient for its operations and that, if it were necessary to obtain different or additional office locations, such locations would be available at times, and on commercially reasonable terms, as would be necessary for the conduct of its business. No assurances can be given, however, that the Company would be able to obtain such office locations as and when needed, or on terms it considered to be reasonable, if at all.
The Company computes earnings per share of CRD-A and CRD-B using the two-class method, which allocates the undistributed earnings for each period to each class on a proportionate basis. The Company's Board of Directors has the right, but not the obligation, to declare higher dividends on CRD-A than on CRD-B, subject to certain limitations. In periods when the dividend is the same for CRD-A and CRD-B or when no dividends are declared or paid to either class, the two-class method generally will yield the same earnings per share for CRD-A and CRD-B.
Based in Atlanta, Georgia, Crawford & Company (www.crawco.com) is the world's largest publicly listed independent provider of claims management and outsourcing solutions to carriers, brokers and corporations with an expansive global network serving clients in more than 70 countries. Shares of the Company's two classes of common stock are traded on the NYSE under the symbols CRD-A and CRD-B, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
We estimate that COVID-19 negatively impacted our revenues in the range of $45.0 to $55.0 million in the year ended December 31, 2020 as compared with the 2019 period. We expect the ongoing global economic slowdown resulting from COVID-19 could have a material impact to our results of operations, financial condition, and cash flows in one or more future quarters.
Segment operating earnings (a measure of segment operating performance used by our management that is defined and discussed in more detail below) increased in our Crawford Claims Solutions and Crawford Specialty Solutions operating segments, partially offset by a decrease in our Crawford TPA Solutions.
In the Crawford Claims Solutions segment, operating earnings increased from $7.6 million, or 2.2% of revenues before reimbursements in 2019, to $14.4 million, or 4.0% of revenues before reimbursements in 2020, primarily due to the increase in revenues and reduction of expenses. Excluding indirect support costs, gross profit increased from $76.7 million, or 22.6% of revenues before reimbursements in 2019, to $77.5 million, or 21.7% of revenues before reimbursements in 2020.
Cost of services provided, before reimbursements, decreased $7.3 million, or 1.0% for 2020 compared with 2019. The decrease was primarily due to a decrease in compensation expense, travel and entertainment, and other costs in each of our operating segments related to the overall reduction in revenues.
We recognized a pretax non-cash goodwill impairment in 2020 totaling $17.7 million related to our Crawford Claims Solutions reporting unit. This expense was partially offset by a $1.7 million credit in noncontrolling interest expense. In 2019, we recognized a non-cash goodwill impairment totaling $17.5 million, also related to our Crawford Claims Solutions segment. This charge was partially offset by a $2.2 million reduction in income tax expense and $2.2 million credit in noncontrolling interest expense. There was no goodwill impairment in 2018. See the "Critical Accounting Policies" in Item 7 and Note 4, "Goodwill and Intangible Assets" of our accompanying consolidated financial statements for further discussion about goodwill impairments.
We believe that a discussion and analysis of the segment operating earnings of our three operating segments is helpful in understanding the results of our operations. Operating earnings is our segment measure of profitability presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting." Operating earnings is the primary financial performance measure used by our senior management and CODM to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions.
Income taxes, net corporate interest expense, stock option expense, and amortization of customer-relationship intangible assets are recurring components of our net income, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income taxes are calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
Restructuring and other costs, as well as (gain) loss on disposition of businesses, goodwill and intangible asset impairments, and arbitration and claim settlements arise from time to time from events (such as internal restructurings, losses on subleases, establishment of new operations, and asset impairments) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.
Additional discussion and analysis of our income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, unallocated corporate and shared costs, goodwill and intangible asset impairments, restructuring and other costs, (gain) loss on disposition of businesses, and arbitration and claim settlements follows the discussion and analysis of the results of operations of our three operating segments.
Our segment results are impacted by changes in foreign exchange rates. We believe that a non-GAAP discussion and analysis of segment revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, is helpful in understanding the results of our segment operations.
YEAR ENDED DECEMBER 31, 2020 COMPARED WITH YEAR ENDED DECEMBER 31, 2019
Operating results for our Crawford Claims Solutions segment, including gross profit, are as shown in the following table:
Reimbursements for out-of-pocket expenses incurred in our Crawford Claims Solutions segment, which are included in total Company revenues, were $17.7 million in 2020 compared with $20.5 million in 2019. The 2020 decrease was due to a decreased use of third parties compared to 2019.
Crawford Claims Solutions unit volumes by underlying case category, as measured by cases received, for 2020 and 2019 were as follows:
Crawford Claims Solutions segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor decreased from $108.6 million in 2019 to $103.5 million in 2020, and decreased as a percent of segment revenues from 31.9% in 2019 to 29.0% in 2020. These decreases were due to cost reduction initiatives in 2020 that resulted in lower travel and entertainment expense and lower administrative support expenses in 2020.
Revenues before reimbursements from our Crawford TPA Solutions totaled $365.0 million in 2020, compared with $393.9 million in 2019. This decrease was primarily due to a decrease in the U.S. and Canada due to the impact of COVID-19. Changes in foreign exchange rates decreased our Crawford TPA Solutions segment revenues by $1.0 million, or approximately 0.2%, for 2020. Absent foreign exchange rate fluctuations, Crawford TPA Solutions segment revenues would have been $366.0 million in 2020. Revenues were negatively impacted by a decrease in unit volumes, measured principally by cases received, of 5.8% in 2020 compared with 2019. Changes in product mix and in the rates charged for those services accounted for a 1.3% revenue decrease for 2020 compared with the 2019 period.
Overall case volumes were 5.8% lower in 2020 compared with 2019 due to decreases in the U.S., Canada and Europe. The decrease in the U.S. was primarily driven by COVID-19 economic conditions that affected Claims Management, Medical Management, and Accident & Health case volumes. There was an increase in the U.K. due to an increase in high-frequency, low-severity cases from new clients. Canada case volumes were negatively impacted by COVID-19. The decrease in cases in Europe and Rest of World was due to a decrease in high-frequency, low-complexity cases received in Europe.
Crawford TPA Solutions unit volumes, particularly in the U.S., are sensitive to overall employment levels and workplace reported injuries. As a result of the increased level of unemployment in the U.S. due to the economic contraction from the COVID-19 pandemic, as well as economic contraction globally which could impact other geographic regions, future case referrals could be materially negatively impacted unless offset by new client programs.
The most significant expense in our Crawford TPA Solutions segment is the compensation of employees, including related payroll taxes and fringe benefits, and payments to outsourced service providers that augment the functions performed by our employees. Direct compensation expenses, fringe benefits, and non-employee labor, as a percent of Crawford TPA Solutions segment revenues before reimbursements, increased from 60.1% in 2019 to 60.8% in 2020. The total dollar amount of these expenses decreased from $236.9 million in 2019 to $221.8 million in 2020. This reduction was due to a decrease in average full-time equivalent employees related to the lower revenues. The increase in expense as a percent of revenues before reimbursements is because the decrease in expenses did not offset the decrease in revenues. There was a benefit of $1.6 million in 2020 as a result of the CEWS.
There was an average of 3,081 FTEs in this segment in 2020, a decrease from an average of 3,184 FTEs in the 2019 period. The decrease in employees was due to cost reduction initiatives in light of the decrease in revenues.
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor decreased in the Crawford TPA Solutions segment from $129.8 million in 2019 to $121.7 million in 2020, but increased slightly as a percent of revenues before reimbursements from 33.0% in 2019 to 33.3% in the 2020 period. The decrease in amount was due to lower revenues and expense controls implemented in 2020, but the slight increase as a percent of revenues was due to the lower revenues.
Revenues before reimbursements from our Crawford Specialty Solutions segment totaled $261.1 million in 2020, compared with $272.1 million in 2019. This decrease was primarily due to a decrease in case volumes due to the impact of COVID-19. Changes in foreign exchange rates resulted in a decrease of our Crawford Specialty Solutions segment revenues by approximately 0.9%, or $2.4 million for 2020. Excluding the change in foreign exchange rates, Crawford Specialty Solutions segment revenues before reimbursements totaled $263.5 million, primarily due to a decrease in our Contractor Connection service line and the disposal of Lloyd Warwick International (“LWI”) in our Global Technical Services service line in June 2020, which resulted in a $5.9 million variance between years.
The decrease in revenues in the U.S. in 2020, compared with 2019, was due to the impact of COVID-19. On a constant dollar basis, there was a revenue increase in the U.K. in 2020 due to higher Contractor Connection revenues, driven by increased cases received and expanding new services. Revenues in Canada decreased in 2020 compared with 2019 as a result of COVID-19. There was a revenue increase in Australia due to an increase in weather-related activity in the current year. There was a revenue increase in Europe due to increased revenues in our Global Technical Services service line. The increase in revenues in Rest of World was primarily due to an increase in weather related activity in Asia.
Crawford Specialty Solutions unit volumes by geographic region, as measured by cases received, for 2020 and 2019 were as follows:
Overall, there was a 5.0% decrease in cases received in 2020 compared with 2019, primarily due to the impact of COVID-19. The decrease in U.S. case volumes in 2020 was due to the impact of COVID-19. The U.K. case volumes were higher in 2020 due to an increase in our Contractor Connection service line. The decrease in Canada was due to the COVID-19 impact in the current year. The increase in Australia cases was due to an increase in weather related activity in the current year. The increase in cases in Europe was due to an increase in high-frequency, low-complexity cases in Global Technical Services. The cases received in Rest of World were consistent between the periods.
Our Crawford Claims Solutions segment reported operating earnings of $7.6 million, or 2.2% of revenues before reimbursements in 2019, as compared with $11.3 million, or 3.1% of revenues before reimbursements in 2018. Operating earnings decreased from 2018 to 2019 primarily due to a decrease in weather related claim activity and associated revenues in the U.S. and Canada, and lower earnings in Canada and Europe. There was also an increase in centralized administrative support costs to expand technology and sales efforts in 2019.
Excluding centralized indirect support costs, gross profit decreased from $78.3 million, or 21.7% of revenues before reimbursements in 2018, to $76.7 million, or 22.6% of revenues before reimbursements in 2019, due primarily to lower earnings in Canada and Europe, partially offset by improved performance in the U.S. and lower compensation costs in 2019 compared with 2018.
There was a decrease in revenues in the U.S. for 2019 due to the decrease in weather related activity referenced above. Based on constant foreign exchange rates, there was an increase in revenues in the U.K. for 2019 compared with 2018 due to an increase in new
Reimbursements for out-of-pocket expenses incurred in our Crawford Claims Solutions segment, which are included in total Company revenues, were $20.5 million in 2019 compared to $19.0 million in 2018. The 2019 increase was due to an increased use of third parties in the U.K. in 2019 compared with 2018.
Excluding centralized indirect support costs, gross profit decreased from $109.2 million, or 26.9% of revenues before reimbursements in 2018, to $99.7 million, or 25.3% of revenues before reimbursements in 2019, as the decrease in direct costs did not offset the reduction in revenues.
The decrease in revenues in the U.S. for 2019 as compared with the 2018 period was primarily due to a delayed ramp up of new Claims Management and Medical Management clients and isolated client losses, partially offset by an increase in high-frequency, low-complexity disability cases. Based on constant foreign exchange rates, the decrease in revenues in the U.K. for 2019 was due to client case volume decreases and a change in the mix of services provided. Revenues in Canada decreased due to a change in the mix of services provided and a reduction in case volumes. Revenues increased in Europe and Rest of World due to growth from both new and existing clients.
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor decreased in the Crawford TPA Solutions segment from $132.6 million in 2018 to $129.8 million in 2019, but increased as a percent of revenues before reimbursements from 32.7% in 2018 to 33.0% in the 2019 period. The decrease in amount was due to expense controls implemented in 2019 and the change in exchange rates, but the slight increase as a percent of revenues was due to the lower revenues.
Crawford Specialty Solutions recorded operating earnings of $49.3 million in 2019, or 18.1% of revenues before reimbursements, compared with operating earnings of $49.6 million in 2018, or 16.3% of revenues before reimbursements. The decrease in operating earnings in the 2019 period was the result of increased compensation expense compared with 2018. Excluding indirect support costs, gross profit decreased from $105.5 million, or 34.6% of revenues before reimbursements in 2018, to $95.4 million, but increased as a percent of revenues before reimbursements in 2019 to 35.1%, due primarily to the absence of the Garden City Group business which contributed $6.2 million gross profit in the 2018 period.
Overall, there was an 8.5% decrease in cases received in 2019 compared with 2018. The decrease in U.S. case volumes in 2019 was due to a decrease in weather related cases in Contractor Connection. The U.K. case volumes were lower in the 2019 period due to a decrease in property cases. The decrease in Canada was due to a decrease in weather related cases as Contractor Connection received additional cases from the Ontario windstorms in 2018. The decrease in Australia cases was due to a reduction in property cases in the current year. The decrease in cases in Europe was due to a decrease in high-frequency, low-complexity cases in Italy. The decrease in cases in Rest of World was due to a decrease in high-frequency, low-complexity cases in Asia.
Garden City Group services were generally project based and not denominated by individual claims and therefore not included in the 2018 table above.
Crawford Specialty Solutions segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor decreased as a percent of segment revenues before reimbursements to 29.8% in 2019 from 32.3% in 2018, and the dollar amount of these expenses also decreased by $17.2 million. The decrease in amount and as a percent of revenues was due to the Garden City Group disposal, which had $17.4 million of expenses in the 2018 period.
Net corporate interest expense consists of interest expense that we incur on our short- and long-term borrowings, partially offset by interest income we earn on available cash balances and short-term investments. These amounts vary based on interest rates, borrowings outstanding, and the amounts of invested cash. Corporate interest expense totaled $8.2 million, $11.5 million, and $11.4 million for 2020, 2019, and 2018, respectively. Corporate interest income totaled $0.3 million, $0.7 million, and $1.3 million in 2020, 2019, and 2018, respectively. We pay interest on borrowings under our Credit Facility based on variable rates. Our level of interest expense is dependent on the future direction of interest rates as well as the level of outstanding borrowings relative to prior periods. The weighted average interest rates under our Credit Facility were 2.8%, 4.0%, and 3.7% for the years ending December 31, 2020, 2019, and 2018, respectively.
Amortization of customer-relationship intangible assets represents the non-cash amortization expense for finite-lived customer-relationship and trade name intangible assets. Amortization expense associated with these intangible assets totaled $11.7 million, $11.3 million, and $11.2 million in 2020, 2019, and 2018, respectively. This amortization is included in "Selling, general and administrative expenses" in our Consolidated Statements of Operations.
Unallocated corporate and shared costs and credits were $16.6 million, $6.5 million, and $9.3 million in 2020, 2019, and 2018, respectively. The increase for 2020 was due to a $4.4 million increase in self-insurance and related legal costs, CEO transition costs and other severance costs totaling $5.0 million, a $3.6 million increase in incentive compensation, and a $3.9 million increase in professional fees and other unallocated expenses, partially offset by $6.8 million credit from the Canada Emergency Wage Subsidy.
We recognized pretax restructuring and other costs totaling $8.1 million in 2020, related primarily to severance and other termination costs in an effort to consolidate and streamline various functions of our workforce. The restructuring and other costs are comprised of $9.4 million severance expense and related payroll taxes, $2.5 million asset impairment and lease termination costs, partially offset by a $1.1 million gain from fair value remeasurement of cost and equity method investments, a $1.2 million liquidation dividend from a cost method investment, and a $1.4 million gain from sale of IP addresses. There were no restructuring costs in 2019 or 2018. See Note 16, "Restructuring and Other Costs, Net" of our accompanying consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion about the restructuring and other charges.
During 2019, we recognized $12.6 million pretax expense for an arbitration settlement related to additional payments awarded to former executives of our former subsidiary Garden City Group related to their departure in 2015. There were no other potential claimants related to this matter.
On September 18, 2020, we amended the Credit Facility again. Pursuant to this amendment, (a) we are permitted to make, in addition to the other investments permitted under the Credit Facility prior to the amendment, investments of an unrestricted nature up to the aggregate outstanding amount not to exceed $5.0 million at any time and (b) the terms of LIBOR replacement when that benchmark is no longer available have been modified.
We have two principal financial covenants in our Credit Facility as amended. The senior secured leverage ratio, defined as the ratio of (i) consolidated total funded debt (excluding unsecured or subordinated debt) minus unrestricted cash to (ii) consolidated EBITDA, must not be greater 3.25 to 1.00 at the end of each fiscal quarter. In addition, the maximum permitted total leverage ratio allowable, which includes any unsecured or subordinated debt, must not be greater than 4.25 to 1.00.
Also under the Credit Facility as amended, the fixed charge coverage ratio, defined as the ratio of (i)(A) consolidated earnings before interest expense, income taxes, depreciation, amortization, stock-based compensation expense, and certain other charges and expenses ("EBITDA") minus (B) aggregate income taxes to the extent paid in cash minus (C) unfinanced capital expenditures to (ii) the sum of: (A) consolidated interest expense to the extent paid (or required to be paid) in cash, plus (B) the aggregate of all scheduled payments of principal on funded debt (including the principal component of payments made in respect of finance lease obligations) required to have been made (whether or not such payments are actually made), plus (C) the aggregate of all restricted payments (as defined) paid, plus (D) the aggregate of all earnouts paid or required to be paid, must not be less than 1.10 to 1.00 for the four-quarter period ending at the end of each fiscal quarter.
At December 31, 2020, the Company was in compliance with the financial covenants under the Credit Facility. Our leverage ratio was 1.11 and 1.53 as of December 31, 2020 and December 31, 2019, respectively, and our fixed charge coverage ratio was 2.79 and 1.46 as of December 31, 2020 and December 31, 2019, respectively. If the Company does not meet the covenant requirements in the future, it would be in default under the Credit Facility. Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Credit Facility and ancillary documents.
However, if at a future date or time funds that remain permanently reinvested are necessary for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto, or the ultimate impact any such action may have on our results of operations or financial condition. We have estimated that we have book over tax basis differences of approximately $89.5 million. Due to withholding tax, basis computations, and other related tax considerations, it is not practicable to estimate any taxes to be provided on outside basis differences at this time.
Cash provided by operating activities increased by $22.8 million in 2019, from $52.4 million in 2018 to $75.2 million in 2019. This increase was primarily due to a decrease in discretionary U.S. and U.K pension contributions in 2019 compared to 2018, better accounts receivable management and lower working capital requirements, including the positive cash flow impact of the Garden City Group disposal in June 2018. Interest payments on our debt were $10.5 million in 2019, and tax payments, net of refunds, were $17.0 million in 2019.
Cash used in financing activities was $74.4 million in 2020, compared with $53.4 million used in financing activities in 2019. In 2020, we borrowed $108.1 million in short-term borrowings for working capital needs and we repaid a total of $169.7 million. The decrease in borrowings in 2020 was primarily due to proceeds from the LWI disposition. We used cash to pay cash dividends totaling $9.6 million in 2020, we repurchased shares of $2.7 million, and we received shares of CRD-A stock that were surrendered by employees to settle $0.5 million of withholding taxes owed on the issuance of restricted and performance shares.
Our short-term debt obligations typically peak during the first quarter of each year due to the payment of incentive compensation awards, contributions to retirement plans, and certain other recurring payments, and generally decline during the balance of the year. However, certain events, such as the COVID-19 pandemic, could impact the level and timing of our short-term debt obligations in the future. Our maximum month-end short-term debt obligations were $39.9 million and $36.6 million in 2020 and 2019, respectively. Our average month-end short-term debt obligations were $28.0 million and $30.8 million in 2020 and 2019, respectively. The outstanding balance of our short-term borrowings, excluding outstanding but undrawn letters of credit under our Credit Facility, was $1.8 million and $28.5 million at December 31, 2020 and 2019, respectively. The balance in short-term borrowings at December 31, 2020 primarily represents amounts under our revolving Credit Facility that we expect, but are not required, to repay in the next twelve months. We have historically used the proceeds from our long-term borrowings to finance, among other things, business acquisitions.
Our liquidity is defined as cash on hand and borrowing capacity based on our trailing twelve month EBITDA, as defined under our Credit Facility. At December 31, 2020, we had $44.7 million of cash on hand and, based on trailing twelve month EBITDA, additional borrowing capacity of $206.3 million, resulting in total liquidity of $251.0 million at December 31, 2020. In response to the COVID-19 pandemic, we took a number of steps to enhance our liquidity including temporarily reducing our planned capital expenditures, pausing our discretionary U.S. defined benefit pension plan contributions until later in the year, suspending share repurchases under our 10b5-1 repurchase plan, and adjusting our employment levels through furloughs and reductions in force. We have not applied for governmental loans to support the Company’s operations but are taking advantage of certain aspects of the CARES Act such as the deferral of payroll tax deposits. In addition, there are numerous international legislative responses that we have evaluated, such as the Canadian Emergency Wage Subsidy program where we have received a benefit during 2020, among other enactments.
Based on our financial plans, we expect to be able to remain in compliance with all required covenants throughout 2021. Our compliance with the senior secured leverage ratio and fixed charge coverage ratio is particularly sensitive to changes in our EBITDA, and if our financial plans for 2021 or other future periods do not meet our current projections, we could fail to remain in compliance with these financial covenants in our Credit Facility.
As of December 31, 2020, the impact that our contractual obligations, including estimated interest payments, are expected to have on our liquidity and cash flow in future periods is as follows:
(Note references in the following table refer to the note in the accompanying consolidated financial statements in Item 8 of this Annual Report on Form 10-K).
At December 31, 2020, we had approximately $3.8 million of unrecognized income tax benefits related to uncertain tax positions. We cannot reasonably estimate when all of these unrecognized income tax benefits may be settled. We do not expect material reductions to unrecognized income tax benefits within the next 12 months as a result of projected resolutions of income tax uncertainties.
Gross deferred income tax liabilities as of December 31, 2020 were approximately $57.1 million. This amount is not included in the contractual obligations table because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax basis of assets and liabilities and their respective book basis, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, we believe scheduling deferred income tax liabilities as payments due by period could be misleading, because this scheduling would not relate to liquidity needs.
We sponsor a qualified defined benefit pension plan in the U.S., (the "U.S. Qualified Plan") three defined benefit plans in the U.K. (the "U.K. Plans"), and defined benefit pension plans in the Netherlands, Norway, Germany, and the Philippines (the "other international plans"). Future cash funding of our defined benefit pension plans will depend largely on future investment performance, interest rates, changes to mortality tables, and regulatory requirements. Effective December 31, 2002, we froze our U.S. Qualified Plan. The aggregate deficit in the funded status of the U.S. Plan and other international plans totaled $53.9 million and $65.9 million at the end of 2020 and 2019, respectively. The 2020 decrease in the unfunded deficit of our defined benefit pension plans primarily resulted from actuarial gains in the year. In 2020, we made contributions of $9.0 million to our U.S. Qualified Plan and $0.5 million to our U.K. Plans. In 2019, we made no contributions in 2019 to our U.S. Qualified Plan and $0.7 million to our U.K. Plans. The U.K. Plans were in a funded status totaling $36.8 million and $35.0 million at the end of 2020 and 2019, respectively, with the fair value of plan assets exceeding the projected benefit obligation. There was a $1.8 million increase during 2020 in the net prepaid pension balances of the U.K. defined benefit plans.
Our frozen U.S. Qualified Plan was underfunded by $51.6 million at December 31, 2020 based on an accumulated benefit obligation of $448.6 million. Crawford expects to make discretionary contributions of $9.0 million per annum to the U.S. Qualified Plan for the next five years to improve the funded status of the plan and minimize future required contributions. We estimate that we will make the following annual minimum contributions over the next five years to our frozen U.S. Qualified Plan.
Significant changes on our Consolidated Balance Sheet as of December 31, 2020, compared with our Consolidated Balance Sheet as of December 31, 2019, were as follows:
Accounts receivable decreased by $5.1 million, excluding the impacts of business acquisitions and dispositions, as well as the impacts from foreign currency exchange, in 2020 compared with 2019. The decrease was primarily due to decreased receivables within Crawford Claims Solutions in the U.K. and Asia.
Our fixed-fee service arrangements typically require us to handle claims on either a one- or two-year basis, or for the lifetime of the claim. In cases where we handle a claim on a non-lifetime basis, we typically receive an additional fee on each anniversary date that the claim remains open. For service arrangements where we provide services for the life of the claim, we are only paid one fee for the life of the claim, regardless of the duration of the claim. As a result, our deferred revenues for claims handled for one or two years are not as sensitive to changes in claim closing rates since the revenues are recognized in the near future, and additional fees are generated for handling long-lived claims. Deferred revenues for lifetime claim handling are considered more sensitive to changes in claim closing rates since we are obligated to handle these claims to their conclusion with no additional fees received for long-lived claims. For all fixed fee service arrangements, revenues are recognized over the expected service periods, by type of claim.
As of December 31, 2020, deferred revenues related to lifetime claim handling arrangements approximated $38.2 million. If the rate at which we close cases changes, the amount of revenues recognized within a period could be affected. In addition, given the competitive environment in which we operate, we may be unable to raise our prices to offset the additional expense associated with handling longer-lived claims should such case closing rates change. The change in our first-year case closing rates over the last ten years has ranged from a decrease of 3.3% to an increase of 2.2%, and has averaged a decrease of 0.1%. A 1.0% change is a reasonably likely change in our estimate based on historical data. Absent an increase in per-claim fees from our clients, a 1.0% decrease in claim closing rates for lifetime claims would have resulted in the deferral of additional revenues of approximately $1.3 million for the year ended December 31, 2020, $1.4 million for the year ended December 31, 2019, and $1.3 million for the year ended December 31, 2018. If our average claim closing rates for lifetime claims increased by 1.0%, we would have recognized additional revenues of approximately $1.2 million for each of the years ended December 31, 2020, 2019, and 2018.
In the annual impairment analysis of goodwill, we compare the carrying value of our reporting units, including goodwill, to the estimated fair values of those reporting units as determined by a combination of the income approach, specifically discounting future projected cash flows, and the market approach, specifically the Guideline Public Company Method, as described in more detail in Note 1, "Significant Accounting and Reporting Policies," of our accompanying consolidated financial statements in Item 8 of this Annual Report on Form 10-K. We perform an interim impairment analysis of goodwill when an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value. The estimated fair values of our reporting units are based upon certain assumptions made by us. The estimated fair values of our reporting units are reconciled to the Company's total market capitalization, including an estimated implied control premium, as determined by its stock price in order to assist in evaluating the reasonableness of the estimated fair values of each of the reporting units.
During the first quarter of 2020, the Company identified a goodwill impairment indicator in its Crawford Claims Solutions reporting unit as a result of lower operating results and the overall decline in market conditions as a result of the COVID-19 pandemic. As a result, the Company recognized a goodwill impairment of $17.7 million, reducing the goodwill carrying value of Crawford Claims Solutions to $0 as of March 31, 2020.
The key assumptions used in estimating the fair value of our reporting units utilizing the income approach include the discount rate and the terminal growth rate. The discount rates utilized in estimating the fair value of our reporting units in 2020 range between 15.0% and 17.5%, reflecting our assessment of a market participant's view of the risks associated with the projected cash flows. The terminal growth rate used in the analysis was 2.0%. The assumptions used in estimating the fair values are based on currently available data and management's best estimates of revenues and cash flows and, accordingly, a change in market conditions or other factors could have a material effect on the estimated values. There are inherent uncertainties related to the assumptions used and to management's application of these assumptions.
provide investment results that meet or exceed the plans' actuarially assumed long-term rate of return.
We review the expected long-term rate of return on an annual basis and revise it as appropriate. To support our conclusions, we periodically commission asset/liability studies performed by third-party professional investment advisors and actuaries to assist us in our reviews. These studies project our estimated future pension payments and evaluate the efficiency of the allocation of our pension plan assets into various investment categories. These studies also generate probability-adjusted expected future returns on those assets. As a result of the transition to a liability-driven investment strategy described previously, the expected long-term rates of return on plan assets assumption used to determine 2021 net periodic pension cost are estimated to be 4.70% and 2.10% for the U.S. and U.K. plans, respectively.
Pension expense is also affected by the accounting policy used to determine the value of plan assets at the measurement date. We apply our expected return on plan assets using fair market value as of the annual measurement date. The fair market value method results in greater volatility to our pension expense than the calculated value method. The amounts recognized in the balance sheet reflect a snapshot of the state of our long-term pension liabilities at the plan measurement date and the effect of mark-to-market accounting on plan assets. At December 31, 2020, we recorded a decrease to equity through other comprehensive income ("OCI") of $5.0 million (net of tax at the applicable jurisdictional rate) to reflect unrealized actuarial losses during 2020. At December 31, 2019, we recorded an increase to equity through OCI of $1.0 million (net of tax at the applicable jurisdictional rate) to reflect unrealized actuarial gains during 2019. Those changes are subject to amortization over future years and may be reflected in future income statements.
Net periodic pension expense for our defined benefit pension plans is sensitive to changes in the underlying assumptions for the expected rates of return on plan assets and the discount rates used to determine the present value of projected benefits payable under the plans. If our assumptions for the expected returns on plan assets of our U.S. and U.K. defined benefit pension plans changed by 0.50%, representing either an increase or decrease in expected returns, the impact to 2020 consolidated pretax income would have been approximately $3.3 million. If our assumptions for the discount rates used to determine the present value of projected benefits payable under the plans changed by 0.25%, representing either an increase or decrease in interest rates used to value pension plan liabilities, holding all other assumptions constant, the projected benefit obligations of our U.S. and U.K. defined benefit pension plans would have changed by approximately $21.5 million, and the impact to 2020 consolidated pretax income would have been approximately $0.3 million. Net periodic pension expense is also sensitive to mortality assumptions. If the life expectancy of pension plan participants in our U.S. Qualified Plan was to increase or decrease by one year compared to current assumptions, our pension obligations would have changed by $15.9 million and our annual pension cost would have changed by $0.7 million, respectively.
In accordance with GAAP, we have considered the four possible sources of taxable income that may be available to realize a tax benefit for deductible temporary differences and carryforwards and have a $16.6 million valuation allowance on certain net operating loss and tax credit carryforwards in our international and domestic operations. For our remaining deferred tax assets, we believe that it is more likely than not that we will realize these assets based on our forecast of future taxable income and tax planning strategies that are available to the Company. Future changes in the valuation allowance, if required, should not affect our liquidity or our compliance with any existing debt covenants.
In order to fully utilize these state NOL carryforwards, our domestic operations must generate taxable income prior to the expiration of the carryforwards. After consideration of the four sources of taxable income, we concluded that it was more likely than not that the Company should be able to utilize its state NOL carryforwards in the majority of jurisdictions before expiration. However, there were certain filing groups and jurisdictions that the Company does not expect to fully utilize its state NOL carryforwards before expiration. For those jurisdictions, we concluded that it was not more likely than not that the Company should be able to utilize its state NOL carryforwards and a valuation allowance was recorded. The valuation allowance against state NOL carryforwards was $2.2 million for the periods ended December 31, 2020 and 2019.
As of December 31, 2020 and 2019, our estimated liabilities for self-insured risks totaled $25.0 million and $26.8 million, respectively. The estimated liability is most sensitive to changes in the ultimate liability for a claim and, if applicable, the interest rate used to discount the liability. We believe our provisions for self-insured losses are adequate to cover the expected cost of losses incurred. However, these provisions are estimates and amounts ultimately settled may be significantly greater or less than the provisions established. We used a discount rate of 0.39% to determine the present value of our self-insured workers' compensation liabilities as of December 31, 2020. If the average discount rate was reduced to 0.0% or increased by 1.0% to 1.39%, reflecting either an increase or decrease in underlying interest rates, our estimated liabilities for these self-insured risks at December 31, 2020 would have been impacted by approximately $0.5 million, resulting in an equivalent increase or decrease to 2020 consolidated pretax income.
The total net income presented in the consolidated statement of shareholders' investment for the years ended December 31, 2018, December 31, 2019 and December 31, 2020 excludes $1,275, $3,191 and $2,258 respectively, in net loss attributable to the redeemable noncontrolling interests.
The Company consolidates the results of a variable interest entity ("VIE") when it is determined to be the primary beneficiary. In accordance with GAAP, in determining whether the Company is the primary beneficiary of a VIE for financial reporting purposes, it considers whether it has the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether it has the obligation to absorb losses or the right to receive returns that would be significant to the VIE.
The Company consolidates the liabilities of its deferred compensation plan and the related assets, which are held in a rabbi trust and also considered a VIE of the Company. The rabbi trust was created to fund the liabilities of the Company's deferred compensation plan. The Company is considered the primary beneficiary of the rabbi trust because the Company directs the activities of the trust and can use the assets of the trust to satisfy the liabilities of the Company's deferred compensation plan. At December 31, 2020 and 2019, the liabilities of this deferred compensation plan were $7,961,000 and $8,428,000, respectively, which represented obligations of the Company rather than of the rabbi trust, and the values of the assets held in the related rabbi trust were $16,323,000 and $16,527,000, respectively. These liabilities and assets are included in "Other noncurrent liabilities" and "Other noncurrent assets" on the Company's Consolidated Balance Sheets, respectively.
The Company maintains an allowance for expected credit losses resulting primarily from the inability of clients to make required payments. Such losses are accounted for as bad debt expense, while adjustments to invoices are accounted for as reductions to revenue. These allowances are established using historical write-off or adjustment information to project future experience and by considering the current creditworthiness of clients, any known specific collection problems, and an assessment of current industry and economic conditions. Actual experience may differ significantly from historical or expected loss results. The Company writes off accounts receivable when they become uncollectible, and any payments subsequently received are accounted for as recoveries.
A summary of the activities in the allowance for expected credit losses for the years ended December 31, 2020, 2019, and 2018 is as follows:
The key assumptions used in estimating the fair value of our reporting units utilizing the income approach include the discount rate and the terminal growth rate. The discount rates utilized in estimating the fair value of our reporting units in 2020 range between 15.0% and 17.5%, reflecting the Company's assessment of a market participant's view of the risks associated with the projected cash flows. The terminal growth rate used in the analysis was 2.0%. The assumptions used in estimating the fair values are based on currently available data and management's best estimates of revenues and cash flows and, accordingly, a change in market conditions or other factors could have a material effect on the estimated values. There are inherent uncertainties related to the assumptions used and to management's application of these assumptions.
For financial reporting purposes, the provision for income taxes is the sum of income taxes both currently payable and payable on a deferred basis. Currently payable income taxes represent the liability related to the income tax returns for the current year, while the net deferred tax expense or benefit represents the change in the balance of deferred income tax assets or liabilities as reported on the Company's Consolidated Balance Sheets that are not related to balances in "Accumulated other comprehensive loss." The changes in deferred income tax assets and liabilities are determined based upon changes in the differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for income tax purposes, measured by the enacted statutory tax rates in effect for the year in which the Company estimates these differences will reverse. The Company must estimate the timing of the reversal of temporary differences, as well as whether taxable income in future periods will be sufficient to fully recognize any gross deferred tax assets. A valuation allowance is provided when it is deemed more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
Advertising costs are expensed in the period in which the costs are incurred. Advertising expenses were $990,000, $2,394,000, and $3,572,000, respectively, for the years ended December 31, 2020, 2019, and 2018. As several conventions were cancelled as a result of the COVID-19 pandemic, the Company’s advertising costs decreased in 2020.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" together with its subsequent related amendments in 2018 and 2019, collectively referred to as Topic 326. Topic 326 replaces the incurred loss methodology to record credit losses with a methodology that reflects the expected credit losses for financial assets not accounted for at fair value, including trade receivables, with gains and losses recognized through income. The Company estimates its expected credit losses based on past experience, current conditions and reasonable and supportable forecasts affecting collectability of these assets. We evaluate the risks related to our trade receivables and contract assets by considering customer type, geography, and aging. Topic 326 is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted Topic 326 on January 1, 2020 using a modified retrospective approach. As a result of adopting Topic 326, the Company recognized a cumulative effect adjustment to decrease the opening balance of retained earnings by $607,000.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” This update amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, by removing and modifying certain disclosure requirements and adding others. This update removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. This update requires the disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, this update clarifies that transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities are required to be disclosed. These updates are effective for annual periods beginning after December 15, 2019, and interim periods thereafter. The Company adopted this guidance on January 1, 2020 with no material impact on disclosures related to fair value measurement.
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)." This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This update removes certain disclosure requirements including, but not limited to, the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer. This update requires the disclosure of the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This update also clarifies requirements for entities that provide aggregate disclosures for two or more plans. The update is effective for annual periods beginning after December 15, 2020, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU will have on disclosures related to its retirement plans.
The Company's Crawford TPA Solutions segment (formerly referred to as "Global TPA Solutions: Broadspire") is a third party administrator that generates revenue through its Claims Management and Medical Management service lines.
The following table presents Crawford TPA Solutions revenues before reimbursements disaggregated by service line and geography for the years ended December 31, 2020 and 2019.
For claims management services, the Company typically has one performance obligation; however, it also provides the customer with an option to acquire additional services. The Company sells multiple types of claims processing and different levels of processing depending on the complexity of the claims. The Company typically provides a menu of offerings from which the customer chooses to purchase at their option. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is consistent for each service irrespective of the other services or quantities requested by the customer. For example, if the Company provides claims processing for both auto and general liability, those services are priced and delivered independently.
As of December 31, 2020, the Company had $88,917,000 of remaining performance obligations related to claims and non-claims services in which the price is fixed. Remaining performance obligations consist of deferred revenues as well as certain unbilled receivables that are considered contract assets. The Company expects to recognize approximately 70% of our remaining performance obligations as revenues within one year and the remaining balance thereafter. See the discussion below regarding the practical expedients elected for the disclosure of remaining performance obligations.
For claims management services that are billed on a time and expense incurred or per unit basis and revenue is recognized over time, the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The preliminary valuation of the assets acquired and liabilities assumed for Crawford Carvallo is as follows:
Intangible assets acquired include customer relationships, trademarks, internally developed software and non-compete agreements. The intangibles acquired are made up of customer relationships of $4,400,000 being amortized over an estimated life of 15 years, and the remaining assets listed above are being amortized over 10 years. Goodwill is attributable to the synergies of the work force in place and business resources as a result of the combination of the companies. The Company does not expect that goodwill attributable to the acquisition will be deductible for tax purposes. The financial results of certain of the Company’s international subsidiaries, including Crawford Carvallo, are included in the Company’s consolidated financial statements on a two-month delayed basis. For the year ended December 31, 2020, Crawford Carvallo reported revenue of $2,214,000 in the Company's consolidated revenues before reimbursements. The results of Crawford Carvallo are reported in Crawford Specialty Solutions and Crawford TPA Solutions segments. For the year ended December 31, 2020, Crawford Carvallo’s contribution to the Company's earnings and earnings per share were not material and as such, no pro forma financial information is required to be presented.
During the year ended December 31, 2019, the Company acquired a Global Technical Services business in Europe for total consideration of approximately $2,431,000 which is comprised of $1,519,000 paid at closing, net of cash acquired of $135,000, $234,000 to be paid in one year, $351,000 to be paid in three years and contingent earnout consideration of $327,000. The acquisition was accounted for under the guidance of ASC 805-10, as a business combination under the acquisition method. As a result of the acquisition, the Company recognized definite lived intangible assets of $951,000 and goodwill of $1,164,000. The results of the acquisition is reported within the Company's Crawford Specialty Solutions operating segment.
The Company recognized a non-cash goodwill impairment charge in 2020 totaling $17,674,000 related to the valuation of its Crawford Claims Solutions reporting unit. The Company recognized a non-cash goodwill impairment in the Crawford Claims
Solution reporting unit of $17,484,000 during the year ended December 31, 2019. There were no goodwill impairment charges in 2018. These impairment charges did not affect the Company's liquidity and had no effect on the Company's compliance with the financial covenants under its Credit Facility.
The following is a summary of finite-lived intangible assets acquired through business acquisitions as of December 31, 2020 and 2019:
At December 31, 2020, annual estimated aggregate amortization expense for intangible assets subject to amortization for the next five years is as follows:
Long-term debt consisted of the following at December 31, 2020 and 2019:
The Credit Facility under the Amended and Restated Credit Agreement consists of a $450,000,000 revolving credit facility, with a letter of credit subcommitment of $100,000,000. The Credit Facility contains sublimits of $185,000,000 for borrowings by the UK Borrower, $75,000,000 for borrowings by the Canadian Borrower, and $32,500,000 for borrowings by the Australian Borrower. The Credit Facility matures, and all amounts outstanding thereunder, will be due and payable on November 23, 2022.
Borrowings under the Credit Facility may be made in U.S. dollars, Euros, the currencies of Canada, Japan, Australia or the United Kingdom and, subject to the terms of the Credit Facility, other currencies. Borrowings under the Credit Facility bear interest, at the option of the applicable Borrower, based on the Base Rate (as defined below) or the London Interbank Offered Rate ("LIBOR"), in each case plus an applicable interest margin based on the Company's leverage ratio (as defined below), provided that borrowings in foreign currencies may bear interest based on LIBOR only. The Credit Facility defines LIBOR to encompass accepted alternative reference rates for certain currencies where a LIBOR rate is no longer quoted. The interest margin for LIBOR loans ranges from 1.30% to 2.10% and for Base Rate loans ranges from 0.30% to 1.10%. Base Rate is defined as the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1%, (ii) the prime commercial lending rate of Wells Fargo and (iii) LIBOR for a one month interest period plus 1.0%.
At December 31, 2020, a total of $112,855,000 was outstanding and there was an undrawn amount of $11,512,000 under the letters of credit subcommitment of the Credit Facility. These letter of credit commitments were for the Company's own obligations. Including the amounts committed under the letters of credit subcommitment, the available borrowing capacity under the Credit Facility totaled $325,653,000 at December 31, 2020.
The Company, as sublessor, subleases certain office space which mostly consists of a two-building office complex in Plantation, Florida in which the terms of the primary lease and the related subleases end in December 2021. Under each of the executed sublease arrangements, the sublessees are obligated to pay the Company sublease payments of $4,180,000 in 2021 and $110,000 in 2022.
Upon adoption of Topic 842, discount rates used for existing leases were established at the transition date of January 1, 2019.
The year ended December 31, 2019 amount excludes $122,300,000 of right-of-use assets recognized upon adoption of Topic 842.
The provision for income taxes is reconciled to the federal statutory income tax rate of 21% in 2020, 2019, and 2018, as follows:
The Company's effective income tax rate in 2020 was impacted by goodwill impairment charges, disposals and liquidations of businesses, and deferred taxes attributable to undistributed foreign earnings that are no longer permanently reinvested. The Company's effective income tax rate in 2019 was impacted by goodwill impairment charges, arbitration and claim settlements, and valuation allowance establishment on certain state net operating losses. The Company's effective income tax rate in 2018 was impacted by a valuation allowance on certain Foreign Tax Credits, the Tax Cuts and Jobs Act in the U.S. (the "Tax Act"), and one-time income tax planning activities.
During 2020, the Company released its permanent reinvestment position on a portion of prior year undistributed earnings for certain foreign operations and accrued deferred taxes attributable to these earnings. Beyond these earnings we have not changed the reinvestment assertion on our undistributed earnings or other outside basis differences of our remaining foreign subsidiaries. Excluding the change in position for certain foreign operations, no additional income or withholding taxes have been provided for indefinitely reinvested undistributed foreign earnings, other than those subject to the Transition Tax nor have any taxes been provided for outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. We have estimated that we have book over tax basis differences of approximately $89,510,000. Due to withholding tax, basis computations, and other related tax considerations, it is not practicable to estimate any taxes to be provided on outside basis differences at this time.
Deferred income taxes consisted of the following at December 31, 2020 and 2019:
Changes in the Company's deferred tax valuation allowance are recorded as adjustments to the provision for income taxes. An analysis of the Company's deferred tax asset valuation allowances is as follows for the years ended December 31, 2020, 2019, and 2018.
Changes to the valuation allowance for the year ended December 31, 2020 were primarily due to anticipated expiration of certain foreign tax credits after consideration of the four sources of taxable income and disposals and liquidations of businesses, net of losses in certain of the Company’s international operations. Changes to the valuation allowance for the year ended December 31, 2019 were primarily due to anticipated expiration of certain state NOLs after consideration of the four sources of taxable income and losses in certain of the Company’s international operations. Changes to the valuation allowance for the year ended December 31, 2018 were primarily due to anticipated expiration of foreign tax credits after consideration of the Tax Act and the four sources of taxable income and losses in certain of the Company’s international and domestic operations.
The Company accrues interest and, if applicable, penalties related to unrecognized tax benefits in income taxes. Total accrued interest expense at December 31, 2020, 2019, and 2018, was $89,000, $256,000, and $256,000, respectively.
Included in the total unrecognized tax benefits at December 31, 2020, 2019, and 2018 were $713,000, $1,940,000, and $5,493,000, respectively, of tax benefits that, if recognized, would affect the effective income tax rate.
The Company does not expect any material reductions to unrecognized income tax benefits within the next 12 months as a result of projected resolutions of income tax uncertainties.
Employer contributions under the Company's defined contribution plans are determined annually based on employee contributions, a percentage of each covered employee's compensation, and years of service. The Company's cost for defined contribution plans totaled $23,641,000, $25,226,000, and $23,417,000 in 2020, 2019, and 2018, respectively.
Certain of the Company's U.K. Plans have fair values of plan assets that exceed the projected benefit obligations. For these plans, the projected benefit obligations and the fair value of plan assets were as follows as of December 31, 2020 and 2019:
In addition, the Company sponsors two frozen nonqualified, unfunded defined benefit pension plans for certain employees and retirees, which are based on career compensation. These plans were frozen effective December 31, 2002. The liabilities of these plans, which equal their projected benefit obligations, are included in "Other accrued liabilities" and "Other noncurrent liabilities" on the Company's Consolidated Balance Sheets based on the expected timing of funding these obligations, since they are funded as needed from Company assets.
The following tables set forth the 2020 and 2019 changes in accumulated other comprehensive loss for the Company's defined benefit retirement plans and post-retirement medical benefits plan on a combined basis:
Pension expense is affected by the accounting policy used to determine the value of plan assets at the measurement date. The Company applies the expected return on plan assets using fair market value as of the annual measurement date. The fair market value method results in greater volatility to pension expense than the calculated value method. The amounts recognized in the Consolidated Balance Sheets reflect the fair value of the Company's long-term pension liabilities at the plan measurement date and the fair value of plan assets as of the balance sheet date.
The Company estimates the service and interest components of net periodic benefit cost for its U.S. and international pension and other postretirement benefits. This estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the yield curve used to discount the cash flows used to measure the benefit obligation. For the pension plans, the weighted average spot rates used to determine 2021 interest costs are estimated to be 3.92% for the U.S. Qualified plan and 1.71% for the U.K. plans.
The expected long-term rates of return on plan assets were based on the plans' asset mix, historical returns on equity securities and fixed income investments, and an assessment of expected future returns. The expected long-term rates of return on plan assets assumption used to determine 2021 net periodic pension cost are estimated to be 4.70% and 2.10% for the U.S. Qualified Plan and U.K. plans, respectively. If actual long-term rates of return differ from those assumed or if the Company used materially different assumptions, actual funding obligations could differ materially from these estimates. Due to the frozen status of the U.S. plan and closed status of the U.K. plans, increases in compensation rates are not material to the computations of benefit obligations or net periodic benefit cost.
Investment objectives for the Company's U.S. and U.K. pension plan assets are to ensure availability of funds for payment of plan benefits as they become due; provide for a reasonable amount of long-term growth of capital, without undue exposure to volatility; protect the assets from erosion of purchasing power; and provide investment results that meet or exceed the plans' actuarially assumed long-term rate of return.
See Note 12, "Fair Value Measurements" for the fair value disclosures of the U.S. and U.K. qualified defined benefit pension plan assets. The assets of the Company's other international plans are primarily insurance contracts, which are measured at contract value and are not measured at fair value. Obligations of the U.S. nonqualified plans are paid from Company assets.
Effective May 9, 2019, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of CRD-A or CRD-B (or a combination of the two) through December 31, 2020 (the "2019 Repurchase Authorization"). On December 10, 2020, the Company’s Board of Directors extended the termination date of the Company’s 2019 share repurchase authorization (“2019 Repurchase Authorization”) to December 31, 2021. Under the 2019 Repurchase Authorization, repurchases may be made for cash, in the open market or privately negotiated transactions at such times and for such prices as management deems appropriate, subject to applicable contractual and regulatory restrictions.
The Company computes earnings per share of CRD-A and CRD-B using the two-class method, which allocates the undistributed earnings for each period to each class on a proportionate basis. The Company's Board of Directors has the right, but not the obligation, to declare higher dividends on CRD-A than on CRD-B, subject to certain limitations. In periods when the dividend is the same for CRD-A and CRD-B or when no dividends are declared or paid to either class, the two-class method generally will yield the same earnings per share for CRD-A and CRD-B. During 2020, 2019 and 2018, the Board of Directors declared a higher dividend on CRD-A than on CRD-B.
Comprehensive income (loss) for the Company consists of the total of net income, foreign currency translation adjustments, and accrued pension and retiree medical liability adjustments. Foreign currency translation adjustments include net unrealized losses from intra-entity loans that are long-term in nature of $(5,165,000), $(928,000), and $(1,838,000) for the years ended December 31, 2020, 2019, and 2018, respectively. The changes in components of "Accumulated other comprehensive loss" ("AOCL"), net of taxes and noncontrolling interests, included in the Company's Consolidated Balance Sheets were as follows:
Other comprehensive loss amounts attributable to noncontrolling interests shown in the Company's Consolidated Statements of Shareholders' Investment are foreign currency translation adjustments.
The pretax compensation expense recognized for all stock-based compensation plans was $4,384,000, $4,109,000, and $6,196,000 for the years ended December 31, 2020, 2019, and 2018, respectively. During 2019, there was increased performance share forfeiture activity, which resulted in the decreased stock-based compensation for that year as compared to 2020 and 2018. In 2020, the increase was offset by less expense from restricted shares and stock options.
at the discretion of the Company's Board of Directors, or the Board's Compensation Committee, and are subject to graded or cliff vesting over three-year periods. Shares are not issued until the vesting requirements have been met. Dividends are not paid or accrued on unvested/unissued shares. The grant-date fair value of a performance share grant is based on the market value of CRD-A on the date of grant, reduced for the present value of any dividends expected to be paid on CRD-A prior to the vesting of the award. Compensation expense for each award is recognized ratably from the grant date to the vesting date for each tranche.
TSR is defined as dividends paid during the measurement period plus share price appreciation. Share price appreciation is measured by using the 20 day trading day volume weighted average price at the start of the measurement period as the baseline, compared against the highest consecutive 20 day trading day volume weighted average price for the period between January 1, 2021 and the vesting date for the 2019 replacement awards and between January 1, 2022 and the vesting date for the 2020 replacement awards. Depending on the TSR, the number of shares earned can be between 50% and 200% of the targeted shares granted. If the TSR is below 10% for the 2019 replacement awards, or 20% for the 2020 replacement awards, then no shares vest.
The cancellation and reissuance of these awards was treated as a Type III modification, where no cumulative expense is recognized prior to the cancellation as it was deemed improbable to vest. Expense of the modified award will be recorded ratably over the service life, based on the valuation determined by utilizing a Monte Carlo simulation. At the time of modification, employees were given an option to elect a cash payout at the vesting date, also based on a component of TSR. This one-time election had to be determined within 30 days of the grant date. Any awards where the cash payout option was elected were recorded as liability awards, which are included on the Company's Consolidated Balance Sheets in "Accrued compensation and related costs."
Compensation expense recognized for all performance shares totaled $2,382,000, $1,082,000, and $3,307,000 for the years ended December 31, 2020, 2019 and 2018, respectively. Compensation cost for these awards is net of estimated or actual award forfeitures. Certain performance awards vest ratably, from grant date to vesting date of their respective tranches, without cumulative earnings per share targets. As of December 31, 2020, there was an estimated $4,999,000 of unearned compensation cost for nonvested performance shares. This unearned compensation cost is expected to be fully recognized by the end of 2022.
The Company's Board of Directors may elect to issue restricted shares of CRD-A in lieu of, or in addition to, cash payments to certain key employees. Employees receiving these shares are subject to restrictions on their ability to transfer the shares. Such restrictions generally lapse ratably over vesting periods ranging from several months to five years. The grant-date fair value of a restricted share of CRD-A is based on the market value of the stock on the date of grant. Compensation cost is recognized on an accelerated basis over the requisite service period.
Compensation expense recognized for all restricted shares for the years ended December 31, 2020, 2019, and 2018 was $942,000, $1,205,000, and $1,176,000, respectively. As of December 31, 2020, there was $214,000 of total unearned compensation cost related to nonvested restricted shares which is expected to be recognized by December 31, 2022.
During the years ended December 31, 2020, 2019 and 2018, a total of 114,408, 131,100, and 143,769 shares, respectively, of CRD-A were issued under the prior U.S. employee stock purchase plan to the Company's employees at average purchase prices of $6.71, $7.38, and $7.32 in 2020, 2019, and 2018, respectively. At December 31, 2020, an estimated 151,000 shares will be issued and purchased under the U.S. Plan in 2021. During the years ended December 31, 2020, 2019, and 2018, compensation expense of $343,000, $277,000, and $321,000, respectively, was recognized for the prior U.S. employee stock purchase plan.
At December 31, 2020, an estimated 108,000 shares will be eligible for purchase under the U.K. Plan at the end of the current withholding periods. This estimate is subject to change based on future fluctuations in the value of the British pound against the U.S. dollar, future changes in the market price of CRD-A, and future employee participation rates. The purchase price per share of CRD-A under the U.K. Plan ranges from $6.32 to $8.95. For the years ended December 31, 2020, 2019, and 2018, compensation expense of $163,000, $148,000, and $140,000, respectively, was recognized for the U.K. Plan. During 2020, 2019, and 2018, a total of 2,061 shares, 289,901 shares, and 63,033 shares, respectively, of CRD-A were issued under the U.K. Plan.
Under the International Plan, up to 1,000,000 shares of CRD-A may be issued. Participating employees can elect to have up to $21,250 of their eligible annual earnings withheld to purchase up to 5,000 shares of CRD-A at the end of the one-year withholding period which starts each July 1 and ends the following June 30. The purchase price of the stock is 85% of the lesser of the closing price for a share of such stock on the first day or the last day of the withholding period. Participating employees may cease payroll withholdings during the withholding period and/or request a refund of all amounts withheld before any shares are purchased. During 2020, 2019, and 2018, 4,051, 4,264, and 8,740 shares, respectively, were issued under the International Plan. Compensation expense was immaterial for this plan in all three years.
The following table summarizes the level within the fair value hierarchy used to determine the fair value of the Company's pension plan assets for its U.K. plans at December 31, 2020 and 2019:
Alternative strategy funds valued at the net asset value per share multiplied by the number of shares held as of the measurement date (Level 2). Alternative strategy funds may include derivative instruments such as futures, forward contracts, options and swaps and are used to help manage risks. Derivative instruments are generally valued by the investment managers or in certain instances by
The Company's three reportable segments represent components of the business for which separate financial information is available, and which is evaluated regularly by the CODM. The segments, organized based upon the nature of services, are: Crawford Claims Solutions, which primarily serves the global property and casualty insurance company markets; Crawford TPA Solutions, which serves the global casualty, disability and self-insurance marketplace; and Crawford Specialty Solutions which serves the global property and casualty insurance company markets. Intersegment sales are recorded at cost and are not material.
Operating earnings is the primary financial performance measure used by the Company's senior management and the CODM to evaluate the financial performance of the Company's three reportable segments and make resource allocation decisions. The Company believes this measure is useful to investors in that it allows them to evaluate segment operating performance using the same criteria used by the Company's senior management and CODM. Operating earnings will differ from net income computed in accordance with GAAP since operating earnings represent segment earnings before certain unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill and intangible asset impairments, restructuring and other costs, (gain) loss on disposition of business line, arbitration and claim settlements, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Financial information as of and for the years ended December 31, 2020, 2019, and 2018 related to the Company's reportable segments is presented below.
The total of the Company's reportable segments' revenues before reimbursements reconciled to total consolidated revenues for the years ended December 31, 2020, 2019, and 2018 was as follows:
From time to time, the Company enters into certain agreements for the purchase or sale of assets or businesses that contain provisions that may require the Company to make additional payments in the future depending upon the achievement of specified operating results of the acquired company, or provide the Company with an option or similar right to purchase additional assets.
The Company incurred net restructuring and other costs of $8,133,000 in 2020. There were no restructuring and other costs in 2019 or 2018.
Restructuring costs were predominantly comprised of severance costs, asset impairments, and lease termination costs. Severance and other termination costs relate to efforts to consolidate and streamline various functions of our workforce, both in operations and administrative functions. Asset impairments, including costs incurred for obsolete software, relate to decisions to close certain operations, and lease termination costs related to the exiting of certain leased facilities. These costs were partially offset by certain non-operating credits that occurred related to a cost method investment and sale of internet protocol addresses.
Platform Solutions, which consists of Contractor Connection and Networks service lines. This is comprised of the previously reported Contractor Connection service line within Crawford Specialty Solutions and the Networks service line, which includes Catastrophe operations, WeGoLook, and certain international network businesses previously reported within the Crawford Claims Solutions segment.
The Audit Committee of the Board of Directors, comprised solely of outside directors, is responsible for monitoring the Company's accounting and financial reporting practices. The Audit Committee meets regularly with management, the internal auditors, and the independent auditors to review the work of each and to assure that each performs its responsibilities. The independent registered public accounting firm, Ernst & Young LLP, was selected by the Audit Committee of the Board of Directors. Both the internal auditors and Ernst & Young LLP have unrestricted access to the Audit Committee allowing open discussion, without management present, on the quality of financial reporting and the adequacy of accounting, disclosure and financial reporting controls.
We have audited the accompanying consolidated balance sheets of Crawford & Company (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders' investment for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 4, 2021 expressed an unqualified opinion thereon.
At December 31, 2020, the Company’s deferred revenues related to lifetime claim handling arrangements approximated $38.2 million. As discussed in Note 2 to the consolidated financial statements, revenue is recognized over time as the related services are provided and performance obligations are satisfied. Revenue is recognized based on historical claim closure rates and claim type based on time elapsed for these claims, utilizing a portfolio approach. When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain claims management agreements, it records deferred revenues, which represents a contract liability.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s review of the recognition of lifetime claim handling revenues. For example, we tested controls over management’s review of the portfolio approach, the significant assumptions used, such as claim closure rates and claim type, and the completeness and accuracy of the data used in the deferred revenue calculation.
To test the Company’s lifetime claim handling revenues recognized, we performed audit procedures that included, among others, validating the completeness and accuracy of the aggregation of closure rates by claim type and testing the accuracy of the deferred revenue calculation. We assessed the historical accuracy of the claim closure rates used in the Company’s revenue model and evaluated the historical accuracy of management’s estimates by comparing such estimate to subsequent actual results. We also performed a sensitivity analysis of the claim closure rate assumptions to evaluate the impact that changes in these assumptions would have on lifetime claim handling revenues recognized.
For the year ended December 31, 2020, the Company recognized a goodwill impairment of $17.7 million related to the Company’s Crawford Claims Solutions reporting unit. As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually on a reporting unit basis.
Auditing management’s annual goodwill impairment test for the Crawford Claims Solutions reporting unit was complex and judgmental and required the involvement of our valuation specialists due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the discount rate, terminal growth rate, revenues, and EBITDA margin, which are affected by expectations about future market or economic conditions. These assumptions have a significant effect on the amount of the impairment recognized.
To test the estimated fair value of the Company’s Crawford Claims Solutions reporting unit, we performed audit procedures that included, among others, assessing the valuation methodologies and testing the significant assumptions and underlying data used by the Company. For example, we compared the significant assumptions used by management to the Company’s historical results and current industry and economic trends. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We involved our valuation specialists to assist in reviewing the valuation methodologies and testing the discount rate, the terminal growth rate and the selected guideline public company multiples. In addition, we tested management’s reconciliation of the fair value of its reporting units to the market capitalization of the Company.
This is a segment financial measure representing segment earnings before certain unallocated corporate and shared costs and credits, goodwill and intangible asset impairment charges, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, restructuring and other costs, gain/loss on disposal of business, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests. See Note 13, "Segment and Geographic Information," in the consolidated financial statements contained in this Item 8.
The Company recognized non-cash goodwill impairment in the amount of $17.7 million related to its Crawford Claims Solutions segment in the first quarter of 2020. The Company recognized non-cash goodwill impairment of $17.5 million related to its Crawford Claims Solutions reporting unit in the fourth quarter of 2019. See Note 4, "Goodwill and Intangible Assets" in the consolidated financial statements included in this Item 8. The Company recognized a pretax loss for Arbitration and claim settlements of $12.6 million in 2019. The Company recognized a pretax gain of $13.8 million due to the disposal of LWI, net of a loss on the disposal of Crawford Compliance in 2020. See Note 3, "Business Acquisitions and Dispositions" in the consolidated financial statements included in this Item 8. The Company recognized pretax restructuring and other costs in the first and fourth quarters of 2020 totaling $8.1 million. The provision for income taxes in 2020 and 2019 included the impact of these transactions and tax valuation adjustments.