As of December 31, 2017, the Company owned an office in Kitchener, Ontario. As of December 31, 2017, the Company leased approximately 300 other office locations under various leases with varying terms. For additional information on the Company's significant operating leases and subleases, see Note 6 "Commitments Under Operating Leases" of our accompanying audited 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.
This is a segment financial measure calculated in accordance with ASC Topic 280, "Segment Reporting," and representing 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 impairment charges, restructuring and special charges and credits, income taxes, and net loss or income attributable to noncontrolling interests and redeemable noncontrolling interests.
We also perform legal settlement administration services related to class action settlements, mass tort claims and bankruptcies, including identifying and qualifying class members, determining and dispensing settlement payments, and administering settlement funds.
The legal settlement administration market within which our Garden City Group segment operates is highly competitive but is comprised of a limited number of specialized entities. The demand for legal settlement administration services is generally not directly tied to or affected by the insurance underwriting cycle. The demand for these services is largely dependent on the volume of class action settlements, the volume of bankruptcy filings and the resulting settlements, the volume of mass torts and general economic conditions. Our revenues for legal settlement administration services are largely project-based and we earn these revenues as we perform individual tasks outlined in each project.
On January 4, 2017, the Company acquired 85% of the outstanding membership interests of WeGoLook®, LLC, an Oklahoma limited liability company, and certain non-compete agreements, for consideration of $36,125,000 on a debt free valuation basis. WeGoLook provides a variety of on-demand inspection, verification, and other field services for businesses and consumers through a mobile platform of independent contractors.
In 2014, we established a wholly-owned global business services center in the Philippines. We have subsequently expanded our offshore operations to include Information Technology services performed in India. The Centers provide us venues for global consolidation of certain business functions, shared services, and currently outsourced processes. The Centers, which will continue to be phased in through 2018, are expected to allow us to continue to strengthen our client service, realize additional operational efficiencies, and invest in new capabilities for growth. No assurances can be provided of our ability to timely or cost effectively complete and ramp up operations at the Centers, or to achieve expected cost savings on a timely basis, or at all. Costs associated with the establishment and phase-in of the Centers were $0.4 million in 2017, $3.7 million in 2016, and $4.4 million in 2015. Costs to be incurred in 2018 are not expected to be significant.
In 2015 we announced various restructuring plans intended to, among other things, reduce overhead costs in certain functions and in our business segments, and streamline senior management to reduce costs and further improve execution. These plans included restructuring and integration costs and other special charges discussed in Note 16, "Restructuring and Special Charges" to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Restructuring and special charges, exclusive of costs related to the establishment and phase-in of the Centers, for these and other similar plans totaled $11.6 million in 2017, $5.7 million in 2016 and $30.0 million in 2015. We do not anticipate any restructuring and special charges in 2018.
Non-cash goodwill impairment charges for 2017 were $19.6 million. There were no goodwill impairment charges in 2016. We incurred non-cash goodwill impairment charges of $49.3 million in 2015. See the "Critical Accounting Policies" in Item 7 and Note 3, "Goodwill and Intangible Assets" of our accompanying audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion about goodwill impairment charges.
We have not completed our accounting for the income tax effects of certain elements of the Tax Act, including GILTI, executive compensation, Transition Tax including associated foreign tax credits, and state taxes. Additionally, any changes to these provisional estimates would require us to reassess the realizability of our domestic deferred tax assets. Due to the complexity of these new tax rules, we are continuing to evaluate these provisions of the Tax Act and whether GILTI taxes would be recorded as a current period expense when incurred or whether such amounts should be factored into a company’s measurement of its deferred taxes. As a result, we have not included an estimate of the tax impacts related to these items for the period ended December 31, 2017. We will continue to refine these estimates in accordance with SAB 118.
In the U.S. Services segment, operating earnings increased slightly from 2016 to 2017 due to incremental revenues and associated earnings in U.S. Claims Services due to cases received from hurricanes Harvey, Irma and Maria in the current year, partially offset by the initial start-up costs and operating losses attributable to WeGoLook and a branding campaign in 2017 to further expand the presence of Contractor Connection in the consumer repair market.
Broadspire's operating earnings improved from 2016 to 2017. The improvements were due to higher revenues from both new and existing clients, and improved control over operating expenses.
Garden City Group's operating earnings declined in 2017 compared to 2016, reflecting a decline in revenues from the Deepwater Horizon class action settlement project, and a lower volume of case administration work on new and existing projects in 2017, which negatively impacted operating earnings.
Selling, general and administrative ("SG&A") expenses were slightly lower in 2017 than in 2016. The decrease in 2017 was due to a decrease in professional fees and other administrative expenses, partially offset by costs associated with a branding campaign in our U.S. Services segment compared with the 2016 period.
Although associated with particular operating segments, goodwill impairment charges are not allocated to any particular segment since they do not impact our performance and are not expected to impact our future performance.
Our discussion and analysis of segment operating expenses is comprised of two components. "Direct Compensation, Fringe Benefits & Non-Employee Labor" and "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor".
Operating earnings for our U.S. Services segment increased slightly from $35.6 million in 2016 to $35.7 million in 2017, representing an operating margin of 13.2% in 2017 compared with 15.4% in 2016. Operating earnings increased from 2016 to 2017 due to the incremental revenues and associated earnings in U.S. Claims Services due to cases received from hurricanes in the current year, partially offset by initial start-up costs and operating losses attributable to WeGoLook and costs associated with a branding campaign in 2017 to further expand the presence of Contractor Connection in the consumer repair market.
U.S. Contractor Connection revenues increased 1.7% in 2017 compared with 2016 primarily due to the ongoing expansion of this service solution as insurance carriers continued the trend of moving high-frequency, low-complexity property cases directly to managed repair networks, although the rate of growth in 2017 was lower than recent years.
U.S. Services unit volumes by underlying case category, as measured by cases received, for 2017 and 2016 were as follows:
Overall, there was a 38.7% increase in cases received in U.S. Services in 2017 compared to 2016. This was primarily due to the WeGoLook acquisition, which accounted for 29.5% of the increase in U.S. Services cases. Absent the high-frequency, low-complexity cases from the WeGoLook acquisition, total cases received increased by 9.2% in 2017 compared to the 2016 period. This increase is due to an increase in weather-related case activity, primarily in our Catastrophe Services service line, as a result of cases received from hurricanes in the 2017 period. The previously described outsourcing project involved the Company providing adjusters to work on the client's premises; accordingly, there are no associated case volumes referred to the Company for these revenues in either year.
The 2017 increase in U.S. Contractor Connection cases was due to the continued trend of insurance carriers moving high-frequency, low-complexity property cases directly to our contractor managed repair networks, which we expect to continue, and expansion into adjacent services including consumer segments.
The dollar amount of these expenses increased from $136.2 million in 2016 to $169.6 million in 2017. There was an average of 1,515 FTEs (including 365 catastrophe adjusters) in 2017 compared with an average of 1,371 FTEs (including 359 catastrophe adjusters) in 2016. The increase in expenses and FTEs in 2017 was primarily due to an increase in employees related to the higher revenues, and the WeGoLook acquisition which resulted in an increase of 115 employees in the 2017 period.
U.S. Services segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor increased from $59.6 million in 2016 to $64.3 million in 2017, although as a percent of segment revenues, decreased from 25.7% in 2016 to 23.9% in 2017. The increase in amount was due to the higher revenues and incremental costs to mobilize staff in areas affected by the hurricanes, and a branding campaign to expand the presence of Contractor Connection in the consumer repair market. The decrease in expense as a percent of revenues was due to the higher revenues in the 2017 period.
International segment operating earnings increased to $47.2 million in 2017, an increase of 9.2% from 2016 operating earnings of $43.2 million. The operating margin increased from 9.1% in 2016 to 10.5% in 2017. The increase in operating earnings was the result of cost reduction initiatives implemented in 2016 and 2017.
Revenues before reimbursements from our International segment totaled $449.9 million in 2017, compared to $477.3 million in 2016. Changes in foreign exchange rates decreased our International segment revenues by $8.5 million, or approximately 1.7%, for 2017 compared with 2016. Absent foreign exchange rate fluctuations, International segment revenues would have been $458.4 million in 2017. Overall case volumes in the International segment decreased 3.0% in 2017 compared with 2016. Revenues in the International segment were negatively impacted due to a change in the operating model in the U.K. contractor repair business where we are acting in an agency role instead of the contract principal in certain relationships with clients in our Contractor Connection service line, which represents a $16.0 million, or 3.4% revenue reduction, for 2017 compared to the prior year. This change had no impact on operating earnings. Changes in product mix and in the rates charged for those services accounted for a 2.4% revenue increase for 2017 compared with 2016.
The decrease in revenues in the U.K. for 2017 compared with 2016 was due to the change in the operating model in the U.K. contractor repair business discussed above, the change in foreign exchange rates and a reduction in weather-related activity compared with the number of cases received from flooding in that region in 2016. The change in revenues from the U.K. contractor repair business operating model was directly offset within operating expenses and had no impact on operating earnings.
International case volumes by region for 2017 and 2016 were as follows:
Overall case volumes were 3.0% lower in 2017 compared with 2016. The U.K. case volumes were lower in the 2017 period due primarily to flooding-related cases received in 2016. The increase in Canada cases was due to an increase in high-frequency, low-complexity vehicle appraisal cases in the 2017 period. The decrease in Asia-Pacific cases was primarily due to a decline in high-frequency, low-complexity motor cases in Singapore and China. The increase in case volumes in Europe and Rest of World was due to an increase in high-frequency, low-complexity cases in Germany and an increase in weather-related activity in Peru.
The most significant expense in our International 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 International segment revenues before reimbursements, increased from 63.7% in 2016 to 65.0% in 2017. The increase in expenses as a percent of revenues was due to lower revenues. Excluding the impact of the change in the operating model in the U.K. contractor repair business discussed above, direct compensation expenses, fringe benefits, and non-employee labor as a percent of International segment revenues before reimbursements would have been 62.8% in 2017. The U.S. dollar amount of these expenses decreased in 2017 by $11.6 million. The decrease was due to the impact of cost reduction initiatives, a reduction in employees, and the impact of foreign exchange rates. There was an average of 4,202 International FTEs in this segment in 2017, a decrease from an average of 4,236 FTEs in the 2016 period.
Broadspire recorded operating earnings of $32.7 million in 2017, or 10.6% of revenues before reimbursements, compared with operating earnings of $30.0 million in 2016, or 9.9% of revenues before reimbursements. Operating earnings improved from 2016 to 2017 due to higher revenues in our Workers' Compensation, Disability, and Liability Claims Management service line, operational efficiency gains, and a reduction in administrative support costs.
Broadspire segment revenues before reimbursements increased 2.7% to $310.1 million in 2017 compared with $302.0 million in 2016. The overall increase in 2017 was primarily due to an increase in our Workers' Compensation, Disability, and Liability Claims Management service line, as growth from new Disability clients continues. There were also increases in Medical Management revenues and Risk Management Information Services due to increased referrals in 2017.
Broadspire unit volumes by major underlying case category, as measured by cases received, for 2017 and 2016 were as follows:
Our Garden City Group segment reported a 2017 operating loss of $(4.4) million, decreasing 160.5% from $7.2 million operating earnings in 2016, with the related operating margin decreasing from 7.3% in 2016 to (5.7)% in 2017. The change in the operating margin was primarily the result of the winding down of the special project, lower volumes discussed above, and a reduction in employee utilization.
At December 31, 2017, we had an estimated revenue backlog related to projects awarded totaling $66.0 million, compared to $81.0 million at December 31, 2016. Of the $66.0 million backlog at December 31, 2017, approximately $40.0 million is expected to be included in revenues within the next 12 months.
Garden City Group direct compensation expense, fringe benefits, and non-employee labor expenses, as a percent of segment revenues before reimbursements, increased to 71.2% in 2017 compared with 65.7% in 2016. The increase as a percent of revenues was due to the decline in revenues and excess capacity resulting from a decrease in employee utilization in 2017. The U.S. dollar amount of related expenses declined to $54.2 million in 2017 compared with $64.8 million in 2016. The decrease was primarily due to reduced activity associated with the reduction in revenues from the special project discussed above. There was an average of 467 FTEs in 2017, compared with an average of 519 FTEs in 2016, decreasing due to the lower revenues.
Operating earnings for our U.S. Services segment increased from $32.6 million in 2015 to $35.6 million in 2016, representing an operating margin of 15.4% in 2016 compared with 13.4% in 2015. Operating earnings improved 9.2% from 2015 to 2016 due to the impact of cost reduction initiatives in 2015.
Revenues in our U.S. Catastrophe Services service line include revenues from an outsourcing project for a major U.S. insurance carrier, which resulted in $34.9 million of revenues in 2016, compared with $51.3 million in 2015. This decrease represents a 6.8% negative variance in U.S. Services revenue. The services provided to this customer are primarily project-based and are covered by the terms of multiple contractual arrangements which expire at various times in the future. In the event we are not able to retain these relationships, or replace any lost revenues from these projects as they reach their respective end dates, segment revenues and operating earnings would be negatively impacted.
U.S. Contractor Connection revenues increased 19.2% in 2016 compared with 2015 primarily due to the ongoing expansion of this service solution as insurance carriers continued the trend of moving high-frequency, low-complexity property cases directly to managed repair networks. There was also an increase in the average fee per claim in 2016 compared to 2015.
Reimbursements for out-of-pocket expenses incurred in our U.S. Services segment which are included in total Company revenues were $8.2 million in both 2016 and 2015. Although there was an overall reduction in revenues, the outsourcing project in U.S. Claims Services discussed above does not have reimbursed expenses.
Overall, there was as 0.9% increase in cases received in U.S. Services in 2016 compared to 2015. This was due to an increase in U.S. Contractor Connection cases, partially offset by a decrease in U.S. Claims Services cases. The decrease in U.S. Claim Services cases received was primarily due to a decrease in cases in U.S. Claims Field Operations resulting from decreased weather-related activity in 2016 partially offset by increases in U.S. Technical Services and U.S. Catastrophe Services resulting from new clients. The previously described outsourcing project involved the Company providing adjusters to work on the client's premises; accordingly, there are no associated case volumes referred to the Company for these revenues in either year.
The most significant expense in our U.S. Services segment is the compensation of employees, including related payroll taxes and fringe benefits, and payments to outsourced service providers that augment our staff. U.S. Services direct compensation, fringe benefits, and non-employee labor expense, as a percent of segment revenues before reimbursements, was 59.0% for 2016 and 61.8% for 2015. The decrease was due to the impact of certain cost reduction initiatives in 2015 and improved staff utilization.
Revenues before reimbursements from our International segment totaled $477.3 million in 2016, compared to $499.9 million in 2015. Changes in foreign exchange rates decreased our International segment revenues by $29.4 million, or approximately 5.8%, for 2016 compared with 2015. Absent foreign exchange rate fluctuations, International segment revenues would have been $506.6 million in 2016. Overall case volumes in the International segment decreased 12.5% in 2016 compared with 2015. Changes in product mix and in the rates charged for those services accounted for a 13.8% revenue increase for 2016 compared with 2015, due primarily to a reduction in high-frequency, low-complexity motor cases discussed below.
Revenues in Canada increased from 2015 due primarily to an increase from the Fort McMurray wildfires, partially offset by a decrease in high-frequency, low-complexity motor cases.
Revenues increased in Asia-Pacific due to an increase in weather-related activity in Australia, partially offset by a reduction in high-frequency, low-complexity motor cases in Singapore and China where we have exited that product line in those countries.
Reimbursements for out-of-pocket expenses incurred in our International segment which are included in total Company revenues increased to $34.4 million in 2016 from $28.6 million in 2015. This increase was due to the increased use of third parties on higher value cases in Europe and Asia-Pacific and in Canada from the Fort McMurray wildfires.
As a component of our acquisition of GAB Robins, the Company acquired a contractor repair business where we are the principal in the relationship with clients. As the principal in this business, both revenues and the corresponding contractor costs are reported at gross values. These contractor expenses are recorded within "Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor." They are reported in this category instead of "Direct Compensation, Fringe Benefits & Non-Employee Labor," as the services performed by these outside contractors are not services that can be performed by our workforce.
Broadspire recorded operating earnings of $30.0 million in 2016, or 9.9% of revenues before reimbursements, compared with operating earnings of $24.0 million in 2015, or 8.2% of revenues before reimbursements. Operating earnings improved from 2015 to 2016 due to higher revenues and improved control over operating expenses.
Reimbursements for out-of-pocket expenses incurred in our Broadspire segment which are included in total Company revenues were $4.3 million in 2016, increasing slightly from $4.2 million in 2015 due to the growth in revenues.
Broadspire unit volumes by major underlying case category, as measured by cases received, for 2016 and 2015 were as follows:
Overall, there was a 0.5% decrease in cases received in 2016 compared with 2015. This was primarily due to a decrease in Medical Management case referrals, which is reported in the Other category above, partially offset by increases in workers' compensation and casualty cases resulting from new clients.
At December 31, 2016, we had an estimated revenue backlog related to projects awarded totaling $81.0 million, the same as at December 31, 2015. Of the $81.0 million backlog at December 31, 2016, approximately $73.3 million is expected to be included in revenues within the next 12 months.
Reimbursements for out-of-pocket expenses incurred in our Garden City Group segment which are included in total Company revenues may vary materially from year to year depending on the amount and types of projects and were $21.3 million in 2016, decreasing from $30.1 million in 2015. This decrease was due to a lower volume of case administration work in 2016.
Garden City Group direct compensation expense, fringe benefits, and non-employee labor expenses, as a percent of segment revenues before reimbursements, decreased to 65.7% in 2016 compared with 69.0% in 2015. The decrease as a percent of revenues was due to improved employee utilization in 2016. The dollar amount of related expenses declined to $64.8 million in 2016 compared with $93.0 million in 2015. The decrease was primarily due to reduced activity associated with the reduction in revenues from the special project discussed above. There was an average of 519 FTEs in 2016, compared with an average of 709 FTEs in 2015, decreasing due to the decreased revenues.
Garden City Group expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor decreased 9.8% to $26.6 million in 2016 from $29.5 million in 2015, but increased as a percent of related segment revenues before reimbursements to 27.0% in 2016 from 21.9% in 2015. The dollar amount of these expenses decreased due to reduced activity associated with the reduction in revenues in 2016. The increase in expenses as a percent of revenues before reimbursements was due to the reduction in variable expenses being less than the reduction in revenues in 2016.
Unallocated corporate and shared costs and credits were $15.6 million, $24.0 million, and $16.6 million in 2017, 2016, and 2015, respectively. The decrease in 2017 compared with 2016 was due to a decrease in U.S. defined benefit plan expense, self-insured expenses, and unallocated professional fees. These costs increased in 2016 compared with 2015 due primarily to an increase in U.S. defined benefit plan expense, unallocated professional fees, and incentive compensation, partially offset by a decrease in acquisition-related costs and self-insured expenses.
On October 11, 2017, the Company, its subsidiaries Crawford & Company Risk Services Investments Limited (the "UK Borrower"), Crawford & Company (Canada) Inc. (the "Canadian Borrower") and Crawford & Company (Australia) Pty. Ltd. (the "Australian Borrower") (the Company, together with such subsidiaries, as borrowers, the "Borrowers", Wells Fargo Bank, National Association, as administrative agent and a lender ("Wells Fargo"), Bank of America, N.A., as syndication agent and a lender, Citizens Bank, N.A., as documentation agent and a lender, and the other lenders party thereto, entered into an Amended and Restated Credit Agreement (the "Amended and Restated Credit Agreement"), which amended and restated that certain Credit Agreement, dated as of December 8, 2011, by and among, inter alia, the Borrowers, Wells Fargo and the other lenders from time to time party thereto (as previously amended, the "Original Credit Agreement"). In connection with the Amended and Restated Credit Agreement, the Company, the Company’s guarantor subsidiaries party thereto and Wells Fargo entered into an Amended and Restated Pledge and Security Agreement (the "Amended and Restated Pledge and Security Agreement") and an Amended and Restated Guaranty Agreement ( the "Amended and Restated Guaranty Agreement"), each dated as of the date of the Amended and Restated Credit Agreement.
The credit facility under the Amended and Restated Credit Agreement (as amended, the "Credit Facility") consists of a $450.0 million revolving credit facility, with a letter of credit subfacility of $200.0 million. The Credit Facility contains sublimits of $185.0 million for borrowings by the UK Borrower, $75.0 million for borrowings by the Canadian Borrower, and $32.5 million 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 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 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 the Administrative Agent and (iii) LIBOR for a one month interest period plus 1.0%.
At December 31, 2017 and 2016, a total of $224.3 million and $186.2 million, respectively, was outstanding under the Credit Facility. In addition, undrawn commitments under letters of credit totaling $14.5 million and $14.8 million were outstanding at December 31, 2017 and 2016, respectively, under the letters of credit subfacility 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 subfacility, the available borrowing capacity under the Credit Facility totaled $241.3 million and $198.5 million at December 31, 2017 and 2016.
The obligations of the Borrowers under the Amended and Restated Credit Agreement are guaranteed by each existing material domestic subsidiary of the Company, certain other domestic subsidiaries of the Company and certain existing material foreign subsidiaries of the Company that are disregarded entities for U.S. income tax purposes (each such foreign subsidiary, a "Disregarded Foreign Entity"), and such obligations are required to be guaranteed by each subsequently acquired or formed material domestic subsidiary and Disregarded Foreign Entity (each, a "Guarantor"), and the obligations of the Borrowers other than the Company ("Foreign Borrowers") for which the Company is not the primary obligor are also guaranteed by the Company. In addition, (i) the Borrowers’ obligations under the Amended and Restated Credit Agreement are secured by a first priority lien (subject to liens permitted by the Amended and Restated Credit Agreement) on substantially all of the personal property of the Company and the Guarantors as set forth in the Amended and Restated Pledge and Security Agreement and (ii) the obligations of the Foreign Borrowers are secured by a first priority lien on 100% of the capital stock of the Foreign Borrowers.
At December 31, 2017, the Company was in compliance with the financial covenants under the Credit Facility. 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.
Cash and cash equivalents as of December 31, 2017 consisted of $17.8 million held in the U.S. and $36.2 million held in our foreign subsidiaries. All of the cash and cash equivalents held by our foreign subsidiaries is available for general corporate purposes. The Company generally does not provide for additional U.S. and foreign income taxes on undistributed earnings of foreign subsidiaries because they are considered to be indefinitely reinvested. The Company's current expectation is that such earnings will be reinvested by the subsidiaries or will be repatriated only when it would be tax effective or otherwise strategically beneficial to the Company, such as if a very unusual event or project generated profits significantly in excess of ongoing business reinvestment needs. If such an event occurs, we would analyze the potential tax impact or our anticipated investment needs in that region and provide for taxes for earnings that are not expected to be permanently reinvested. Other historical earnings and future foreign earnings necessary for business reinvestment are expected to remain permanently reinvested and will be used to provide working capital for these operations, fund defined benefit pension plan obligations, repay non-U.S. debt, fund capital improvements, and fund future acquisitions. We currently believe that funds expected to be generated from our U.S. operations, along with potential borrowing capabilities in the U.S., will be sufficient to fund our U.S. operations and other obligations, including our funding obligations under our U.S. defined benefit pension plan, for the foreseeable future and, therefore, except in limited circumstances such as those described above, do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations. However, if at a future date or time these funds 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. No additional income or withholding taxes have been provided for any 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. Additionally, 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. The ultimate tax impact related to the Tax Act may differ, possibly materially, due to further refinement of our calculations, changes in interpretation and assumptions, or issuance of additional guidance issued by the relevant tax authorities and we will continue to refine these estimates and our indefinite reinvestment assertion in accordance with SAB 118.
Cash used in investing activities increased by $48.9 million in 2017, from $33.0 million in 2016 to $81.9 million in 2017. This increase was primarily due to $36.0 million for the acquisition of WeGoLook and certain non-compete agreements as discussed in Note 2, "Acquisitions and Dispositions of Businesses." Cash used to acquire property and equipment and capitalized software, including capitalization of costs for internally developed software, was $44.9 million in 2017 compared with $29.2 million in 2016. This increase also includes costs incurred for the consolidation and relocation of our Atlanta Support Center as discussed in Note 6, "Commitments Under Operating Leases." We forecast that our property and equipment additions in 2018, including capitalized software, will approximate $45 million due to investments required to fund initiatives in our three-year strategic plan.
Cash used in investing activities decreased by $68.2 million in 2016, from $101.2 million in 2015 to $33.0 million in 2016. This decrease was primarily due to $68.3 million in cash payments for business acquisitions in 2015. Cash used to acquire property and equipment and capitalized software, including capitalization of costs for internally developed software, was $29.2 million in 2016 compared with $32.9 million in 2015.
Cash provided by financing activities was $10.3 million in 2017. In 2017, we borrowed $94.4 million in short-term borrowings for working capital needs and we repaid a total of $58.5 million in short-term borrowings and $1.2 million in debt and capital lease obligations. The increase in borrowings in the 2017 period was primarily due to borrowings to fund the WeGoLook acquisition and increased working capital requirements. We used cash to pay cash dividends totaling $13.7 million. Also in 2017, we repurchased shares of CRD-A and CRD-B stock totaling $7.4 million, and we received shares of CRD-A stock that were surrendered by employees to settle $1.9 million of withholding taxes owed on the issuance of restricted and performance shares.
Cash used by financing activities was $55.2 million in 2016. We borrowed $80.2 million in short-term borrowings for working capital needs and we repaid a total of $118.0 million in short-term borrowings and $1.5 million in debt and capital lease obligations. We used cash to pay cash dividends totaling $13.6 million. Also in 2016, we received shares of CRD-A stock that were surrendered by employees to settle $1.3 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. Our maximum month-end short-term debt obligations were $32.0 million and $23.3 million in 2017 and 2016, respectively. Our average month-end short-term debt obligations were $8.3 million and $13.3 million in 2017 and 2016, respectively. The outstanding balance of our short-term borrowings, excluding outstanding but undrawn letters of credit under our Credit Facility, was $24.6 million and $30 thousand at December 31, 2017 and 2016, respectively. The balance in short-term borrowings at December 31, 2017 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.
As described above, we have two principal financial covenants in our Credit Facility. The leverage ratio covenant requires us to comply with a maximum leverage ratio, defined in our Credit Facility as the ratio of (i) consolidated total funded debt minus unrestricted cash to (ii) consolidated earnings before interest expense, income taxes, depreciation, amortization, stock-based compensation expense, and certain other charges and expenses ("EBITDA"). This ratio must not exceed 3.25 to 1.00 as of the last day of each fiscal quarter. The fixed charge coverage ratio covenant requires us to comply with a minimum fixed charge coverage ratio, defined as the ratio of (i)(A) consolidated 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 capital 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, 2017, we were in compliance with all required ratios under our Credit Facility. Based on our financial plans, we expect to be able to remain in compliance with all required covenants throughout 2018. Our compliance with the leverage ratio and fixed charge coverage ratio is particularly sensitive to changes in our EBITDA, and if our financial plans for 2018 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, 2017, 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:
Approximately $17.2 million of operating lease obligations included in the table above are expected to be funded by sublessors under existing sublease agreements. See Note 6, "Commitments Under Operating Leases" to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Borrowings under our Credit Facility bear interest at a variable rate, based on LIBOR or a Base Rate, in either case plus an applicable margin. Long-term debt refers to the required principal repayment at maturity of the Credit Facility, and may differ significantly from estimates, due to, among other things, actual amounts outstanding at maturity or any refinancings prior to such date. Interest amounts are based on projected borrowings under our Credit Facility and interest rates in effect on December 31, 2017, and the actual interest payments may differ significantly from estimates due to, among other things, changes in outstanding borrowings and prevailing interest rates in the future.
At December 31, 2017, we had approximately $11.3 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 expect $6.2 million in 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, 2017 were approximately $51.1 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 $87.0 million and $105.2 million at the end of 2017 and 2016, respectively. The 2017 decrease in the unfunded deficit of our defined benefit pension plans primarily resulted from the return on plan assets, contributions and adoption of updated mortality tables used to determine U.S. Qualified Plan liabilities. During 2017, we made contributions of $9.0 million and $5.6 million to our U.S. Qualified Plan and U.K. Plans, respectively. In 2016, we made contributions of $9.0 million and $5.1 million to our U.S. Qualified Plan and U.K. Plans, respectively. The U.K. Plans were in a funded status totaling $34.7 million and $21.6 million at the end of 2017 and 2016, respectively with the fair value of plan assets exceeding the projected benefit obligation. There was a $13.1 million increase during 2017 in the net prepaid pension balances of the U.K. defined benefit plan that is in an overfunded position.
Our frozen U.S. Qualified Plan was underfunded by $85.8 million at December 31, 2017 based on an accumulated benefit obligation of $474.6 million. Crawford expects to make discretionary contributions of $9.0 million per annum to the U.S. Qualified Plan for the next five fiscal 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 and the U.K. Plans:
At December 31, 2017, we were not party to any off-balance sheet arrangements, other than operating leases, which could materially impact our operations, financial condition, or cash flows. We have certain material obligations under operating lease agreements to which we are a party. In accordance with GAAP, these operating lease obligations and the related leased assets are not reported on our consolidated balance sheets.
We maintain funds in trusts to administer claims for certain clients. These funds are not available for our general operating activities and, as such, have not been recorded in the accompanying consolidated balance sheets. We have concluded that we do not have material off-balance sheet financial risk related to these funds at December 31, 2017.
As of December 31, 2017, deferred revenues related to lifetime claim handling arrangements approximated $41.8 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 3.6% to an increase of 4.8%, and has averaged an increase of 0.2%. 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 $1.4 million for the year ended December 31, 2017, $1.5 million for the year ended December 31, 2016, and $1.4 million for the year ended December 31, 2015. If our average claim closing rates for lifetime claims increased by 1.0%, we would have recognized additional revenues of approximately $1.3 million for the year ended December 31, 2017, $1.1 million for the year ended December 31, 2016, and $1.3 million for the year ended December 31, 2015.
As of December 31, 2017 and 2016, our allowance for doubtful accounts totaled $12.6 million and $14.5 million, or approximately 6.7% and 8.6% of gross billed receivables at December 31, 2017 and 2016, respectively. If the financial condition of our clients deteriorates, resulting in an inability to make required payments to us, or if economic conditions deteriorate, additional allowances may be deemed to be appropriate or required. If the allowance for doubtful accounts changed by 1.0% of gross billed receivables, reflecting either an increase or decrease in expected future write-offs, the impact to consolidated pretax income would have been approximately $1.9 million, $1.7 million, and $1.8 million in 2017, 2016, and 2015, respectively.
We currently have five reporting units for goodwill impairment purposes. These reporting units are our U.S. Services segment excluding U.S. Contractor Connection operations, our U.S. Contractor Connection operations on a stand-alone basis, and our other operating segments - International, Broadspire, and Garden City Group.
The estimated fair value of our U.S. Contractor Connection operations, International, and Broadspire reporting units exceed their carrying value by a significant margin. The estimated fair value of our U.S. Services segment excluding U.S. Contractor Connection operations reporting unit exceeds its carrying value but not by as much of a margin. The U.S. Services segment excluding U.S. Contractor Connection operations reporting unit has $19.4 million of goodwill at risk of potential future impairment. An increase in the discount rate of 125 basis points could potentially trigger an impairment of our U.S. Services segment excluding U.S. Contractor Connection operations reporting unit goodwill, assuming no change in the other key inputs. The Company recognized goodwill impairment charges for the entire goodwill allocated to its Garden City Group reporting unit of $19.6 million in the fourth quarter 2017 due to the reporting unit achieving less than forecasted revenue and operating earnings and based on future expected operating results. We intend to continue to monitor the performance of our reporting units for potential indicators of impairment. If impairment indicators exist, we will perform an interim goodwill impairment analysis.
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 2017 range between 10.0% and 13.5%, 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.
The indefinite-lived intangible assets consisting of the Broadspire, SLS and WeGoLook trade names, with carrying values of $29.1 million, $1.7 million and $1.0 million, respectively, are also evaluated for potential impairment on an annual basis or when indicators of potential impairment are identified. Based on our 2017 analysis, we do not believe these trade names are impaired. The indefinite-lived intangible asset impairment test involves estimating the fair value using an internally prepared discounted cash flow analysis. The fair values of the Company's trade names are established using the relief-from-royalty method, a form of the income approach. This method recognizes that, by virtue of owning the trade name as opposed to licensing it, a company or reporting unit is relieved from paying a royalty, usually expressed as a percentage of net sales, for the asset's use. The present value of the after-tax costs savings (i.e., royalty relief) at an appropriate discount rate including a tax amortization benefit indicates the value of the trade name. We determined the discount rate based on our performance compared to similar market participants, factored by risk in forecasting using a modified capital asset pricing model.
The values of the Broadspire, SLS and WeGoLook trade names are each sensitive to changes in the assumptions used above. The estimated fair value of our Broadspire and SLS trade names exceed their carrying value by a significant margin. An increase in the discount rate by 2.5% could potentially trigger an impairment of the WeGoLook trade name, assuming no changes in the other key inputs. We will continue to monitor the value of these trade names for potential indicators of impairment.
Investment objectives for the Company's U.S. and U.K. pension plan assets are to:
We review our employee demographic assumptions annually and update the assumptions as necessary. During 2017, we revised the mortality assumptions for the U.S. plans to incorporate the new mortality tables issued by the Society of Actuaries, adjusted to reflect Company-specific experience and future expectations. This resulted in a $3.2 million decrease in the projected benefit obligation for the U.S. plans.
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 0.5%, representing either an increase or decrease in expected returns, the impact to 2017 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, the impact to 2017 consolidated pretax income would have been approximately $0.8 million.
We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly have accounted for it prospectively. While the benefit obligation measured under this approach is unchanged, the more granular application of the spot rates reduced the service and interest cost for the pension plans for fiscal 2017 by $3.2 million. We do not expect this change will have a material effect in periods beyond 2017. For the pension plans, the weighted average spot rates used to determine service and interest costs were 3.23% for the Company’s U.S. plans and 2.66% for the U.K. plans.
The Company has controlling ownership interests in several entities that are not wholly-owned by the Company. The financial results and financial positions of these controlled entities are included in the Company's consolidated financial statements, including the controlling interests, noncontrolling interests, and redeemable noncontrolling interests. The noncontrolling interests and redeemable noncontrolling interests represent the equity interests in these entities that are not attributable, either directly or indirectly, to the Company. On the Company's Consolidated Statements of Operations, net income or loss is attributed to the controlling interests, noncontrolling interests and redeemable noncontrolling interests separately.
In the normal course of business, the Company incurs certain out-of-pocket expenses that are thereafter reimbursed by the Company's clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues, respectively, in the Company's consolidated results of operations. The amounts of reimbursed expenses and related revenues from reimbursements offset each other in the Company's consolidated statements of operations with no impact to its net income.
The Company maintains an allowance for doubtful accounts for estimated losses resulting primarily from the inability of clients to make required payments and for adjustments to invoiced amounts. 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 doubtful accounts for the years ended December 31, 2017, 2016, and 2015 is as follows:
The Company currently has five reporting units for goodwill impairment purposes. These reporting units are the Company's U.S. Services segment excluding U.S. Contractor Connection operations, U.S. Contractor Connection operations on a stand-alone basis, and the Company's other operating segments - International, Broadspire, and Garden City Group.
During 2017, the Company performed the goodwill impairment testing on all reporting units. The estimated fair value of the Company's U.S. Contractor Connection operations, International, and Broadspire reporting units exceed their carrying value by a significant margin. The estimated fair value of its U.S. Services segment excluding U.S. Contractor Connection operations reporting unit exceeds its carrying value but not by as much of a margin. The U.S. Services segment excluding U.S. Contractor Connection operations has $19.4 million of goodwill at risk of potential future impairment. An increase in the discount rate of 125 basis points could potentially trigger an impairment in our U.S. Services segment excluding U.S. Contractor Connection operations reporting unit goodwill, assuming no change in the other key inputs. The Company recognized goodwill impairment of the entire goodwill allocated to its Garden City Group reporting unit of $19.6 million in the 2017 fourth quarter due to the reporting unit achieving less than forecasted revenue and operating earnings and based on future operating results. The Company intends to continue to monitor the performance of its reporting units for potential indicators of impairment. If impairment indicators exist, the Company will perform an interim goodwill impairment analysis.
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 2017 range between 10.0% and 13.5%, 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.
Additions to property and equipment under capital leases, which are excluded from acquisitions of property and equipment in the Company's Statements of Cash Flows, totaled $760,000, $242,000, and $1,283,000 for 2017, 2016, and 2015, respectively.
Depreciation on property and equipment, including property under capital leases and amortization of leasehold improvements, was $12,557,000, $14,729,000, and $17,715,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
The Company has estimated the impact of the Tax Cuts and Jobs Act (the "Tax Act") incorporating assumptions made based upon its current interpretation of the Tax Act and included them in its consolidated financial statements for the year ended December 31, 2017. The SEC Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has recognized provisional tax impacts related to Transition Tax and revaluation of domestic deferred tax balances, and included those amounts in its consolidated financial statements for the year ended December 31, 2017. The actual impact of the Tax Act may differ from the Company's estimates due to, among other things, further refinement of our calculations, changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Tax Act. The Company expects the accounting to be completed within the one year measurement period, as allowed under SAB 118.
Foreign currency transactions for the years ended December 31, 2017, 2016, and 2015 resulted in net losses of $685,000, $339,000, and $684,000 respectively.
Advertising costs are expensed in the period in which the costs are incurred. Advertising expenses were $7,091,000, $3,382,000, and $3,803,000, respectively, for the years ended December 31, 2017, 2016, and 2015. The increase in 2017 was due to costs associated with a branding campaign for the Contractor Connection service line within the Company's U.S. Services segment.
In January 2017, the FASB issued ASU 2017-4, "Simplifying the Test for Goodwill Impairment." The ASU was issued to simplify subsequent measurement of goodwill. The update eliminates Step 2 from the goodwill impairment test. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company elected to early adopt this ASU effective January1, 2017, with no effect on its results of operations, financial condition or cash flows.
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash." The ASU was issued to address diversity in practice in the classification and presentation of a change in restricted cash on the statement of cash flows. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company elected to early adopt this ASU effective January1, 2017, with no effect on its statement of cash flows.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments." The update addresses diversity in cash flow reporting issues. The guidance specifically addresses issues concerning debt repayment costs, settlement of zero coupon debt instruments, contingent consideration payments made after a business combination, proceeds from insurance claims and corporate owned life insurance beneficial interests in securitization transactions, and distributions from equity method investees. The guidance also clarifies how the predominant principle should be applied when cash receipts and cash payments have more than one class of cash flows. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU may have on its statement of cash flows however the only impact the Company expects is the presentation of contingent consideration payments made after a business combination.
In February 2016, the FASB issued ASU 2016-02, "Financial Accounting for Leases." Under this update, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, this ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The update is effective for annual periods beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted. The Company anticipates the impact of adopting this standard will result in an increase in operating lease liabilities and right to use assets on its balance sheet. The Company is updating its inventory of real estate, equipment, and automobile leases for attributes required by this ASU.
The following is a summary of finite-lived intangible assets acquired through business acquisitions as of December 31, 2017 and 2016:
Also under the Credit Facility as amended, the leverage ratio, as of the last day of any fiscal quarter, defined as the ratio of (i) consolidated total funded debt minus unrestricted cash to (ii) consolidated EBITDA, must not be greater 3.25 to 1.00 at the end of each fiscal quarter.
At December 31, 2017, the Company was in compliance with the financial covenants under the Credit Facility. 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 loan documents.
Principal repayments of long-term debt, including current portions and capital leases, as of December 31, 2017 are expected to be as follows, assuming no prepayments or extensions beyond the stated maturity:
In February 2011, the Company entered into a U.S. dollar and Canadian dollar ("CAD") cross currency basis swap with an initial notional amount of CAD34,749,000 as an economic hedge to an intercompany note payable to the U.S. parent by a Canadian subsidiary. The cross currency basis swap required the Canadian subsidiary to deliver quarterly payments of CAD589,000 to the counterparty and entitled the U.S. parent to receive quarterly payments of U.S.$593,000. The Canadian subsidiary also made interest payments to the counterparty based on 3-month Canada Bankers Acceptances plus a spread, and the U.S. parent received payments based on U.S. 3-month LIBOR. The cross currency basis swap had a scheduled expiration date of September 30, 2025. The Company elected not to designate this swap as a hedge of the intercompany note from the Canadian subsidiary. Accordingly, changes in the fair value of this swap, as well as changes in the value of the intercompany note, were recorded as gains or losses in "Selling, general, and administrative expenses" in the Company's audited Consolidated Statements of Operations over the term of the swap and substantially offset one another prior to the settlement defined below. The changes in the fair value of the cross currency basis swap did not exactly offset changes in the value of the intercompany note, as the fair value of this swap was determined based on forward rates while the value of the intercompany note was determined based on end of period spot rates. The net gains and losses for the swap historically were not significant.
Effective October 10, 2016, the Company entered into a 13-year operating lease for approximately 109,000 square feet of office space in Atlanta, Georgia, as a replacement and consolidation for its Atlanta Support Center beginning late 2017. The Company has future total lease payments associated with this lease of approximately $31,500,000. Additionally, the Company is responsible for certain related property operating expenses above 2018 base year costs, which are excluded from the table above.
In November 2014, the Company entered into an amendment and extension of an existing lease, resulting in a 7 years, 5 months operating lease agreement for approximately 50,000 square feet of office space in Jacksonville, FL, for its U.S. Contractor Connection service line in its U.S. Services segment. The amended lease on the expanded premises began January 1, 2015. Total lease payments over the remaining lease term are approximately $3,388,000. Additionally, the Company is responsible for certain related real estate taxes and operating expenses, which are excluded from the table above.
Included in the acquired commitments of Broadspire Management Services, Inc. was a long-term operating lease for a two-building office complex in Plantation, Florida. The term of this lease ends in December 2021. Total lease payments over the remaining lease term are approximately $22,363,000. All of the office space was subleased at December 31, 2017. Under executed sublease arrangements at December 31, 2017, the sublessors are obligated to pay the Company minimum sublease payments as follows:
Net cash payments for income taxes were $15,574,000, $16,170,000, and $9,690,000 in 2017, 2016, and 2015, respectively.
The Company's consolidated effective income tax rate may change periodically due to changes in enacted statutory tax rates, changes in tax law or policy, changes in the composition of taxable income from the countries in which it operates, the Company's ability to utilize net operating loss and tax credit carryforwards, and changes in unrecognized tax benefits. The Company's 2017 effective income tax rate was impacted by the Tax Act in the U.S. and international restructuring activities. The Company's 2015 effective income tax rate was distortive, primarily due to the largely nondeductible non-cash goodwill impairment charge, the Company's inability to recognize tax benefits for certain international net operating losses, and fluctuations in the mix of income earned. Additionally, 2015 losses in certain operations, including losses due to restructuring and special charges, were in jurisdictions with lower tax rates or where the losses are unable to be benefited.
The one-time Transition Tax is based on our total post-1986 earnings and profits ("E&P") in foreign jurisdictions, which was not previously subject to U.S. income taxes. The Company recorded a provisional amount for its one-time Transition Tax liability for all of its controlled foreign corporations, resulting in an increase in income tax expense of $7.6 million, net of foreign tax credits generated in the current year. The residual tax due will be offset by foreign tax credit carryforwards and is not anticipated to result in a cash tax liability. The Transition Tax is based in part on the total post 1986 foreign E&P and the amount of those earnings held in cash and other specified assets. The Transition Tax may change when the Company finalizes the calculation of post-1986 foreign E&P, which was not previously subject to U.S. taxation.
The Company has not completed its accounting for the income tax effects of certain elements of the Tax Act, including: GILTI, executive compensation, Transition Tax including associated foreign tax credits, and state taxes. Additionally, any changes to these provisional estimates would require the Company to reassess the realizability of its domestic deferred tax assets. Due to the complexity of the new tax rules of the Tax Act, we are continuing to evaluate these provisions of the Tax Act and whether GILTI taxes are recorded as a current period expense when incurred or whether such amounts should be factored into a company's measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax impacts related to GILTI for the period ended December 31, 2017. The Company will continue to refine these estimates in accordance with SAB 118.
Deferred income taxes consisted of the following at December 31, 2017 and 2016:
At December 31, 2017, the Company had deferred tax assets related to loss carryforwards of $30,074,000, before netting of unrecognized tax benefits of $419,000. An estimated $17,266,000 of the deferred tax assets will not expire, and $12,808,000 will expire over the next 20 years if not utilized by the Company.
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, 2017, 2016, and 2015.
The Company accrues interest and, if applicable, penalties related to unrecognized tax benefits in income taxes. Total accrued interest expense at December 31, 2017, 2016, and 2015, was $275,000, $155,000, and $31,000, respectively.
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 $24,036,000, $23,985,000, and $23,652,000 in 2017, 2016, and 2015, 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, 2017 and 2016:
The underfunded status of the Company's defined benefit pension plans recognized in the Consolidated Balance Sheets at December 31 consisted of:
Unrecognized losses reflect changes in the discount rates and differences between expected and actual asset returns, which are being amortized over future periods. These unrecognized losses may be recovered in future periods through actuarial gains. However, unless the minimum amount required to be amortized is below a corridor amount equal to 10.0% of the greater of the projected benefit obligation or the market-related value of plan assets, these unrecognized actuarial losses are required to be amortized and recognized in future periods. Net unrecognized actuarial losses included in accumulated other comprehensive loss and expected to be recognized in net periodic benefit costs during the year ending December 31, 2018 for the U.S. and U.K. defined benefit pension plans are $10,277,000 ($7,143,000 net of tax).
The Company made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The Company accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly has accounted for it prospectively. While the benefit obligation measured under this approach is unchanged, the more granular application of the spot rates reduced the service and interest cost for the pension plans for fiscal 2017 by $3,200,000. The Company does not expect this change will have a material effect in periods beyond 2017. For the pension plans, the weighted average spot rates used to determine service and interest costs were 3.23% for the U.S. Qualified plan and 2.66% 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 2018 net periodic pension cost are estimated to be 6.20% and 3.85% 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.
Asset allocations at the respective measurement dates, by asset category, for the Company's U.S. and U.K. qualified defined benefit pension plans were as follows:
Through December 31, 2017, the Company had repurchased 699,800 shares of CRD-A and 188,200 shares of CRD-B under the 2014 and 2017 Repurchase Authorizations at an average cost of $8.21 and $8.88, respectively. At December 31, 2017, the Company had remaining authorization to repurchase 1,666,671 shares under the 2017 Repurchase Authorization.
Net Income (Loss) Attributable to Shareholders of Crawford & Company per Common Share
The Company computes earnings (loss) per share of CRD-A and CRD-B using the two-class method, which allocates the undistributed earnings (loss) 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 (loss) per share for CRD-A and CRD-B. During 2017, 2016 and 2015, the Board of Directors declared a higher dividend on CRD-A than on CRD-B.
The computations of diluted net income (loss) attributable to shareholders of Crawford & Company per common share were as follows:
Listed below are the shares excluded from the denominator in the above computation of diluted earnings (loss) per share for CRD-A because their inclusion would have been antidilutive:
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 gains (losses) from intra-entity loans that are long-term in nature of $(836,000), $2,547,000, and $(6,894,000) for the years ended December 31, 2017, 2016, and 2015, respectively. The changes in components of "Accumulated other comprehensive loss" ("AOCL"), net of taxes and noncontrolling interests, included in the Company's audited Consolidated Balance Sheets were as follows:
The total income tax benefit recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was approximately $2,219,000, $1,983,000, and $921,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Some of the Company's stock-based compensation awards are granted under plans which are designed not to be taxable as compensation to the recipient based on tax laws of the U.S. or other applicable country. Accordingly, the Company does not recognize tax benefits on all of its stock-based compensation expense. Adjustments to additional paid-in capital for differences between deductions taken on its income tax returns related to stock-based compensation plans and the related income tax benefits previously recognized for financial reporting purposes were not significant in any year.
The weighted average grant date fair value of stock options granted during the year ended December 31, 2017 and 2016 was $2.73 and $4.11, respectively. No stock options were granted in 2015. Options exercised in 2017, 2016, and 2015 had an intrinsic value of $234,000, $752,000, and $199,000, respectively. The fair value of options that vested in 2017, 2016 and 2015 was $33,000, $467,000, and $0, respectively.
The total fair value of the performance shares that vested in 2017, 2016, and 2015 was $3,597,000, $2,638,000, and $1,612,000, respectively.
Compensation expense recognized for all restricted shares for the years ended December 31, 2017, 2016, and 2015 was $1,205,000, $1,567,000, and $886,000, respectively. As of December 31, 2017, there was $627,000 of total unearned compensation cost related to nonvested restricted shares which is expected to be recognized by December 31, 2018.
During the years ended December 31, 2017, 2016 and 2015, a total of 101,708, 99,750, and 90,919 shares, respectively, of CRD-A were issued under the prior U.S. employee stock purchase plan to the Company's employees at purchase prices of $6.61, $6.49, and $5.73 in 2017, 2016, and 2015, respectively. At December 31, 2017, an estimated 137,000 shares will be issued and purchased under the U.S. Plan in 2018. During the years ended December 31, 2017, 2016, and 2015, compensation expense of $278,000, $261,000, and $288,000, respectively, was recognized for the prior U.S. employee stock purchase 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 2017, 2016, and 2015, 8,342, 6,660, and 6,916 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, 2017 and 2016:
Segment operating earnings includes allocations of certain corporate and shared costs. If the Company changes its allocation methods or changes the types of costs that are allocated to its four operating segments, prior period amounts presented in the current period financial statements are adjusted to conform to the current allocation process.
Financial information as of and for the years ended December 31, 2017, 2016, and 2015 related to the Company's reportable segments is presented below.
The Company's reportable segments' total operating earnings reconciled to consolidated income (loss) before income taxes for the years ended December 31, 2017, 2016, and 2015 were as follows:
The Company maintains funds in custodial accounts at financial institutions to administer claims for certain clients. These funds are not available for the Company's general operating activities and, as such, have not been recorded in the accompanying Consolidated Balance Sheets. The amount of these funds totaled $480,026,000 and $447,239,000 at December 31, 2017 and 2016, respectively. In addition, the Garden City Group segment administers funds in noncustodial accounts at financial institutions that totaled $542,635,000 and $1,020,443,000 at December 31, 2017 and 2016, respectively.
As of December 31, 2017, the following liabilities remained on the Company's Consolidated Balance Sheets related to restructuring charges recorded in 2015, 2016 and 2017. The rollforwards of these costs to December 31, 2017 were as follows:
Crawford Claims Solutions, which services the global property and casualty market. This is comprised of Claims Field Operations and Catastrophe Services service lines previously reported within the U.S. Services and International segments based on geography.
Crawford TPA Solutions: Broadspire, which provides third party administration for workers' compensation, auto and liability, disability absence management, medical management, and accident and health to corporations, brokers and insurers worldwide. This is comprised of the previously reported Broadspire segment and third party administration services within the International segment.
The succeeding interim and annual periods will disclose the operating segments under the new basis with prior periods restated to reflect the change.
We have audited the accompanying consolidated balance sheets of Crawford & Company (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), cash flows, and shareholders' investment for each of the three years in the period ended December 31, 2017, 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
This is a segment financial measure representing segment earnings before certain unallocated corporate and shared costs and credits, goodwill impairment charges, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, restructuring and special charges, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests. See Note 13, "Segment and Geographic Information," in the audited consolidated financial statements contained in this Item 8.
The Company recognized non-cash goodwill impairment in the amount of $19.6 million related to its Garden City Group reporting unit in the fourth quarter of 2017. See Note 3, "Goodwill and Intangible Assets" in the audited consolidated financial statements included in this Item 8. The provision for income taxes in the fourth quarter of 2017 included additional benefit due to the goodwill impairment and the impact of U.S. tax reform.