The following selected financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto contained in Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
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 and intangible asset impairments, restructuring and other costs, gain (loss) on disposition of business, arbitration and claim settlements, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand Crawford & Company, our operations, and our business environment. This MD&A is provided as a supplement to - and should be read in conjunction with - our audited consolidated financial statements and the accompanying notes thereto contained in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. As described in Note 1, "Significant Accounting and Reporting Policies," of those accompanying audited consolidated financial statements, financial results from our operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines, are reported and consolidated on a two-month delayed basis in accordance with the provisions of ASC 810, "Consolidation," in order to provide sufficient time for accumulation of their results. Accordingly, the Company's December 31, 2020, 2019, and 2018 consolidated financial statements include the financial position of such operations as of October 31, 2020 and 2019, respectively, and the results of their operations and cash flows for the fiscal periods ended October 31, 2020, 2019 and 2018, respectively.
Insurance companies rely on us for certain services such as field investigation and the evaluation of property and casualty insurance claims. Self-insured entities typically rely on us for a broader range of services. In addition to field investigation and claims evaluation, we may also provide initial loss reporting services for their claimants, loss mitigation services such as medical bill review, medical case management and vocational rehabilitation, risk management information services, and trust fund administration to pay their claims. Our Contractor Connection service line in our Crawford Specialty Solutions segment provides a managed contractor network to insurance carriers and consumer markets.
Consolidated revenues before reimbursements were $982.5 million in 2020, a decrease of 2.3% compared with $1.006 billion in 2019. Net income attributable to Crawford & Company was $28.3 million in 2020, compared with $12.5 million in 2019. During 2020, we recognized a gain on disposal of businesses of $13.8 million. The Company recognized a non-cash goodwill impairment in 2020 totaling $17.7 million, partially offset by a $1.7 million credit in noncontrolling interest expense. We also recognized restructuring and other costs totaling $8.1 million in 2020. During 2019, we recognized $12.6 million for an arbitration settlement related to additional payments awarded to former executives of our former Garden City Group related to their departure in 2015. The Company recognized a non-cash goodwill impairment in 2019 totaling $17.5 million, partially offset by a $2.2 million reduction in income tax expense and $2.2 million credit in noncontrolling interest expense.
Revenues from the Crawford Claims Solutions segment increased in 2020 due to an increase in weather related cases resulting from the hurricane activity in the U.S., and revenues from new client growth, partially offset by the economic impact of COVID-19. Revenues from the Crawford TPA Solutions segment decreased for the year primarily due to a decrease in the U.S. and Canada as a result of the economic impact of COVID-19. Revenues from the Crawford Specialty Solutions segment decreased primarily due to the impact of COVID-19 and the sale of LWI in our Global Technical Services service line. The net impact of acquisitions and dispositions in 2020 resulted in a net $3.7 million decrease in revenues, compared with 2019.
Overall, there was a decrease in cases received of 2.4% for 2020 compared with 2019, due to the negative economic impact of COVID-19. As a result of the economic contraction from the COVID-19 pandemic, cases received in future quarters could be materially negatively impacted, unless offset by the impact of cases received from new clients or weather related activity.
Although 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, we believe that a non-GAAP discussion and analysis of segment gross profit is also helpful in understanding the results of our segment operations excluding indirect centralized administrative support costs. Our discussion and analysis of segment gross profit includes the revenues and direct expenses of each segment.
In the Crawford TPA Solutions segment, operating earnings declined from $27.2 million, or 6.9% of revenues before reimbursements in 2019, to $21.5 million, or 5.9% of revenues before reimbursements in 2020, primarily due to a reduction in revenues as a result of COVID-19. Excluding indirect support costs, gross profit decreased from $99.7 million, or 25.3% of revenues before reimbursements in 2019, to $87.7 million, or 24.0% of revenues before reimbursements in 2020.
In the Crawford Specialty Solutions segment, operating earnings increased from $49.3 million, or 18.1% of revenues before reimbursements in 2019, to $52.6 million, or 20.1% of revenues before reimbursements in 2020, primarily due to cost reduction initiatives implemented in 2020. Excluding indirect support costs, gross profit increased from $95.4 million, or 35.1% of revenues before reimbursements in 2019, to $96.6 million, or 37.0% of revenues before reimbursements in 2020.
Selling, general and administrative ("SG&A") expenses were $8.2 million lower, a decrease of 3.6%, in 2020 compared with 2019. The decrease in 2020 was due to a decrease in compensation expense, travel and entertainment, and other administrative support costs, partially offset by CEO transition costs.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company has not applied for governmental loans from the CARES Act or any other governmental programs to support the Company’s U.S. operations. The Company is taking advantage of certain aspects of the CARES Act such as the deferral of payroll tax deposits.
The Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) in 2020 to provide a wage subsidy to employers that suffered reductions in revenue resulting from the COVID-19 pandemic. We met the eligibility criteria to receive the wage subsidy in the second, third and fourth quarters of 2020. The wage subsidy is included in "Costs of services provided, before reimbursements” or “Selling, general, and administrative expenses” on the Consolidated Statements of Operations, depending on the location of the employees, and is recorded as a reduction of compensation expense. In 2020, we recognized $13.8 million as a reduction of compensation expense as a result of this subsidy.
During 2020, we recognized a pretax gain on disposal totaling $13.8 million related to the sale of the Lloyd Warwick International (“LWI”) business in our Crawford Specialty Solutions reporting unit, net of a loss on the disposal of Crawford Compliance. The gain on disposal is presented in the Consolidated Statements of Operations as a separate item "(Gain) loss on disposition of businesses, net." See Note 3, “Business Acquisitions and Dispositions” of our accompanying consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion about these transactions.
On October 1, 2020, we acquired most of the remaining 85% equity interests in Crawford Carvallo and its subsidiaries. Crawford Carvallo is a leading provider of loss adjusting, claims management solutions and legal services in Chile. The Company held a 15% interest in Crawford Carvallo prior to this acquisition. The purchase price includes an initial cash payment of $11.6 million and a maximum of $11.7 million payable over the next six years based on achieving certain EBITDA performance goals as set forth in the purchase agreement. The acquisition was funded primarily through additional borrowings under the Company's credit facility. The operations of Crawford Carvallo did not have a material impact on our consolidated results of operations during 2020.
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 $1.1 million gain from fair value remeasurement of cost method and equity method investments, $1.2 million liquidation dividends from a cost method investment, and $1.4 million gain from sale of IP addresses. This pretax expense is presented in the Consolidated Statements of Operations as a separate charge "Restructuring and Other Costs, Net." See Note 16, “Restructuring and Other Costs, Net” of our accompanying consolidated financial statements for further discussion about these transactions.
In 2019 we recognized $12.6 million 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 are no other potential claimants related to this matter. This pretax expense is presented in the Consolidated Statements of Operations as a separate charge "Arbitration and claim settlements."
In 2018, we recognized a pretax loss on disposal of our subsidiary Garden City Group business totaling $20.3 million. The loss on disposal is presented in the Consolidated Statements of Operations as a separate charge "(Gain) loss on disposition of businesses, net."
We believe operating earnings is a measure that is useful to others in that it allows them to evaluate segment operating performance using the same criteria used by our senior management and CODM. Segment operating earnings represent segment earnings, including the direct and indirect costs of certain administrative functions required to operate our business, but excludes 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 businesses, arbitration and claim settlements, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Administrative functions such as finance, human resources, information technology, quality and compliance, exist in both a centralized shared-service arrangement and within certain operations. Each of these functions are managed by centralized management and we allocate the costs of those services to the segments as indirect costs based on usage.
Segment gross profit is defined as revenues, less direct costs, which exclude indirect centralized administrative support costs allocated to the business.
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 results for our segments reconciled to income before income taxes and net income attributable to shareholders of Crawford & Company are as shown in the following table.
Our Crawford Claims Solutions segment reported operating earnings of $14.4 million, or 4.0% of revenues before reimbursements in 2020, as compared with $7.6 million, or 2.2% of revenues before reimbursements in 2019. Operating earnings increased from 2019 to 2020 primarily due to an increase in weather related cases and new client growth in the U.S., and a reduction in administrative support expenses, partially offset by the negative economic impact of COVID-19. There was a $3.2 million expense benefit in 2020 as a result of the Canada Emergency Wage Subsidy.
Revenues before reimbursements from our Crawford Claims Solutions segment totaled $356.4 million in 2020 compared with $339.8 million in 2019. This increase was primarily due to an increase in weather-related cases resulting from hurricanes in the U.S. in 2020 and new client growth, partially offset by the negative impact of COVID-19. Changes in foreign exchange rates resulted in a decrease of our Crawford Claims Solutions segment revenues by approximately 0.7% or $2.4 million for 2020. Absent foreign exchange rate fluctuations, Crawford Claims Solutions segment revenues would have been $358.8 million for 2020. Revenues were positively impacted by an increase in unit volumes, measured principally by cases received, which increased revenues 5.4% in 2020 compared with 2019. 4.9% of this increase was due to an increase of 23,000 high-frequency, low-severity cases received in our WeGoLook service line. Excluding these WeGoLook cases, there was an increase in segment unit volume of 2,500, or 0.5% of the increase in Crawford Claims Solutions cases received.
Revenues in our U.S. Crawford Claims Solutions segment include revenues from a new client and expanding services from an existing client where we provide staff augmentation for our clients, which resulted in $20.9 million of increased revenues in 2020, or a 6.2% increase in Crawford Claims Solutions revenue. The revenues from these clients do not typically result in cases received. Excluding the impact of the WeGoLook case increase, changes in product mix and in the rates charged for those services accounted for a 1.1% revenue decrease for 2020 compared with 2019.
Overall, there was a 5.4% increase in cases received in the Crawford Claims Solutions segment in 2020 compared with 2019. 4.9% of the increase was due to an increase of 23,000 high-frequency, low-severity cases received in our WeGoLook service line. Excluding these WeGoLook cases, there was an increase in segment unit volume of 2,500, or 0.5%, in Crawford Claims Solutions cases received in 2020. The increase in U.S. case volumes was due to an increase in weather related activity due to hurricanes, and the WeGoLook cases referenced above. A portion of the increase in revenues in the U.S. is the result of new client growth, however the revenues generated for these clients consist of us providing dedicated employees which is not measured by cases, and accordingly there is no increase in cases received to match the increase in revenues. The U.K. case volumes were higher in 2020 due to an increase in weather related activity and expanding new services. The decrease in Canada was due to the negative impact of COVID-19, a reduction in weather related activity, and a change in the mix of services provided. There was an increase in cases in Australia due to an increase in weather related activity in the current year. There was a decrease in cases received in Europe in 2020 due to a change in the mix of services provided. There was a decrease in cases received in Rest of World due to a decline in high-frequency, low-complexity property cases in Asia.
The most significant expense in our Crawford Claims Solutions segment is the compensation of employees, including related payroll taxes and fringe benefits, and payments to outsourced service providers that augment our staff. Crawford Claims Solutions direct compensation, fringe benefits, and non-employee labor expense, as a percent of segment revenues before reimbursements, was 66.9% for 2020 and 65.8% for 2019. The dollar amount of these expenses increased from $223.6 million in 2019 to $238.6 million in 2020. This increase was due to an increase in costs to support the new client growth and to provide staff to handle the hurricane related revenues in 2020. There was a benefit of $3.2 million in 2020 as a result of the CEWS.
Our Crawford TPA Solutions segment, which operates under the Broadspire brand globally, reported operating earnings of $21.5 million, or 5.9% of revenues before reimbursements in 2020, as compared to $27.2 million, or 6.9% of revenues before reimbursements in 2019. This decrease was due to lower revenues resulting from the economic impact of COVID-19 in the U.S. and Canada, partly offset by lower administrative costs. There was a benefit of $1.6 million in 2020 as a result of the Canada Emergency Wage Subsidy.
Excluding centralized indirect support costs, gross profit decreased from $99.7 million, or 25.3% of revenues before reimbursements in 2019, to $87.7 million, or 24.0% of revenues before reimbursements in 2020, due primarily to the revenue decline.
Crawford TPA Solutions revenues are from the global casualty and disability insurance and self-insured markets in the U.S., U.K., Canada, and Europe and Rest of World. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate were as follows:
The decrease in revenues in the U.S. for 2020 was due to a decrease in case volumes as a result of COVID-19 economic conditions and a reduction of Medical Management utilization. Based on constant foreign exchange rates, there was a decrease in revenues in the U.K. due to the impact of COVID-19 and a change in the mix of services provided. Revenues in Canada decreased in the current year due to a decrease in case volumes as a result of COVID-19 economic conditions. Revenues increased in Europe and Rest of World in 2020 due to the 2020 fourth quarter acquisition in Chile, partially offset by a change in the mix of services provided.
Reimbursements for out-of-pocket expenses incurred in our Crawford TPA Solutions segment which are included in total Company revenue decreased to $7.3 million in 2020 from $11.6 million in 2019. The reduction in reimbursed expenses was due to the lower revenues in the 2020 period.
Crawford TPA Solutions unit volumes, as measured by cases received, by region for 2020 and 2019 were as follows:
Crawford Specialty Solutions recorded operating earnings of $52.6 million in 2020, or 20.1% of revenues before reimbursements, compared with operating earnings of $49.3 million in 2019, or 18.1% of revenues before reimbursements. This increase was primarily due to operating efficiency improvements and cost reduction initiatives in 2020. There was a benefit of $2.3 million in 2020 as a result of the Canada Emergency Wage Subsidy.
Excluding indirect support costs, gross profit increased from $95.4 million, or 35.1% of revenues before reimbursements in 2019, to $96.6 million, or 37.0% of revenues before reimbursements in 2020, due primarily to cost reduction initiatives in 2020.
Crawford Specialty Solutions segment revenues are primarily derived from the global property and casualty insurance company markets in the U.S., U.K., Canada, Australia, Europe and Rest of World. Revenues before reimbursements by major region, based on actual exchange rates, using a constant exchange rate, were as follows:
Reimbursements for out-of-pocket expenses incurred in our Crawford Specialty Solutions were $8.7 million in 2020, decreasing from $9.7 million in 2019. The decrease in the 2020 period was consistent with the decrease in revenues.
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 from $81.0 million, or 29.8% of revenues before reimbursements in 2019, to $72.6 million, or 27.8% of revenues before reimbursements in 2020. The decrease in both the amount and the expense as a percent of revenues before reimbursements was due to a decrease in the allowance for expected credit losses, a reduction in travel and entertainment expense and other administrative support costs in 2020.
YEAR ENDED DECEMBER 31, 2019 COMPARED WITH YEAR ENDED DECEMBER 31, 2018
Revenues before reimbursements from our Crawford Claims Solutions segment totaled $339.8 million in 2019 compared with $361.1 million in 2018. This decrease was primarily due to a decrease in weather-related activity in the U.S. as the 2018 period included the runoff of 2017 hurricane claims activity, which negatively impacted 2019 revenue comparisons by $13.4 million, or 3.7% of Crawford Claims Solutions segment revenues. Changes in foreign exchange rates resulted in a decrease of our Crawford Claims Solutions segment revenues by approximately 3.0%, or $10.7 million for 2019. Absent foreign exchange rate fluctuations, Crawford Claims Solutions segment revenues would have been $350.5 million for 2019. Revenues were negatively impacted by a decrease in unit volumes, measured principally by cases received, which decreased revenues 9.0% in 2019 compared with 2018. Changes in product mix and in the rates charged for those services accounted for a 9.8% revenue increase for 2019 compared with the 2018 period due to a decrease in high-frequency, low-complexity cases in the U.S.
clients and expanding new services. Revenues in Canada decreased in 2019 compared with the 2018 period due to a reduction in weather related activity resulting from the Ontario windstorms in 2018. There was a revenue increase in Australia due to an increase in weather related case activity in 2019. There was a slight revenue decrease in Europe. The decrease in revenues in Rest of World for 2019 compared with 2018 was due to a reduction in weather related case activity in Asia and Latin America.
Crawford Claims Solutions unit volumes by underlying case category, as measured by cases received, for 2019 and 2018 were as follows:
The most significant expense in our Crawford Claims Solutions segment is the compensation of employees, including related payroll taxes and fringe benefits, and payments to outsourced service providers that augment our staff. Crawford Claims Solutions direct compensation, fringe benefits, and non-employee labor expense, as a percent of segment revenues before reimbursements, was 65.8% for 2019 and 66.2% for 2018. The decrease was primarily due to improved staff utilization in 2019.
Our Crawford TPA Solutions segment, which operates under the Broadspire brand globally, reported operating earnings of $27.2 million, or 6.9% of revenues before reimbursements in 2019, as compared with $36.9 million, or 9.1% of revenues before
Operating results for our Crawford TPA Solutions segment, including gross profit, are as shown in the following table:
Revenues before reimbursements from our Crawford TPA Solutions totaled $393.9 million in 2019, compared with $405.3 million in 2018. Changes in foreign exchange rates decreased our Crawford TPA Solutions segment revenues by $3.7 million, or approximately 0.9%, for 2019. Absent foreign exchange rate fluctuations, Crawford TPA Solutions segment revenues would have been $397.6 million in 2019. Revenues were negatively impacted by a decrease in unit volumes, measured principally by cases received, of 2.6% in 2019 compared with 2018. Changes in product mix and in the rates charged for those services accounted for a 0.7% revenue increase for 2019 compared with the 2018 period.
Overall case volumes were 2.6% lower in 2019 compared with 2018. The slight reduction in cases in the U.S. was due to a decrease in Affinity cases, partially offset by an increase in Casualty cases. The decrease in the U.K. was due to a decline in volumes from existing clients and a change in the mix of services provided. The decrease in Canada was due to a reduction in high-frequency, low-complexity cases that were present in the prior year, along with lower carrier volumes as more cases were handled internally by clients. The increase in cases in Europe and Rest of World was due to business growth from both new and existing clients.
Unless otherwise noted, all amounts presented below for 2018 reflect activity of the Garden City Group service line through June 15, 2018 due to the disposal of that business as of that date.
Operating results for our Crawford Specialty Solutions segment, including gross profit, are as shown in the following table:
The Garden City Group service line, which was disposed in June 2018, represents a $29.9 million reduction, or 9.8% negative variance in Crawford Specialty Solutions revenues in the 2019 period compared with 2018. Excluding the Garden City Group business and the change in foreign exchange rates, Crawford Specialty Solutions segment revenues before reimbursements increased by $4.6 million, or 1.7%, compared with 2018, primarily due to an increase in our Global Technical Services service line.
The decrease in revenues in the U.S. in 2019, compared with 2018, was due to the Garden City Group disposal. On a constant dollar basis, there was a revenue increase in the U.K. in the 2019 period due to higher Global Technical Services revenues compared to the 2018 period. Revenues in Canada increased in 2019 compared with 2018 due to two small acquisitions in Global Technical Services in the 2018 third quarter. There was a revenue increase in Australia due to an increase in weather-related activity in the current year. There was a revenue decrease in Europe due to a reduction in high frequency, low severity cases in 2019. The decrease in revenues in Rest of World was primarily due to a change in the mix of services provided in Asia.
Reimbursements for out-of-pocket expenses incurred in our Crawford Specialty Solutions segment can vary materially from period to period depending on the amount and types of projects, primarily in our former subsidiary Garden City Group service line, and were $9.7 million in 2019, decreasing from $22.5 million in 2018. The decrease in the 2019 period was primarily due to the absence of the Garden City Group service line, which had reimbursements of $10.5 million in the 2018 period.
Stock option expense, a component of stock-based compensation, is comprised of non-cash expenses related to stock options granted under our various stock option and employee stock purchase plans. Stock option expense is not allocated to our operating segments. Stock option expense of $1.1 million, $1.9 million and $1.7 million was recognized during 2020, 2019, and 2018, respectively. Other stock-based compensation expense related to our Executive Stock Bonus Plan and our Omnibus Stock and Incentive Plan (pursuant to which we have authority to grant performance shares and restricted shares) is charged to our operating segments and included in the determination of segment operating earnings or loss.
Certain unallocated costs and credits are excluded from the determination of segment operating earnings. These unallocated corporate and shared costs and credits represent costs of our frozen U.S. defined benefit pension plan, expenses for our chief executive officer and our Board of Directors, certain adjustments to our self-insured liabilities, certain unallocated professional fees, and certain adjustments and recoveries to our allowances for doubtful accounts receivable. From time to time, we evaluate which corporate costs and credits are appropriately allocated to one or more of our operating segments. If changes are made to our allocation methodology, prior period allocations are revised to conform to our then-current allocation methodology.
The decrease in costs in 2019 compared with 2018 was due to lower professional fees of $4.9 million and other administrative costs of $2.3 million, partially offset by an increase of $4.4 million in U.S. defined benefit plan expense.
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. We also recognized a non-cash goodwill impairment in 2019 totaling $17.5 million related to our Crawford Claims Solutions reporting unit, which 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, although we recognized a non-cash impairment of $1.1 million in 2018 related to an indefinite-lived trade name. See the "Critical Accounting Policies" in Item 7 and Note 4, "Goodwill and Intangible Assets" of our accompanying consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion about goodwill impairments.
During 2020, we recognized a pretax gain on disposal totaling $13.8 million related to the disposal of the LWI business in our Crawford Specialty Solutions reporting unit, net of a loss on the disposal of Crawford Compliance. The gain on disposal is presented in the Consolidated Statements of Operations as a separate item "(Gain) loss on disposition of businesses, net". During 2018, we recognized a pretax loss of $20.3 million related to the disposal of the Garden City Group. See Note 3, “Business Acquisitions and Dispositions” of our accompanying consolidated financial statements for further discussion about these transactions.
On October 11, 2017, the Company and certain of 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"), collectively known with the Company, as the "Borrowers") entered into an Amended and Restated Credit Agreement (the "Amended and Restated Credit Agreement"), which amended and restated our original credit agreement, dated as of December 8, 2011. On June 15, 2018, the Company and its guarantor subsidiaries party thereto amended our existing credit facility and entered into a Limited Consent and First Amendment to the Amended and Restated Credit Agreement (“the Amendment”) that consented to the Company’s disposition of the Garden City Group. No other terms discussed below were changed due to the Amendment.
The Credit Facility consists of a $450.0 million revolving credit facility, with a letter of credit subcommitment of $100.0 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 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 Bank, National Association and (iii) LIBOR for a one month interest period plus 1.0%. 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.
At December 31, 2020, a total of $112.9 million of short-term and long-term debt was outstanding, and there was an undrawn amount of $11.5 million 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 $325.7 million at December 31, 2020.
We are not aware of any additional restrictions placed on us, or being considered to be placed on us, related to our ability to access capital, such as borrowings under the Credit Facility. We do not rely on repurchase agreements or the commercial paper market to meet our short-term or long-term funding needs. For additional information on the key covenants contained in our Credit Facility, see "Other Matters Concerning Liquidity and Capital Resources" below.
The operations of each of our reporting segments expose us to a number of risks, including foreign currency exchange rate changes that can impact translations of foreign-denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies, as well as the risk of changes in tax rates or tariffs on earnings or services provided outside the U.S. Changes in the relative values of non-U.S. currencies to the U.S. dollar affect our financial results. Increases in the value of the U.S. dollar compared with the other functional currencies in certain of the locations in which we do business negatively impacted our revenues and operating earnings in 2020 and 2019, but a weaker U.S. dollar positively impacted revenues and operating earnings in 2018. We cannot predict the impact that foreign currency exchange rates may have on our future revenues or operating earnings.
At December 31, 2020, our working capital balance (current assets less current liabilities) was approximately $59.2 million, compared with $78.9 million at December 31, 2019. The decrease in working capital was primarily due to deferred payroll tax filings in the U.S. as allowed by the CARES Act, increases in self-insurance and related legal accruals, higher accrued employee compensation and incentive compensation, accrued restructuring and other costs incurred in the fourth quarter, and decreases in cash and accounts receivable, offset by a decrease in short-term borrowings. Cash and cash equivalents at the end of 2020 totaled $44.7 million, compared with $51.8 million at the end of 2019.
Cash and cash equivalents as of December 31, 2020 consisted of $16.6 million held in the U.S. and $28.1 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. During 2020, the Company changed its permanent reinvestment assertion on a portion of prior year undistributed earnings for certain foreign operations and accrued deferred taxes attributable to these earnings. The remaining historical earnings and future foreign earnings 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.
Cash provided by operating activities increased by $18.0 million in 2020, from $75.2 million in 2019 to $93.2 million in 2020. The increase in cash provided by operating activities was primarily due to deferred payroll tax filings in the U.S. and the Canada Emergency Wage Subsidy in 2020, compared with the same period of 2019. We have deferred payroll tax filings of $13.0 million as allowed by the CARES Act, which will be paid in 2021 and 2022. We have received a cash inflow of $11.8 million related to the Canada Emergency Wage Subsidy in the 2020 period. Interest payments on our debt were $7.2 million in 2020, and tax payments, net of refunds, were $12.2 million in 2020.
Cash used in investing activities, primarily for acquisitions of property and equipment and capitalized software, increased by $3.6 million in 2020, from $23.4 million in 2019 to $27.0 million in 2020. The increase in use for 2020 was due to an increase in capital expenditures in the 2020 period due to an increase in capital expenditures to support initiatives in our operating segments and $10.0 million for the Chile acquisition, partially offset by proceeds of $20.0 million from the sale of LWI. These transactions are discussed in Note 3, "Business Acquisitions and Dispositions" included in Item 8 of this Annual Report on Form 10-K. Cash used to acquire property and equipment and capitalized software, including capitalization of costs for internally developed software, was $37.4 million in 2020 compared with $21.1 million in 2019. We forecast that our property and equipment additions in 2021, including capitalized software, will approximate $30 million.
Cash used in financing activities was $53.4 million in 2019, compared with $58.7 million used in financing activities in 2018. In 2019, we borrowed $66.2 million in short-term borrowings for working capital needs and we repaid a total of $80.9 million. The decrease in borrowings in the 2019 period was primarily due to proceeds from the Garden City Group disposition which were used to reduce borrowings in 2018. We used cash to pay cash dividends totaling $13.2 million. Also in 2019, we repurchased shares totaling $26.2 million, and we received shares of CRD-A stock that were surrendered by employees to settle $0.8 million of withholding taxes owed on the issuance of restricted and performance shares.
Approximately $4.3 million of operating lease obligations included in the table above are expected to be funded by sublessors under existing sublease agreements. See Note 6, "Lease Commitments" to the 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. The Credit Facility defines LIBOR to encompass accepted alternative reference rates for certain currencies where a LIBOR rate is no longer quoted. 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, 2020, 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.
Funding requirements are no longer as sensitive to changes in the discount rate used to determine the present value of projected benefits payable under the U.S. Qualified plan. Volatility in the capital markets, mortality changes and future legislation may have a negative impact on our pension plans, which may further increase the underfunded portion and our attendant funding obligations. Expected and required contributions to our underfunded defined benefit pension plans will reduce our liquidity, restrict available cash for our operating, financing, and investing needs and may materially adversely affect our financial condition and our ability to deploy capital to other opportunities.
As a component of our Credit Facility, we maintain a letter of credit facility to satisfy certain contractual obligations. At December 31, 2020, the issued, but undrawn, letters of credit totaled approximately $11.5 million. These letters of credit are typically renewed annually, but unless renewed, will expire as follows:
At December 31, 2020, 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, 2020.
Unbilled revenues increased $3.8 million, excluding the impacts of business acquisitions and dispositions, as well as the impacts from foreign currency exchange. The increase was primarily due to an increase in Crawford Claims Solutions related to an increase in weather related activity in the U.S.
Accounts Payable and Accrued Liabilities increased $31.8 million, excluding the impacts of business acquisitions and dispositions, as well as the impacts from foreign currency exchange. The increase was primarily due to deferred payroll tax filings in the U.S. as allowed by the CARES Act totaling $13.0 million, $4.0 million increase in self-insurance and related legal accruals, $7.5 million higher accrued employee compensation and incentive compensation, and $7.3 million increase in accrued restructuring and other costs incurred in the fourth quarter.
We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements. Changes in these underlying estimates could potentially materially affect consolidated results of operations, financial position and cash flows in the period of change. Although some variability is inherent in these estimates, the amounts provided for are based on the best information available to us and we believe these estimates are reasonable.
Based upon our historical averages, we close approximately 99% of all cases referred to us under lifetime claim service arrangements within five years from the date of referral. Also, within that five-year period, the percentage of cases remaining open in any one particular year has remained relatively consistent from period to period. Each quarter we evaluate our historical case closing rates by type of claim and make adjustments as necessary. Any changes in estimates are recognized in the period in which they are determined.
The Company often sells multiple types of claims processing and different levels of processing depending on the complexity of the claims within a contract. The Company typically provides a menu of offerings from which the customer chooses to purchase or not at their discretion. 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 service(s) or quantities requested by the customer. For example, if we provide claims processing for auto and general liability, those services are priced and delivered independently.
We maintain allowances for expected credit losses resulting from the inability of our clients to make required payments and for adjustments to invoiced amounts. Losses resulting from the inability of clients to make required payments are accounted for as bad debt expense, while adjustments to invoices are accounted for as reductions to revenues. These allowances are established by using historical write-off or adjustment information intended to determine future loss expectations and by considering the current credit worthiness of our clients, any known specific collection problems, and our assessment of current industry conditions. Actual experience may differ significantly from historical or expected loss results. Each quarter, we evaluate the adequacy of the assumptions used in determining these allowances and make adjustments as necessary. Changes in estimates are recognized in the period in which they are determined. Historically, our estimates have been materially accurate.
As of December 31, 2020 and 2019, our allowance for expected credit losses totaled $9.5 million and $9.3 million, or approximately 7.1% and 6.8% of gross billed receivables at December 31, 2020 and 2019, 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 expected credit losses 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 $1.3 million, $1.4 million, and $1.4 million in 2020, 2019, and 2018, respectively.
During the fourth quarter of 2020, the Company performed the goodwill impairment testing on the remaining three reporting units. The estimated fair value of the Company's Crawford TPA Solutions, Global Technical Services and Contractor Connection reporting units exceed their carrying value by a significant margin. 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 indefinite-lived intangible assets consisting of the Crawford TPA Solutions and SLS trade names, with carrying values of $29.1 million and $1.7 million, respectively, are also evaluated for potential impairment on an annual basis or when indicators of potential impairment are identified. SLS operates in the Crawford Claim Solutions segment within the U.K. Based on our 2020 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.
We sponsor various defined benefit pension plans in the U.S. and U.K. that cover a substantial number of current and former employees in each location. Certain other employees located in the Netherlands, Norway, Germany, and the Philippines have retirement benefits that are accounted for as defined benefit pension plans under GAAP. We utilize the services of independent actuaries to help us estimate our pension obligations and measure pension costs. Our U.S. Qualified Plan was frozen on December 31, 2002. Our U.K. Plans were closed to new employees as of October 31, 1997, but existing participants may still accrue additional limited benefits based on salary levels existing at the close date. Benefits payable under our U.S. Qualified Plan are generally based on career compensation; however, no additional benefits accrue on our frozen U.S. Qualified Plan after December 31, 2002. Benefits payable under the U.K. Plans are generally based on an employee's salary at the time the applicable plan was closed. Our funding policy is to make cash contributions in amounts sufficient to maintain the plans on an actuarially sound basis, but not in excess of amounts deductible under applicable income tax regulations. Note 8, "Retirement Plans," of our accompanying consolidated financial statements included in Item 8 of this Annual Report on Form 10-K provides details about the assumptions used in determining the funded status of the plans, the unrecognized actuarial gain/(loss), the components of net periodic benefit cost, benefit payments expected to be made in the future and plan asset allocations.
The principal assumptions used in accounting for our defined benefit pension plans are the discount rate, the expected long-term return on plan assets, and the mortality expectations for plan participants. The discount rate assumptions reflect the rates at which the benefit obligations could be effectively settled. Our discount rates were determined with the assistance of actuaries, who calculate the yield on a theoretical portfolio of high-grade corporate bonds (rated Aa or better) with cash flows that generally match our expected benefit payments in future years. At December 31, 2020, the discount rate used to compute the benefit obligations of the U.S. and U.K. defined benefit pension plans were 2.38% and 1.60%, respectively.
We review our employee demographic assumptions annually and update the assumptions as necessary. During 2020, 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 $3.1 million decrease in the projected benefit obligation for the U.S. plans.
Cumulative unrecognized actuarial losses for all plans were $264.2 million through December 31, 2020, compared with $268.4 million through December 31, 2019. These unrecognized losses reflect changes in the discount rates, differences between expected and actual asset returns, and changes to mortality expectations for plan participants, 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. For example, projected pension plan expense for 2021 includes $10.5 million of amortization of these actuarial losses versus $10.8 million in 2020, and $10.8 million in 2019.
The NOL carryforwards for which a valuation allowance is not recorded primarily consists of $11.3 million of U.K. NOL carryforwards and $3.0 million of state NOL carryforwards generated by our domestic companies. In the U.K., NOL carryforwards have an unlimited life. Based on our evaluation of sources of taxable income, we expect to fully utilize the U.K. NOL carryforwards. Accordingly, we concluded that it was more likely than not that we should be able to utilize our U.K. NOL carryforwards.
The Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) in 2020 to provide a wage subsidy to employers that suffered reductions in revenue resulting from the COVID-19 pandemic. The Company met the eligibility criteria to receive the wage subsidy in the second, third and fourth quarters of 2020. The wage subsidy is included in "Costs of services provided, before reimbursements” or “Selling, general, and administrative expenses” on the Consolidated Statements of Operations, depending on the location of the employees, and is recorded as a reduction of compensation expense. In 2020, the Company recognized $13.8 million as a reduction of compensation expense as a result of this subsidy.
Periodically, certain prior year segment information may be reclassified to conform to the current year presentation. There were no such reclassifications in the current year.
The Company's Crawford Claims Solutions segment generates revenue for claims management services provided to insurance companies and self-insured entities related to property, casualty and catastrophe losses caused by physical damage to commercial and residential real property and personal property. The Company's Crawford TPA Solutions segment is a third party administrator that generates revenue through its Claims Management and Medical Management service lines. The Company's Crawford Specialty Solutions segment principally generates revenues through its Global Technical Services and Contractor Connection service lines. The Global Technical Services service line generates revenues for claims management services provided to insurance companies and self-insured entities related to large, complex losses with technical adjusting and industry experts. The Contractor Connection service line generates revenue through its independently managed contractor network, with approximately 6,000 credentialed residential and commercial contractors. See Note 2, “Revenue Recognition” for further discussion on the Company’s revenue recognition policies.
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. The fair value of cash and cash equivalents approximates carrying value due to their short-term nature. At December 31, 2020, cash and cash equivalents included time deposits of approximately $1,473,000 that were in financial institutions outside the U.S.
For impairment testing of indefinite-lived intangible assets, the carrying value is compared with the estimated fair value, which is estimated based on the present value of the after-tax cash flows attributable solely to the asset. If carrying value exceeds the estimated fair value, an impairment is recognized based on the excess. 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. The Company determined the discount rate based on its performance compared to similar market participants, factored by risk in forecasting using a modified capital asset pricing model.
Property and equipment, including assets under finance leases, consisted of the following at December 31, 2020 and 2019:
Capitalized software costs reflect costs related to internally developed or purchased software used by the Company that has expected future economic benefits. Certain internal and external costs incurred during the application development stage are capitalized. Costs incurred during the preliminary project and post implementation stages, including training and maintenance costs, are expensed as incurred. The majority of these capitalized software costs consist of internal payroll costs and external payments for software development, purchases and related services. These capitalized software costs are typically amortized over periods ranging from three to ten years, depending on the estimated life of each software application. Amortization expense for capitalized software was $16,709,000, $17,873,000, and $20,066,000 for the years ended December 31, 2020, 2019, and 2018, respectively.
The Company self-insures certain risks consisting primarily of professional liability, auto liability, and employee medical, disability, and workers' compensation liability. Insurance coverage is obtained for catastrophic property and casualty exposures, including professional liability on a claims-made basis, and those risks required to be insured by law or contract. Most of these self-insured risks are in the U.S. Provisions for claims under the self-insured programs are made based on the Company's estimates of the aggregate liabilities for claims incurred, including estimated legal fees, losses that have occurred but have not been reported to the Company, and for adverse developments on reported losses. The estimated liabilities are calculated based on historical claims experience, the expected lives of the claims, and other factors considered relevant by management. Changes in these estimates may occur as additional information becomes available. The Company believes its 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. The estimated liabilities for claims incurred under the Company's self-insured workers' compensation and employee disability programs are discounted at the prevailing risk-free interest rate for U.S. government securities of an appropriate duration. All other self-insured liabilities are undiscounted. At December 31, 2020 and 2019, accrued liabilities for self-insured risks totaled $25,004,000 and $26,838,000, respectively, including current liabilities of $11,390,000 and $11,311,000, respectively. The noncurrent liabilities are included in "Other noncurrent liabilities" on the Company's Consolidated Balance Sheets.
In 2017, the Company 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 recognized provisional tax impacts related to a one-time U.S. tax liability on those earnings a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “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. In the period ended December 31, 2018, the Company completed its accounting for the Tax Act in accordance with SAB 118. As a result, the Company recorded additional income tax expense of $3,583,000. This expense consisted of substantially all of the $6,977,000 valuation allowance established against foreign tax credits and $102,000 for the revaluation of deferred taxes, net of $3,496,000 of Transition Tax release of uncertain tax positions and adjustments. In 2018, the Company completed the accounting for the Tax Act within the one year measurement period, as allowed under SAB 118.
Foreign currency transactions for the years ended December 31, 2020 and 2019 resulted in net losses of $219,000 and $243,000, respectively. Foreign currency transactions for the year ended December 31, 2018 resulted in a net gain of $73,000.
The Company has included assumptions related to expected credit losses from the impact of the COVID-19 pandemic in its results of operations for the year ended December 31, 2020.
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).” This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. This update also requires the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Further, this update requires the presentation of the amortization expense in the statement of income, the presentation of the capitalized costs on the statement of financial position and the classification of payments for capitalized costs in the statement of cash flows related to capitalized implementation costs to be treated the same as the fees for service component of the associated hosting arrangement. The update is 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 its results of operation, financial condition or cash flows.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 amends ASC 740 to simplify the accounting for income taxes by removing certain exceptions for foreign equity investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in the accounting standard under the FASB’s simplification initiative. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Upon adoption, the amendments in ASU 2019-12 should be applied on a prospective basis to all periods presented. Early adoption is permitted. The Company is currently assessing the impact of the adoption of the new guidance.
The Company's obligation to manage claims under the Claims Management service line can range from less than one year, on a one- or two-year basis or for the lifetime of the claim. Under certain claims management agreements, the Company receives consideration from a customer at contract inception prior to transferring services to the customer, however, it would begin performing services immediately. The period between a customer’s payment of consideration and the completion of the promised services could be greater than one year. There is no difference between the amount of promised consideration and the cash selling price of the promised services. The fee is billed upfront by the Company in order to provide customers with simplified and predictable ways of purchasing its services and it is customary to invoice service fees when the claim is assigned. The Company considered whether a significant financing component exists and determined that there is not a significant financing component at the contract level.
The Medical Management service line offers case managers who provide administration services by proactively managing medical treatment for claimants while facilitating an understanding of and participation in their rehabilitation process. Revenue for Medical Management services is recognized over time as the performance obligations are satisfied through the effort expended to manage the medical treatment for claimants and control of these services are transferred to the customer. Medical Management services are generally billed based on time incurred, are considered variable consideration, and revenue is recognized at the amount in which the Company has the right to invoice for services performed. This method of revenue recognition is the most accurate depiction of the transfer of the Medical Management service to the customer. Medical Management services also includes medical bill review services, which provide an analysis of medical charges for clients’ claims to identify opportunities for savings. Medical bill review services revenues are recognized over time as control of the service is transferred to the customer. Revenue is recognized based upon the transfer of the results of the medical bill review service to the customer as this is the most accurate depiction of the transfer of the service to the customer.
The Company's Crawford Specialty Solutions segment principally generates revenues through its Global Technical Services and Contractor Connection service lines.
The following table presents Crawford Specialty Solutions revenues before reimbursements disaggregated by service line and geography for the years ended December 31, 2020 and 2019.
The table below presents the deferred revenues balance as of January 1, 2020 and the significant activity affecting deferred revenues during the year ended December 31, 2020:
As a practical expedient, the Company does not adjust the consideration in a contract for the effects of a significant financing component it expects, at contract inception, when the period between a customer’s payment of consideration and the transfer of promised services to the customer will be one year or less.
On June 1, 2020, the Company sold its 51% interest in Crawford Compliance Inc. to a third party in exchange for a note receivable. The Company recognized a loss on the disposal of this entity of $912,000 in 2020. The results of Crawford Compliance Inc. were not material to the Company.
On June 12, 2020, the Company sold its 51% interest in Lloyd Warwick International (“LWI”) to a third party for cash proceeds of $19,600,000 and payment of $3,600,000 to settle intercompany indebtedness. The Company recognized an additional $700,000 related to net working capital adjustments under the terms of the acquisition agreement, which increased the purchase price to $20,300,000. The Company recognized a total gain of $14,700,000 ($11,700,000 net of tax) on the disposition for the year ended December 31, 2020.
On July 21, 2020, the Company acquired the remaining 15% membership interests of WeGoLook, LLC for $310,000. The Company accounted for this subsequent acquisition as an equity transaction in accordance with ASC 810-10, “Consolidation”. The non-compete agreements with the former minority members were terminated under the terms of the purchase agreement. As a result, the Company recognized $1,100,000 of accelerated amortization on the non-compete agreement in 2020.
On October 1, 2020, the Company acquired most of the remaining 85% equity interests in Crawford Carvallo and its subsidiaries. Crawford Carvallo is a leading provider of loss adjusting, claims management solutions and legal services in Chile. The Company held a 15% interest in Crawford Carvallo prior to this acquisition.
The purchase price includes an initial cash payment of $11,600,000 and a maximum of $11,700,000 payable over the next six years based on achieving certain EBITDA performance goals as set forth in the purchase agreement. Net tangible assets acquired totaled $15,120,000, including $1,599,000 of cash. The difference between the aggregate fair value of total purchase considerations and the previously held noncontrolling interest, and the net tangible assets acquired represents definite-lived intangible assets, goodwill, and noncontrolling interest. The acquisition was funded primarily through additional borrowings under the Company's credit facility.
The following table shows the changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019:
Amortization of finite-lived intangible assets was $11,653,000, $11,277,000, and $11,152,000 for the years ended December 31, 2020, 2019, and 2018, respectively. These amortization expenses were excluded from segment operating earnings (see Note 13, "Segment and Geographic Information"). Intangible assets subject to amortization are amortized on a straight-line basis over lives ranging from 2 to 15 years.
The following is a summary of indefinite-lived intangible assets at December 31, 2020 and 2019:
On September 18, 2020, the Company amended the Credit Facility. Pursuant to this amendment, (a) the Company is 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 $5,000,000 at any time and (b) the terms of LIBOR replacement when that benchmark is no longer available have been modified.
Under the 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 than 3.25 to 1.00 at the end of each fiscal quarter. In addition, the maximum permitted total leverage ratio allowable at the end of each quarter, which includes any unsecured or subordinated debt, must not be greater than 4.25 to 1.00.
At December 31, 2020, 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.
Short-term borrowings under the Credit Facility totaled $1,570,000 and $28,531,000 at December 31, 2020 and 2019, respectively. The Company expects, but is not required, to repay all of such short-term borrowings at December 31, 2020 in 2021.
Principal repayments of long-term debt, including current portions, finance leases and other obligations, as of December 31, 2020 are expected to be as follows, assuming no prepayments or extensions beyond the stated maturity:
For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease liability at the present value of the fixed lease payments over the term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability. The Company does not separate nonlease components from lease components and instead accounts for each as a single lease component for all classes of its assets. The Company applies a portfolio approach to effectively account for the right-of-use asset and lease liability for certain equipment leases.
The Company's finance leases are not material as of the year ended December 31, 2020 and are excluded from the disclosures below. The following table presents the lease-related assets and liabilities recorded on the Company's Consolidated Balance Sheets related to its operating leases:
Net cash payments for income taxes were $12,216,000, $16,996,000, and $8,168,000 in 2020, 2019, and 2018, respectively.
During 2018, the Company completed its accounting for the Tax Act in accordance with SAB 118. As a result, the Company recorded additional income tax expense of $3,583,000. This expense consisted of substantially all of the $6,977,000 valuation allowance established against foreign tax credits and $102,000 for the revaluation of deferred taxes, net of $3,496,000 of Transition Tax release of uncertain tax positions and adjustments.
Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. At December 31, 2018, the Company elected to account for GILTI in the year the tax is incurred.
At December 31, 2020, the Company had deferred tax assets related to loss carryforwards of $23,033,000, before netting of unrecognized tax benefits of $228,000. An estimated $15,936,000 of the deferred tax assets will not expire, and $7,097,000 will expire over the next 20 years if not utilized by the Company.
The Company conducts business in a number of countries and, as a result, files U.S. federal and various state and foreign jurisdiction income tax returns. In the normal course of business, the Company is subject to examination by various taxing jurisdictions throughout the world, including Canada, the U.K., and the U.S. With few exceptions, the Company is no longer subject to income tax examinations for years before 2010.
Certain other employees located in the Netherlands, Norway, Germany, and the Philippines (referred to herein as the "other international plans") have retirement benefits that are accounted for as defined benefit pension plans under GAAP.
The majority of the Company's defined benefit pension plans have projected benefit obligations in excess of the fair value of plan assets. For these plans, the projected benefit obligations and the fair value of plan assets were as follows as of December 31, 2020 and 2019:
Due to the frozen status of the U.S. Qualified Plan and the closed status of the U.K. Plans, the accumulated benefit obligations and the projected benefit obligations are not materially different.
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, 2021 for the U.S. and U.K. defined benefit pension plans are $10,400,000 ($7,700,000 net of tax).
Net periodic benefit cost related to all of the Company's defined benefit pension plans recognized in the Company's Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018 included the following components:
Benefit cost for the U.S. Qualified Plan does not include service cost since the plan is frozen. For the years ended December 31, 2020, 2019 and 2018, the non-service components of net periodic pension (benefits)/costs of $(569,000), $3,559,000 and $(2,590,000), respectively, are included in "Other (Expense) Gain" on the Consolidated Statement of Operations.
Over the next ten years, the following benefit payments are expected to be required to be made from the Company's U.S. and U.K. defined benefit pension plans:
The Company reviews its employee demographic assumptions annually and updates the assumptions as necessary. The Company updates the mortality assumptions for the U.S. plans to incorporate the current mortality tables issued by the Society of Actuaries, adjusted to reflect the Company's specific experience and future expectations. This resulted in a $3,063,000 decrease in the projected benefit obligation for the U.S. plans for the year ended December 31, 2020. Certain assumptions used in computing the benefit obligations and net periodic benefit cost for the U.S. and U.K. defined benefit pension plans were as follows:
Alternative strategies include funds that invest in derivative instruments such as futures, forward contracts, options and swaps, hedge funds, and funds that invest in real estate. These investments are used to help manage risks.
Through December 31, 2020, the Company had repurchased 155,351 shares of CRD-A and 161,459 shares of CRD-B at an average cost of $8.42. At December 31, 2020, the Company had remaining authorization to repurchase 642,097 shares under the 2019 Repurchase Authorization.
Through December 31, 2019, the Company had repurchased 1,103,398 shares of CRD-A and 1,736,011 shares of CRD-B at an average cost of $9.33 and $9.17, respectively, of which 421,427 shares of CRD-A and 1,376,889 shares of CRD-B were purchased pursuant to a stock purchase agreement authorized by the Board of Directors separate from the 2017 Repurchase Authorization and the 2019 Repurchase Authorization. At December 31, 2019, the Company had remaining authorization to repurchase 958,907 shares under the 2019 Repurchase Authorization.
Listed below are the shares excluded from the denominator in the above computation of diluted earnings per share for CRD-A because their inclusion would have been anti-dilutive:
The total income tax benefit recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was approximately $947,000, $888,000, and $1,475,000 for the ended December 31, 2020, 2019, and 2018, 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 Company has granted nonqualified and incentive stock options to key employees and directors. All stock options are for shares of CRD-A. Option awards are granted with an exercise price equal to the fair market value of the Company's stock on the date of grant. The Company's stock option plans have been approved by shareholders, and the Company's Board of Directors is authorized to make specific grants of stock options under active plans. Employee stock options typically are subject to graded vesting over three years (33% each year) and have a typical life of ten years. Compensation cost for stock options is recognized on an accelerated basis over the requisite service period for the entire award. For the years ended December 31, 2020, 2019, and 2018, compensation expense of $617,000, $1,397,000, and $1,253,000, respectively, was recognized for employee stock option awards.
A summary of option activity as of December 31, 2020, 2019, and 2018, and changes during each year, is presented below:
The weighted average grant date fair value of stock options granted during the year ended December 31, 2020, 2019, and 2018 was $2.29, $2.57 and $2.78, respectively. No options were exercised in 2020. Options vested in 2019 and 2018 had an intrinsic value of $446,000, and $80,000, respectively. Options that vested in 2020 had no fair value. The fair value of options that vested in 2019 and 2018 was $1,000,000 and $36,000, respectively.
At December 31, 2020, the unrecognized compensation cost related to unvested employee stock options was $636,000. Directors' stock options had no unrecognized compensation cost since directors' options vest upon grant, and the grant-date fair values were fully expensed on the grant date.
The expected dividend yield used for 2020 was based on the Company's historical dividend yield. The expected volatility of the price of CRD-A was based on historical realized volatility. The risk-free interest rate was based on the U.S. Treasury Daily Yield Curve Rate on the grant date, with a term equal to the expected term used in the pricing formula. The expected term of the option took into account both the contractual term of the option and the effects of expected exercise behavior.
Performance share grants are from time to time made to certain key employees of the Company. Such grants entitle employees to earn shares of CRD-A upon the achievement of certain individual and/or corporate objectives. Grants of performance shares are made
On September 23, 2020, deeming the existing performance based cliff awards granted in 2019 and 2020 to be unattainable, the Compensation Committee cancelled the existing awards and approved a new plan based on Total Shareholder Return (“TSR”), a market condition. The 2019 replacement awards were targeted to achieve 50% of the original award it was replacing and set to vest on December 31, 2021. The 2020 replacement awards were targeted to achieve 100% of the original award it was replacing, with a vesting date of December 31, 2022.
A summary of the status of the Company's nonvested performance shares as of December 31, 2020, 2019, and 2018, and changes during each year, is presented below:
The total fair value of the performance shares that vested in 2020, 2019, and 2018 was $1,871,000, $1,823,000, and $2,662,000, respectively.
A summary of the status of the Company's restricted shares of CRD-A as of December 31, 2020, 2019, and 2018 and changes during each year, is presented below:
Under the U.K. Plan, the Company is authorized to issue up to 1,200,000 shares of CRD-A. Under the U.K. Plan, eligible employees can elect to have up to £250 withheld from payroll each month to purchase shares after the end of a three-year savings period. The purchase price of a share of stock is 85% of the market price of the stock at a date prior to the grant date as determined under the U.K. Plan. Participating employees may cease payroll withholdings and/or request a refund of all amounts withheld before any shares are purchased.
The contingent earnout liability relates to businesses acquired during 2020 and 2019 by the Crawford Specialty Solutions and Crawford TPA Solutions operating segments. See Note 3, "Business Acquisitions and Dispositions" for further details. The fair value of the contingent earnout liability was estimated using internally-prepared revenue projections which is Level 3 data, with the maximum possible earnout of $12,090,000. The fair value of the contingent earnout liability is included in "Other noncurrent liabilities" on the Company's Consolidated Balance Sheets, based upon the term of the contingent earnout agreement.
There were no transfers of assets between fair value levels during the years ended December 31, 2020 or 2019. The categorization of assets and liabilities within the fair value hierarchy and the measurement techniques are reviewed quarterly. Any transfers between levels are deemed to have occurred at the end of the quarter.
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.S Qualified Plan at December 31, 2020 and 2019:
Fixed income securities consist of money market funds, government securities, corporate bonds and debt securities, mortgage-backed securities and other common collective funds. Government securities are valued by third-party pricing sources and are valued daily in an active market (Level 1). Corporate bonds are valued using either the yields currently available on comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of similar instruments, and includes adjustments for valuation adjustments from internal pricing models which use observable inputs such as issuer details, interest rates, yield curves, default rates and quoted prices for similar assets (Level 2). Mortgage-backed securities are valued by pricing service providers that use broker-dealer quotations or valuation estimates from their internal pricing models (Level 2). Other common collective funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date (Level 2).
third party pricing sources (Level 2) or may, due to the inherent uncertainty of valuation for those investments, differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material (Level 3).
The following table provides a reconciliation of the beginning and ending balance of Level 3 assets within the Company's U.S. and U.K. pension plans during the years ended December 31, 2020 and 2019:
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 three reportable segments, prior period amounts presented in the current period financial statements are adjusted to conform to the current allocation process.
Consists of accounts receivable, less allowance for expected credit losses, unbilled revenues, at estimated billable amounts, goodwill and intangible assets arising from business acquisitions, net.
Capital expenditures for the years ended December 31, 2020, 2019, and 2018 are shown in the following table:
The Company's reportable segments' total operating earnings reconciled to consolidated income before income taxes for the years ended December 31, 2020, 2019, and 2018 were as follows:
The Company's reportable segments' total assets reconciled to consolidated total assets of the Company at December 31, 2020 and 2019 are presented in the following table:
Revenues and long-lived assets for the U.S., U.K. and Canada are set out below as these countries are material for geographical area disclosure. For the purposes of these geographic area disclosures, long-lived assets consists of the net property and equipment, capitalized software costs, net and operating lease right-of-use, net line items on the Company's Consolidated Balance Sheets and excludes intangible assets and goodwill.
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 $537,531,000 and $410,673,000 at December 31, 2020 and 2019, respectively.
In the normal course of its business, the Company is sometimes named as a defendant or responsible party in suits or other actions by insureds or claimants contesting decisions made by the Company or its clients with respect to the settlement of claims. Additionally, certain clients of the Company have in the past brought, and may, in the future bring, claims for indemnification on the basis of alleged actions by the Company, its agents, or its employees in rendering services to clients. The majority of these claims are of the type covered by insurance maintained by the Company. However, the Company is responsible for the deductibles and self-insured retentions under various insurance coverages. In the opinion of Company management, adequate provisions have been made for such known and foreseeable risks. No assurances can be provided, however, that the result of any such action, claim or proceeding, now known or occurring in the future, will not result in a material adverse effect on our business, financial condition or results of operations.
As of December 31, 2020, the following liabilities remained on the Company's Consolidated Balance Sheets related to restructuring charges recorded in 2020 and 2017. The rollforwards of these costs to December 31, 2020 were as follows:
In connection with the realignment of operating segment manager responsibilities subsequent to December 31, 2020, the Company has realigned its operating segments by moving to a global service line reporting structure consisting of Loss Adjusting, TPA: Broadspire and Platforms. The Company's revised reportable segments are comprised of the following:
Loss Adjusting, which services the global property and casualty market. This is comprised of the previously reported Crawford Claims Solutions segment, excluding Networks (as defined below) and Crawford Legal Services, and the Global Technical Services service line previously reported within Crawford Specialty Solutions.
The succeeding interim and annual periods will disclose the reportable segments under the new basis with prior periods restated to reflect the change.
This acquisition will be accounted for under the guidance of ASC 805-10, as a business combination under the acquisition method.
Based upon the timing of this acquisition, the initial accounting for the acquisition is not yet complete as the Company gathers additional information related to the assets acquired, liabilities and noncontrolling interests assumed, including intangible assets, other assets, accrued liabilities, deferred taxes, and uncertain tax positions. The Company is in the process of obtaining third-party valuations of certain intangible assets. The preliminary application of acquisition accounting to the assets acquired, and liabilities assumed, as well as the results of operations of HBA Group, will first be reflected in the Company's consolidated financial statements as of and for the quarter ending March 31, 2021.
The Company maintains a system of internal accounting policies, procedures, and controls designed to provide reasonable, but not absolute, assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The internal accounting control system is augmented by a program of internal audits and reviews by management, written policies and guidelines, and the careful selection and training of qualified personnel.
Auditing the estimate of the revenues recognized and related deferred revenues related to lifetime claim handling was complex based on the judgments necessary to evaluate the model used and the related estimates involved in determining the appropriate timing of revenue recognition. In particular, judgments and estimates include, the utilization of a portfolio approach to evaluate the timing of lifetime claim handling revenues, the level of aggregation of claim types and historical claim closure rates, and the expectation that historical claim closure rates are reflective of future claim closure rates. Changes in these methods or estimates can have a significant impact on the timing of revenue recognition.