As of December 31, 2015, the Company owned an office in Kitchener, Ontario. As of December 31, 2015, the Company leased approximately 320 other office locations for use by the Company of one or more of its segments 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 (loss) before certain unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring and special charges and credits, income taxes, and net loss or income attributable to noncontrolling interests.
Shares of the Company's two classes of common stock are traded on the NYSE under the symbols CRDA and CRDB, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
We also perform legal settlement administration services related to securities, product liability, and other class action settlements and bankruptcies, including identifying and qualifying class members, determining and dispensing settlement payments, and administering settlement funds.
We typically earn our revenues on an individual fee-per-claim basis for claims management services we provide to insurance companies and self-insured entities. Accordingly, the volume of claim referrals to us is a key driver of our revenues. Generally, fees are earned on cases as services are provided, which generally occurs in the period the case is assigned to us, although sometimes a portion or substantially all of the revenues generated by a specific case assignment will be earned in subsequent periods. We cannot predict the future trend of case volumes for a number of reasons, including the frequency and severity of weather-related cases and the occurrence of natural and man-made disasters, which are a significant source of cases for us and are not subject to accurate forecasting.
On December 1, 2014, we acquired 100% of the capital stock of GAB Robins, a loss adjusting and claims management provider headquartered in the U.K. which reports through our International segment. We believe the GAB Robins acquisition enables Crawford to significantly expand its claims handling business across a wide range of product lines in the U.K. and bolster its global specialty lines claims business. The success of the GAB Robins acquisition will depend, in part, on our ability to realize the anticipated synergies and cost savings from integrating GAB Robins on a timely basis. The integration process continues to be complex, costly, and time-consuming, and no assurances of the success of the process can be provided. Because the financial results of certain of our international subsidiaries, including those in the U.K. through which GAB Robins reports, are included in our consolidated financial statements on a two-month delayed basis as described above, the results of GAB Robins' business are included in our consolidated results of operations beginning February 1, 2015. In addition, the $78.4 million in Credit Facility borrowings used to complete the GAB Robins acquisition were not included in outstanding borrowings on our Consolidated Balance Sheet at December 31, 2014, because the U.K.-based borrowing entity has an October 31 fiscal year end, and the balance sheet of that entity was consolidated as of October 31, 2014.
In 2015 we also 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 integration costs related to the GAB Robins acquisition 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 associated with these plans totaled $30.0 million in 2015, and another $7.2 million of costs are expected in 2016.
Segment operating earnings (a measure of segment operating performance used by our management that is defined and discussed in more detail below) improved in our U.S. Services and Broadspire segments from 2013 to 2014 and from 2014 to 2015, while we experienced operating earnings declines in our International and Garden City Group segments in those periods.
Compared with 2014, our consolidated revenues before reimbursements were 2.4% higher in 2015 due primarily to revenue growth in U.S. Services and Broadspire, and the GAB Robins acquisition in International, partially offset by the negative impact of foreign exchange rates, and lower revenues at Garden City Group.
Selling, general and administrative ("SG&A") expenses were 1.6% higher in 2015 than in 2014 and 2.4% higher in 2014 than in 2013. The increase in 2015 was attributable to increases in SG&A expenses from the GAB Robins acquisition, partially offset by a decrease in professional fees. The increase in 2014 was due to an increase in acquisition-related costs, professional fees and self-insurance expense, partially offset by a decrease in short-term and long-term incentive compensation costs.
We believe that a discussion and analysis of the segment operating earnings of our four operating segments is helpful in understanding the results of our operations. Operating earnings is our segment measure of profitability as discussed in Note 13, "Segment and Geographic Information," to the accompanying audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 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 decisions.
Operating earnings for our U.S. Services segment increased from $18.0 million in 2014 to $32.7 million in 2015, representing an operating margin of 13.5% in 2015 compared with 8.4% in 2014. Operating earnings improved 81.3% from 2014 to 2015 due to an increase in revenues and the impact of cost reduction initiatives in 2015.
U.S. Services revenues are primarily generated from the property and casualty insurance company markets in the U.S. U.S. Services revenues before reimbursements by major service line were as follows:
The increase in U.S. Claims Services revenues in 2015 compared with 2014 was primarily due to an increase in revenues in the U.S. Catastrophe Services service line resulting from an outsourcing project for a major U.S. insurance carrier, partially offset by a decrease in the U.S. Claims Field Operations service line revenues due to a reduction of weather-related case volumes. The outsourcing project resulted in $51.3 million in revenues in 2015, compared with $22.1 million in 2014, responsible for a 13.6% positive variance in revenues for 2015 compared with 2014. The variance in revenues was negatively impacted by approximately $4.5 million, or 2.1% of 2014 revenues, as a result of the January 1, 2015 transfer of affinity claims which are now handled by our Broadspire segment. There was also an increase in revenues in the U.S. Technical Services service line due to an increase in case volumes in 2015. Changes in the overall mix of services provided and rates charged for those services increased revenues by approximately 3.9% in 2015 compared with 2014. All of these factors netted to positively impact revenues, before the impact from the decrease in cases discussed below.
The 2015 increase in U.S. Contractor Connection cases was due to the ongoing expansion of our contractor network and 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.
International revenues are primarily derived from the property and casualty insurance company markets, with additional revenues from the self-insured markets in the U.K., Canada, Asia-Pacific (which includes Australia and New Zealand, as well as the Middle East and Africa) and Europe and Rest of World (which together consist of continental Europe and Latin America). Revenues before reimbursements by major region were as follows:
Revenues before reimbursements from our International segment totaled $506.7 million in 2015, compared to $488.3 million in 2014. Overall case volumes in the International segment increased 2.2% in 2015 compared with 2014. Changes in foreign exchange rates decreased our International segment revenues by $62.1 million, or approximately 12.7% for 2015 compared with 2014. Changes in product mix and in the rates charged for those services accounted for a 5.0% revenue decrease for 2015 compared with 2014, before the impact of the increase from GAB Robins revenues and cases.
International case volumes by region for 2015 and 2014 were as follows:
Broadspire segment revenues before reimbursements increased 9.0% to $293.0 million in 2015 compared with $268.9 million in 2014. The overall increase in 2015 revenues compared with 2014 was primarily due to organic growth, new clients, higher client retention, the transfer of accident and health cases from our U.S. Claims Services service line in the U.S. Services segment, and increased medical management services referrals. The transfer of accident and health cases from our U.S. Claims Services service line accounted for 2.0% of the revenue increase from 2014 to 2015.
Revenues were positively impacted by unit volumes for the Broadspire segment, measured principally by cases received, which increased 21.9% from 2014 to 2015, of which 18.0% of the increase was due to the transfer of accident and health cases from the U.S. Services segment. This increase was also due to changes in the mix of services provided and in the rates charged for those services, which increased revenues by approximately 3.1% in 2015, net of the impact of the high-frequency, low-complexity accident and health revenues and cases.
The 2015 decrease in workers' compensation cases primarily resulted from the loss of one account responsible for 7,600 cases in 2014. The increase in casualty cases in 2015 compared with 2014 was partially due to new clients and from the handling of approximately 64,800 accident and health cases in 2015, which in prior periods were handled by our U.S. Claims Services service line in the U.S. Services segment. Excluding these accident and health cases, the increase in Broadspire cases received from 2014 to 2015 would have been 3.9%. The 2015 increase in other cases was primarily due to increased referrals to our medical management services from both new and existing clients.
Garden City Group revenues in 2015 declined compared with prior year levels primarily because of lower revenues from the Deepwater Horizon class action settlement special project and another non-gulf related project. We expect activity on these projects to continue in 2016, although at further reduced rates.
Garden City Group revenues are primarily derived from legal settlement administration services related to securities, product liability, other class action settlements, and bankruptcies, primarily in the U.S. Garden City Group revenues are project-based and can fluctuate significantly primarily due to the timing of projects awarded. Garden City Group revenues before reimbursements decreased 24.7% to $128.2 million in 2015, compared with $170.3 million in 2014. The decrease in Garden City Group revenues was due primarily to the reduction in activity from the special projects discussed above.
Reimbursements for out-of-pocket expenses incurred in our U.S. Services segment which are included in total Company revenues were $9.6 million in 2014, decreasing from $19.8 million in 2013. The decrease in 2014 was due to higher expenses incurred in 2013 related to handling superstorm Sandy cases.
U.S. Services unit volumes by underlying case category, as measured by cases received, for 2014 and 2013 were as follows:
The 2014 increase in U.S. Claims Services cases was primarily due to an increase in high-frequency, low-complexity affinity cases, which more than offset the reduction in weather-related cases and the internal transfer of workers' compensation cases. The previously described 2014 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 in 2014 for these revenues. The 2014 increase in U.S. Contractor Connection cases was due to the ongoing expansion of our contractor network and to the continued trend in the insurance industry of shifting to managed repair networks as an alternative property claims solution for high-frequency, low-complexity property cases. The increases in high-frequency, low-complexity automotive, property, and affinity cases resulted in a reduced average fee per case within the region compared to 2013.
Revenues before reimbursements from our International segment totaled $488.3 million in 2014, compared to $488.5 million in 2013. Compared with 2013, the U.S. dollar was stronger in 2014 against most major international currencies, resulting in a negative impact from exchange rate movements of $9.2 million, or 1.9%, of segment revenues from 2013 to 2014. Excluding the negative impact of exchange rate fluctuations, International revenues would have been $497.5 million in 2014, reflecting an increase in revenues on a constant dollar basis of 1.8%.
U.K. revenues increased due to increases in winter weather-related cases, increased revenues from the Specialty Markets service line, and foreign exchange gains.
The decrease in revenues in Asia-Pacific was due to the disposal of our South African subsidiary and an expected decline in fees for the ongoing handling of cases resulting from the 2011 Thailand flooding event. Claims handling associated with the Thailand flooding event was substantially completed during 2013. There was also a decline in revenues in Australia due to flooding and bush fire activity in 2013, partially offset by an increase in weather-related activity in the Philippines in 2014.
The increase in revenues in Europe and Rest of World for 2014 compared with 2013 was primarily due to increased business in Scandinavia in 2014, partially offset by the inclusion in 2013 of a $900,000 performance bonus from a client in Europe.
The decrease in cases received in the U.K. was primarily due to a continued decline in the general property market as well as a general decline in high-frequency, low-complexity cases.
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor increased as a percent of segment revenues before reimbursements from 23.9% in 2013 to 25.2% in 2014, and the dollar amount of these expenses increased by $6.4 million. In local currency, the increase would have been approximately $3.8 million, primarily resulting from increased expenses in our Specialty Markets service line, bad debt expense, and professional fees compared to the prior year.
The overall increase in 2014 revenues compared with 2013 was primarily due to organic growth and increased client retention, revenues from new clients, the revenues associated with the transfer of workers' compensation cases from our U.S. Claims Services service line in the U.S. Services segment, and increased medical management services referrals.
Reimbursements for out-of-pocket expenses incurred in our Broadspire segment which are included in total Company revenues were $3.9 million in 2014, decreasing slightly from $4.0 million in 2013.
The 2014 increase in workers' compensation cases primarily resulted from new clients and from a transfer of approximately 2,000 workers' compensation cases from our U.S. Claims Services service line in the U.S. Services segment, as all workers' compensation cases in the U.S. are now handled by our Broadspire segment. The decrease in casualty cases in 2014 compared with 2013 was due to a decline of approximately 6,300 cases from two clients that were new in 2013, one of whose cases were expected to decline over time and the other a one-time takeover of cases. Casualty cases in 2013 were also positively impacted by the receipt in 2013 of approximately 5,000 incident reports from a major client for which we received little or no revenue and incurred little or no associated costs. The 2014 increase in other cases was primarily due to increased referrals to our medical management services from both new and existing clients.
Broadspire direct compensation, fringe benefits, and non-employee labor expense, as a percent of the related revenues before reimbursements, decreased to 55.7% in 2014, compared with 56.7% in 2013. The decline was due to improved employee utilization. Average FTEs totaled 1,697 in 2014, up from 1,595 in 2013. The increase in employees was due to the increased case volumes.
Our Garden City Group segment reported 2014 operating earnings of $22.8 million, decreasing 51.1% from $46.8 million in 2013, with the related operating margin decreasing from 21.4% in 2013 to 13.4% in 2014. The changes in the operating margin were primarily due to lower revenues from special projects discussed above impacting the absorption of fixed costs which did not decline as revenues declined.
Garden City Group revenues before reimbursements decreased 22.2% to $170.3 million in 2014, compared with $218.8 million in 2013. The decrease in Garden City Group revenues was due primarily to the expected reductions in activity related to the special projects discussed above.
Garden City Group expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor increased 2.5% to $29.8 million in 2014 from $29.1 million in 2013, and increased as a percent of related segment revenues before reimbursements to 17.5% in 2014 from 13.2% in 2013. The dollar amount of these expenses increased as a result of higher rent expense resulting from additional office space and higher depreciation and amortization expense associated with the purchase of new computer equipment and software. The increase as a percent of revenues before reimbursements was because expenses such as rent and depreciation, included in this category, are more fixed in nature and did not decline as revenues declined. During 2014, we reduced a contingent consideration liability from a previous acquisition by $2.0 million after concluding the consideration will not be paid. We also impaired and expensed the $1.3 million net book value of a customer list obtained in that acquisition in 2014.
Amortization of customer-relationship intangible assets represents the non-cash amortization expense for finite-lived customer-relationship and trade name intangible assets. Amortization expense associated with these intangible assets totaled $9.7 million, $6.3 million, and $6.4 million in 2015, 2014, and 2013, respectively. The increase in 2015 was due to amortization of intangible assets acquired in the GAB Robins acquisition. This amortization is included in "Selling, general and administrative expenses" in our Consolidated Statements of Operations.
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, costs of our cross currency swap, 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 Credit Facility consists of a $400.0 million revolving credit facility, with a letter of credit subfacility of $100.0 million. The Credit Facility contains sublimits of $185.0 million for borrowings by the UK Borrower, $40.0 million for borrowings by the Canadian Borrower, and $15.0 million for borrowings by the Australian Borrower. The Credit Facility matures, and all amounts outstanding thereunder, will be due and payable on November 25, 2018.
At December 31, 2015, 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.
We continue the ongoing monitoring of our customers' ability to pay us for the services that we render to them. Based on historical results, we currently believe there is a low likelihood that write-offs of our existing accounts receivable will have a material impact on our financial results. However, if one or more of our key customers files bankruptcy or otherwise becomes unable to make required payments to us, or if overall economic conditions deteriorate, we may need to make material provisions in the future to increase our allowance for accounts receivable.
The operations of our International segment expose us to 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. 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 2015, 2014, and 2013. We cannot predict the impact that foreign currency exchange rates may have on our future revenues or operating earnings in our International segment.
Cash and cash equivalents as of December 31, 2015 consisted of $12.9 million held in the U.S. and $63.2 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 our anticipated investment needs in that region and provide for U.S. 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 U.S. 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.
Cash used in investing activities increased by $69.4 million in 2015, from $31.8 million in 2014 to $101.2 million in 2015. This increase was primarily due to the GAB Robins acquisition. Cash used to acquire property and equipment and capitalized software, including capitalization of costs for internally developed software, was $32.9 million in 2015 compared with $29.2 million in 2014. We forecast that our property and equipment additions in 2016, including capitalized software, will approximate $29 million.
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 be greater than 3.75 to 1.00 through September 30, 2016, with step-downs to 3.50 to 1.00 thereafter for fiscal quarters ending December 31, 2016 through September 30, 2017 and to 3.25 to 1.00 for fiscal quarters thereafter. 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 1.25 to 1.00 for the four-quarter period ending at the end of each fiscal quarter. At December 31, 2015, 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 2016. 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 2016 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.
(1) Assumes principal amounts are repaid at maturity and not refinanced.
Approximately $21.9 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.
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, U.K. Plans and other international plans totaled $121.7 million and $142.3 million at the end of 2015 and 2014, respectively. The 2015 decrease in the unfunded deficit of our defined benefit pension plans primarily resulted from an increase in discount rates, the adoption of updated mortality tables used to determine U.S. Qualified Plan liabilities, and incremental benefit payments. During 2015, we made contributions of $9.0 million and $6.6 million to our U.S. Qualified Plan and U.K. Plans, respectively. In 2014, we made contributions of $14.9 million and $7.0 million to our U.S. Qualified Plan and U.K. Plans, respectively.
As a component of our Credit Facility, we maintain a letter of credit facility to satisfy certain contractual obligations. At December 31, 2015, the issued, but undrawn, letters of credit totaled approximately $17.2 million. These letters of credit are typically renewed annually, but unless renewed, will expire as follows:
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, 2015.
Accounts receivable decreased by $15.5 million, or $26.5 million, excluding the effect of the GAB Robins acquisition and foreign currency exchange impacts, in 2015 compared with 2014 primarily due to the decrease in Garden City Group accounts receivable.
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 reporting segments - International, Broadspire, and Garden City Group. In the fourth quarter of 2015, we realigned two of our reportable segments by moving our Canada and Latin America/Caribbean operations from the former Americas segment to the newly formed International segment, previously referred to as the EMEA/AP segment. The former Americas segment, without Canada and Latin America/Caribbean, is now the U.S. Services segment. We performed goodwill impairment testing on our reporting units both before and after this realignment of reporting segments.
During the step 1 analysis in 2015, we determined the carrying value of our EMEA/AP and Americas excluding U.S. Contractor Connection reporting units exceeded their fair values due to a variety of factors including achieving less than forecasted operating earnings, a reduced market capitalization, an increase in discount rates, and changes in foreign exchange rates.
The key assumptions used in estimating the fair values of its reporting units utilizing the income approach include the discount rate, the terminal growth rate, and the net working capital turnover. The discount rates utilized in estimating the fair value of our reporting units in 2015 were between the range of 12.5% and 18.5%, 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 net working capital turnover assumption ranged from 5 to 20. 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.
Subsequent to the analyses and goodwill impairment charges discussed above, the International segment has $49.7 million of remaining goodwill associated with it that is at risk of potential future impairment. The estimated fair values as calculated in our goodwill impairment step 1 analysis exceeded the carrying values for all of our other reporting units by a significant margin. Holding all other assumptions constant, the International segment would have to achieve more than approximately 85% of its forecasted operating earnings to avoid completion of step 2 of the goodwill impairment test in the future. We intend to continue to monitor the performance of the International reporting unit. Should actual operating earnings consistently fall below forecasted operating earnings, we will perform an interim goodwill impairment analysis.
The values of the Broadspire and SLS trade names are each sensitive to changes in the assumptions used above. A decline in the U.S. royalty rate to 1.0%, or an increase in the discount rate by 2.5%, assuming no changes in the other key inputs, could potentially trigger an impairment of the Broadspire trade name. A decline in the royalty rate by 1% in combination with an increase in the discount rate by 2.5% could potentially trigger an impairment of the SLS trade name. We will continue to monitor the value of these trade names for potential indicators of impairment.
The long-term goal for the U.S. and U.K. plans is to reach fully-funded status and to maintain that status. The investment policies contemplate the plans' asset return requirements and risk tolerances changing over time. Accordingly, reallocation of the portfolios' mix of return-seeking assets and liability-hedging assets will be performed as the plans' funded status improves. In conjunction with our investment policies we have rebalanced the U.S. and U.K. plans' target allocation mix to reallocate from an equity-weighted to a fixed-income weighted investment strategy, as the plans' funded status has improved and as we have made cash contributions to the plan.
The major 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, 2015, the discount rate used to compute the benefit obligations of the U.S. and U.K. plans were 4.40% and 3.85%, respectively.
We review our employee demographic assumptions annually and update the assumptions as necessary. During 2015, we revised the mortality assumptions for the U.S. plans to incorporate the new set of mortality tables issued by the Society of Actuaries, adjusted to reflect Company-specific experience and future expectations. This resulted in a $10.5 million decrease in the projected benefit obligation for the U.S. plans.
Pension expense is also affected by the accounting policy used to determine the value of plan assets at the measurement date. We apply our expected return on plan assets using fair market value as of the annual measurement date. The fair market value method results in greater volatility to our pension expense than the calculated value method. The amounts recognized in the balance sheet reflect a snapshot of the state of our long-term pension liabilities at the plan measurement date and the effect of mark-to-market accounting on plan assets. At December 31, 2015, we recorded an increase to equity through other comprehensive income ("OCI") of $8.2 million (net of tax) to reflect unrealized actuarial gains during 2015. At December 31, 2014, we recorded a decrease to equity through OCI of $43.2 million (net of tax) to reflect unrealized actuarial losses during 2014. Those changes are subject to amortization over future years and may be reflected in future income statements.
Cumulative unrecognized actuarial losses for all plans were $309.9 million through December 31, 2015, compared with $334.7 million through December 31, 2014. 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 2016 includes $13.0 million of amortization of these actuarial losses versus $13.4 million in 2015, $11.8 million in 2014 and $13.3 million in 2013.
For financial reporting purposes in accordance with the liability method of accounting for income taxes, the provision for income taxes is the sum of income taxes both currently payable and deferred. Currently payable income taxes represent the liability related to our income tax returns for the current year, while the net deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our consolidated balance sheets that are not related to balances in "Accumulated other comprehensive loss." The changes in deferred tax assets and liabilities are determined based upon changes between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for income tax purposes, multiplied by the enacted statutory tax rates for the year in which we estimate these differences will reverse. We must estimate the timing of the reversal of temporary differences, as well as whether taxable income in future periods will be sufficient to fully recognize any gross deferred tax assets.
Our effective tax rate, defined as our provision for income taxes divided by income before income taxes, for financial reporting purposes in 2015, 2014, and 2013 was (43.5)%, 48.1%, and 36.7%, respectively. If our effective tax rate used for financial reporting purposes changed by 1.0%, we would have recognized an increase or decrease to income taxes of approximately $316,000, $591,000, and $811,000 for the years ended December 31, 2015, 2014, and 2013, respectively. Our effective tax rate for financial reporting purposes is expected to range between 40% and 42% in 2016 before considering any discrete items.
In accordance with GAAP, we have considered the four possible sources of taxable income that may be available to realize a tax benefit for deductible temporary differences and carryforwards and have a $17.2 million valuation allowance on certain net operating loss and tax credit carryforwards in our international and domestic operations. For our remaining deferred tax assets, we believe that it is more likely than not that we will realize these assets based on our forecast of future taxable income and tax planning strategies that are available to the Company. Future changes in the valuation allowance, if required, should not affect our liquidity or our compliance with any existing debt covenants.
Our tax credit carryforwards for which we have not recorded a valuation allowance primarily consist of $31.7 million of foreign tax credit ("FTC") carryforwards, which materially expire in 2020. Companies that cannot credit all the foreign taxes paid or deemed paid in a particular tax year because their foreign taxes exceed their FTC limitation are allowed to carry their excess taxes back to the preceding tax year and then forward to the ten succeeding years. Utilization of our FTCs is dependent upon sufficient U.S. regular taxable income and foreign source income which is impacted by the interaction of overall domestic and overall foreign loss rules. Based on our projections of income through 2019, we expect to fully utilize the FTC carryforwards before expiration without implementing available tax planning strategies. Accordingly, we concluded that it was more likely than not that the FTC carryforwards will be utilized.
In order to fully utilize these state NOL carryforwards, our domestic companies must generate taxable income prior to the expiration of the carryforwards. Based on our projections of income, the Company expects to fully utilize its state NOL carryforwards before expiration without implementing available tax planning strategies. Accordingly, we concluded that it was more likely than not that the Company should be able to utilize its state NOL carryforwards.
Shares of the Company's two classes of common stock are traded on the New York Stock Exchange ("NYSE") under the symbols CRDA and CRDB, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class. The Company's website is www.crawfordandcompany.com. The information contained on, or hyperlinked from, the Company's website is not a part of, and is not incorporated by reference into, this report.
In March 2013, the Company acquired 51% of the capital stock of Lloyd Warwick International Limited ("LWI"). LWI is a VIE primarily because it does not meet the business scope exception, as Crawford provides more than half of the financial support, and because LWI lacks sufficient equity at risk to permit LWI to carry on its activities without additional financial support. Crawford has agreed to provide financial support to LWI of approximately $10,000,000. Crawford is the primary beneficiary of LWI because of its controlling ownership interest and because Crawford has the obligation to absorb LWI's losses through the additional financial support that LWI may require. Creditors of LWI have no recourse to Crawford's general credit. Total assets and liabilities of LWI as of December 31, 2015 were $8,831,000 and $11,841,000, respectively. Total assets and liabilities of LWI as of December 31, 2014 were $6,045,000 and $8,346,000, respectively. Included in LWI's total liabilities at December 31, 2015 and 2014 were loans from Crawford of $10,214,000 and $7,378,000, respectively. For additional information on the acquisition of LWI, see Note 2, "Acquisitions and Dispositions of Businesses."
The Company consolidates the liabilities of its deferred compensation plan and the related assets, which are held in a rabbi trust and considered a VIE of the Company. The rabbi trust was created to fund the liabilities of the Company's deferred compensation plan. The Company is considered the primary beneficiary of the rabbi trust because the Company directs the activities of the trust and can use the assets of the trust to satisfy the liabilities of the Company's deferred compensation plan. At December 31, 2015 and 2014, the liabilities of this deferred compensation plan were $9,861,000 and $11,051,000, respectively, which represented obligations of the Company rather than of the rabbi trust, and the values of the assets held in the related rabbi trust were $15,881,000 and $15,519,000, respectively. These liabilities and assets are included in "Other noncurrent liabilities" and "Other noncurrent assets" on the Company's Consolidated Balance Sheets, respectively.
The Company's revenues are primarily comprised of claims processing or program administration fees and are generated from the Company's four operating segments.
The Company extends credit based on an evaluation of a client's financial condition and, generally, collateral is not required. Accounts receivable are typically due upon receipt of the invoice and are stated on the Company's Consolidated Balance Sheets at amounts due from clients net of an estimated allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The fair value of accounts receivable approximates book value due to their short-term contractual stipulations.
For step 1 of goodwill impairment testing, the carrying value of each of the Company's reporting units is compared with the estimated fair value of the reporting unit as determined utilizing a combination of the income and market approaches. The income approach, which is a level 3 fair value measurement, is based on projected debt-free cash flow which is discounted to the present value using discount factors that consider the timing and risk of the cash flows. The market approach is based on the Guideline Public Company Method, which uses market pricing metrics to select multiples to value the Company's reporting units. The resulting estimated fair values of the combined reporting units are reconciled to the Company's market capitalization including an estimated implied control premium. The Company believes that the combination of these approaches is appropriate because it provides a fair value estimate based upon the combination of the reporting unit's expected long-term operating cash flow performance and multiples with which similar publicly traded companies are valued. The Company weights the income and market approaches equally.
Upon completion of its annual step 1 impairment analysis, the Company determined that the carrying value of the Company's EMEA/AP and Americas excluding U.S. Contractor Connection reporting units exceeded their fair values due to a variety of factors including achieving less than forecasted operating earnings, a reduced market capitalization, an increase in discount rates, and changes in foreign exchange rates.
As a result, step 2 of the goodwill impairment analysis was required for the EMEA/AP and Americas excluding U.S. Contractor Connection reporting units. Additional assumptions are used in the step 2 analysis in estimating the fair value of assets and liabilities of the applicable reporting units. These assumptions primarily relate to the estimated fair value of certain intangible assets and generally include operating earnings, the royalty rate, discount rate, long term sales growth rate, and the annual customer attrition rate. The royalty rates utilized were within the range of 1.5% and 3.0%, and the weighted average cost of capital rates used to determine the discount rates for the individual intangible assets were between the range of 18.0% and 18.5%, reflecting the Company's assessment of a market participant's view of the risks associated with the projected cash flows. The long term sales growth rate used in the analysis was 2.0%. The annual customer attrition rate assumption was 5%.
Upon conclusion of the step 2 analysis on each of the EMEA/AP and Americas excluding U.S. Contractor Connection reporting units, goodwill impairments of $38,138,000 and $11,176,000, respectively, were recognized by the Company during the year ended December 31, 2015. The estimated fair values as calculated in the Company's step 1 goodwill impairment analysis for all of its other reporting units exceeded the carrying values of the reporting units.
The Company also performed step 1 goodwill impairment testing on its reporting units after the realignment of reporting segments. For this purpose, the Company analyzed two reporting units of the U.S. Services operating segment: a) U.S. Contractor Connection and b) U.S. Services excluding U.S. Contractor Connection. As a result of the recognition of the goodwill impairment charge in 2015 prior to the realignment of the reporting segments, the U.S. Services excluding U.S. Contractor Connection reporting unit no longer has goodwill associated with it. The other reporting units tested after the realignment of reporting segments were International, Broadspire, and Garden City Group. No further impairment was indicated, as the fair value of these reporting units exceeded the carrying value in the post-realignment step 1 analysis.
For impairment testing of indefinite-lived intangible assets, the book 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. The fair values of the 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.
Capitalized software reflects 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 purchases and related services. These capitalized software costs are amortized over periods ranging from three to ten years, depending on the estimated life of each software application. Amortization expense for capitalized software was $15,372,000, $13,954,000, and $11,330,000 for the years ended December 31, 2015, 2014, and 2013, 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 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, 2015 and 2014, accrued liabilities for self-insured risks totaled $23,476,000 and $24,532,000, respectively, including current liabilities of $14,122,000 and $14,491,000, respectively.
Other factors which influence the effective tax rate used for financial reporting purposes include changes in enacted tax rates, fluctuations in the mix of income earned from the Company's various domestic and international operations, which are subject to income taxes at different rates, the Company's ability to utilize net operating losses and tax credit carryforwards, and amounts related to uncertain income tax positions. See Note 7, "Income Taxes."
Foreign currency transactions for the years ended December 31, 2015, 2014, and 2013 resulted in net losses of $684,000, $274,000, and $1,084,000 respectively.
For operations outside the U.S. that prepare financial statements in currencies other than the U.S. dollar, results of operations and cash flows are translated into U.S. dollars at average exchange rates during the period, and assets and liabilities are translated at end-of-period exchange rates. The resulting translation adjustments, on a net basis, are included in "Comprehensive (loss) income" in the Company's Consolidated Statements of Comprehensive (Loss) Income, and the accumulated translation adjustment is reported as a component of "Accumulated other comprehensive loss" in the Company's Consolidated Balance Sheets.
Advertising costs are expensed in the period in which the costs are incurred. Advertising expenses were $3,803,000, $2,981,000, and $2,793,000, respectively, for the years ended December 31, 2015, 2014, and 2013.
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments." Under ASU 2015-16, in accounting for adjustments made to provisional amounts recognized in a business combination the requirement to retrospectively account for those adjustments is eliminated. The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company adopted this update effective in the third quarter 2015, accounting for the GAB Robins Holdings UK Limited ("GAB Robins") acquisition under this guidance.
On February 26, 2016, the FASB issued ASU 2016-05, "Financial Accounting for Leases." Under the new guidance, 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, the new 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 Company is currently evaluating the effect this standard may have on its results of operations, financial condition and cash flows.
In April 2015, the FASB issued ASU 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." The new standard is intended to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. At the Emerging Issues Task Force ("EITF") meeting held in June 2015, the EITF clarified that fees incurred to secure revolving debt arrangements were not addressed by ASU 2015-03 and the Securities and Exchange Commission ("SEC") observer at the EITF meeting stated that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the revolving debt agreement. Following this announcement, management determined that adoption of this standard is not expected to have any impact on the financial statements of the Company.
In August 2014, FASB issued Accounting Standards Update ("ASU") 2014-15, "Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern." Under ASU 2014-15, management of public companies will be required to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The standard will be effective for the Company on January 1, 2017. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect this ASU will have an impact on its financial statements or disclosures upon adoption.
On December 1, 2014, the Company acquired 100% of the capital stock of GAB Robins, a U.K. based international loss adjusting and claims management provider, for cash consideration of $71,812,000. During 2015, the Company paid an additional $2,182,000 related to net debt and net working capital adjustments under the terms of the acquisition agreement which increased the purchase price to $73,994,000. Because the financial results of certain of the Company's international subsidiaries, including those in the U.K. through which GAB Robins reports, are included in the Company's consolidated financial statements on a two-month delayed basis, the results of operations of GAB Robins, and the preliminary application of acquisition accounting to the assets acquired, and liabilities and noncontrolling interests assumed, in that acquisition have first been reflected in the Company's audited consolidated financial statements as of and for the period ended December 31, 2015. As a result, comparability to prior periods' results and financial condition may be limited. The purchase was accounted for under the guidance of ASC 805-10, "Business Combinations," as a business combination under the acquisition method.
As a requirement of accounting under the acquisition method, all identifiable assets acquired and liabilities assumed and noncontrolling interests were recognized using fair value measurements. Based upon the timing of the acquisition, the allocation of the purchase price is preliminary and subject to change, as the Company gathers additional information related to, among other things, intangible assets, deferred taxes, noncontrolling interests, and uncertain tax positions. During the measurement period since the acquisition, adjustments have been made to the preliminary acquisition accounting for receivables, prepaid and other current assets acquired, other current liabilities assumed, and a payment for adjustments to net debt and net working capital based on additional information gathered. During the three months ended December 31, 2015, the preliminary estimated useful life of customer relationships was reduced from 18 years to 14 years based upon further review of the estimated cash flows used to value the customer relationships as of the acquisition date. There was no change in the value assigned to the customer relationships as of the acquisition date as a result of this review. The purchase price included $6,329,000 placed in escrow for up to two years related to certain acquired contingencies per the terms of the acquisition agreement. As of December 31, 2015, $1,600,000 of the escrowed amount has been released. The acquisition was funded primarily through borrowings in the U.K. under the Company's credit facility.
On July 15, 2014, the Company acquired 100% of the capital stock of Buckley Scott Holdings Limited ("Buckley Scott"), a U.K.-based international construction and engineering adjusting firm, for $3,812,000. Net assets purchased totaled $1,532,000, including $488,000 cash acquired. A deferred income tax liability of $473,000 was recognized on the acquired intangible assets. The agreement contains an earnout provision based on Buckley Scott achieving certain financial results during the two-year period following the completion of the acquisition, with a current estimated fair value of $1,921,000. The difference between the purchase price and the allocation of that price to the net assets acquired represents customer relationship intangibles of $2,195,000 with an estimated 15-year useful life, trade name intangibles of $169,000 with an estimated two-year useful life, and $1,542,000 of goodwill with an indefinite life, representing the estimated value of the assembled workforce and expected synergies with existing businesses. The acquisition enables the Company to significantly expand its construction and engineering business internationally. The results of Buckley Scott have been included in the International segment since the acquisition date and were not material to the operations of the Company.
The Company has the right to purchase the 49% noncontrolling interest of LWI for a period of six months beginning in June 2018 for a price to be determined using a seven times multiple of LWI's average earnings before interest, taxes, depreciation and amortization for the 36 months preceding the date the right is exercised. The Company also has the right of first refusal within 30 days to match any offer to acquire the 49% noncontrolling interest.
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"), the Company's guarantor subsidiaries party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender ("Wells Fargo"), and the other lenders party thereto (together with Wells Fargo, the "Lenders"), are party to a Credit Agreement, dated as of December 8, 2011 (as amended, the "Credit Facility"). On November 28, 2014, the Credit Facility was amended to provide the Company the ability to complete the December 1, 2014 acquisition of GAB Robins and to make certain other technical amendments.
Short-term borrowings under the Credit Facility totaled $19,958,000 and $2,002,000 at December 31, 2015 and 2014, respectively. The Company expects, but is not required, to repay all of such short-term borrowings at December 31, 2015 in 2016.
Principal repayments of long-term debt, including current portions and capital leases, as of December 31, 2015 are expected to be as follows, assuming no prepayments or extensions beyond the stated maturity:
At December 31, 2015, future minimum payments under non-cancelable operating leases with terms of more than 12 months were as follows:
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 $4,806,000. Additionally, the Company is responsible for certain related real estate taxes and operating expenses, which are excluded from the table above.
Effective May 1, 2012, the Company entered into a 10-year operating lease for the lease of approximately 45,000 square feet of office space in Seattle, Washington for its Garden City Group segment. Total lease payments over the remaining lease term are approximately $8,649,000. Additionally, the Company is responsible for certain related real estate taxes and operating expenses, which are excluded from the table above.
Effective February 9, 2010, the Company entered into a 10-year operating lease for approximately 64,000 square feet of office space in Sunrise, Florida, primarily for its Broadspire segment as a replacement for the subleased space in Plantation, Florida described below. Total lease payments over the remaining lease term are approximately $5,756,000. Additionally, the Company is responsible for certain related real estate taxes and other expenses, which are excluded from the table above.
Effective August 1, 2006, the Company entered into an 11-year operating lease for approximately 160,000 square feet of office space in Atlanta, Georgia for use as the Company's corporate headquarters. Total lease payments over the remaining lease term are approximately $8,175,000. Additionally, the Company is responsible for certain related property operating expenses, which are excluded from the table above.
One of the sublease agreements is for three of the four floors of one of the leased buildings in Plantation, Florida; this lease expires in December 2021. The other sublease is for an entire building and expires in December 2021. This lease includes surrender options for the fourth floor between December 31, 2015 and June 30, 2017, and for the third floor as of June 30, 2017, each with twelve months prior notice. Should the sublessor elect to surrender one or both floors and the Company be unable to secure another sublessor, it may be required to recognize additional losses on this lease.
Net cash payments for income taxes were $9,690,000, $13,017,000, and $21,030,000 in 2015, 2014, and 2013, respectively.
At December 31, 2015, the Company had deferred tax assets related to loss carryforwards of $28,660,000, before netting of unrecognized tax benefits of $691,000 and stock-based compensation attributes of $846,000. An estimated $16,871,000 of the deferred tax assets will not expire, and $11,789,000 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, 2015, 2014, and 2013.
Included in the total unrecognized tax benefits at December 31, 2015, 2014, and 2013 were $3,899,000, $2,475,000, and $2,693,000, respectively, of tax benefits that, if recognized, would affect the effective income tax rate.
The Company and its subsidiaries sponsor various retirement plans. Substantially all employees in the U.S. and certain employees outside the U.S. are covered under the Company's defined contribution plans. Certain employees, retirees, and eligible dependents are also covered under the Company's defined benefit pension plans.
External trusts are maintained to hold assets of the Company's U.S. Qualified Plan, U.K. Plans, and other international plans. The Company's funding policy is to make cash contributions in amounts at least sufficient to meet regulatory funding requirements and, in certain instances, to make contributions in excess thereof if such contributions would otherwise be in accordance with the Company's capital allocation plans. Assets of the plans are measured at fair value at the end of each reporting period, but the plan assets are not recorded on the Company's Consolidated Balance Sheets. Instead, the funded or unfunded status of the Company's U.S. Qualified Plan, U.K. Plans, and other international plans are recorded in "Accrued pension liabilities" or "Other noncurrent assets" on the Company's Consolidated Balance Sheets based on the projected benefit obligations less the fair values of the plans' assets.
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, 2015 and 2014:
A fixed number of U.S. employees, retirees, and eligible dependents were previously covered under a frozen post-retirement medical benefits plan and are now provided Company-subsidized premiums for health care exchanges. The liabilities for this plan are included in the Company's self-insured risks liabilities and are not material. This plan was frozen effective December 31, 2002.
The following tables set forth the 2015 and 2014 changes in accumulated other comprehensive loss for the Company's defined benefit retirement plans and post-retirement medical benefits plan on a combined basis:
Benefit cost for the U.S. defined benefit pension plans does not include service cost since the plan is frozen.
The long-term goal for the U.S. and U.K. plans is to reach fully-funded status and to maintain that status. The investment policies recognize that the plans' asset return requirements and risk tolerances will change over time. Accordingly, reallocation of the portfolios' mix of return-seeking assets and liability-hedging assets will be performed as the plans' funded status improves.
During the year ended December 31, 2015, the Company reacquired 517,700 shares of CRDA at an average cost of $6.62 under the 2014 Repurchase Authorization. No shares of CRDB were repurchased during the year ended December 31, 2015. At December 31, 2015, the Company has remaining authorization to repurchase 1,455,300 shares under the 2014 Repurchase Authorization.
Net (Loss) Income Attributable to Shareholders of Crawford & Company per Common Share
The Company computes (loss) earnings per share of CRDA and CRDB using the two-class method, which allocates the undistributed (loss) earnings for each period to each class on a proportionate basis. The Company's Board of Directors has the right, but not the obligation, to declare higher dividends on the non-voting CRDA shares than on the voting CRDB shares, subject to certain limitations. In periods when the dividend is the same for CRDA and CRDB or when no dividends are declared or paid to either class, the two-class method generally will yield the same (loss) earnings per share for CRDA and CRDB. During 2015, 2014 and 2013, the Board of Directors declared a higher dividend on CRDA than on CRDB.
The computations of basic net (loss) income attributable to shareholders of Crawford & Company per common share were as follows:
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. The changes in components of "Accumulated other comprehensive loss" ("AOCL"), net of taxes and noncontrolling interests, included in the Company's Consolidated Balance Sheets were as follows:
The other comprehensive loss amounts attributable to noncontrolling interests shown in the Company's Consolidated Statements of Shareholders' Investment are foreign currency translation adjustments.
The pretax compensation expense recognized for all stock-based compensation plans was $3,229,000, $1,189,000, and $3,835,000 for the years ended December 31, 2015, 2014, and 2013, respectively.
Performance share grants are from time to time made to certain key employees of the Company. Such grants entitle employees to earn shares of CRDA upon the achievement of certain individual and/or corporate objectives. Grants of performance shares are made at the discretion of the Company's Board of Directors, or the Board's Compensation Committee, and are subject to graded or cliff vesting over three-year periods. Shares are not issued until the vesting requirements have been met. Dividends are not paid or accrued on unvested/unissued shares. The grant-date fair value of a performance share grant is based on the market value of CRDA on the date of grant, reduced for the present value of any dividends expected to be paid on CRDA prior to the vesting of the award. Compensation expense for each award is recognized ratably from the grant date to the vesting date for each tranche.
A summary of the status of the Company's nonvested performance shares as of December 31, 2015, 2014, and 2013, and changes during each year, is presented below:
The total fair value of the performance shares that vested in 2015, 2014, and 2013 was $1,612,000, $1,057,000, and $1,693,000, respectively.
The Company's Board of Directors may elect to issue restricted shares of CRDA in lieu of, or in addition to, cash payments to certain key employees. Employees receiving these shares are subject to restrictions on their ability to sell the shares. Such restrictions generally lapse ratably over vesting periods ranging from several months to five years. The grant-date fair value of a restricted share of CRDA is based on the market value of the stock on the date of grant. Compensation cost is recognized on a straight-line basis over the requisite service period since these awards only have service conditions once granted.
A summary of the status of the Company's restricted shares of CRDA as of December 31, 2015, 2014, and 2013 and changes during each year, is presented below:
Compensation expense recognized for all restricted shares for the years ended December 31, 2015, 2014, and 2013 was $886,000, $848,000, and $664,000, respectively. As of December 31, 2015, there was $404,000 of total unearned compensation cost related to nonvested restricted shares which is expected to be recognized by December 31, 2017.
During the years ended December 31, 2015, 2014 and 2013, a total of 90,919, 154,519, and 146,891 shares, respectively, of CRDA were issued under the U.S. Plan to the Company's employees at purchase prices of $5.73, $4.33, and $3.29 in 2015, 2014, and 2013, respectively. At December 31, 2015, an estimated 106,000 shares will be issued and purchased under the U.S. Plan in 2016. During the years ended December 31, 2015, 2014, and 2013, compensation expense of $288,000, $259,000, and $198,000, respectively, was recognized for the U.S. Plan.
Level 1- Observable inputs that reflect quoted prices in active markets for identical assets or liabilities.
The fair value of the contingent earnout liability for the Buckley Scott acquisition was estimated using an internally-prepared probability-weighted discounted cash flow analysis. The fair value analysis relied upon both Level 2 data (publicly observable data such as market interest rates and capital structures of peer companies) and Level 3 data (internal data such as the Company's operating projections). As such, these are Level 3 fair value measurements. The valuation is sensitive to Level 3 data, with the maximum possible earnout of $2,027,000. As such, the fair value is not expected to vary materially from the balance recorded. The fair value of the contingent earnout liability is included in "Other accrued liabilities" on the Company's Consolidated Balance Sheets, based upon the term of the contingent earnout agreement.
During 2015 the Company impaired and expensed goodwill of $49,314,000. See Note 1, "Significant Accounting and Reporting Policies" and Note 3, "Goodwill and Intangible Assets," where discussed in more detail.
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, 2015 and 2014:
The Company's four reportable segments represent components of the business for which separate financial information is available, and which is evaluated regularly by the CODM. The segments are organized based upon the nature of services and/or geographic areas served and are: U.S. Services, which primarily serves the property and casualty insurance company markets in the U.S.; International, which serves the property and casualty insurance company and self-insurance markets outside the U.S.; Broadspire, which serves the self-insurance marketplace, primarily in the U.S.; and Garden City Group which serves the class action, regulatory, mass tort, bankruptcy, and other legal settlement markets, primarily in the U.S. Intersegment sales are recorded at cost and are not material.
Capital expenditures for the years ended December 31, 2015, 2014, and 2013 are shown in the following table:
The total of the Company's reportable segments' revenues before reimbursements reconciled to total consolidated revenues for the years ended December 31, 2015, 2014, and 2013 was as follows:
Revenues and long-lived assets for the countries in which revenues or long-lived assets represent more than 10 percent of the consolidated totals are set out below. For the purposes of these geographic area disclosures, long-lived assets include items such as property and equipment and capital lease assets but exclude intangible assets, including goodwill. In the International segment, only the U.K. and Canada are considered material for disclosure.
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 $662,797,000 and $364,144,000 at December 31, 2015 and 2014, respectively. In addition, the Garden City Group segment administers funds in noncustodial accounts at financial institutions that totaled $457,344,000 and $451,033,000 at December 31, 2015 and 2014, respectively.
As part of the Company's Credit Facility, the Company maintains a letter of credit facility to satisfy certain of its own contractual requirements. At December 31, 2015, the aggregate committed amount of letters of credit outstanding under the facility was $17,211,000.
From time to time, the Company enters into certain agreements for the purchase or sale of assets or businesses that contain provisions that may require the Company to make additional payments in the future depending upon the achievement of specified operating results of the acquired company, or provide the Company with an option or similar right to purchase additional assets. The 2014 acquisition of Buckley Scott includes an earnout provision based on achieving certain financial results during the two-year period following the completion of the acquisition, with a current estimated fair value of $1,921,000. The maximum potential earnout is $2,027,000. For additional information on these obligations and rights, see Note 2, "Acquisitions and Dispositions of Businesses."
The Company has voluntarily self-reported to the SEC and the Department of Justice (the "DOJ") certain potential violations of the Foreign Corrupt Practices Act discovered by the Company during the course of its regular internal audit process. Upon discovery, the Company, with the oversight of the Audit Committee and the Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. The Company has been cooperating fully, and expects to continue to cooperate fully, with the SEC and the DOJ in this matter. The Company cannot currently predict when or what, if any, action may be taken by the SEC or the DOJ, or other governmental authorities, or the effect any such actions may have on the Company's results of operations, cash flows or financial position.
As of December 31, 2015, the following liabilities remained on the Company's Consolidated Balance Sheets related to restructuring charges recorded in 2012 and 2015. The rollforwards of these costs to December 31, 2015 were as follows:
The Company recorded special charges for the year ended December 31, 2015, of $5,659,000. The special charges were comprised of two components: (1) $1,627,000 in expenses related to the separation of the Company's former president and chief executive officer, and (2) legal and professional fees of $4,032,000 related to the ongoing investigation of potential violations of the Foreign Corrupt Practices Act disclosed in Note 15 "Commitments and Contingencies." At December 31, 2015, $146,000 of liabilities for costs related to the investigation remained on the Company's Condensed Consolidated Balance Sheets in "Other accrued liabilities."
We have audited the accompanying consolidated balance sheets of Crawford & Company as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive (loss) income, cash flows, and shareholders' investment for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Crawford & Company at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Crawford & Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 10, 2016 expressed an unqualified opinion thereon.
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, special charges and credits, income taxes, and net income or loss attributable to noncontrolling interests. See Note 13, "Segment and Geographic Information," in the audited consolidated financial statements contained in this Item 8.