Based in Atlanta, Georgia, Crawford & Company (www.crawfordandcompany.com) is the world’s largest (based on annual revenues) independent provider of claims management solutions to the risk management and insurance industry, as well as to self-insured entities, with an expansive global network serving clients in more than 70 countries. The Crawford System of Claims Solutions® offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management, workers’ compensation claims and medical management, and legal settlement administration. Shares of the Company’s two classes of common stock are traded on the New York Stock Exchange 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.
Net income attributable to Crawford & Company was $51.0 million in 2013, compared with net income of $48.9 million in 2012 and $45.4 million in 2011. As discussed below, the Company recorded certain pretax special charges in 2012 and certain pretax special charges and credits in 2011. There were no special charges or credits in 2013.
The revenue increase in Canada was primarily due to claims resulting from the aforementioned flood losses in Canada.
EMEA/AP unit volumes by region for 2013 and 2012 were as follows:
At December 31, 2013, we had an estimated backlog of awarded projects totaling $108.2 million, compared with $151.9 million at December 31, 2012. Of the $108.2 million backlog at December 31, 2013, an estimated $91.2 million is expected to be included in revenues within the next 12 months.
The number of full-time equivalent employees was reduced in response to the decline in case volumes and was evident in reduced costs. Americas salaries and wages decreased 6.5% to $179.9 million in 2012 from $192.5 million in 2011. Approximately $2.2 million of the decrease was due to changes in exchange rates, with the remainder due to a reduction in the number of FTEs. Payroll taxes and fringe benefits for Americas totaled $32.4 million in 2012, decreasing 6.1% from 2011 expenses of $34.5 million. The overall decrease in 2012 compared with 2011 aligned with the decreased salaries and wages.
EMEA/AP operating earnings increased to $48.5 million in 2012, an increase of 72.6% from 2011 operating earnings of $28.1 million. The operating margin increased from 8.3% in 2011 to 13.2% in 2012. The increase in EMEA/AP operating earnings was primarily due to higher claim handling fees in 2012 resulting from the 2011 Thailand flooding event and other weather-related activity in Australia, partially offset by declines in weather-related activity in the U.K.
The decrease in cases received in the U.K. was primarily due to a decline in weather-related activity from 2011 to 2012. The increase in CEMEA cases resulted primarily from growth in high-frequency, low-complexity claims in Germany, Spain, Scandinavia, and the Netherlands. The decrease in Asia-Pacific cases was due to a decline in new weather-related cases in Australia and fewer high-frequency, low-complexity claims in Singapore and Malaysia, partially offset by an increase in cases in China. Many of the flood-related cases in Thailand and Australia were received in 2011, with the revenues from these cases recognized as it was earned. Accordingly, changes in revenues may not match changes in the number of cases received in any period.
The representations, covenants, and events of default in the Credit Facility are customary for financing transactions of this nature, including required compliance with a maximum leverage ratio and a minimum fixed charge coverage ratio (each as defined below). 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.
Significant changes on our consolidated balance sheet as of December 31, 2013, compared with our consolidated balance sheet as of December 31, 2012, were as follows:
As of December 31, 2013 and 2012, our allowance for doubtful accounts totaled $10.2 million and $10.6 million, or approximately 6.0% of gross billed receivables at the end of each year. If the financial condition of our clients deteriorates, resulting in an inability to make required payments to us, or if economic conditions deteriorate, additional allowances may be deemed to be appropriate or required. If the allowance for doubtful accounts changed by 1.0% of gross billed receivables, reflecting either an increase or decrease in expected future write-offs, the impact to consolidated pretax income would have been approximately $1.7 million in 2013, $1.8 million in 2012, and $1.7 million in 2011.
Effective August 1, 2006, the Company entered into an 11-year operating lease agreement for the lease of approximately 160,000 square feet of office space in Atlanta, Georgia for use as the Company’s corporate headquarters. Included in the future minimum lease payments noted above are total lease payments of $16,269,000 related to this lease. Additionally, the Company is responsible for certain related property operating expenses, which are excluded from the table above.
The following tables set forth the 2013 and 2012 changes in accumulated other comprehensive loss for the Company’s defined benefit retirement plans and post-retirement medical benefits plan on a combined basis.
See Note 12, "Fair Value Measurements" for the fair value disclosures of the U.S. and U.K. qualified defined benefit pension plan assets. The assets of the Company's other international plans are primarily insurance contracts, which are measured at contract value and are not measured at fair value. Obligations for the U.S. nonqualified plans are paid from Company assets.
Compensation expense recognized for all performance shares totaled $2,223,000, $2,645,000, and $2,749,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Compensation cost for these awards is net of estimated or actual award forfeitures. As of December 31, 2013, there was an estimated $3,539,000 of unearned compensation cost for all nonvested performance shares. All of this unearned compensation cost is expected to be fully recognized by the end of 2015.
The fair values of the money market funds were based on recently quoted market prices and reported transactions in an active marketplace. Money market funds are included on the Company’s Consolidated Balance Sheets in "Cash and cash equivalents."
The following table provides a reconciliation of the beginning and ending balance of Level 3 assets for the Company's U.K. pension plan assets for the years ended December 31, 2013 and 2012:
During 2012, the Company recorded pretax special charges of $11,332,000, consisting of $1,163,000 for severance costs, $642,000 for retention bonuses, $849,000 for temporary labor costs, and $140,000 for other expenses for a project to outsource certain aspects of our U.S. technology infrastructure; $4,285,000 to adjust the estimated loss on a leased facility the Company no longer uses; and $3,404,000 for severance costs and $849,000 for lease termination costs, primarily related to restructuring activities in its North American operations.