Item 1. Financial Statements
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(In thousands, except per share amounts)
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
Revenues before reimbursements
|
$
|
269,247
|
|
|
$
|
282,343
|
|
Reimbursements
|
14,725
|
|
|
15,326
|
|
Total Revenues
|
283,972
|
|
|
297,669
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
Costs of services provided, before reimbursements
|
186,327
|
|
|
200,362
|
|
Reimbursements
|
14,725
|
|
|
15,326
|
|
Total costs of services
|
201,052
|
|
|
215,688
|
|
|
|
|
|
Selling, general, and administrative expenses
|
57,327
|
|
|
61,060
|
|
|
|
|
|
Corporate interest expense, net of interest income of $224 and $151, respectively
|
2,114
|
|
|
2,523
|
|
|
|
|
|
Restructuring and special charges
|
6,782
|
|
|
3,526
|
|
|
|
|
|
Total Costs and Expenses
|
267,275
|
|
|
282,797
|
|
|
|
|
|
Other Income
|
388
|
|
|
405
|
|
|
|
|
|
Income Before Income Taxes
|
17,085
|
|
|
15,277
|
|
|
|
|
|
Provision for Income Taxes
|
6,812
|
|
|
6,116
|
|
|
|
|
|
Net Income
|
10,273
|
|
|
9,161
|
|
|
|
|
|
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
(72
|
)
|
|
(534
|
)
|
|
|
|
|
Net Income Attributable to Shareholders of Crawford & Company
|
$
|
10,201
|
|
|
$
|
8,627
|
|
|
|
|
|
Earnings Per Share - Basic:
|
|
|
|
Class A Common Stock
|
$
|
0.19
|
|
|
$
|
0.16
|
|
Class B Common Stock
|
$
|
0.17
|
|
|
$
|
0.14
|
|
|
|
|
|
Earnings Per Share - Diluted:
|
|
|
|
Class A Common Stock
|
$
|
0.19
|
|
|
$
|
0.16
|
|
Class B Common Stock
|
$
|
0.17
|
|
|
$
|
0.14
|
|
|
|
|
|
Weighted-Average Shares Used to Compute Basic Earnings Per Share:
|
|
|
|
Class A Common Stock
|
31,394
|
|
|
30,725
|
|
Class B Common Stock
|
24,678
|
|
|
24,690
|
|
|
|
|
|
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:
|
|
|
|
Class A Common Stock
|
32,119
|
|
|
31,253
|
|
Class B Common Stock
|
24,678
|
|
|
24,690
|
|
|
|
|
|
Cash Dividends Per Share:
|
|
|
|
Class A Common Stock
|
$
|
0.07
|
|
|
$
|
0.07
|
|
Class B Common Stock
|
$
|
0.05
|
|
|
$
|
0.05
|
|
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In thousands, except per share amounts)
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
Revenues before reimbursements
|
$
|
536,514
|
|
|
$
|
559,577
|
|
Reimbursements
|
26,988
|
|
|
29,000
|
|
Total Revenues
|
563,502
|
|
|
588,577
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
Costs of services provided, before reimbursements
|
378,881
|
|
|
401,795
|
|
Reimbursements
|
26,988
|
|
|
29,000
|
|
Total costs of services
|
405,869
|
|
|
430,795
|
|
|
|
|
|
Selling, general, and administrative expenses
|
117,319
|
|
|
117,857
|
|
|
|
|
|
Corporate interest expense, net of interest income of $407 and $221, respectively
|
4,150
|
|
|
5,291
|
|
|
|
|
|
Restructuring and special charges
|
7,387
|
|
|
5,943
|
|
|
|
|
|
Total Costs and Expenses
|
534,725
|
|
|
559,886
|
|
|
|
|
|
Other Income
|
766
|
|
|
522
|
|
|
|
|
|
Income Before Income Taxes
|
29,543
|
|
|
29,213
|
|
|
|
|
|
Provision for Income Taxes
|
11,647
|
|
|
11,423
|
|
|
|
|
|
Net Income
|
17,896
|
|
|
17,790
|
|
|
|
|
|
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
(31
|
)
|
|
(533
|
)
|
|
|
|
|
Net Income Attributable to Shareholders of Crawford & Company
|
$
|
17,865
|
|
|
$
|
17,257
|
|
|
|
|
|
Earnings Per Share - Basic:
|
|
|
|
Class A Common Stock
|
$
|
0.34
|
|
|
$
|
0.33
|
|
Class B Common Stock
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
|
|
|
Earnings Per Share - Diluted:
|
|
|
|
Class A Common Stock
|
$
|
0.33
|
|
|
$
|
0.33
|
|
Class B Common Stock
|
$
|
0.29
|
|
|
$
|
0.29
|
|
|
|
|
|
Weighted-Average Shares Used to Compute Basic Earnings Per Share:
|
|
|
|
Class A Common Stock
|
31,401
|
|
|
30,635
|
|
Class B Common Stock
|
24,684
|
|
|
24,690
|
|
|
|
|
|
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:
|
|
|
|
Class A Common Stock
|
32,181
|
|
|
31,031
|
|
Class B Common Stock
|
24,684
|
|
|
24,690
|
|
|
|
|
|
Cash Dividends Per Share:
|
|
|
|
Class A Common Stock
|
$
|
0.14
|
|
|
$
|
0.14
|
|
Class B Common Stock
|
$
|
0.10
|
|
|
$
|
0.10
|
|
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(In thousands)
|
2017
|
|
2016
|
|
|
|
|
Net Income
|
$
|
10,273
|
|
|
$
|
9,161
|
|
|
|
|
|
Other Comprehensive Income:
|
|
|
|
Net foreign currency translation income, net of tax of $0 and $0, respectively
|
653
|
|
|
5,864
|
|
|
|
|
|
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $990 and $1,107, respectively
|
1,750
|
|
|
2,141
|
|
|
|
|
|
Other Comprehensive Income
|
2,403
|
|
|
8,005
|
|
|
|
|
|
Comprehensive Income
|
12,676
|
|
|
17,166
|
|
|
|
|
|
Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests
|
(202
|
)
|
|
(65
|
)
|
|
|
|
|
Comprehensive Income Attributable to Shareholders of Crawford & Company
|
$
|
12,474
|
|
|
$
|
17,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In thousands)
|
2017
|
|
2016
|
|
|
|
|
Net Income
|
$
|
17,896
|
|
|
$
|
17,790
|
|
|
|
|
|
Other Comprehensive Income:
|
|
|
|
Net foreign currency translation income, net of tax of $0 and $0, respectively
|
1,531
|
|
|
3,447
|
|
|
|
|
|
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $1,979 and $2,213, respectively
|
3,533
|
|
|
4,282
|
|
|
|
|
|
Other Comprehensive Income
|
5,064
|
|
|
7,729
|
|
|
|
|
|
Comprehensive Income
|
22,960
|
|
|
25,519
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
653
|
|
|
550
|
|
|
|
|
|
Comprehensive Income Attributable to Shareholders of Crawford & Company
|
$
|
23,613
|
|
|
$
|
26,069
|
|
|
|
|
|
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
*
|
(In thousands)
|
June 30,
2017
|
|
December 31,
2016
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
59,962
|
|
|
$
|
81,569
|
|
Accounts receivable, less allowance for doubtful accounts of $15,798 and $14,499 respectively
|
168,047
|
|
|
153,566
|
|
Unbilled revenues, at estimated billable amounts
|
114,969
|
|
|
101,809
|
|
Income taxes receivable
|
3,781
|
|
|
3,781
|
|
Prepaid expenses and other current assets
|
25,025
|
|
|
24,006
|
|
Total Current Assets
|
371,784
|
|
|
364,731
|
|
Net Property and Equipment
|
28,329
|
|
|
29,605
|
|
Other Assets:
|
|
|
|
Goodwill
|
116,488
|
|
|
91,750
|
|
Intangible assets arising from business acquisitions, net
|
101,942
|
|
|
86,931
|
|
Capitalized software costs, net
|
84,779
|
|
|
80,960
|
|
Deferred income tax assets
|
28,764
|
|
|
30,379
|
|
Other noncurrent assets
|
58,188
|
|
|
51,503
|
|
Total Other Assets
|
390,161
|
|
|
341,523
|
|
TOTAL ASSETS
|
$
|
790,274
|
|
|
$
|
735,859
|
|
* Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
*
|
(In thousands, except par value amounts)
|
June 30,
2017
|
|
December 31,
2016
|
LIABILITIES AND SHAREHOLDERS' INVESTMENT
|
|
|
|
Current Liabilities:
|
|
|
|
Short-term borrowings
|
$
|
5,383
|
|
|
$
|
30
|
|
Accounts payable
|
50,520
|
|
|
51,991
|
|
Accrued compensation and related costs
|
56,604
|
|
|
74,466
|
|
Self-insured risks
|
13,705
|
|
|
14,771
|
|
Income taxes payable
|
6,831
|
|
|
3,527
|
|
Deferred rent
|
11,283
|
|
|
12,142
|
|
Other accrued liabilities
|
38,434
|
|
|
34,922
|
|
Deferred revenues
|
38,187
|
|
|
37,456
|
|
Current installments of long-term debt and capital leases
|
543
|
|
|
982
|
|
Total Current Liabilities
|
221,490
|
|
|
230,287
|
|
Noncurrent Liabilities:
|
|
|
|
Long-term debt and capital leases, less current installments
|
241,199
|
|
|
187,002
|
|
Deferred revenues
|
24,668
|
|
|
25,884
|
|
Accrued pension liabilities
|
95,782
|
|
|
105,175
|
|
Other noncurrent liabilities
|
23,769
|
|
|
28,247
|
|
Total Noncurrent Liabilities
|
385,418
|
|
|
346,308
|
|
Redeemable Noncontrolling Interests
|
7,362
|
|
|
—
|
|
Shareholders' Investment:
|
|
|
|
Class A common stock, $1.00 par value; 50,000 shares authorized; 31,258 and 31,296 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
|
31,258
|
|
|
31,296
|
|
Class B common stock, $1.00 par value; 50,000 shares authorized; 24,642 and 24,690 shares issued and outstanding at June 30, 2017 and December 31, 2016 respectively
|
24,642
|
|
|
24,690
|
|
Additional paid-in capital
|
51,514
|
|
|
48,108
|
|
Retained earnings
|
270,221
|
|
|
261,562
|
|
Accumulated other comprehensive loss
|
(206,025
|
)
|
|
(211,773
|
)
|
Shareholders' Investment Attributable to Shareholders of Crawford & Company
|
171,610
|
|
|
153,883
|
|
Noncontrolling interests
|
4,394
|
|
|
5,381
|
|
Total Shareholders' Investment
|
176,004
|
|
|
159,264
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT
|
$
|
790,274
|
|
|
$
|
735,859
|
|
* Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In thousands)
|
2017
|
|
2016
|
Cash Flows From Operating Activities:
|
|
|
|
Net income
|
$
|
17,896
|
|
|
$
|
17,790
|
|
Reconciliation of net income to net cash (used in) provided by operating activities:
|
|
|
|
Depreciation and amortization
|
20,358
|
|
|
20,558
|
|
Stock-based compensation
|
3,405
|
|
|
1,957
|
|
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
|
|
|
|
Accounts receivable, net
|
(12,192
|
)
|
|
(7,437
|
)
|
Unbilled revenues, net
|
(10,899
|
)
|
|
(13,306
|
)
|
Accrued or prepaid income taxes
|
4,078
|
|
|
3,224
|
|
Accounts payable and accrued liabilities
|
(24,626
|
)
|
|
1,949
|
|
Deferred revenues
|
(658
|
)
|
|
(4,084
|
)
|
Accrued retirement costs
|
(10,409
|
)
|
|
(5,247
|
)
|
Prepaid expenses and other operating activities
|
(3,312
|
)
|
|
(3,945
|
)
|
Net cash (used in) provided by operating activities
|
(16,359
|
)
|
|
11,459
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
Acquisitions of property and equipment
|
(3,767
|
)
|
|
(4,588
|
)
|
Proceeds from disposals of property and equipment
|
316
|
|
|
—
|
|
Capitalization of computer software costs
|
(12,155
|
)
|
|
(8,749
|
)
|
Payments for business acquisitions, net of cash acquired
|
(36,029
|
)
|
|
(3,672
|
)
|
Other investing activities
|
(257
|
)
|
|
(95
|
)
|
Net cash used in investing activities
|
(51,892
|
)
|
|
(17,104
|
)
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
Cash dividends paid
|
(6,869
|
)
|
|
(6,762
|
)
|
Payments related to shares received for withholding taxes under stock-based compensation plans
|
(435
|
)
|
|
(4
|
)
|
Proceeds from shares purchased under employee stock-based compensation plans
|
297
|
|
|
449
|
|
Decrease in note payable for stock repurchase
|
—
|
|
|
(2,206
|
)
|
Repurchases of common stock
|
(3,434
|
)
|
|
—
|
|
Increases in short-term and revolving credit facility borrowings
|
61,318
|
|
|
51,471
|
|
Payments on short-term and revolving credit facility borrowings
|
(4,897
|
)
|
|
(52,825
|
)
|
Payments on capital lease obligations
|
(693
|
)
|
|
(935
|
)
|
Dividends paid to noncontrolling interests
|
—
|
|
|
(210
|
)
|
Other financing activities
|
—
|
|
|
(12
|
)
|
Net cash provided by (used in) financing activities
|
45,287
|
|
|
(11,034
|
)
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
1,357
|
|
|
(22
|
)
|
Decrease in cash and cash equivalents
|
(21,607
|
)
|
|
(16,701
|
)
|
Cash and cash equivalents at beginning of year
|
81,569
|
|
|
76,066
|
|
Cash and cash equivalents at end of period
|
$
|
59,962
|
|
|
$
|
59,365
|
|
(See accompanying notes to condensed consolidated financial statements)
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Unaudited
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
Shareholders' Investment Attributable to
|
|
|
|
|
2017
|
Class A
Non-Voting
|
|
Class B
Voting
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Other
Comprehensive
Loss
|
|
Shareholders of
Crawford &
Company
|
|
Noncontrolling
Interests
|
|
Total
Shareholders' Investment
|
Balance at January 1, 2017
|
$
|
31,296
|
|
|
$
|
24,690
|
|
|
$
|
48,108
|
|
|
$
|
261,562
|
|
|
$
|
(211,773
|
)
|
|
$
|
153,883
|
|
|
$
|
5,381
|
|
|
$
|
159,264
|
|
Net income
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
7,664
|
|
|
—
|
|
|
7,664
|
|
|
137
|
|
|
7,801
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,475
|
|
|
3,475
|
|
|
(814
|
)
|
|
2,661
|
|
Cash dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,441
|
)
|
|
—
|
|
|
(3,441
|
)
|
|
—
|
|
|
(3,441
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
1,296
|
|
|
—
|
|
|
—
|
|
|
1,296
|
|
|
—
|
|
|
1,296
|
|
Cumulative-effect adjustment of ASU 2016-09
|
—
|
|
|
—
|
|
|
—
|
|
|
692
|
|
|
—
|
|
|
692
|
|
|
—
|
|
|
692
|
|
Common stock activity
|
231
|
|
|
—
|
|
|
(629
|
)
|
|
—
|
|
|
—
|
|
|
(398
|
)
|
|
—
|
|
|
(398
|
)
|
Acquisition of noncontrolling interests
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
(715
|
)
|
|
(681
|
)
|
Balance at March 31, 2017
|
$
|
31,527
|
|
|
$
|
24,690
|
|
|
$
|
48,809
|
|
|
$
|
266,477
|
|
|
$
|
(208,298
|
)
|
|
$
|
163,205
|
|
|
$
|
3,989
|
|
|
$
|
167,194
|
|
Net income
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
10,201
|
|
|
—
|
|
|
10,201
|
|
|
275
|
|
|
10,476
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,273
|
|
|
2,273
|
|
|
130
|
|
|
2,403
|
|
Cash dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,428
|
)
|
|
—
|
|
|
(3,428
|
)
|
|
—
|
|
|
(3,428
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,109
|
|
|
—
|
|
|
—
|
|
|
2,109
|
|
|
—
|
|
|
2,109
|
|
Repurchases of common stock
|
(357
|
)
|
|
(48
|
)
|
|
—
|
|
|
(3,029
|
)
|
|
—
|
|
|
(3,434
|
)
|
|
—
|
|
|
(3,434
|
)
|
Common stock activity
|
88
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
—
|
|
|
260
|
|
|
—
|
|
|
260
|
|
Acquisition of noncontrolling interests
|
—
|
|
|
—
|
|
|
424
|
|
|
—
|
|
|
—
|
|
|
424
|
|
|
—
|
|
|
424
|
|
Balance at June 30, 2017
|
$
|
31,258
|
|
|
$
|
24,642
|
|
|
$
|
51,514
|
|
|
$
|
270,221
|
|
|
$
|
(206,025
|
)
|
|
$
|
171,610
|
|
|
$
|
4,394
|
|
|
$
|
176,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
Shareholders' Investment Attributable to
|
|
|
|
|
2016
|
Class A
Non-Voting
|
|
Class B
Voting
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Other
Comprehensive
Loss
|
|
Shareholders of
Crawford &
Company
|
|
Noncontrolling
Interests
|
|
Total
Shareholders' Investment
|
Balance at January 1, 2016
|
$
|
30,537
|
|
|
$
|
24,690
|
|
|
$
|
41,936
|
|
|
$
|
239,161
|
|
|
$
|
(222,631
|
)
|
|
$
|
113,693
|
|
|
$
|
10,658
|
|
|
$
|
124,351
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
8,630
|
|
|
—
|
|
|
8,630
|
|
|
(1
|
)
|
|
8,629
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
338
|
|
|
338
|
|
|
(614
|
)
|
|
(276
|
)
|
Cash dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,373
|
)
|
|
—
|
|
|
(3,373
|
)
|
|
—
|
|
|
(3,373
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
729
|
|
|
—
|
|
|
—
|
|
|
729
|
|
|
—
|
|
|
729
|
|
Common stock activity
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Acquisition of noncontrolling interests
|
—
|
|
|
—
|
|
|
1,079
|
|
|
—
|
|
|
—
|
|
|
1,079
|
|
|
(4,879
|
)
|
|
(3,800
|
)
|
Dividends paid to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
(186
|
)
|
Balance at March 31, 2016
|
$
|
30,551
|
|
|
$
|
24,690
|
|
|
$
|
43,744
|
|
|
$
|
244,418
|
|
|
$
|
(222,293
|
)
|
|
$
|
121,110
|
|
|
$
|
4,978
|
|
|
$
|
126,088
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
8,627
|
|
|
—
|
|
|
8,627
|
|
|
534
|
|
|
9,161
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,474
|
|
|
8,474
|
|
|
(469
|
)
|
|
8,005
|
|
Cash dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,389
|
)
|
|
—
|
|
|
(3,389
|
)
|
|
—
|
|
|
(3,389
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
1,228
|
|
|
—
|
|
|
—
|
|
|
1,228
|
|
|
—
|
|
|
1,228
|
|
Common stock activity
|
250
|
|
|
—
|
|
|
181
|
|
|
—
|
|
|
—
|
|
|
431
|
|
|
—
|
|
|
431
|
|
Dividends paid to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
(23
|
)
|
Balance at June 30, 2016
|
$
|
30,801
|
|
|
$
|
24,690
|
|
|
$
|
45,153
|
|
|
$
|
249,656
|
|
|
$
|
(213,819
|
)
|
|
$
|
136,481
|
|
|
$
|
5,020
|
|
|
$
|
141,501
|
|
(See accompanying notes to condensed consolidated financial statements)
(1)
The total net income presented in the consolidated statements of shareholders' investment for the three months ended March 31, and June 30, 2017 excludes
$178
and
$203
, respectively, in net loss attributable to the redeemable noncontrolling interests.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Based in Atlanta, Georgia, Crawford & Company ("Crawford" or "the Company") is the world's largest publicly listed 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 Solution
®
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 ("NYSE") under the symbols CRD-A and CRD-B, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class. 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.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the "SEC"). Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Operating results for the
three months
and
six months
ended, and the Company's financial position as of,
June 30, 2017
are not necessarily indicative of the results or financial position that may be expected for the year ending
December 31, 2017
or for other future periods. The financial results from the Company's 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 (fiscal year-end of October 31) as permitted by GAAP in order to provide sufficient time for accumulation of their results.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments (consisting only of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. There have been no material changes to our significant accounting policies and estimates from those disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
Certain prior period amounts among the segments have been reclassified to conform to the current presentation. These reclassifications had no effect on the Company's reported consolidated results. Significant intercompany transactions have been eliminated in consolidation.
The Condensed Consolidated Balance Sheet information presented herein as of
December 31, 2016
has been derived from the audited consolidated financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
The Company consolidates the liabilities of its deferred compensation plan and the related assets, which are held in a rabbi trust and also considered a variable interest entity ("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
June 30, 2017
and
December 31, 2016
, the liabilities of the deferred compensation plan were
$7,609,000
and
$9,385,000
, respectively,
which represented obligations of the Company rather than of the rabbi trust, and the values of the assets held in the related rabbi trust
were
$16,395,000
and
$16,227,000
, respectively. These liabilities and assets are included in "Other noncurrent liabilities" and "Other noncurrent assets," respectively, on the Company's unaudited Condensed Consolidated Balance Sheets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The Company owns
51%
of the capital stock of Lloyd Warwick International Limited ("LWI"). The Company has also agreed to provide financial support to LWI of up to approximately
$10,000,000
. Because of this controlling financial interest, and because Crawford has the obligation to absorb certain of LWI's losses through the additional financial support that LWI may require, LWI is considered a VIE of the Company. LWI also does not meet the business scope exception, as Crawford provides more than half of its financial support, and because LWI lacks sufficient equity at risk to permit it to carry on its activities without this additional financial support. Creditors of LWI have no recourse to Crawford's general credit. Accordingly, Crawford is considered the primary beneficiary and consolidates LWI. Total assets and liabilities of LWI as of
June 30, 2017
were
$9,696,000
and
$10,683,000
, respectively. Total assets and liabilities of LWI as of
December 31, 2016
were
$9,300,000
and
$10,554,000
, respectively. Included in LWI's total liabilities is a loan from Crawford of
$8,780,000
and
$8,704,000
as of
June 30, 2017
and
December 31, 2016
, respectively.
Noncontrolling interests represent the minority shareholders' share of the net income or loss and shareholders' investment in consolidated subsidiaries. Noncontrolling interests are presented as a component of shareholders' investment in the unaudited Condensed Consolidated Balance Sheets and reflect the initial fair value of these investments by noncontrolling shareholders, along with their proportionate share of the income or loss of the subsidiaries, less any dividends or distributions. Noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' investment as "Redeemable Noncontrolling Interests" and are carried at either their initial fair value plus any profits or losses or estimated redemption value if an adjustment is required.
2. Business Acquisition
On January 4, 2017, the Company acquired
85%
of the outstanding membership interests of WeGoLook
®
, LLC, for the purchase price of
$36,125,000
. WeGoLook provides a variety of on-demand inspection, verification, and other field services for businesses and consumers through a mobile platform of independent contractors.
Based on our preliminary acquisition accounting, net tangible assets acquired totaled
$1,064,000
, including
$100,000
of cash. The difference between the purchase price and the net assets acquired represents indefinite and definite-lived intangible assets, goodwill and redeemable noncontrolling interests. The acquisition was funded primarily through additional borrowings under the Company's credit facility.
The purchase agreement also provides that: (a)
$250,000
of the purchase price will be held in escrow to secure the net working capital post-closing adjustment; and (b)
$800,000
of the purchase price will be held in escrow for a period of
15 months
, and
$1,000,000
of the purchase price will be held in escrow for a period of
24 months
, after the closing date in each case, to secure any valid indemnification claims that the Company may assert for specified breaches of representations, warranties or covenants under the purchase agreement.
No
amounts have been released from escrow as of
June 30, 2017
.
The Company has an option, beginning on January 1, 2022 and expiring on December 31, 2023, to acquire the remaining
15%
of the outstanding membership interests of WeGoLook. In the event the Company does not exercise the option, beginning on January 1, 2024, the minority members shall have the right to require the Company to acquire the minority members’ interests on or before December 31, 2024. In addition, at the time of the exercise of the option or the put, the minority members may be entitled to additional consideration depending on whether certain financial targets of WeGoLook are achieved between closing and December 31, 2021.
The acquisition was accounted for under the guidance of ASC 805-10, as a business combination under the acquisition method. The preliminary application of acquisition accounting to the assets acquired, and liabilities and redeemable noncontrolling interests assumed, as well as the results of operations of WeGoLook including income or loss attributable to redeemable noncontrolling interests, are reported within the Company’s U.S. Services segment.
As a result of the acquisition, the Company preliminarily recognized definite-lived intangible assets of
$17,794,000
consisting of developed technology, customer relationships, non-compete agreements and established relationships with independent contractors. The estimated useful lives of these definite-lived intangible assets range from
three
to
ten
years. The Company recognized related amortization expense of
$643,000
and
$1,287,000
in its unaudited Condensed Consolidated Statements of Operations for the three months and
six months
ended
June 30, 2017
. The Company preliminarily recognized goodwill of
$23,977,000
related to the acquisition. The Company anticipates the goodwill attributable to the acquisition will be deductible for tax purposes. The Company recognized noncontrolling interests of
$7,743,000
which were measured at fair value at the acquisition date.
The noncontrolling interests have been recorded as "Redeemable Noncontrolling Interests" in the Company's unaudited Condensed Consolidated Balance Sheets.
During the
six months
ended
June 30, 2017
, no changes were made to the redemption value of the redeemable noncontrolling interests; the change in value was due to the loss for the period. See Note 1, “Basis of Presentation” for a discussion of noncontrolling interests and redeemable noncontrolling interests.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The allocation of the purchase price is preliminary and subject to change, as the Company gathers additional information related to the assets acquired and liabilities and redeemable noncontrolling interests assumed, including intangible assets, other assets, accrued liabilities, deferred taxes, and uncertain tax positions. The Company is in the process of obtaining final third-party valuations of certain intangible assets; thus, the provisional measurements of intangible assets, goodwill, redeemable noncontrolling interests, and deferred income taxes are subject to change.
The Company does not anticipate the WeGoLook operations will have a material impact on the Company’s consolidated results of operations or its earnings per share during 2017. For the three months and
six months
ended
June 30, 2017
, WeGoLook accounted for
$2,227,000
and
$4,158,000
of the Company’s consolidated revenues before reimbursements, respectively.
3. Recently Issued Accounting Standards
Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting
In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-9, "Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting." The ASU was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the effect this ASU may have on its results of operations, financial condition and cash flows.
Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
In March 2017, the FASB issued ASU 2017-7, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the effect this ASU may have on its results of operations, financial condition and cash flows.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-4, "Simplifying the Test for Goodwill Impairment." The ASU was issued to simplify subsequent measurement of goodwill. The update eliminates Step 2 from the goodwill impairment test. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company elected to early adopt this ASU for the three-month period ended March 31, 2017, with no effect on its results of operations, financial condition or cash flows.
Clarifying the Definition of a Business
In January 2017, the FASB issued ASU 2017-1, "Clarifying the Definition of a Business." The ASU was issued to clarify the definition of a business for purposes of acquisitions and dispositions. The amendments in this update provide a more robust framework than prior guidance to use in determining when a set of assets and activities constitutes a business. The Company early adopted this ASU during the three-month period ended March 31, 2017, with no effect on its results of operations, financial condition or cash flows.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Restricted Cash
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash." The ASU was issued to address diversity in practice in the classification and presentation of a change in restricted cash on the statement of cash flows. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company early adopted this ASU for the three-month period ended March 31, 2017, with no effect on its statement of cash flows.
Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory." The update was issued to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. The initiative is designed to reduce the complexity in accounting standards. Under the amendment an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU may have on its results of operations, financial condition and cash flows.
Classification of Certain Cash Receipts and Cash Payments in the Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments." The update addresses diversity in cash flow reporting issues. The guidance specifically addresses issues concerning debt repayment costs, settlement of zero coupon debt instruments, contingent consideration payments made after a business combination, proceeds from insurance claims and corporate owned life insurance beneficial interests in securitization transactions, and distributions from equity method investees. The guidance also clarifies how the predominant principle should be applied when cash receipts and cash payments have more than one class of cash flows. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this amendment may have on its statement of cash flows.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This update replaces the incurred loss methodology to record credit losses with a methodology that reflects the expected credit losses for financial assets not accounted for at fair value with gains and losses recognized through income. The amendment is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the effect this amendment may have on its results of operations, financial condition and cash flows.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." This update was issued as part of a simplification effort for the accounting of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, change in forfeiture accounting, and classification on the statement of cash flows. The Company adopted this standard prospectively effective January 1, 2017. Prior periods have not been adjusted. As a result of adoption, the Company recorded an entry to deferred tax assets and increased retained earnings in the amount of
$692,000
for tax benefits not previously recorded related to stock compensation. The Company will record all excess tax benefits and tax deficiencies on share-based payment awards as a discrete item in the income statement as these awards vest or are exercised. Forfeitures will be recognized as they occur. The Company reflects all payments made to taxing authorities on behalf of employees by withholding shares as a financing activity in the statement of cash flows. During the quarter and six months ended June 30, 2017, the Company recorded tax expense and benefit of
$38,000
and
$200,000
, respectively, as a result of adoption of this standard.
Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU 2016-07, "Simplifying the Transition to the Equity Method of Accounting." This update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods thereafter. The Company adopted this standard effective January 1, 2017, with no impact to its results of operations, financial condition and cash flows.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Financial Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, "Financial Accounting for Leases." Under this update, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, this ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The update is effective for annual periods beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this update may have on its results of operations, financial condition and cash flows.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." Under ASU 2014-09, companies will be required to recognize revenue to depict the transfer of control for goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and modify guidance for multiple-element arrangements. In August 2015, the FASB issued ASU 2015-14, which deferred by one year the effective date of ASU 2014-09. The one year deferral of the effective date of this standard changed the effective date for the Company to January 1, 2018. Early adoption is permitted, but not before the original effective date. The FASB issued ASU 2016-08, "Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" in March 2016, ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing" in April 2016, ASU 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," in May 2016, and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” in December 2016. All of these amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard.
The Company has reviewed a sample of contracts with its customers that represent approximately 50% of its consolidated annual revenues before reimbursements that the Company believes is representative of its significant revenue streams identified to date. The assessment of the impact on revenue and expenses based on these reviews to determine the impact to the Company’s results of operations, financial position and cash flows as a result of this guidance is ongoing. As the Company completes its overall assessment, it is also identifying and preparing to implement changes to its accounting policies and disclosure requirements. For example, the ASU requires increased disclosure, which in turn is expected to require certain new processes and system changes. The Company's evaluation indicates that process and system changes will be required to capture the amounts and expected timing of revenues to be recognized from the remaining performance obligations during and as of each reporting period. The Company expects to adopt this new standard as of January 1, 2018 using the modified retrospective method that may result in a cumulative effect adjustment as of the date of adoption.
4. Income Taxes
The Company's consolidated effective income tax rate may change periodically due to 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 loss and tax credit carryforwards, and amounts related to uncertain income tax positions. At
June 30, 2017
, the Company estimates that its effective income tax rate for
2017
will be approximately
37%
after considering known discrete items. The provision for income taxes on consolidated income totaled
$6.8 million
and
$6.1 million
for the
three months ended June 30, 2017
and
2016
, respectively.The provision for income taxes on consolidated income totaled
$11.6 million
and
$11.4 million
for the
six months ended June 30, 2017
and
2016
, respectively. The overall effective tax rate increased slightly to
39.4%
for the six months ended June 30, 2017 compared with
39.1%
for the 2016 period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
5. Defined Benefit Pension Plans
Net periodic benefit cost related to all of the Company's defined benefit pension plans recognized in the Company's unaudited Condensed Consolidated Statements of Operations for the
three months
and
six months
ended
June 30, 2017
and
2016
included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
Service cost
|
$
|
328
|
|
|
$
|
368
|
|
|
$
|
657
|
|
|
$
|
658
|
|
Interest cost
|
6,226
|
|
|
8,664
|
|
|
12,396
|
|
|
16,572
|
|
Expected return on assets
|
(8,964
|
)
|
|
(10,938
|
)
|
|
(17,928
|
)
|
|
(20,758
|
)
|
Amortization of actuarial loss
|
3,094
|
|
|
3,541
|
|
|
6,145
|
|
|
6,818
|
|
Net periodic benefit cost
|
$
|
684
|
|
|
$
|
1,635
|
|
|
$
|
1,270
|
|
|
$
|
3,290
|
|
For the
six-month
period ended
June 30, 2017
, the Company made contributions of
$6,000,000
and
$2,658,000
to its U.S. and U.K. defined benefit pension plans, respectively, compared with contributions of
$6,000,000
and
$3,072,000
, respectively, in the comparable
2016
period. The Company is not required to make any additional contributions to its U.S. or U.K. defined benefit pension plans for the remainder of 2017; however, the Company expects to make additional contributions of approximately
$3,000,000
and
$2,707,000
to its U.S. and U.K. plans, respectively, during the remainder of
2017
.
6. Net Income Attributable to Shareholders of Crawford & Company per Common Share
The Company computes earnings per share of its non-voting Class A Common Stock ("CRD-A") and voting Class B Common Stock ("CRD-B") using the two-class method, which allocates the undistributed earnings in 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 CRD-A shares than on the CRD-B shares, subject to certain limitations. In periods when the dividend is the same for CRD-A and CRD-B or when no dividends are declared or paid to either class, the two-class method generally will yield the same earnings per share for CRD-A and CRD-B. During the first two quarters of 2017 and 2016, the Board of Directors declared a higher dividend on CRD-A than on CRD-B.
The computations of basic net income attributable to shareholders of Crawford & Company per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
(in thousands, except per share amounts)
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
Earnings per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings
|
$
|
3,792
|
|
$
|
2,981
|
|
|
$
|
2,904
|
|
$
|
2,334
|
|
|
$
|
6,156
|
|
$
|
4,840
|
|
|
$
|
5,811
|
|
$
|
4,683
|
|
Dividends paid
|
2,193
|
|
1,235
|
|
|
2,155
|
|
1,234
|
|
|
4,400
|
|
2,469
|
|
|
4,294
|
|
2,469
|
|
Net income attributable to common shareholders, basic
|
$
|
5,985
|
|
$
|
4,216
|
|
|
$
|
5,059
|
|
$
|
3,568
|
|
|
$
|
10,556
|
|
$
|
7,309
|
|
|
$
|
10,105
|
|
$
|
7,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic
|
31,394
|
|
24,678
|
|
|
30,725
|
|
24,690
|
|
|
31,401
|
|
24,684
|
|
|
30,635
|
|
24,690
|
|
Earnings per share - basic
|
$
|
0.19
|
|
$
|
0.17
|
|
|
$
|
0.16
|
|
$
|
0.14
|
|
|
$
|
0.34
|
|
$
|
0.30
|
|
|
$
|
0.33
|
|
$
|
0.29
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The computations of diluted net income attributable to shareholders of Crawford & Company per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
(in thousands, except per share amounts)
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
|
CRD-A
|
CRD-B
|
Earnings per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings
|
$
|
3,830
|
|
$
|
2,943
|
|
|
$
|
2,926
|
|
$
|
2,312
|
|
|
$
|
6,223
|
|
$
|
4,773
|
|
|
$
|
5,844
|
|
$
|
4,650
|
|
Dividends paid
|
2,193
|
|
1,235
|
|
|
2,155
|
|
1,234
|
|
|
4,400
|
|
2,469
|
|
|
4,294
|
|
2,469
|
|
Net income attributable to common shareholders, diluted
|
$
|
6,023
|
|
$
|
4,178
|
|
|
$
|
5,081
|
|
$
|
3,546
|
|
|
$
|
10,623
|
|
$
|
7,242
|
|
|
$
|
10,138
|
|
$
|
7,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic
|
31,394
|
|
24,678
|
|
|
30,725
|
|
24,690
|
|
|
31,401
|
|
24,684
|
|
|
30,635
|
|
24,690
|
|
Weighted-average effect of dilutive securities
|
725
|
|
—
|
|
|
528
|
|
—
|
|
|
780
|
|
—
|
|
|
396
|
|
—
|
|
Weighted-average common shares outstanding, diluted
|
32,119
|
|
24,678
|
|
|
31,253
|
|
24,690
|
|
|
32,181
|
|
24,684
|
|
|
31,031
|
|
24,690
|
|
Earnings per share - diluted
|
$
|
0.19
|
|
$
|
0.17
|
|
|
$
|
0.16
|
|
$
|
0.14
|
|
|
$
|
0.33
|
|
$
|
0.29
|
|
|
$
|
0.33
|
|
$
|
0.29
|
|
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 antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
Shares underlying stock options excluded due to the options' respective exercise prices being greater than the average stock price during the period
|
786
|
|
|
—
|
|
|
673
|
|
|
74
|
|
Performance stock grants excluded because performance conditions have not been met
(1)
|
402
|
|
|
1,000
|
|
|
402
|
|
|
1,000
|
|
________________________________________________
|
|
(1)
|
Compensation cost is recognized for these performance stock grants based on expected achievement rates; however, no consideration is given to these performance stock grants when calculating earnings per share until the performance measurements have been achieved.
|
The following table details shares issued during the
three months
and
six months
ended
June 30, 2017
and
June 30, 2016
. These shares are included from their dates of issuance in the weighted-average common shares used to compute basic and diluted earnings per share for CRD-A in the table above. There were no shares of CRD-B issued during any of these periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
CRD-A issued under Non-Employee Director Stock Plan
|
10
|
|
|
113
|
|
|
90
|
|
|
119
|
|
CRD-A issued under the U.K. ShareSave Scheme
|
57
|
|
|
134
|
|
|
59
|
|
|
141
|
|
CRD-A issued under the Executive Stock Bonus Plan
|
—
|
|
|
3
|
|
|
107
|
|
|
4
|
|
CRD-A issued under the 2016 Omnibus Stock and Incentive Plan
|
20
|
|
|
—
|
|
|
62
|
|
|
—
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The Company's share repurchase authorization, approved in August 2014, provides the Company with the ability to repurchase up to
2,000,000
shares of CRD-A or CRD-B (or both) through July 2017 (the "2014 Repurchase Authorization"). At June 30, 2017, the Company had remaining authorization to repurchase
1,050,492
shares under the 2014 Repurchase Authorization. Under the 2014 Repurchase Authorization, repurchases may be made in open market or privately negotiated transactions at such times and for such prices as management deems appropriate, subject to applicable contractual and regulatory restrictions.
During the three months and six months ended June 30, 2017, the Company repurchased
356,320
shares of CRD-A and
48,488
shares of CRD-B at an average cost of
$8.42
and
$8.96
, respectively. During the
three months
and
six months
ended June 30, 2016 the Company did not repurchase any shares of CRD-A or CRD-B.
7. Accumulated Other Comprehensive Loss
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 unaudited condensed consolidated financial statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
Six months ended June 30, 2017
|
(in thousands)
|
Foreign currency translation adjustments
|
|
Retirement liabilities
(1)
|
|
AOCL attributable to shareholders of Crawford & Company
|
|
Foreign currency translation adjustments
|
|
Retirement liabilities
(1)
|
|
AOCL attributable to shareholders of Crawford & Company
|
Beginning balance
|
$
|
(31,757
|
)
|
|
$
|
(176,541
|
)
|
|
$
|
(208,298
|
)
|
|
$
|
(33,449
|
)
|
|
$
|
(178,324
|
)
|
|
$
|
(211,773
|
)
|
Other comprehensive income before reclassifications
|
523
|
|
|
—
|
|
|
523
|
|
|
2,215
|
|
|
—
|
|
|
2,215
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1,750
|
|
|
1,750
|
|
|
—
|
|
|
3,533
|
|
|
3,533
|
|
Net current period other comprehensive income
|
523
|
|
|
1,750
|
|
|
2,273
|
|
|
2,215
|
|
|
3,533
|
|
|
5,748
|
|
Ending balance
|
$
|
(31,234
|
)
|
|
$
|
(174,791
|
)
|
|
$
|
(206,025
|
)
|
|
$
|
(31,234
|
)
|
|
$
|
(174,791
|
)
|
|
$
|
(206,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Six months ended June 30, 2016
|
(in thousands)
|
Foreign currency translation adjustments
|
|
Retirement liabilities
(1)
|
|
AOCL attributable to shareholders of Crawford & Company
|
|
Foreign currency translation adjustments
|
|
Retirement liabilities
(1)
|
|
AOCL attributable to shareholders of Crawford & Company
|
Beginning balance
|
$
|
(26,150
|
)
|
|
$
|
(196,143
|
)
|
|
$
|
(222,293
|
)
|
|
$
|
(24,347
|
)
|
|
$
|
(198,284
|
)
|
|
$
|
(222,631
|
)
|
Other comprehensive income before reclassifications
|
6,333
|
|
|
—
|
|
|
6,333
|
|
|
4,530
|
|
|
—
|
|
|
4,530
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
2,141
|
|
|
2,141
|
|
|
—
|
|
|
4,282
|
|
|
4,282
|
|
Net current period other comprehensive income
|
6,333
|
|
|
2,141
|
|
|
8,474
|
|
|
4,530
|
|
|
4,282
|
|
|
8,812
|
|
Ending balance
|
$
|
(19,817
|
)
|
|
$
|
(194,002
|
)
|
|
$
|
(213,819
|
)
|
|
$
|
(19,817
|
)
|
|
$
|
(194,002
|
)
|
|
$
|
(213,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________________
|
|
(1)
|
Retirement liabilities reclassified to net income are related to the amortization of actuarial losses and are included in "Selling, general, and administrative expenses" in the Company's unaudited Condensed Consolidated Statements of Operations. See Note 5, "Defined Benefit Pension Plans" for additional details.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The other comprehensive loss amounts attributable to noncontrolling interests shown in the Company's unaudited Condensed Consolidated Statements of Shareholders' Investment are foreign currency translation adjustments.
8. Fair Value Measurements
The following table presents the Company's assets that are measured at fair value on a recurring basis and that are categorized using the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2017
|
|
|
|
|
|
Significant Other
|
|
Significant
|
|
|
|
Quoted Prices in
|
|
Observable
|
|
Unobservable
|
|
|
|
Active Markets
|
|
Inputs
|
|
Inputs
|
(in thousands)
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Money market funds
(1)
|
$
|
10,098
|
|
|
$
|
10,098
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________________
|
|
(1)
|
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 in the Company's unaudited Condensed Consolidated Balance Sheets as "Cash and cash equivalents."
|
Fair Value Disclosures
There were no transfers of assets between fair value levels during the three months or six months ended
June 30, 2017
. 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 fair values of accounts receivable, unbilled revenues, accounts payable and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The interest rate on the Company's variable rate long-term debt resets at least every
90 days
; therefore, the carrying value approximates fair value.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
9. Segment Information
Financial information for the
three months
and
six months ended June 30, 2017
and
2016
related to the Company's reportable segments, including a reconciliation from segment operating earnings to income before income taxes, the most directly comparable GAAP financial measure, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
Revenues:
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
61,316
|
|
|
$
|
58,886
|
|
|
$
|
121,791
|
|
|
$
|
117,439
|
|
International
|
110,370
|
|
|
122,617
|
|
|
220,235
|
|
|
239,475
|
|
Broadspire
|
77,882
|
|
|
75,099
|
|
|
154,861
|
|
|
151,299
|
|
Garden City Group
|
19,679
|
|
|
25,741
|
|
|
39,627
|
|
|
51,364
|
|
Total segment revenues before reimbursements
|
269,247
|
|
|
282,343
|
|
|
536,514
|
|
|
559,577
|
|
Reimbursements
|
14,725
|
|
|
15,326
|
|
|
26,988
|
|
|
29,000
|
|
Total revenues
|
$
|
283,972
|
|
|
$
|
297,669
|
|
|
$
|
563,502
|
|
|
$
|
588,577
|
|
|
|
|
|
|
|
|
|
Segment Operating Earnings (Loss):
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
11,133
|
|
|
$
|
9,560
|
|
|
$
|
16,650
|
|
|
$
|
18,589
|
|
International
|
10,293
|
|
|
11,125
|
|
|
19,517
|
|
|
18,407
|
|
Broadspire
|
8,899
|
|
|
6,529
|
|
|
15,995
|
|
|
15,234
|
|
Garden City Group
|
(1,653
|
)
|
|
2,558
|
|
|
(2,455
|
)
|
|
3,830
|
|
Total segment operating earnings
|
28,672
|
|
|
29,772
|
|
|
49,707
|
|
|
56,060
|
|
|
|
|
|
|
|
|
|
Add (Deduct):
|
|
|
|
|
|
|
|
Unallocated corporate and shared (costs) and credits, net
|
487
|
|
|
(5,889
|
)
|
|
(2,255
|
)
|
|
(10,507
|
)
|
Net corporate interest expense
|
(2,114
|
)
|
|
(2,523
|
)
|
|
(4,150
|
)
|
|
(5,291
|
)
|
Stock option expense
|
(457
|
)
|
|
(137
|
)
|
|
(874
|
)
|
|
(227
|
)
|
Amortization of customer-relationship intangible assets
|
(2,721
|
)
|
|
(2,420
|
)
|
|
(5,498
|
)
|
|
(4,879
|
)
|
Restructuring and special charges
|
(6,782
|
)
|
|
(3,526
|
)
|
|
(7,387
|
)
|
|
(5,943
|
)
|
Income before income taxes
|
$
|
17,085
|
|
|
$
|
15,277
|
|
|
$
|
29,543
|
|
|
$
|
29,213
|
|
Intersegment transactions are not material for any period presented.
Operating earnings is the primary financial performance measure used by the Company's senior management and chief operating decision maker ("CODM") to evaluate the financial performance of the Company's
four
operating segments and make resource allocation and certain compensation decisions. The Company believes this measure is useful to others in that it allows them to evaluate segment operating performance using the same criteria used by the Company's senior management and CODM. Operating earnings will differ from net income computed in accordance with GAAP since operating earnings represent segment earnings before certain unallocated corporate and shared costs and credits,
net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, restructuring and special charges, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Segment operating earnings includes allocations of certain corporate and shared costs. If the Company changes its allocation methods or changes the types of costs that are allocated to its
four
operating segments, prior period amounts presented in the current period financial statements are adjusted to conform to the current allocation process.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The Company reported in its 2017 first quarter a subsequent event about an anticipated realignment of operating segment manager responsibilities subsequent to March 31, 2017. As a result of the departure of the Company's then Chief Operating Officer in the
second quarter
, the realignment of operating segment manager responsibilities was adjusted from those originally expected. Responsibilities for certain class action operations within Canada (which have been managed and reported within the International segment) have been transferred to the Garden City Group segment, and responsibilities for certain operations in the Caribbean (which have been managed and reported within the International segment) have been transferred to the U.S. Services segment. Previously reported amounts have been reclassified to reflect these changes. No other changes in operating responsibilities occurred. These transfers are not material to the Company's financial statements. The Company's reportable segments are U.S. Services, International, Broadspire, and Garden City Group.
Revenues before reimbursements by major service line in the
U.S. Services
segment and the
Broadspire
segment are shown in the following table. It is not practicable to provide revenues by service line for the
International
segment. The Company considers all
Garden City Group
revenues to be derived from one service line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
U.S. Services
|
|
|
|
|
|
|
|
Claims Field Operations
|
$
|
22,268
|
|
|
$
|
20,193
|
|
|
$
|
43,369
|
|
|
$
|
40,706
|
|
Technical Services
|
6,927
|
|
|
7,203
|
|
|
14,133
|
|
|
13,929
|
|
Catastrophe Services
|
8,644
|
|
|
11,423
|
|
|
21,790
|
|
|
25,955
|
|
Subtotal U.S. Claims Services
|
37,839
|
|
|
38,819
|
|
|
79,292
|
|
|
80,590
|
|
Contractor Connection
|
21,250
|
|
|
20,067
|
|
|
38,341
|
|
|
36,849
|
|
WeGoLook
|
2,227
|
|
|
—
|
|
|
4,158
|
|
|
—
|
|
Total Revenues before Reimbursements--U.S. Services
|
$
|
61,316
|
|
|
$
|
58,886
|
|
|
$
|
121,791
|
|
|
$
|
117,439
|
|
|
|
|
|
|
|
|
|
Broadspire
|
|
|
|
|
|
|
|
Workers' Compensation, Disability and Liability Claims Management
|
$
|
33,606
|
|
|
$
|
31,670
|
|
|
$
|
66,589
|
|
|
$
|
63,882
|
|
Medical Management Services
|
40,792
|
|
|
39,923
|
|
|
81,359
|
|
|
80,284
|
|
Risk Management Information Services
|
3,484
|
|
|
3,506
|
|
|
6,913
|
|
|
7,133
|
|
Total Revenues before Reimbursements--Broadspire
|
$
|
77,882
|
|
|
$
|
75,099
|
|
|
$
|
154,861
|
|
|
$
|
151,299
|
|
10. Commitments and Contingencies
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
June 30, 2017
, the aggregate committed amount of letters of credit outstanding under the credit facility was
$14,470,000
.
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The Company is subject to numerous federal, state, and foreign labor, employment, worker health and safety, antitrust and competition, environmental and consumer protection, import/export, anti-corruption, and other laws, and from time to time the Company faces claims and investigations by employees, former employees, and governmental entities under such laws. Such claims, investigations, and any litigation involving the Company could divert management's time and attention from the Company's business operations and could potentially result in substantial costs of defense, settlement or other disposition, which could have a material adverse effect on the Company's results of operations, financial position, and cash flows. In the opinion of Company management, adequate provisions have been made for any items that are probable and reasonably estimable.
11. Restructuring and Special Charges
Total restructuring and special charges for the three months and six months ended
June 30, 2017
were
$6,782,000
and
$7,387,000
, respectively.
Restructuring
Charges
Restructuring charges for the
three months
and
six months ended June 30, 2017
of
$6,782,000
and
$7,387,000
were incurred for the implementation and phase in of the Company's Global Business Services Center in Manila, Philippines and Global Technology Services Center in Pune, India (the "Centers"), restructuring and integration costs related to reductions of administrative costs and consolidation of management layers in certain operations, and other restructuring charges for asset impairments and lease termination costs.
The following table shows the restructuring charges incurred by type of activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
Implementation and phase-in of the Centers
|
$
|
66
|
|
|
$
|
1,973
|
|
|
$
|
223
|
|
|
$
|
2,402
|
|
Restructuring and integration costs
|
6,716
|
|
|
716
|
|
|
6,716
|
|
|
1,603
|
|
Asset impairments and lease termination costs
|
—
|
|
|
337
|
|
|
448
|
|
|
1,165
|
|
Total restructuring charges
|
$
|
6,782
|
|
|
$
|
3,026
|
|
|
$
|
7,387
|
|
|
$
|
5,170
|
|
|
|
|
|
|
|
|
|
Costs associated with the restructuring and integration activities were primarily in U.S. administrative areas and the International segment and were predominantly for severance costs. Cost associated with the Centers were primarily for professional fees and severance costs.
As of
June 30, 2017
, the following liabilities remained on the Company's unaudited Condensed Consolidated Balance Sheets related to restructuring charges
. The
rollforward of these costs to
June 30, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
(in thousands)
|
Deferred rent
|
|
Accrued compensation and related costs
|
|
Accounts payable
|
|
Other accrued liabilities
|
|
Total
|
Beginning balance, March 31, 2017
|
$
|
2,743
|
|
|
$
|
595
|
|
|
$
|
—
|
|
|
$
|
1,524
|
|
|
$
|
4,862
|
|
Additions
|
—
|
|
—
|
|
6,688
|
|
|
94
|
|
|
—
|
|
|
6,782
|
|
Adjustments to accruals
|
(502
|
)
|
|
—
|
|
|
—
|
|
|
(431
|
)
|
|
(933
|
)
|
Cash payments
|
—
|
|
|
(2,087
|
)
|
|
(94
|
)
|
|
(24
|
)
|
|
(2,205
|
)
|
Ending balance, June 30, 2017
|
$
|
2,241
|
|
|
$
|
5,196
|
|
|
$
|
—
|
|
|
$
|
1,069
|
|
|
$
|
8,506
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
(in thousands)
|
Deferred rent
|
|
Accrued compensation and related costs
|
|
Accounts payable
|
|
Other accrued liabilities
|
|
Total
|
Beginning balance, December 31, 2016
|
$
|
3,066
|
|
|
$
|
1,525
|
|
|
$
|
617
|
|
|
$
|
1,949
|
|
|
$
|
7,157
|
|
Additions
|
—
|
|
—
|
|
6,833
|
|
|
94
|
|
|
460
|
|
|
7,387
|
|
Adjustments to accruals
|
(825
|
)
|
|
—
|
|
|
—
|
|
|
(431
|
)
|
|
(1,256
|
)
|
Cash payments
|
—
|
|
|
(3,162
|
)
|
|
(711
|
)
|
|
(909
|
)
|
|
(4,782
|
)
|
Ending balance, June 30, 2017
|
$
|
2,241
|
|
|
$
|
5,196
|
|
|
$
|
—
|
|
|
$
|
1,069
|
|
|
$
|
8,506
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges
The Company recorded
no
special charges for the
three months
and
six months ended June 30, 2017
and
$500,000
and
$773,000
for the three months and six months ended June 30, 2016, respectively. The special charges for the three months and six months ended June 30, 2016 consisted of legal and professional fees.
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors of
Crawford & Company
We have reviewed the condensed consolidated balance sheet of Crawford & Company as of
June 30, 2017
, and the related condensed consolidated statements of operations, comprehensive income, and shareholders' investment for the
three-month
and
six-month
periods ended
June 30, 2017
and
2016
, and the condensed consolidated statements of cash flows for the
six-month
periods ended
June 30, 2017
and
2016
. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Crawford & Company as of
December 31, 2016
, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and shareholders' investment for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated
February 27, 2017
. In our opinion, the accompanying condensed consolidated balance sheet of Crawford & Company as of
December 31, 2016
, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Atlanta, Georgia
August 9, 2017
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Statements contained in this report that are not statements of historical fact are forward-looking statements made pursuant to the "safe harbor" provisions thereof. These statements may relate to, among other things, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses,expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectability of our billed and unbilled accounts receivable, financial results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, expectations regarding the timing, costs and synergies from our global business and technology services centers and our other long-term capital resource and liquidity requirements. These statements may also relate to our business strategies, goals and expectations concerning our market position, future operations, margins, case and project volumes, profitability, contingencies, liquidity position, and capital resources. The words "anticipate", "believe", "could", "would", "should", "estimate", "expect", "intend", "may", "plan", "goal", "strategy", "predict", "project", "will" and similar terms and phrases, or the negatives thereof, identify forward-looking statements contained in this report.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations and the forward-looking statements related to our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially adversely affect our financial condition and results of operations, and whether the forward-looking statements ultimately prove to be correct. Included among the risks and uncertainties we face are risks related to the following:
|
|
•
|
a decline in cases referred to us for any reason, including changes in the degree to which property and casualty insurance carriers outsource their claims handling functions,
|
|
|
•
|
the project-based nature of our Garden City Group segment, including associated fluctuations in revenue,
|
|
|
•
|
changes in global economic conditions,
|
|
|
•
|
changes in interest rates,
|
|
|
•
|
changes in foreign currency exchange rates,
|
|
|
•
|
changes in regulations and practices of various governmental authorities,
|
|
|
•
|
changes in our competitive environment,
|
|
|
•
|
changes in the financial condition of our clients,
|
|
|
•
|
the loss of any material customer,
|
|
|
•
|
our ability to successfully integrate the operations of acquired businesses,
|
|
|
•
|
our ability to achieve projected levels of efficiencies and cost savings from our Global Business Services Center in Manila, Philippines and our Global Technology Services Center in Pune, India (the "Centers"),
|
|
|
•
|
regulatory changes related to funding of defined benefit pension plans,
|
|
|
•
|
our underfunded U.S. and U.K. defined benefit pension plans and our future funding obligations thereunder,
|
|
|
•
|
our ability to complete any transaction involving the acquisition or disposition of assets on terms and at times acceptable to us,
|
|
|
•
|
our ability to identify new revenue sources not tied to the insurance underwriting cycle,
|
|
|
•
|
our ability to develop or acquire information technology resources to support and grow our business,
|
|
|
•
|
our ability to attract and retain qualified personnel,
|
|
|
•
|
our ability to renew existing contracts with clients on satisfactory terms,
|
|
|
•
|
our ability to collect amounts due from our clients and others,
|
|
|
•
|
continued availability of funding under our financing agreements,
|
|
|
•
|
general risks associated with doing business outside the U.S.,including changes in tax rates,
|
|
|
•
|
our ability to comply with the covenants in our financing or other agreements,
|
|
|
•
|
changes in market conditions or legislation (including judicial interpretation thereof) relating to class actions, which may make it more difficult for plaintiffs to bring such actions,
|
|
|
•
|
changes in the frequency or severity of man-made or natural disasters,
|
|
|
•
|
the ability of our third-party service providers, used for certain aspects of our internal business functions, to meet expected service levels,
|
|
|
•
|
our ability to prevent cybersecurity breaches and cyber incidents,
|
|
|
•
|
our ability to achieve targeted integration goals with the consolidation and migration of multiple software platforms,
|
|
|
•
|
risks associated with our having a controlling shareholder, and
|
|
|
•
|
impairments of goodwill or our other indefinite-lived intangible assets.
|
As a result, undue reliance should not be placed on any forward-looking statements. Actual results and trends in the future may differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements speak only as of the date they are made and we undertake no obligation to publicly update any of these forward-looking statements in light of new information or future events.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with 1) our unaudited condensed consolidated financial statements and accompanying notes thereto for the
three months
and
six months
ended
June 30, 2017
and
2016
and as of
June 30, 2017
and
December 31, 2016
contained in Item 1 of this Quarterly Report on Form 10-Q, and 2) our Annual Report on Form 10-K for the year ended
December 31, 2016
. As described in Note 1, "Basis of Presentation," the financial results of our operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines, are included in our consolidated financial statements on a two-month delayed basis (fiscal year-end of October 31) as permitted by U.S. generally accepted accounting principles ("GAAP") in order to provide sufficient time for accumulation of their results.
Business Overview
Based in Atlanta, Georgia, Crawford & Company (
www.crawfordandcompany.com
) is the world's largest publicly listed 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 Solution
®
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 CRD-A and CRD-B, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
As discussed in more detail in subsequent sections of this MD&A, we have
four
operating segments:
U.S. Services
;
International
;
Broadspire
; and
Garden City Group
. Our four operating segments represent components of our Company for which separate financial information is available, and which is evaluated regularly by our chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing operating performance.
U.S. Services
primarily
serves the property and casualty insurance company markets in the U.S.
International
serves the property and casualty insurance company and self-insurance markets outside the U.S. Broadspire serves the self-insurance marketplace, primarily in the U.S.
Garden City Group
serves the class action, regulatory, mass tort, bankruptcy, and other legal settlement markets, primarily in the U.S.
Subsequent to March 31, 2017 we realigned operating segment manager responsibilities. As a result of the departure of our then Chief Operating Officer in the second quarter of 2017, the realignment of operating segment manager responsibilities was adjusted from those originally expected. Responsibilities for certain class action operations within Canada (which have been managed and reported within the International segment) have been transferred to the Garden City Group segment and responsibilities for certain operations in the Caribbean (which have been managed and reported within the Europe and Rest of World service line of the International segment) have been transferred to the U.S. Services segment. Previously reported amounts have been reclassified to reflect these changes. No other changes in operating responsibilities occurred. These transfers are not material to our financial statements. Our reportable segments are U.S. Services, International, Broadspire, and Garden City Group.
Insurance companies rely on us for certain services such as field investigation and the evaluation of property and casualty insurance claims. We continue to experience increased utilization by insurance companies of the managed repair network provided by our Contractor Connection division.
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.
We also perform legal settlement administration services related to class action settlements, mass tort claims and bankruptcies, including identifying and qualifying class members, determining and dispensing settlement payments, and administering settlement funds.
The global claims management services market is highly competitive and comprised of a large number of companies of varying size and that offer a varied scope of services. The demand from insurance companies and self-insured entities for services provided by independent claims service firms like us is largely dependent on industry-wide claims volumes, which are affected by, among other things, the insurance underwriting cycle, weather-related events, general economic activity, overall employment levels, and workplace injury rates. Demand is also impacted by decisions insurance companies and self-insured entities make with respect to the level of claims outsourced to independent claim service firms as opposed to those handled by their own in-house claims adjusters. In addition, our ability to retain clients and maintain or increase case referrals is also dependent in part on our ability to continue to provide high-quality, competitively priced services and effective sales efforts.
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.
The legal settlement administration market within which our Garden City Group segment operates is also highly competitive but is comprised of a limited number of specialized entities. The demand for legal settlement administration services is generally not directly tied to or affected by the insurance underwriting cycle. The demand for these services is largely dependent on the volume of class action settlements, the volume of bankruptcy filings and the resulting settlements, volume of mass torts and general economic conditions. Our revenues for legal settlement administration services are largely project-based and we earn these revenues as we perform individual tasks and deliver the outputs as outlined in each project.
Results of Operations
Executive Summary
Consolidated revenues before reimbursements decreased
$13.1 million
or
4.6%
for the
three months ended June 30, 2017
and
$23.1 million
or
4.1%
for the
six months ended June 30, 2017
compared with the same periods of
2016
. The decreases in revenues for the
second quarter
and
six-month
periods were due to decreases in revenues in our
International
and
Garden City Group
segments, partially offset by increases in revenues in our
U.S. Services
and
Broadspire
segments. Changes in foreign exchange rates reduced revenues in the
International
segment by
$5.9 million
for the
three months ended June 30, 2017
and
$11.9 million
for the
six months ended June 30, 2017
as compared to the prior year periods.
Costs of services provided, before reimbursements, decreased
$14.0 million
or
7%
for the
three months ended June 30, 2017
and
$22.9 million
or
5.7%
for the
six months ended June 30, 2017
compared with the same periods of
2016
. These decreases were primarily due to decreases in professional fees and compensation costs in our International and Garden City Group segments and decreases in non-employee labor costs in our International, Broadspire, and Garden City Group segments, partially offset by an increase in costs resulting from the acquisition of WeGoLook.
Selling, general, and administrative ("SG&A") expenses were
6%
lower in the quarter and
0.5%
lower in the
six months ended June 30, 2017
compared with the same periods of
2016
. The decrease in expense for the
three months ended June 30, 2017
was due to lower professional fees and self-insured expenses. The decrease for the
six months ended June 30, 2017
was due to a reduction in professional fees and self-insured expenses, partially offset by an increase in advertising expense in our U.S. Services segment and an increase in stock-based compensation compared with the
2016
period.
Restructuring and Special Charges
During the
three months
and
six months ended June 30, 2017
, we recorded
$6.8 million
and
$7.4 million
in restructuring and special charges, and for the same periods of
2016
we recorded
$3.5 million
and
$5.9 million
, respectively. Restructuring charges were incurred for the implementation and phase in of our Global Business Services Center in Manila, Philippines and Global Technology Services Center in Pune, India (the "Centers"), restructuring and integration costs related to reductions of administrative costs and consolidation of management layers in certain operations, and other restructuring charges for asset impairments and lease termination costs. The 2017 restructuring costs were primarily due to severance costs associated with restructuring activities in U.S. administrative areas and the International segment.
Included in these totals are restructuring charges for the
three months
and
six months ended June 30, 2017
and
2016
as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
Three months ended
|
Six months ended
|
(in thousands)
|
June 30,
2017
|
June 30,
2016
|
June 30,
2017
|
|
June 30,
2016
|
Implementation and phase-in of the Centers
|
$
|
66
|
|
$
|
1,973
|
|
223
|
|
|
$
|
2,402
|
|
Restructuring and integration costs
|
6,716
|
|
716
|
|
6,716
|
|
|
1,603
|
|
Asset impairments and lease termination costs
|
—
|
|
337
|
|
448
|
|
|
1,165
|
|
Total restructuring charges
|
$
|
6,782
|
|
$
|
3,026
|
|
$
|
7,387
|
|
|
$
|
5,170
|
|
|
|
|
|
|
|
The Company recorded
no
special charges for the
three months
and
six months ended June 30, 2017
and
$500,000
and
$773,000
for the comparable 2016 periods.
The Company expects to incur restructuring and special charges in 2017 totaling approximately $13.0 million pretax, after inclusion of
$7.4 million
in restructuring and special charges recorded for the
six months ended June 30, 2017
. This is expected to be comprised of $3.0 million related to the Centers and $10.0 million related to other restructuring activities. The Centers provide us a venue for global consolidation of certain business functions, shared services, and currently outsourced processes. The Centers, which are expected to be phased in through 2018, are expected to allow us to continue to strengthen our client service, realize additional operational efficiencies, and invest in new capabilities for growth. No assurances can be provided of our ability to timely or cost-effectively complete and ramp up operations at the Centers, or to achieve expected cost savings on a timely basis or at all.
Operating Earnings of our Operating Segments
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 presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting." Operating earnings is the primary financial performance measure used by our senior management and CODM to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions.
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, restructuring and special charges, income taxes, and net income or loss attributable to noncontrolling interests
and redeemable noncontrolling interests.
For most of our international operations and for Garden City Group, many administrative functions, such as finance, human resources, information technology, quality and compliance, are embedded in those locations and are considered direct costs of those operations. For our domestic operations (primarily Broadspire and the U.S. Services segments), we have a centralized shared-services arrangement for most of these administrative functions, and we allocate the costs of those services to the segments as indirect costs based on usage. Although some of the administrative services in our shared-services center benefit, and are allocated to the other operating segments, the majority of these shared services are allocated to the Broadspire and U.S. Services segments.
Income taxes, net corporate interest expense, stock option expense, and amortization of customer-relationship intangible assets are recurring components of our net income, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income taxes are calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
Unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, certain unallocated professional fees, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
Restructuring and special charges arise from time to time from events (such as internal restructurings, losses on subleases, establishment of new operations, and asset impairments) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.
Additional discussion and analysis of our income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, unallocated corporate and shared costs and credits, and restructuring and special charges follows the discussion and analysis of the results of operations of our four operating segments.
Segment Revenues
In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are required to be included when reporting revenues and expenses, respectively, in our consolidated results of operations. In the discussion and analysis of results of operations which follows, we do not include a gross up of expenses and revenues for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings. A reconciliation of revenues before reimbursements to consolidated revenues determined in accordance with GAAP is self-evident from the face of the accompanying unaudited Condensed Consolidated Statements of Operations.
Our International segment results are impacted by changes in foreign exchange rates. We believe that a non-GAAP discussion and analysis of segment revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, is helpful in understanding the results of our operations in this segment.
Segment Operating Expenses
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."
"Direct Compensation, Fringe Benefits & Non-Employee Labor" includes direct compensation, payroll taxes, and benefits provided to the employees of each segment, as well as payments to outsourced service providers that augment our staff in each segment. As a service company, these costs represent our most significant and variable operating expenses. As noted above, in our International and Garden City Group segments, these costs include direct compensation, payroll taxes, and benefits of certain administrative functions that are embedded in those locations and are considered direct operating costs of those locations. In our U.S. Services and Broadspire operations, certain administrative functions are performed by centralized shared-services staff. These costs are considered indirect and are not included in "Direct Compensation, Fringe Benefits & Non-Employee Labor." Accordingly, the "Direct Compensation, Fringe Benefits & Non-Employee Labor" and "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" components are not comparable across segments, but are comparable within each segment across periods.
The allocated indirect costs of our shared-services infrastructure are included in "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor." In addition to allocated corporate and shared costs, "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" includes travel and entertainment, office rent and occupancy costs, automobile expenses, office operating expenses, data processing costs, cost of risk, professional fees, and amortization and depreciation expense other than amortization of customer-relationship intangible assets.
Unless noted in the following discussion and analysis, revenue amounts exclude reimbursements for out-of-pocket expenses and expense amounts exclude reimbursed out-of-pocket expenses.
Operating results for our
U.S. Services
,
International
,
Broadspire
, and
Garden City Group
segments reconciled to income before income taxes and net income attributable to shareholders of Crawford & Company were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
Revenues:
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
61,316
|
|
|
$
|
58,886
|
|
|
$
|
121,791
|
|
|
$
|
117,439
|
|
International
|
110,370
|
|
|
122,617
|
|
|
220,235
|
|
|
239,475
|
|
Broadspire
|
77,882
|
|
|
75,099
|
|
|
154,861
|
|
|
151,299
|
|
Garden City Group
|
19,679
|
|
|
25,741
|
|
|
39,627
|
|
|
51,364
|
|
Total revenues, before reimbursements
|
269,247
|
|
|
282,343
|
|
|
536,514
|
|
|
559,577
|
|
Reimbursements
|
14,725
|
|
|
15,326
|
|
|
26,988
|
|
|
29,000
|
|
Total Revenues
|
$
|
283,972
|
|
|
$
|
297,669
|
|
|
$
|
563,502
|
|
|
$
|
588,577
|
|
|
|
|
|
|
|
|
|
Direct Compensation, Fringe Benefits & Non-Employee Labor:
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
34,173
|
|
|
$
|
32,529
|
|
|
$
|
72,301
|
|
|
$
|
68,005
|
|
% of related revenues before reimbursements
|
55.7
|
%
|
|
55.3
|
%
|
|
59.3
|
%
|
|
57.9
|
%
|
International
|
71,659
|
|
|
77,238
|
|
|
142,577
|
|
|
153,567
|
|
% of related revenues before reimbursements
|
65.0
|
%
|
|
63.0
|
%
|
|
64.7
|
%
|
|
64.1
|
%
|
Broadspire
|
42,830
|
|
|
42,240
|
|
|
86,253
|
|
|
83,862
|
|
% of related revenues before reimbursements
|
55.0
|
%
|
|
56.2
|
%
|
|
55.7
|
%
|
|
55.4
|
%
|
Garden City Group
|
13,763
|
|
|
16,500
|
|
|
27,827
|
|
|
33,820
|
|
% of related revenues before reimbursements
|
69.9
|
%
|
|
64.1
|
%
|
|
70.2
|
%
|
|
65.9
|
%
|
Total
|
$
|
162,425
|
|
|
$
|
168,507
|
|
|
$
|
328,958
|
|
|
$
|
339,254
|
|
% of Revenues before reimbursements
|
60.3
|
%
|
|
59.7
|
%
|
|
61.3
|
%
|
|
60.6
|
%
|
|
|
|
|
|
|
|
|
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor:
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
16,010
|
|
|
$
|
16,797
|
|
|
$
|
32,840
|
|
|
$
|
30,845
|
|
% of related revenues before reimbursements
|
26.1
|
%
|
|
28.5
|
%
|
|
27.0
|
%
|
|
26.3
|
%
|
International
|
28,418
|
|
|
34,254
|
|
|
58,141
|
|
|
67,501
|
|
% of related revenues before reimbursements
|
25.7
|
%
|
|
27.9
|
%
|
|
26.4
|
%
|
|
28.2
|
%
|
Broadspire
|
26,153
|
|
|
26,330
|
|
|
52,613
|
|
|
52,203
|
|
% of related revenues before reimbursements
|
33.6
|
%
|
|
35.1
|
%
|
|
34.0
|
%
|
|
34.5
|
%
|
Garden City Group
|
7,569
|
|
|
6,683
|
|
|
14,255
|
|
|
13,714
|
|
% of related revenues before reimbursements
|
38.5
|
%
|
|
26.0
|
%
|
|
36.0
|
%
|
|
26.6
|
%
|
Total before reimbursements
|
78,150
|
|
|
84,064
|
|
|
157,849
|
|
|
164,263
|
|
% of Revenues before reimbursements
|
29.0
|
%
|
|
29.8
|
%
|
|
29.4
|
%
|
|
29.4
|
%
|
Reimbursements
|
14,725
|
|
|
15,326
|
|
|
26,988
|
|
|
29,000
|
|
Total
|
$
|
92,875
|
|
|
$
|
99,390
|
|
|
$
|
184,837
|
|
|
$
|
193,263
|
|
% of Revenues
|
32.7
|
%
|
|
33.4
|
%
|
|
32.8
|
%
|
|
32.8
|
%
|
Operating Earnings (Loss):
|
|
|
|
|
|
|
|
U.S. Services
|
$
|
11,133
|
|
|
$
|
9,560
|
|
|
$
|
16,650
|
|
|
$
|
18,589
|
|
% of related revenues before reimbursements
|
18.2
|
%
|
|
16.2
|
%
|
|
13.7
|
%
|
|
15.8
|
%
|
International
|
10,293
|
|
|
11,125
|
|
|
19,517
|
|
|
18,407
|
|
% of related revenues before reimbursements
|
9.3
|
%
|
|
9.1
|
%
|
|
8.9
|
%
|
|
7.7
|
%
|
Broadspire
|
8,899
|
|
|
6,529
|
|
|
15,995
|
|
|
15,234
|
|
% of related revenues before reimbursements
|
11.4
|
%
|
|
8.7
|
%
|
|
10.3
|
%
|
|
10.1
|
%
|
Garden City Group
|
(1,653
|
)
|
|
2,558
|
|
|
(2,455
|
)
|
|
3,830
|
|
% of related revenues before reimbursements
|
(8.4
|
)%
|
|
9.9
|
%
|
|
(6.2
|
)%
|
|
7.5
|
%
|
Add (Deduct):
|
|
|
|
|
|
|
|
Unallocated corporate and shared (costs) and credits, net
|
487
|
|
|
(5,889
|
)
|
|
(2,255
|
)
|
|
(10,507
|
)
|
Net corporate interest expense
|
(2,114
|
)
|
|
(2,523
|
)
|
|
(4,150
|
)
|
|
(5,291
|
)
|
Stock option expense
|
(457
|
)
|
|
(137
|
)
|
|
(874
|
)
|
|
(227
|
)
|
Amortization of customer-relationship intangible assets
|
(2,721
|
)
|
|
(2,420
|
)
|
|
(5,498
|
)
|
|
(4,879
|
)
|
Restructuring and special charges
|
(6,782
|
)
|
|
(3,526
|
)
|
|
(7,387
|
)
|
|
(5,943
|
)
|
Income before income taxes
|
17,085
|
|
|
15,277
|
|
|
29,543
|
|
|
29,213
|
|
Provision for income taxes
|
(6,812
|
)
|
|
(6,116
|
)
|
|
(11,647
|
)
|
|
(11,423
|
)
|
Net income
|
10,273
|
|
|
9,161
|
|
|
17,896
|
|
|
17,790
|
|
Net income attributable to noncontrolling interests and redeemable noncontrolling interests
|
(72
|
)
|
|
(534
|
)
|
|
(31
|
)
|
|
(533
|
)
|
Net income attributable to shareholders of Crawford & Company
|
$
|
10,201
|
|
|
$
|
8,627
|
|
|
$
|
17,865
|
|
|
$
|
17,257
|
|
nm
= not meaningful
U.S. SERVICES SEGMENT
Operating earnings for our U.S. Services segment were
$11.1 million
, or
18.2%
of revenues before reimbursements, in the
second quarter
of
2017
, compared with
$9.6 million
, or
16.2%
of revenues before reimbursements, in the
second quarter
of
2016
. For the
six months ended June 30, 2017
, operating earnings decreased to
$16.7 million
, or
13.7%
of revenues before reimbursements, from
$18.6 million
, or
15.8%
of revenues before reimbursements for the
2016
comparable period. The increase in operating earnings in the
2017
second quarter
compared with
2016
was due to lower professional fees and administrative support costs. The decrease in operating earnings for the
2017
six-month
period compared with
2016
was due to an increase in advertising expense in the
2017
first quarter to further expand the presence of Contractor Connection in the consumer repair market and the operating losses attributable to WeGoLook.
Revenues before Reimbursements
U.S. Services
revenues are primarily generated from the property and casualty insurance markets in the U.S.
U.S. Services
revenues before reimbursements by major service line for the
three months
and
six months
ended
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
Claims Field Operations
|
$
|
22,268
|
|
|
$
|
20,193
|
|
|
10.3
|
%
|
|
$
|
43,369
|
|
|
$
|
40,706
|
|
|
6.5
|
%
|
Technical Services
|
6,927
|
|
|
7,203
|
|
|
(3.8
|
)%
|
|
14,133
|
|
|
13,929
|
|
|
1.5
|
%
|
Catastrophe Services
|
8,644
|
|
|
11,423
|
|
|
(24.3
|
)%
|
|
21,790
|
|
|
25,955
|
|
|
(16.0
|
)%
|
Subtotal U.S. Claims Services
|
37,839
|
|
|
38,819
|
|
|
(2.5
|
)%
|
|
79,292
|
|
|
80,590
|
|
|
(1.6
|
)%
|
Contractor Connection
|
21,250
|
|
|
20,067
|
|
|
5.9
|
%
|
|
38,341
|
|
|
36,849
|
|
|
4.0
|
%
|
WeGoLook
|
2,227
|
|
|
—
|
|
|
nm
|
|
|
4,158
|
|
|
—
|
|
|
nm
|
|
Total U.S. Services Revenues before Reimbursements
|
$
|
61,316
|
|
|
$
|
58,886
|
|
|
4.1
|
%
|
|
$
|
121,791
|
|
|
$
|
117,439
|
|
|
3.7
|
%
|
nm = not meaningful
Overall, there were increases in revenues in the
U.S. Services
segment in both the
second quarter
and
six months ended June 30, 2017
compared with the
2016
periods. These increases were primarily due to the acquisition of WeGoLook, representing a 3.8% positive variance in the
second quarter
and 3.5% for the
six-month
period. There was an increase in segment unit volume, measured principally by cases received, of
32.1%
and
33.0%
for the three months and
six months ended June 30, 2017
, compared with the
2016
periods. Excluding the impact of high-frequency, low-complexity cases received from the WeGoLook acquisition, there were increases in segment unit volume of 3.3% and 4.3% for the three months and
six months ended June 30, 2017
, respectively, compared with the
2016
periods. Changes in the overall mix of services provided and rates charged for those services increased revenues by approximately 0.3% in the three months but decreased revenues by approximately 0.5% in the
six months ended June 30, 2017
compared with the
2016
periods.
There were net decreases in revenues in U.S. Claims Services in both the
second quarter
and
six-month
periods due to a decrease in Catastrophe Services, partially offset by an increase in Claims Field Operations due to a change in the mix of services provided. Revenues in our Catastrophe Services service line include revenues from an outsourcing project for a major U.S. insurance carrier, which resulted in
$6.6 million
and
$16.8 million
of revenues in the three months and
six months ended June 30, 2017
, compared with
$8.6 million
and
$20.9 million
in the comparable
2016
periods, representing negative variances of 3.3% and 3.6%, respectively. The services provided to this customer are primarily project-based and are covered by the terms of multiple contractual arrangements which expire at various times in the future. In the event we are not able to retain these relationships, or replace any lost revenues from these projects as they reach their respective end dates, segment revenues and operating earnings would be negatively impacted.
Contractor Connection revenues in the
second quarter
and
six months ended June 30, 2017
increased compared with the same periods of
2016
due to increases in cases received in the
2017
periods. These increases were due to the ongoing expansion of our contractor network and the continued trend of insurance carriers moving high-frequency, low-complexity property cases directly to our contractor managed repair networks.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our U.S. Services segment, which are included in total Company revenues, were
$2.0 million
and
$2.1 million
for the three-month periods ended
June 30, 2017
and
2016
, respectively. Reimbursements were
$3.9 million
and
$4.0 million
for the
six-month
periods ended
June 30, 2017
and
2016
. Although revenues increased in the
2017
periods, reimbursed expenses remained consistent.
Case Volume Analysis
U.S. Services
unit volumes by underlying case category, as measured by cases received, for the
three months
and
six months
ended
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(whole numbers, except percentages )
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
Claims Field Operations
|
38,699
|
|
|
38,996
|
|
|
(0.8
|
)%
|
|
78,914
|
|
|
77,292
|
|
|
2.1
|
%
|
Technical Services
|
2,338
|
|
|
2,277
|
|
|
2.7
|
%
|
|
4,758
|
|
|
4,356
|
|
|
9.2
|
%
|
Catastrophe Services
|
3,018
|
|
|
5,075
|
|
|
(40.5
|
)%
|
|
7,446
|
|
|
10,294
|
|
|
(27.7
|
)%
|
Subtotal U.S. Claims Services
|
44,055
|
|
|
46,348
|
|
|
(4.9
|
)%
|
|
91,118
|
|
|
91,942
|
|
|
(0.9
|
)%
|
Contractor Connection
|
57,663
|
|
|
52,144
|
|
|
10.6
|
%
|
|
111,854
|
|
|
102,667
|
|
|
8.9
|
%
|
WeGoLook
|
28,406
|
|
|
—
|
|
|
nm
|
|
|
55,781
|
|
|
—
|
|
|
nm
|
|
Total U.S. Services Cases Received
|
130,124
|
|
|
98,492
|
|
|
32.1
|
%
|
|
258,753
|
|
|
194,609
|
|
|
33.0
|
%
|
nm = not meaningful
Overall, there were increases in cases received of
32.1%
and
33.0%
for the
2017
second quarter
and
six-month
periods, compared to the
2016
periods. These increases were primarily due to the WeGoLook acquisition, which accounted for 28.8% and 28.7% of the increases in U.S. Services cases in the quarter and
six-month
periods. Absent the WeGoLook acquisition, total cases received increased by 3.3% in the quarter and 4.3% in the
six-month
period compared to the
2016
periods.
The decrease in U.S. Claims Services cases for the
three months ended June 30, 2017
compared with the
2016
period was due to a decrease in weather-related case activity in Claims Field Operations and Catastrophe Services, partially offset by an increase in Technical Services cases. The decrease in the
six-month
period was due to a decrease in Catastrophe Services cases, partially offset by an increase in Claims Field Operations and Technical Services cases due to an increase in weather-related activity. The increases in Contractor Connection cases were due to the ongoing expansion of our contractor network and the continued trend of insurance carriers moving high-frequency, low-complexity property cases directly to our contractor managed repair networks.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our
U.S. Services
segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. For the quarter ended
June 30, 2017
, U.S. Services direct compensation, fringe benefits, and non-employee labor expense, as a percentage of segment revenues before reimbursements, was
55.7%
compared with
55.3%
for the comparable period in
2016
. For the
six months ended June 30, 2017
,
U.S. Services
direct compensation, fringe benefits, and non-employee labor expense, as a percentage of segment revenues before reimbursements, was
59.3%
, compared with
57.9%
for the comparable period in
2016
. These increases were due an increase in employees and an increase in incentive compensation in the
2017
periods.
The dollar amount of these expenses increased in the 2017
three-month
period to
$34.2 million
from
$32.5 million
in the comparable
2016
period, and also in the
six months ended June 30, 2017
to
$72.3 million
from
$68.0 million
in the comparable
2016
period. These increases were due to an increase in employees and an increase in incentive compensation in the
2017
periods. There was an average of
1,492
full-time equivalent employees (including
363
catastrophe adjusters) in this segment during the first
six months
of
2017
, compared with an average of
1,392
employees (including
382
catastrophe adjusters) during the
2016
period. The WeGoLook acquisition resulted in an increase of 104 employees in the
2017
period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
U.S. Services
segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were
$16.0 million
, or
26.1%
of segment revenues before reimbursements for the quarter ended
June 30, 2017
, compared with
$16.8 million
, or
28.5%
of segment revenues before reimbursements, for the comparable
2016
quarter. The decrease in the amount and the expense as a percent of revenues was due to a decrease in professional fees and administrative support costs in the
2017
period. For the
six months ended June 30, 2017
, these expenses were
$32.8 million
, or
27.0%
of segment revenues before reimbursements, compared with
$30.8 million
, or
26.3%
of segment revenues before reimbursements for the comparable
2016
period. The increase in both the amount and the expense as a percent of revenues for the six months was due to an increase in advertising expense to expand the presence of Contractor Connection in the consumer repair market.
INTERNATIONAL SEGMENT
Operating earnings in our International segment decreased to
$10.3 million
, or
9.3%
of revenues before reimbursements, for the
three months ended June 30, 2017
compared with
2016
second quarter
operating earnings of
$11.1 million
, or
9.1%
or revenues before reimbursements. Operating earnings in our
International
segment increased to
$19.5 million
, or
8.9%
of revenues before reimbursements for the
six months
ended
June 30, 2017
, compared with operating earnings of
$18.4 million
, or
7.7%
of revenues before reimbursements, for the
six months ended June 30, 2016
. The decrease in operating earnings in the 2017
second quarter
was due to lower revenues and associated earnings in the U.K., Canada and Asia primarily due to a reduction in weather related case activity, and also the impact of the change in foreign exchange rates. The increase in the
six-month
period was driven by overall margin improvements in the U.K. and Asia-Pacific, and the impact of Hurricane Matthew.
Revenues before Reimbursements
International
segment revenues are primarily derived from the property and casualty insurance company market, 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, based on actual exchange rates and using a constant exchange rate, for the
three months
and
six months ended June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Based on actual exchange rates
|
|
Based on exchange rates for three months ended June 30, 2016
|
(in thousands, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30, 2017
|
|
Variance
|
U.K.
|
$
|
35,573
|
|
|
$
|
44,498
|
|
|
(20.1
|
)%
|
|
$
|
40,259
|
|
|
(9.5
|
)%
|
Canada
|
25,335
|
|
|
27,120
|
|
|
(6.6
|
)%
|
|
26,482
|
|
|
(2.4
|
)%
|
Asia-Pacific
|
26,886
|
|
|
27,827
|
|
|
(3.4
|
)%
|
|
26,489
|
|
|
(4.8
|
)%
|
Europe and Rest of World
|
22,576
|
|
|
23,172
|
|
|
(2.6
|
)%
|
|
23,057
|
|
|
(0.5
|
)%
|
Total International Revenues before Reimbursements
|
$
|
110,370
|
|
|
$
|
122,617
|
|
|
(10.0
|
)%
|
|
$
|
116,287
|
|
|
(5.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Based on actual exchange rates
|
|
Based on exchange rates for six months ended June 30, 2016
|
(in thousands, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30, 2017
|
|
Variance
|
U.K.
|
$
|
73,292
|
|
|
$
|
90,974
|
|
|
(19.4
|
)%
|
|
$
|
84,973
|
|
|
(6.6
|
)%
|
Canada
|
52,174
|
|
|
51,038
|
|
|
2.2
|
%
|
|
52,630
|
|
|
3.1
|
%
|
Asia-Pacific
|
50,243
|
|
|
51,389
|
|
|
(2.2
|
)%
|
|
49,477
|
|
|
(3.7
|
)%
|
Europe and Rest of World
|
44,526
|
|
|
46,074
|
|
|
(3.4
|
)%
|
|
45,027
|
|
|
(2.3
|
)%
|
Total International Revenues before Reimbursements
|
$
|
220,235
|
|
|
$
|
239,475
|
|
|
(8.0
|
)%
|
|
$
|
232,107
|
|
|
(3.1
|
)%
|
Revenues before reimbursements from our International segment totaled
$110.4 million
in the
three months ended June 30, 2017
compared with
$122.6 million
in the 2016 period. Changes in foreign exchange rates resulted in a decrease of our
International
segment revenues by approximately
4.8%
, or
$5.9 million
for the
three months ended June 30, 2017
as compared with the
2016
period. Absent foreign exchange rate fluctuations, International segment revenues would have been
$116.3 million
for the
three months ended June 30, 2017
. Overall case volumes increased
3.7%
for the
three months ended June 30, 2017
compared with the same period of
2016
. Changes in product mix and in the rates charged for those services accounted for an 8.9% revenue decrease for the three months ended
June 30, 2017
compared with the same period in
2016
.
Revenues before reimbursements from our International segment totaled
$220.2 million
in the first
six months
of
2017
, compared with
$239.5 million
in the
2016
period. Changes in foreign exchange rates resulted in a decrease of our
International
segment revenues by approximately 4.9%, or
$11.9 million
, for the
six months ended June 30, 2017
as compared with the
2016
period. Absent foreign exchange rate fluctuations, International segment revenues would have been
$232.1 million
for the
six months ended June 30, 2017
. Overall case volumes increased
0.3%
for the
six months ended June 30, 2017
compared with the same period of
2016
. Changes in product mix and in the rates charged for those services accounted for a 3.4% revenue decrease for the
six months
ended
June 30, 2017
compared with the same period in
2016
.
The decrease in revenues in the U.K. for the
three months ended June 30, 2017
compared with the
2016
period was due to a decrease in weather-related case volumes as a result of cases received from flooding in that region in the 2016 first quarter. Revenues in Canada decreased in the
second quarter
compared with the
2016
period due primarily to a decrease in weather related activity in the current year. There was a revenue decrease in Asia-Pacific also due to a reduction in weather related activity in the current year. The revenue decrease in Europe and Rest of World for the
three months ended June 30, 2017
compared with the same period in
2016
was due to a change in the mix of services provided in Scandinavia.
The decrease in revenues in the U.K. for the
six months ended June 30, 2017
compared with the
2016
period was due to a decrease in weather-related case volumes as a result of cases received from flooding in that region in 2016. Revenues in Canada increased in the
six months ended June 30, 2017
compared with the
2016
period due primarily to an increase in case volumes from existing clients. There was a revenue decrease in Asia-Pacific due to a reduction in high-volume, low-complexity motor cases in China and Singapore where we have exited that product line in those countries. The revenue decrease in Europe and Rest of World for the
six months ended June 30, 2017
compared with the same period in
2016
was due to changes in the mix of services provided in Scandinavia, partially offset by increases in Spain and Peru due to an increase in weather related activity in those countries.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our
International
segment increased to
$8.1 million
and
$14.5 million
for the
three months
and
six months ended June 30, 2017
, respectively, from
$7.2 million
and
$13.7 million
in the comparable
2016
periods. These increases were the result of an increased use of third parties on cases in Asia in the
2017
second quarter
.
Case Volume Analysis
International
segment unit volumes by region, measured by cases received, for the
three months
and
six months ended June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(whole numbers, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
U.K.
|
28,290
|
|
|
32,923
|
|
|
(14.1
|
)%
|
|
58,499
|
|
|
70,028
|
|
|
(16.5
|
)%
|
Canada
|
42,982
|
|
|
40,063
|
|
|
7.3
|
%
|
|
87,454
|
|
|
79,088
|
|
|
10.6
|
%
|
Asia-Pacific
|
24,831
|
|
|
21,733
|
|
|
14.3
|
%
|
|
47,348
|
|
|
48,368
|
|
|
(2.1
|
)%
|
Europe and Rest of World
|
70,812
|
|
|
66,187
|
|
|
7.0
|
%
|
|
145,569
|
|
|
140,444
|
|
|
3.6
|
%
|
Total International Cases Received
|
166,915
|
|
|
160,906
|
|
|
3.7
|
%
|
|
338,870
|
|
|
337,928
|
|
|
0.3
|
%
|
Overall case volumes were
3.7%
higher in the
three months ended June 30, 2017
compared with the same period in
2016
. The U.K. case volumes were lower in the
second quarter
2017
due to flooding-related cases received in 2016. The increase in Canada was due to an increase in high-frequency, low-complexity vehicle appraisals in the
2017
period. The increase in Asia-Pacific cases in the
second quarter
was due to an increase in cases received in Australia at the end of the quarter for which minimal revenue was recognized in the quarter. The increase in cases in Europe and Rest of World was due to an increase in high-frequency, low-complexity cases in Germany and increases in Spain and Peru due to increases in weather related activity.
Overall case volumes were
0.3%
higher in the
six months ended June 30, 2017
compared with the same period in
2016
. The U.K. case volumes were lower in the
2017
period due to flooding-related cases received in the 2016 first quarter. The increase in Canada was due to an increase in high-frequency, low-complexity vehicle appraisals in the
2017
period. The decrease in Asia-Pacific cases was due to a decline in high-frequency, low-complexity motor cases in Singapore and China where we have exited that product line in these countries, partially offset by the
second quarter
increase in Australia. The increase in cases in Europe and Rest of World was due to an increase in high-frequency, low-complexity cases in Germany and increases in Spain and Peru due to increases in weather related activity in those countries.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our International segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses were
65.0%
for the
three months ended June 30, 2017
compared with
63.0%
for the comparable period in
2016
, and were
64.7%
for the
six months ended June 30, 2017
compared with
64.1%
for the comparable period in
2016
. These increases in expenses as a percent of revenues were due to lower staff utilization in the
2017
periods. The dollar amount of these expenses decreased to
$71.7 million
for the
three months ended June 30, 2017
from
$77.2 million
for the comparable
2016
period. The dollar amount of these expenses also decreased to
$142.6 million
for the six months ended June 30, 2017 from
$153.6 million
for the comparable
2016
period. These decreases were due to the impact of cost reduction initiatives implemented in
2016
and the impact of foreign exchange rates. There was an average of
4,187
full-time equivalent employees in this segment in the
six months ended June 30, 2017
compared with an average of
4,298
in the
2016
period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were were
25.7%
of International segment revenues before reimbursements for the
three months ended June 30, 2017
compared with
27.9%
for the comparable period in
2016
, and were
26.4%
of International segment revenues before reimbursements for the
six months ended June 30, 2017
compared with
28.2%
for the comparable period in
2016
. The amount of these expenses decreased to
$28.4 million
for the
three months ended June 30, 2017
, compared with
$34.3 million
in the comparable
2016
period, and to
$58.1 million
for the
six months ended June 30, 2017
, compared with
$67.5 million
in the comparable
2016
period. The decrease in amounts was due to changes in foreign exchange rates and the impact of cost reduction initiatives. The decrease in expenses as a percent of revenues was primarily due to the impact of cost reduction initiatives implemented in
2016
.
BROADSPIRE SEGMENT
Our Broadspire segment reported operating earnings of
$8.9 million
, or
11.4%
of revenues before reimbursements, for the
second quarter
of
2017
, compared with
$6.5 million
, or
8.7%
of revenues before reimbursements, for the
second quarter
of
2016
. For the
six months ended June 30, 2017
, Broadspire operating earnings were
$16.0 million
, or
10.3%
of revenues before reimbursements, compared with
$15.2 million
, or
10.1%
of revenues before reimbursements, for the comparable
2016
period. Operating earnings increased due primarily to an increase in revenues, operational efficiency gains, and a reduction in administrative support cost in the
2017
periods.
Revenues before Reimbursements
Broadspire
segment revenues are primarily derived from medical management services, such as medical bill review, medical case management and vocational rehabilitation for workers' compensation; workers' compensation, disability, and liability claims management; and risk management information services provided to the U.S. self-insured marketplace.
Broadspire
revenues before reimbursements by major service line for the
three months
and
six months ended June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(in thousands, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
Medical Management Services
|
$
|
40,792
|
|
|
$
|
39,923
|
|
|
2.2
|
%
|
|
$
|
81,359
|
|
|
$
|
80,284
|
|
|
1.3
|
%
|
Workers' Compensation, Disability and Liability Claims Management
|
33,606
|
|
|
31,670
|
|
|
6.1
|
%
|
|
66,589
|
|
|
63,882
|
|
|
4.2
|
%
|
Risk Management Information Services
|
3,484
|
|
|
3,506
|
|
|
(0.6
|
)%
|
|
6,913
|
|
|
7,133
|
|
|
(3.1
|
)%
|
Total Broadspire Revenues before Reimbursements
|
$
|
77,882
|
|
|
$
|
75,099
|
|
|
3.7
|
%
|
|
$
|
154,861
|
|
|
$
|
151,299
|
|
|
2.4
|
%
|
The overall increase in revenues for the three-month and
six-month
periods ended
June 30, 2017
compared with the same periods in
2016
was primarily due to an increase in Medical Management and Disability cases in
2017
resulting from new clients and higher average case values in the
2017
periods.
Revenues were positively impacted by unit volumes, measured principally by cases received, which increased revenues by
4.4%
in the three months and
six months ended June 30, 2017
compared with the same periods in
2016
. This increase was partially offset by changes in the mix of services provided and in the rates charged for those services, which decreased revenues by approximately 0.7% from the 2016
second quarter
to the
2017
second quarter
, and 2.0% for the
six months ended June 30, 2017
compared with the same period in
2016
.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our
Broadspire
segment were
$1.0 million
and
$2.1 million
for the
three months
and
six months ended June 30, 2017
compared with
$1.1 million
and
$2.2 million
in the comparable
2016
periods.
Case Volume Analysis
Broadspire
unit volumes by major underlying case category, as measured by cases received, for the
three months
and
six months
ended
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
(whole numbers, except percentages)
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Variance
|
Workers' Compensation
|
44,116
|
|
|
45,530
|
|
|
(3.1
|
)%
|
|
87,070
|
|
|
89,903
|
|
|
(3.2
|
)%
|
Casualty
|
30,861
|
|
|
37,732
|
|
|
(18.2
|
)%
|
|
64,595
|
|
|
74,112
|
|
|
(12.8
|
)%
|
Medical Management, Disability and Other
|
38,654
|
|
|
25,621
|
|
|
50.9
|
%
|
|
75,265
|
|
|
53,431
|
|
|
40.9
|
%
|
Total Broadspire Cases Received
|
113,631
|
|
|
108,883
|
|
|
4.4
|
%
|
|
226,930
|
|
|
217,446
|
|
|
4.4
|
%
|
Overall case volumes were
4.4%
higher in the
three months ended June 30, 2017
compared with the same period in
2016
. This was primarily due to an increase in Medical Management and Disability cases resulting from new clients, partially offset by declines in Workers' Compensation and Casualty cases from existing clients. There was a
4.4%
increase in case volumes for the
six months ended June 30, 2017
compared with the same period in
2016
. This was primarily due to an increase in Medical Management and Disability cases, partially offset by a decrease in Workers' Compensation and Casualty cases from existing clients. The reduction in Casualty cases was due to a decrease in high-frequency, low-complexity affinity claims.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our
Broadspire
segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. For the three months ended
June 30
, direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, decreased from
56.2%
in
2016
to
55.0%
in
2017
. The amount of these expenses increased from
$42.2 million
for the three months ended
June 30, 2016
to
$42.8 million
for the
2017
comparable period. The decrease in the percent of revenues was due to improved employee utilization, and increase in the amount was due to an increase in employees in
2017
.
For the
six months
ended
June 30
, direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, increased slightly from
55.4%
in
2016
to
55.7%
in
2017
. The amount of these expenses increased from
$83.9 million
for the
six months
ended
June 30, 2016
to
$86.3 million
for the
2017
comparable period. The increase in both the amount and the percent of revenues was due to an increase in employees.
Average full-time equivalent employees in this segment totaled
2,040
in the first six months of
2017
, up from
1,989
in the comparable
2016
period. The increase in employees was due to conversion of outsourced contractors to full time employees in the Global Business Services Center and the increase in work supporting the increased revenues.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Broadspire
segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percent of revenues before reimbursements were
33.6%
and
34.0%
for the three months and
six months ended June 30, 2017
, compared with
35.1%
and
34.5%
in the comparable
2016
periods, respectively. The decrease in expenses as a percentage of revenues in the
2017
periods was due to operational efficiency gains and reductions in administrative support costs in the
2017
second quarter
. The amount of these expenses were
$26.3 million
in the
three months
ended
June 30, 2016
and
$26.2 million
for the
2017
comparable period. The amount of these expenses increased slightly from
$52.2 million
in the
six months
ended
June 30, 2016
to
$52.6 million
for the
2017
comparable period.
GARDEN CITY GROUP SEGMENT
Our
Garden City Group
segment reported an operating loss of
$(1.7) million
and
$(2.5) million
for the
three months
and
six months ended June 30, 2017
, respectively, compared with operating earnings of
$2.6 million
and
$3.8 million
in the comparable
2016
periods, respectively. The related segment operating margin decreased from
9.9%
for the quarter ended
June 30, 2016
to
(8.4)%
in the comparable
2017
period, and from
7.5%
for the
six months ended June 30, 2016
to
(6.2)%
in the comparable
2017
period. Operating earnings decreased for the three months and
six months ended June 30, 2017
compared to the
2016
periods primarily due to the continued winding down of the Deepwater Horizon class action settlement project and a reduction in employee utilization.
Revenues before Reimbursements
Garden City Group
revenues are primarily derived from legal settlement administration services related to class action settlements, mass tort, and bankruptcies, primarily in the U.S. Garden City Group revenues before reimbursements decreased
23.5%
to
$19.7 million
in the
second quarter
of
2017
, compared with
$25.7 million
for the same period in
2016
. For the
six-month period ended June 30, 2017
, Garden City Group revenues before reimbursements decreased
22.9%
to
$39.6 million
, compared with
$51.4 million
for the same period in
2016
.
Garden City Group
revenues in the three months and
six months ended June 30, 2017
declined compared with the same prior year period primarily because of lower revenues from the Deepwater Horizon class action settlement project and a lower volume of case administration work on projects in the
2017
periods. We expect activity on this special project to continue through the remainder of
2017
, although at further reduced rates as compared with
2016
.
Garden City Group
revenues are project-based and can fluctuate significantly primarily due to the timing of projects awarded.
At
June 30, 2017
we had a backlog of projects awarded totaling approximately
$75.5 million
, compared with
$94.1 million
at
June 30, 2016
. Of the
$75.5 million
backlog at
June 30, 2017
, an estimated
$38.2 million
is expected to be recognized as revenues over the remainder of
2017
.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our
Garden City Group
segment can vary materially from period to period depending on the amount and types of projects and were
$3.7 million
in the
2017
second quarter
compared with
$4.9 million
in the comparable period in
2016
. For the
six-month period ended June 30, 2017
, Garden City Group reimbursements decreased to
$6.5 million
compared with
$9.0 million
for the comparable period in
2016
. The decreases were due to a lower volume of case administration work on specific projects in the
2017
periods.
Transaction Volume
Garden City Group
services are generally project based and not denominated by individual claims. Depending upon the nature of projects and their respective stages of completion, the volume of transactions or tasks performed by us in any period can vary, sometimes significantly.
Direct Compensation, Fringe Benefits & Non-Employee Labor
Garden City Group
direct compensation, fringe benefits, and non-employee labor expenses as a percent of revenues before reimbursements were
69.9%
in the
2017
second quarter
compared with
64.1%
in the
2016
second quarter
. The dollar amount of these expenses was
$13.8 million
for the
2017
second quarter
and
$16.5 million
for the comparable
2016
period. For the
six-month
s ended June 30, these expenses as a percent of revenues before reimbursements were
70.2%
for 2017 compared with
65.9%
for
2016
. The dollar amount of these expenses was
$27.8 million
for the 2017
six-month
period compared to
$33.8 million
for the comparable
2016
period. The declines in dollar values were primarily due to the winding down of the Deepwater Horizon special project. The reductions in direct compensation, fringe benefits, and non-employee labor expense were due to excess capacity resulting from a decrease in employee utilization in the
2017
periods. There was an average of
485
full-time equivalent employees in the
2017
six-month
period, compared with an average of
529
in the
2016
period, decreasing as a result of decreased activity from the special project referenced above.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Garden City Group
expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percent of related revenues before reimbursements were
38.5%
and
36.0%
for the three months and
six months ended June 30, 2017
, respectively, compared with
26.0%
and
26.6%
for the comparable
2016
periods, respectively. The dollar amount of these expenses increased to
$7.6 million
in the
2017
second quarter
as compared with
$6.7 million
in the
2016
second quarter
, and to
$14.3 million
in the first
six months
of
2017
compared with
$13.7 million
in the comparable
2016
period. The increase in both the dollar amounts and the percent of revenues was due to an increase in professional fees and other administrative costs in
2017
compared to the
2016
periods.
EXPENSES AND CREDITS EXCLUDED FROM SEGMENT OPERATING EARNINGS
Income Taxes
Our consolidated effective income tax rate for financial reporting purposes changes periodically due to fluctuations in the mix of income earned from our various domestic and international operations which are subject to income taxes at varied rates, our ability to utilize net operating loss and tax credit carryforwards, changes in uncertain income tax positions, and changes in enacted tax rates. At
June 30, 2017
, we estimate that our effective income tax rate for
2017
will be approximately
37%
after considering known discrete items. The provision for income taxes on consolidated income totaled
$6.8 million
and
$6.1 million
for the
three months ended June 30, 2017
and
2016
, respectively. The provision for income taxes on consolidated income totaled
$11.6 million
and
$11.4 million
for the
six months ended June 30, 2017
and
2016
, respectively. The overall effective tax rate increased slightly to
39.4%
for the six months ended June 30, 2017 compared with
39.1%
for the
2016
period.
Net Corporate Interest Expense
Net corporate interest expense consists of interest expense that we incur on our short- and long-term borrowings, partially offset by any interest income we earn on available cash balances and short-term investments. These amounts vary based on interest rates, borrowings outstanding and the amounts of invested cash. Corporate interest expense totaled
$2.3 million
and
$2.7 million
for the
three months ended June 30, 2017
and
2016
, respectively. Interest income totaled
$224,000
and
$151,000
for the
three months ended June 30, 2017
and
2016
, respectively. Corporate interest expense totaled
$4.6 million
and
$5.5 million
for the
six months ended June 30, 2017
and
2016
, respectively. Interest income totaled
$407,000
and
$221,000
for the
six months ended June 30, 2017
and
2016
, respectively. The decrease in interest expense in
2017
compared with the
2016
period was due to the exchange rate impact on the U.K borrowings and lower average borrowing rates.
Stock Option Expense
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
$457,000
was recognized during the
three months ended June 30, 2017
, compared with
$137,000
for the comparable period in
2016
. Stock option expense of
$874,000
was recognized during the
six months ended June 30, 2017
, compared with
$227,000
for the comparable period in
2016
. The increase in the
2017
periods was due to a higher proportion of options having been granted in
2017
as a component of our Long Term Incentive Plans.
Amortization of Customer-Relationship Intangible Assets
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
$2.7 million
for the
three months ended June 30, 2017
and
$2.4 million
for the three months ended
June 30, 2016
, and
$5.5 million
for the
six months ended June 30, 2017
and
$4.9 million
for the
six months ended June 30, 2016.
The increase in the 2017 periods over
2016
were due to the acquisition of WeGoLook discussed in Note 2, "Business Acquisition." This amortization expense is included in "Selling, general, and administrative expenses" in our unaudited Condensed Consolidated Statements of Operations.
Unallocated Corporate and Shared Costs and Credits, Net
Certain unallocated corporate and shared costs and credits are excluded from the determination of segment operating earnings. For the
three months
and
six months
ended
June 30, 2017
and
2016
, unallocated corporate and shared costs and credits represented 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 legal costs and professional fees, costs of our cross currency swap in 2016, and certain adjustments and recoveries to our allowances for doubtful accounts receivable.
Unallocated corporate and shared costs and (credits), net were
$(0.5) million
and
$5.9 million
for the
three months ended June 30, 2017
and
2016
, respectively. The decrease for the
three months ended June 30, 2017
was due to a decrease in defined benefit pension expense and self-insured expenses. Unallocated corporate and shared costs and credits, net were
$2.3 million
and
$10.5 million
for the
six months ended June 30, 2017
and
2016
. The decrease for the
six months ended June 30, 2017
was due to a reduction in defined benefit pension expense, self-insured expenses, and unallocated professional fees.
Restructuring and Special Charges
Total restructuring and special charges for the
three months
and
six months ended June 30, 2017
were
$6.8 million
and
$7.4 million
, respectively. There were
$3.5 million
and
$5.9 million
of restructuring and special charges during the three months and
six months ended June 30, 2016.
, respectively. See "Restructuring and Special Charges" in the "Results of Operations" section of this Item 2 where these charges are discussed.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
At
June 30, 2017
, our working capital balance (current assets less current liabilities) was approximately
$150.3 million
, an increase of
$15.9 million
from the working capital balance at
December 31, 2016
. Our cash and cash equivalents were
$60.0 million
at
June 30, 2017
, compared with
$81.6 million
at
December 31, 2016
.
Cash and cash equivalents as of
June 30, 2017
consisted of
$16.1 million
held in the U.S. and
$43.9 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 were to occur, we would analyze the potential tax impact and our anticipated investment needs in that region and provide for U.S. taxes for earnings that are not expected to be indefinitely reinvested. Other historical earnings and future foreign earnings necessary for business reinvestment are expected to remain indefinitely 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 Operating Activities
Cash used in operating activities was
$16.4 million
for the
six months
ended
June 30, 2017
, compared with
$11.5 million
of cash provided for the comparable period of
2016
. The increase in cash used in operating activities was primarily due to a decrease in accrued compensation and related costs due to the timing of compensation payments, and increased accounts receivable.
Cash Used in Investing Activities
Cash used in investing activities, primarily for acquisitions of businesses, property and equipment, and capitalized software, was
$51.9 million
for the
six months
ended
June 30, 2017
compared with
$17.1 million
in the first
six months
of
2016
. This increase was due to the acquisition of WeGoLook as discussed in Note 2, "Business Acquisition."
Cash Provided by/Used in Financing Activities
Cash provided by financing activities was
$45.3 million
for the
six months ended June 30, 2017
compared with
$11.0 million
used in financing activities for the
2016
period. We paid
$6.9 million
and
$6.8 million
in dividends in the
six-month
periods ended
June 30, 2017
and
2016
, respectively. During the first
six months
of
2017
, we increased our short-term borrowings and book overdraft, net, by
$56.4 million
, compared with a decrease during the first
six months
of
2016
of
$1.4 million
. The increase in the
2017
period was primarily due to borrowings to fund the WeGoLook acquisition and increased working capital requirements.
Other Matters Concerning Liquidity and Capital Resources
As a component of our credit facility, we maintain a letter of credit facility to satisfy certain contractual obligations. Including
$14.5 million
of undrawn letters of credit issued under the letter of credit facility, the available balance under our credit facility totaled $143.5 million at
June 30, 2017
. Our short-term debt obligations typically peak during the first half of each year due to the annual payment of incentive compensation, contributions to retirement plans, working capital fluctuations, and certain other recurring payments, and generally decline during the balance of the year. The balance of short-term borrowings represents amounts under our credit facility that we expect, but are not required, to repay in the next twelve months. Long- and short-term borrowings outstanding, including current installments and capital leases, totaled
$247.1 million
as of
June 30, 2017
compared with
$188.0 million
at
December 31, 2016
.
Defined Benefit Pension Funding and Cost
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., and defined benefit pension plans in the Netherlands, Norway, Germany, and the Philippines. Effective December 31, 2002, we froze our U.S. Qualified Plan. Our frozen U.S. Qualified Plan and U.K. plans were underfunded by
$103.5 million
and overfunded by
$21.6 million
, respectively, at
December 31, 2016
based on accumulated benefit obligations of $479.2 million and $243.7 million for the U.S. Qualified Plan and the U.K. plans, respectively.
For the
six-month
period ended
June 30, 2017
, the Company made contributions of
$6.0 million
and
$2.7 million
to its U.S. and U.K. defined benefit pension plans, respectively, compared with contributions of
$6.0 million
and
$3.1 million
, respectively, in the comparable period of
2016
. The Company is not required to make any additional contributions to its U.S. or U.K. defined benefit pension plans for the remainder of 2017; however, the Company expects to make additional contributions of approximately
$3.0 million
and
$2.7 million
to its U.S. and U.K. plans, respectively, during the remainder of
2017
.
Dividend Payments
Our Board of Directors makes dividend decisions from time to time based in part on an assessment of current and projected earnings and cash flows. During the
six months ended June 30, 2017
, we paid
$6.9 million
in dividends. Our ability to pay future dividends could be impacted by many factors including the funding requirements of our defined benefit pension plans, repayments of outstanding borrowings, levels of cash expected to be generated by our operating activities, and covenants and other restrictions contained any credit facilities or other financing agreements. The covenants in our existing credit facility limit dividend payments to shareholders.
Financial Condition
Other significant changes on our unaudited Condensed Consolidated Balance Sheet as of
June 30, 2017
compared with our Condensed Consolidated Balance Sheet as of
December 31, 2016
were as follows:
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Accounts receivable increased
$14.5 million
, or
$12.2 million
excluding foreign currency exchange impacts and other adjustments. This increase was largely due to increased receivables in Garden City Group when compared with
December 31, 2016
balances.
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Unbilled revenues increased
$13.2 million
, or
$10.9 million
excluding foreign currency exchange impacts. This increase was primarily due to increased unbilled revenues in the International and Broadspire segments when compared with
December 31, 2016
balances.
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At
June 30, 2017
, we were not a party to any off-balance sheet arrangements, other than operating leases, which we believe could materially impact our operations, financial condition, or cash flows.
As disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2016
, 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 sheet.
We also maintain funds in various trust accounts 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 unaudited Condensed Consolidated Balance Sheets. We have concluded that we do not have a material off-balance sheet risk related to these funds.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
New Accounting Standards Adopted
Additional information related to adoption of accounting standards is provided in Note 3 to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Pending Adoption of New Accounting Standards
Additional information related to pending adoption of recently issued accounting standards is provided in Note 3 to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.