Company Quick10K Filing
Quick10K
Crawford
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-22 Enter Agreement, Other Events, Exhibits
8-K 2019-01-22 Enter Agreement, Other Events, Exhibits
8-K 2019-01-15 Regulation FD, Exhibits
8-K 2018-11-05 Earnings, Regulation FD, Exhibits
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-07-31 Officers, Exhibits
8-K 2018-06-15 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-05-09 Shareholder Vote
8-K 2018-04-24 Regulation FD, Exhibits
8-K 2018-03-20 Regulation FD, Exhibits
8-K 2018-03-12 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-11 Officers
SEDH SED Intelligent Home
VCOR Visiber57
SGY Talos Petroleum
ARST Arista Financial
NULF Nulife Sciences
GDSI Global Digital Solutions
TBMM China Vtv
IGXT Intelgenx Technologies
PRE Partnerre
MADI Madison Ave Holdings
CRDA 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-15 exhibit15-093018.htm
EX-31.1 exhibit311-093018.htm
EX-31.2 exhibit312-093018.htm
EX-32.1 exhibit321-093018.htm
EX-32.2 exhibit322-093018.htm

Crawford Earnings 2018-09-30

CRDA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 crawford-09301810q.htm 10-Q Document

 
 
 
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
 Form 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
for the quarterly period ended September 30, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
for the transition period from ____ to ____
Commission file number 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
 
Georgia
 
58-0506554
 
 
(State or other jurisdiction of
 
(I.R.S. Employer
 
 
incorporation or organization)
 
Identification No.)
 
 
 
 
 
 
 
5335 Triangle Parkway
 
 
 
 
Peachtree Corners, Georgia
 
30092
 
 
(Address of principal executive offices)
 
(Zip Code)
 
(404) 300-1000
(Registrant's telephone number, including area code)
____________________________________________________________
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ          No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).                        Yes þ          No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
þ
Non-accelerated filer
o
 
(Do not check if a smaller reporting company)
 
 
 
 
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No þ
The number of shares outstanding of each class of the Registrant's common stock, as of October 29, 2018, was as follows:

Class A Common Stock, $1.00 par value: 30,697,474
Class B Common Stock, $1.00 par value: 24,435,531
 
 




CRAWFORD & COMPANY
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2018

Table of Contents
 
 
 
 
 
Page
Part I. Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Part I — Financial Information

Item 1. Financial Statements
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
 
Three Months Ended September 30,
(In thousands, except per share amounts)
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Revenues before reimbursements
$
255,029

 
$
270,551

Reimbursements
9,834

 
16,115

Total Revenues
264,863

 
286,666

 
 
 
 
Costs and Expenses:
 
 
 
 
 
 
 
Costs of services provided, before reimbursements
179,238

 
192,147

Reimbursements
9,834

 
16,115

Total costs of services
189,072

 
208,262

 
 
 
 
Selling, general, and administrative expenses
63,247

 
57,859

 
 
 
 
Corporate interest expense, net of interest income of $274 and $174, respectively
2,398


2,524

 
 
 
 
Restructuring and special charges

 
1,431

 
 
 
 
Loss on disposition of business line
1,201

 

 
 
 
 
Total Costs and Expenses
255,918

 
270,076

 
 
 
 
Other Income, net
762

 
302

 
 
 
 
Income Before Income Taxes
9,707

 
16,892

 
 
 
 
Provision for Income Taxes
1,828

 
4,922

 
 
 
 
Net Income
7,879

 
11,970

 
 
 
 
Net Loss (Income) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
17

 
(157
)
 
 
 
 
Net Income Attributable to Shareholders of Crawford & Company
$
7,896

 
$
11,813

 
 
 
 
Earnings Per Share - Basic:
 
 
 
Class A Common Stock
$
0.15

 
$
0.22

Class B Common Stock
$
0.13

 
$
0.20

 
 
 
 
Earnings Per Share - Diluted:
 
 
 
Class A Common Stock
$
0.15

 
$
0.22

Class B Common Stock
$
0.13

 
$
0.20

 
 
 
 
Weighted-Average Shares Used to Compute Basic Earnings Per Share:
 
 
 
Class A Common Stock
30,713

 
31,276

Class B Common Stock
24,446

 
24,550

 
 
 
 
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:
 
 
 
Class A Common Stock
31,390

 
32,097

Class B Common Stock
24,446

 
24,550

 
 
 
 
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)


3


CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
 
Nine Months Ended September 30,
(In thousands, except per share amounts)
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Revenues before reimbursements
$
807,177

 
$
807,065

Reimbursements
41,282

 
43,103

Total Revenues
848,459

 
850,168

 
 
 
 
Costs and Expenses:
 
 
 
 
 
 
 
Costs of services provided, before reimbursements
574,380

 
571,355

Reimbursements
41,282

 
43,103

Total costs of services
615,662

 
614,458

 
 
 
 
Selling, general, and administrative expenses
188,907

 
175,178

 
 
 
 
Corporate interest expense, net of interest income of $1,446 and $581, respectively
7,402

 
6,674

 
 
 
 
Restructuring and special charges

 
8,818

 
 
 
 
Loss on disposition of business line
18,996

 

 
 
 
 
Total Costs and Expenses
830,967

 
805,128

 
 
 
 
Other Income, net
2,644

 
1,395

 
 
 
 
Income Before Income Taxes
20,136

 
46,435

 
 
 
 
Provision for Income Taxes
6,255

 
16,569

 
 
 
 
Net Income
13,881

 
29,866

 
 
 
 
Net Loss (Income) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
159

 
(188
)
 
 
 
 
Net Income Attributable to Shareholders of Crawford & Company
$
14,040

 
$
29,678

 
 
 
 
Earnings Per Share - Basic:
 
 
 
Class A Common Stock
$
0.28

 
$
0.56

Class B Common Stock
$
0.22

 
$
0.50

 
 
 
 
Earnings Per Share - Diluted:
 
 
 
Class A Common Stock
$
0.28

 
$
0.55

Class B Common Stock
$
0.22

 
$
0.49

 
 
 
 
Weighted-Average Shares Used to Compute Basic Earnings Per Share:
 
 
 
Class A Common Stock
30,829

 
31,359

Class B Common Stock
24,455

 
24,639

 
 
 
 
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:
 
 
 
Class A Common Stock
31,451

 
32,156

Class B Common Stock
24,455

 
24,639

 
 
 
 
Cash Dividends Per Share:
 
 
 
Class A Common Stock
$
0.21

 
$
0.21

Class B Common Stock
$
0.15

 
$
0.15

(See accompanying notes to condensed consolidated financial statements)

4


CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited

 
Three Months Ended September 30,
(In thousands)
2018
 
2017
 
 
 
 
Net Income
$
7,879

 
$
11,970

 
 
 
 
Other Comprehensive (Loss) Income:
 
 
 
Net foreign currency translation (loss) income, net of tax of $0 and $0, respectively
(4,730
)
 
6,994

 
 
 
 
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $826 and $975, respectively
1,833

 
1,745

 
 
 
 
Other Comprehensive (Loss) Income
(2,897
)
 
8,739

 
 
 
 
Comprehensive Income
4,982

 
20,709

 
 
 
 
Comprehensive loss (income) attributable to noncontrolling interests and redeemable noncontrolling interests
468

 
(151
)
 
 
 
 
Comprehensive Income Attributable to Shareholders of Crawford & Company
$
5,450

 
$
20,558

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
 
 
 
Net Income
$
13,881

 
$
29,866

 
 
 
 
Other Comprehensive Income:
 
 
 
Net foreign currency translation (loss) income, net of tax of $0 and $0, respectively
(3,333
)
 
8,525

 
 
 
 
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $2,455 and $2,954, respectively
5,535

 
5,278

 
 
 
 
Other Comprehensive Income
2,202

 
13,803

 
 
 
 
Comprehensive Income
16,083

 
43,669

 
 
 
 
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
414

 
502

 
 
 
 
Comprehensive Income Attributable to Shareholders of Crawford & Company
$
16,497

 
$
44,171

 
 
 
 

(See accompanying notes to condensed consolidated financial statements)

5


CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited

 
 
 
*
(In thousands)
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
53,339

 
$
54,011

Accounts receivable, less allowance for doubtful accounts of $10,362 and $12,588, respectively
128,456

 
174,172

Unbilled revenues, at estimated billable amounts
118,274

 
108,745

Income taxes receivable
2,378

 
7,987

Prepaid expenses and other current assets
28,444

 
25,452

Total Current Assets
330,891

 
370,367

Net Property and Equipment
35,127

 
41,664

Other Assets:
 
 
 
Goodwill
97,579

 
96,916

Intangible assets arising from business acquisitions, net
89,713

 
97,147

Capitalized software costs, net
74,354

 
89,824

Deferred income tax assets
25,552

 
24,359

Other noncurrent assets
78,272

 
67,659

Total Other Assets
365,470

 
375,905

TOTAL ASSETS
$
731,488

 
$
787,936

*    Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)

6



CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
Unaudited

 
 
 
*
(In thousands, except par value amounts)
September 30,
2018
 
December 31,
2017
LIABILITIES AND SHAREHOLDERS' INVESTMENT
 
 
 
Current Liabilities:
 
 
 
Short-term borrowings
$
32,096

 
$
24,641

Accounts payable
33,878

 
49,303

Accrued compensation and related costs
71,051

 
75,892

Self-insured risks
16,345

 
13,407

Income taxes payable
1,236

 
2,703

Deferred rent
14,163

 
15,717

Other accrued liabilities
38,666

 
36,563

Deferred revenues
33,025

 
37,794

Current installments of long-term debt and capital leases
167

 
571

Total Current Liabilities
240,627

 
256,591

Noncurrent Liabilities:
 
 
 
Long-term debt and capital leases, less current installments
180,683

 
200,460

Deferred revenues
22,727

 
22,515

Accrued pension liabilities
61,400

 
87,035

Other noncurrent liabilities
29,513

 
27,596

Total Noncurrent Liabilities
294,323

 
337,606

Redeemable Noncontrolling Interests
5,818

 
6,775

Shareholders' Investment:
 
 
 
Class A common stock, $1.00 par value; 50,000 shares authorized; 30,710 and 31,439 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
30,710

 
31,439

Class B common stock, $1.00 par value; 50,000 shares authorized; 24,437 and 24,502 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
24,437

 
24,502

Additional paid-in capital
58,765

 
53,170

Retained earnings
265,990

 
269,686

Accumulated other comprehensive loss
(194,020
)
 
(196,477
)
Shareholders' Investment Attributable to Shareholders of Crawford & Company
185,882

 
182,320

Noncontrolling interests
4,838

 
4,644

Total Shareholders' Investment
190,720

 
186,964

TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT
$
731,488

 
$
787,936

*    Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)

7


CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
Net income
$
13,881

 
$
29,866

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,284

 
30,648

Deferred income taxes
(525
)
 

Stock-based compensation
4,838

 
4,973

Loss on disposition of business line
18,996

 

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable, net
12,811

 
(6,181
)
Unbilled revenues, net
(26,156
)
 
(16,996
)
Accrued or prepaid income taxes
1,313

 
5,202

Accounts payable and accrued liabilities
(10,665
)
 
(16,233
)
Deferred revenues
(2,068
)
 
(2,352
)
Accrued retirement costs
(26,486
)
 
(13,360
)
Prepaid expenses and other operating activities
(3,196
)
 
(1,683
)
Net cash provided by operating activities
16,027

 
13,884

 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Acquisitions of property and equipment
(12,406
)
 
(10,465
)
Cash proceeds from disposition of business line
40,275

 

Capitalization of computer software costs
(13,098
)
 
(19,906
)
Payments for business acquisitions, net of cash acquired
(2,500
)
 
(36,029
)
Other investing activities
(218
)
 
(2,148
)
Net cash provided by (used in) investing activities
12,053

 
(68,548
)
 
 
 
 
Cash Flows From Financing Activities:
 
 
 
Cash dividends paid
(10,159
)
 
(10,288
)
Payments related to shares received for withholding taxes under stock-based compensation plans
(107
)
 
(547
)
Proceeds from shares purchased under employee stock-based compensation plans
1,408

 
1,048

Repurchases of common stock
(7,715
)
 
(6,066
)
Increases in short-term and revolving credit facility borrowings
89,554

 
82,905

Payments on short-term and revolving credit facility borrowings
(100,895
)
 
(22,697
)
Payments on capital lease obligations
(361
)
 
(964
)
Dividends paid to noncontrolling interests
(349
)
 
(291
)
Net cash (used in) provided by financing activities
(28,624
)
 
43,100

Effects of exchange rate changes on cash and cash equivalents
(128
)
 
3,284

Decrease in cash and cash equivalents
(672
)
 
(8,280
)
Cash and cash equivalents at beginning of year
54,011

 
81,569

Cash and cash equivalents at end of period
$
53,339

 
$
73,289

(See accompanying notes to condensed consolidated financial statements)

8


CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Unaudited
(In thousands)
 
Common Stock
 
 
 
 
 
Accumulated
 
Shareholders' Investment Attributable to
 
 
 
 
2018
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, 2018
$
31,439

 
$
24,502

 
$
53,170

 
$
269,686

 
$
(196,477
)
 
$
182,320

 
$
4,644

 
$
186,964

Net income (1)

 

 

 
8,569

 

 
8,569

 
188

 
8,757

Other comprehensive income

 

 

 

 
8,940

 
8,940

 
229

 
9,169

Cash dividends paid

 

 

 
(3,421
)
 

 
(3,421
)
 

 
(3,421
)
Stock-based compensation

 

 
1,565

 

 

 
1,565

 

 
1,565

Repurchases of common stock
(1,012
)
 
(54
)
 

 
(7,794
)
 

 
(8,860
)
 

 
(8,860
)
Common stock activity, net
102

 

 
(88
)
 

 

 
14

 

 
14

Cumulative-effect adjustment of ASC 606 adoption

 

 

 
642

 

 
642

 

 
642

Balance at March 31, 2018
$
30,529

 
$
24,448

 
$
54,647

 
$
267,682

 
$
(187,537
)
 
$
189,769

 
$
5,061

 
$
194,830

Net (loss) income (1)

 

 

 
(2,425
)
 

 
(2,425
)
 
305

 
(2,120
)
Other comprehensive loss

 

 

 

 
(4,037
)
 
(4,037
)
 
(33
)
 
(4,070
)
Cash dividends paid

 

 

 
(3,363
)
 

 
(3,363
)
 

 
(3,363
)
Dividends paid to noncontrolling interests

 

 

 

 

 

 
(167
)
 
(167
)
Stock-based compensation

 

 
1,790

 

 

 
1,790

 

 
1,790

Common stock activity, net
69

 

 
240

 

 

 
309

 

 
309

Balance at June 30, 2018
$
30,598

 
$
24,448

 
$
56,677

 
$
261,894

 
$
(191,574
)
 
$
182,043

 
$
5,166

 
$
187,209

Net income (1)

 

 

 
7,896

 

 
7,896

 
305

 
8,201

Other comprehensive loss

 

 

 

 
(2,446
)
 
(2,446
)
 
(451
)
 
(2,897
)
Cash dividends paid

 

 

 
(3,375
)
 

 
(3,375
)
 

 
(3,375
)
Dividends paid to noncontrolling interests

 

 

 

 

 

 
(182
)
 
(182
)
Stock-based compensation

 

 
1,483

 

 

 
1,483

 

 
1,483

Repurchases of common stock
(43
)
 
(11
)
 

 
(425
)
 

 
(479
)
 

 
(479
)
Common stock activity, net
155

 

 
823

 

 

 
978

 

 
978

Change in value of noncontrolling interests

 

 
(218
)
 

 

 
(218
)
 

 
(218
)
Balance at September 30, 2018
$
30,710

 
$
24,437

 
$
58,765

 
$
265,990

 
$
(194,020
)
 
$
185,882

 
$
4,838

 
$
190,720

(See accompanying notes to condensed consolidated financial statements)

(1) The total net income (loss) presented in the condensed consolidated statements of shareholders' investment for the three months ended March 31, June 30, and September 30, 2018 excludes $327, $308 and $322 respectively, in net loss attributable to the redeemable noncontrolling interests.


9


 
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

Common stock activity, net
231

 

 
(629
)
 

 

 
(398
)
 

 
(398
)
Acquisition of noncontrolling interests

 

 
34

 

 

 
34

 
(715
)
 
(681
)
Cumulative-effect adjustment of ASU 2016-09

 

 

 
692

 

 
692

 

 
692

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, net
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

Net income

 

 

 
11,813

 

 
11,813

 
435

 
12,248

Other comprehensive income (loss)

 

 

 

 
8,745

 
8,745

 
(6
)
 
8,739

Cash dividends paid

 

 

 
(3,419
)
 

 
(3,419
)
 

 
(3,419
)
Stock-based compensation

 

 
1,568

 

 

 
1,568

 

 
1,568

Repurchases of common stock
(194
)
 
(127
)
 

 
(2,311
)
 

 
(2,632
)
 

 
(2,632
)
Dividends paid to noncontrolling interests

 

 

 

 

 

 
(291
)
 
(291
)
Acquisition of noncontrolling interests

 

 
(404
)
 

 

 
(404
)
 
(412
)
 
(816
)
Common stock activity, net
179

 

 
460

 

 

 
639

 

 
639

Balance at September 30, 2017
$
31,243

 
$
24,515


$
53,138


$
276,304


$
(197,280
)

$
187,920


$
4,120


$
192,040

(See accompanying notes to condensed consolidated financial statements)

(1) The total net income presented in the condensed consolidated statements of shareholders' investment for the three months ended ended March 31, June 30, and September 30, 2017 excludes $178, $203, and $278 respectively, in net loss attributable to the redeemable noncontrolling interests.



10


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.
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.crawco.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 nine months ended, and the Company's financial position as of September 30, 2018 are not necessarily indicative of the results or financial position that may be expected for the year ending December 31, 2018 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, 2017 other than as disclosed herein.
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, 2017 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, 2017.
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 September 30, 2018 and December 31, 2017, the liabilities of the deferred compensation plan were $9,040,000 and $9,337,000, 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 $16,460,000 and $16,538,000, 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.

11


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 September 30, 2018 were $11,502,000 and $10,181,000, respectively. Total assets and liabilities of LWI as of December 31, 2017 were $10,083,000 and $10,685,000, respectively. Included in LWI's total liabilities is a loan from Crawford of $7,542,000 and $8,580,000 as of September 30, 2018 and December 31, 2017, 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 recorded at either their initial fair value plus any profits or losses or estimated redemption value if an adjustment is required.

2. Recently Issued Accounting Standards
Adoption of New Accounting Standards
Derivatives and Hedging-Targeted Improvements to Accounting for Hedging Activities
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, "Targeted Improvements to Accounting for Hedging Activities." This ASU was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. Additionally, the amendments in this update simplify the application of the hedge accounting guidance. The Company elected to early adopt this ASU for the period ended March 31, 2018, with no impact on its results of operations, financial condition and cash flows. The Company is not currently a party to any derivative contracts.
Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting
In May 2017, the FASB issued ASU 2017-9, "Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting." This 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. This update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. The Company adopted this ASU for the period ended March 31, 2018, with no material impact on its results of operations, financial condition and cash flows.

12


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

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." This 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 Company adopted this guidance retrospectively for the period ended March 31, 2018 with a resulting reclassification with the service cost component of net periodic pension cost and net periodic postretirement benefit cost continuing to be reported within cost of services provided, before reimbursements and selling, general, and administrative expenses on the unaudited Condensed Consolidated Statements of Operations based on where the compensation costs of the pertinent employees are presented and the other components being reclassified within Other Income, net. This entry resulted in a reclassification of the non-service components of net periodic pension costs of $170,000 and $497,000 of income for the three months and nine months ended September 30, 2017, to "Other Income, net".
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." This ASU 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 Company adopted this ASU for the period ended March 31, 2018, with no impact to 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." This ASU 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 Company adopted this guidance for the period ended March 31, 2018, with no material impact to the statement of cash flows.

13


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" together with its subsequent related amendments in 2015 and 2016, collectively referred to as ASC 606. ASC 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. This new standard is effective for annual periods beginning after December 15, 2017, including interim periods within those reporting periods. ASC 606 supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition,” and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASC 606 as of January 1, 2018 (“transition date”) using the modified retrospective transition method, and applied the new guidance to contracts not substantially completed at the transition date. As a result of adopting ASC 606, the Company recognized a cumulative-effect adjustment to the opening balance of retained earnings.
The cumulative effect of the changes made to the Company's Unaudited Condensed Consolidated Balance Sheets as of January 1, 2018 are as follows:
 
 
Transition Adjustments
Adjusted Balances
(in thousands)
December 31, 2017*

Crawford Claims Solutions
Crawford Specialty Solutions
January 1, 2018

Assets:
 
 
 
 
Unbilled revenues, at estimated billable amounts
$
108,745

$
1,150

$

$
109,895

Deferred income tax assets
24,359

(285
)
77

24,151

Liabilities:
 
 
 
 
Deferred revenues (current)
37,794


300

38,094

Shareholders' Investment:
 
 
 
 
Retained earnings
269,686

865

(223
)
270,328

* Derived from the audited Consolidated Balance Sheets
The Crawford Claims Solutions transition adjustment relates to a change in the method utilized to measure the satisfaction of the performance obligation for short term claims loss adjusting service contracts that were in process as of the transition date. The performance obligation for these contracts is satisfied over a short period of time, on average within 30 days. Under ASC 606, revenue is recognized based on historical claim closure rates and claim type applied utilizing a portfolio approach based on time elapsed for these claims. The Crawford Specialty Solutions transition adjustment relates to a change in the method utilized to measure the satisfaction of the performance obligation for a small number of fixed fee contracts within the Garden City Group business, which was disposed of in the second quarter of 2018.

Pending Adoption of Recently Issued Accounting Standards
Earning Per Share-Distinguishing Liabilities from Equity-Derivatives and Hedging
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception." The ASU Part I changes the classification analysis of certain equity-linked financial instruments with down round features and the related disclosures. Part II of the amendments recharacterizes the indefinite deferral of certain provisions of Topic 480 and do not have an accounting effect. The update is effective for annual periods beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect this ASU will have on its results of operations, financial condition and cash flows, however, it does not expect any impact.


14


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. This ASU will also 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. In July 2018, the FASB issued ASU 2018-11, "Targeted Improvements," which allows a transition option for entities to not apply the new lease standard in comparative periods presented in the financial statements in the year of adoption. The update also provides a practical expedient to allow lessors the option to combine lease and non-lease components. These updates are effective for annual periods beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted. The Company plans to elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs as well as the practical expedient to choose not to separate nonlease components from lease components and instead account for each as a single lease component for all classes of its assets. The Company also plans to elect ASU 2018-11 and as a result will not adjust the comparative period financial information or make the new required lease disclosures for periods before the effective date. The Company is updating its inventory of real estate, equipment, and automobile leases for attributes required by these standards. The Company anticipates the adoption of these standards will result in operating lease-related assets and liabilities recorded on the consolidated balance sheets. The Company is currently evaluating the effect these standards will have on its results of operations and 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.
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” This update amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, by removing and modifying certain disclosure requirements and adding others. This update removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. This update requires the disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, this update clarifies that transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities are required to be disclosed. These updates are effective for annual periods beginning after December 15, 2019, and interim periods thereafter. Early adoption is permitted and early adoption of any removed or modified disclosures upon issuance of this update is permitted while delaying adoption of the additional disclosures until the effective date. The Company is currently evaluating the effect this ASU will have on its Fair Value Measurements disclosure.

15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Compensation-Retirement Benefits: Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)." This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This update removes certain disclosure requirements including, but not limited to, the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer. This update requires the disclosure of the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This update also clarifies requirements for entities that provide aggregate disclosures for two or more plans. The update is effective for annual periods beginning after December 15, 2020, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU will have on its Retirement Plans disclosure.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).” This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. This update also requires the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Further, this update requires the presentation of the expense in the statement of income, the presentation of the costs on the statement of financial position and the classification of payments in the statement of cash flows related to capitalized implementation costs to be treated the same as the fees of the associated hosting arrangement. The update is effective for annual periods beginning after December 15, 2019, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU will have on its results of operations, financial condition and cash flows.



16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

3. Revenue Recognition
The Company adopted ASC 606 using the modified retrospective method for those contracts which were not substantially completed as of the transition date. The reported results for the three months and nine months ended September 30, 2018, reflect the application of ASC 606 while the reported results for the three months and nine months ended September 30, 2017, reflect the application of ASC 605.
There was no significant impact to the Company's unaudited Condensed Consolidated Statements of Operations or unaudited Condensed Consolidated Balance Sheets as a result of applying ASC 606 for the three months and nine months ended September 30, 2018.
Revenue from Contracts with Customers
Revenues are recognized when control of the promised services are transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues are recognized net of any sales, use or value added taxes collected from customers, which are subsequently remitted to governmental authorities. As the Company completes its performance obligations which are identified below, it has an unconditional right to consideration as outlined in the Company's contracts. Generally the Company's accounts receivable are expected to be collected in less than two months, in accordance with the underlying payment terms.
The Company's Crawford Claims Solutions segment generates revenue for claims management services provided to insurance companies and self-insured entities related to property, casualty and catastrophe losses caused by physical damage to commercial and residential real property and certain types of personal property. The Company charges on a fee-per-claim basis for each optional purchase of the claims management services exercised by its customer. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services are transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type for fixed fee claims applied utilizing a portfolio approach based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer. The Company also generates revenue by providing on-demand inspection, verification and other task specific field services for businesses and consumers. Task assignment services are single optional purchase performance obligations which are generally satisfied at a point in time when the control of the service is transferred to the customer. Therefore, revenue is recognized when the customer receives the service requested.
The following table presents Crawford Claims Solutions revenues before reimbursements disaggregated by geography for the three months and nine months ended September 30, 2018. The Company considers all Crawford Claims Solutions revenues to be derived from one service line.
 
Three Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Australia
Europe
Rest of World
Total
Total Crawford Claims Solutions Revenues before Reimbursements
$
34,480

$
15,803

$
11,705

$
11,739

$
7,234

$
4,384

$
85,345

 
Nine Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Australia
Europe
Rest of World
Total
Total Crawford Claims Solutions Revenues before Reimbursements
$
110,426

$
47,397

$
38,944

$
33,889

$
23,887

$
14,432

$
268,975


The Company's Crawford TPA Solutions: Broadspire segment is a third party administrator that generates revenue through its Claims Management and Medical Management service lines.

The Claims Management service line includes Workers' Compensation, Liability, Property and Disability Claims Management. This service line also performs additional services such as Accident & Health claims programs, including Affinity type claims,

17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

and disability and leave management services. Each claim referred by the customer is considered an additional optional purchase of claims management services under the agreement with the customer. The transaction price is readily available from the contract and is fixed for each service. Revenue is recognized over time as services are provided as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document, and report the claim and control of these services are transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type applied utilizing a portfolio approach based on time elapsed for these claims as the Company believes this is the most accurate depiction of the transfer of the claims management services to its customer. This service line also provides Risk Management Information Services. For non-claim services, revenue is recognized over time as services are provided and control of these services are transferred to the customer. Revenue is recognized as time elapses as this is the most accurate depiction of the transfer of the service to the customer.
The Company's obligation to manage claims under the Claims Management service line can range from less than one year, on a one- or two-year basis or for the lifetime of the claim. Under certain claims management agreements, the Company receives consideration from a customer at contract inception prior to transferring services to the customer, however, it would begin performing services immediately. The period between a customer’s payment of consideration and the completion of the promised services could be greater than one year. There is no difference between the amount of promised consideration and the cash selling price of the promised services. The fee is billed upfront by the Company in order to provide customers with simplified and predictable ways of purchasing its services and it is customary to invoice service fees when the claim is assigned. The Company considered whether a significant financing component exists and determined that there is not a significant financing component at the contract level.
The Medical Management service line offers case managers who provide administration services by proactively managing medical treatment for claimants while facilitating an understanding of and participation in their rehabilitation process. Revenue for Medical Management services is recognized over time as the performance obligations are satisfied through the effort expended to manage the medical treatment for claimants and control of these services are transferred to the customer. Medical Management services are generally billed based on time incurred, are considered variable consideration, and revenue is recognized at the amount in which the Company has the right to invoice for services performed. This method of revenue recognition is the most accurate depiction of the transfer of the Medical Management service to the customer. Medical bill review services provide an analysis of medical charges for clients’ claims to identify opportunities for savings. Medical bill review services revenues are recognized over time as control of the service is transferred to the customer. Revenue is recognized based upon the transfer of the results of the medical bill review service to the customer as this is the most accurate depiction of the transfer of the service to the customer.

The following table presents TPA Solutions: Broadspire revenues before reimbursements disaggregated by service line and geography for the three months and nine months ended September 30, 2018.
 
Three Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Europe
Rest of World
Total
Claims Management Services
$
37,294

$
2,863

$
9,081

$
7,960

$
388

$
57,586

Medical Management Services
42,685





42,685

Total Crawford TPA Solutions: Broadspire Revenues before Reimbursements
$
79,979

$
2,863

$
9,081

$
7,960

$
388

$
100,271

 
Nine Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Europe
Rest of World
Total
Claims Management Services
$
112,616

$
9,387

$
27,580

$
24,091

$
1,119

$
174,793

Medical Management Services
128,359





128,359

Total Crawford TPA Solutions: Broadspire Revenues before Reimbursements
$
240,975

$
9,387

$
27,580

$
24,091

$
1,119

$
303,152



18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

The Company's Crawford Specialty Solutions segment principally generates revenues through its Global Technical Services, Contractor Connection and Garden City Group service lines. The Garden City Group business was disposed of as of June 15, 2018. See Note 12, "Acquisitions and Disposal of Business Line" for further discussion about this transaction.

The Global Technical Services service line generates revenues for claims management services provided to insurance companies and self-insured entities related to large, complex losses with technical adjusting and industry experts servicing a broad range of industries. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services are transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type for fixed fee claims, applied utilizing a portfolio approach based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer.

The Contractor Connection service line generates revenue through its independently managed contractor network, with approximately 6,000 credentialed residential and commercial contractors. Contractor Connection primarily generates revenue by receiving a fee for each project that is sold by its network of contractors. Revenue is recognized at a point in time once the consumer accepts the contractor's proposal as Contractor Connection’s performance obligation of referring projects to its contractors has been completed and the Company is entitled to consideration at that time. The contractor takes control of the service upon the consumer’s acceptance of the contractor’s proposal.

Prior to its disposition, the Garden City Group service line generated revenues by performing legal settlement administration services on behalf of law firms, corporations, government agencies, and courts. The Garden City Group's services included identifying and qualifying class members, handling written, electronic, and telephonic communications with claimants, and determining and dispensing settlement payments. Garden City Group further provided back-office business process outsourcing services encompassing fulfillment, mail intake, call center and multimedia outreach solutions, payment distribution, and product recall needs. Revenues for professional services, such as project management and oversight, legal counsel, administrative and information technology systems support, were recognized over time as the performance obligations were satisfied through the effort expended to administer projects and control of these services were transferred to the customer. Professional services were generally billed on a time and expense incurred basis, were considered variable consideration, and revenue was recognized at the amount in which the Company has the right to invoice for services performed. Transaction support services, such as mail intake and payment distribution, were considered stand ready performance obligations and were accounted for as a series of distinct services and recognized over time as control of these services were transferred to the customer. The nature of the performance obligations for these services was a promise that consists of standing ready to provide services, or making services available for a customer to use, as and when the customer decided to do so. Revenues for transaction support services were recognized over time as the performance obligations were satisfied through the effort expended to perform the support services and control of these services were transferred to the customer. Transaction support services were generally billed based on per unit rates, were considered variable consideration, and revenue was recognized at the amount in which we had the right to invoice for services performed. These methods of revenue recognition for professional and transaction support services were the most accurate depiction of the transfer of the legal settlement administration services to the customer.

The following table presents Crawford Specialty Solutions revenues before reimbursements disaggregated by service line and geography for the three months and nine months ended September 30, 2018.
 
Three Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Australia
Europe
Rest of World
Total
Global Technical Services
$
10,003

$
11,929

$
6,118

$
6,495

$
5,277

$
6,379

$
46,201

Contractor Connection
18,682

2,036

2,254

239

1


23,212

Garden City Group







Total Crawford Specialty Solutions Revenues before Reimbursements
$
28,685

$
13,965

$
8,372

$
6,734

$
5,278

$
6,379

$
69,413


19


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

 
Nine Months Ended September 30, 2018
(in thousands)
U.S.
U.K.
Canada
Australia
Europe
Rest of World
Total
Global Technical Services
$
29,607

$
34,446

$
18,761

$
17,833

$
16,356

$
18,035

$
135,038

Contractor Connection
56,706

6,308

6,121

999

3


70,137

Garden City Group
28,827


1,048




29,875

Total Crawford Specialty Solutions Revenues before Reimbursements
$
115,140

$
40,754

$
25,930

$
18,832

$
16,359

$
18,035

$
235,050


In the normal course of business, the Company's operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by its customers. The Company controls the promised good or service before it is transferred to its customer, therefore it is a principal in the transaction. These out-of-pocket expenses and associated reimbursements are reported on a gross basis within expenses and revenues, respectively, in the Company's unaudited Condensed Consolidated Statements of Operations.
Arrangements with Multiple Performance Obligations
For claims management services, the Company typically has one performance obligation; however, it also provides the customer with an option to acquire additional services. The Company sells multiple lines of claims processing and different levels of processing depending on the complexity of the claims. The Company typically provides a menu of offerings from which the customer chooses to purchase at their option. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is consistent for each service irrespective of the other services or quantities requested by the customer. For example, if the Company provides claims processing for both auto and general liability, those services are priced and delivered independently.
Contract Balances
The timing of revenue recognition, billings and cash collections result in billed accounts receivables, contract assets (reported as unbilled revenues at estimated billable amounts) and contract liabilities (reported as deferred revenues) on the Company’s unaudited Condensed Consolidated Balance Sheets. Unbilled revenues is a contract asset for revenue that has been recognized in advance of billing the customer, resulting from professional services delivered that we expect and are entitled to receive as consideration under certain contracts. Billing requirements vary by contract but substantially all unbilled revenues are billed within one year.

When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain claims management agreements, it records deferred revenues on the Company’s unaudited Condensed Consolidated Balance Sheets, which represents a contract liability. These fixed-fee service agreements typically result from the Crawford TPA Solutions: Broadspire segment and require the Company to handle claims on either a one- or two-year basis, or for the lifetime of the claim. In cases where it handles a claim on a non-lifetime basis, the Company typically receives an additional fee on each anniversary date that the claim remains open. For service agreements where it provides services for the life of the claim, the Company is paid one upfront fee regardless of the duration of the claim. The Company recognizes deferred revenues as revenues as it performs services and transfers control of the services to the customer and satisfies the performance obligation which it determines utilizing a portfolio approach.

The Company's deferred revenues for claims handled for one or two years are not as sensitive to changes in claim closing rates since the performance obligations are satisfied within a fixed length of time. Deferred revenues for lifetime claim handling are more sensitive to changes in claim closing rates since the Company is obligated to handle these claims to conclusion with no additional fees received for long-lived claims. For all fixed fee service agreements, revenues are recognized over the expected service periods, by type of claim. Based upon its historical averages, the Company closes approximately 98% of all cases referred to it under lifetime claim service agreements within five years from the date of referral. Also, within that five-year period, the percentage of cases remaining open in any one particular year has remained relatively consistent from period to period. Each quarter the Company evaluates its historical case closing rates by type of claim utilizing a portfolio approach and makes adjustments to deferred revenues as necessary. As a portfolio approach is utilized to recognize deferred revenues, any changes in estimates will impact timing of revenue recognition and any changes in estimates are recognized in the period in which they are determined.


20


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

The table below presents the deferred revenues balance as of the transition date and the significant activity affecting deferred revenues during the nine months ended September 30, 2018:
(In Thousands)
 
Customer Contract Liabilities
Deferred Revenue
Balance at January 1, 2018 (transition date)
$
60,609

    Quarterly additions
20,250

    Revenue recognized from the prior periods
(12,440
)
    Revenue recognized from current quarter additions
(7,154
)
Balance as of March 31, 2018
61,265

    Quarterly additions
20,196

    Revenue recognized from the prior periods
(13,752
)
    Revenue recognized from current quarter additions
(7,238
)
    Disposal of business line
(2,751
)
Balance as of June 30, 2018
57,720

    Quarterly additions
18,798

    Revenue recognized from the prior periods
(16,621
)
    Revenue recognized from current quarter additions
(4,145
)
Balance as of September 30, 2018 (current and noncurrent)
$
55,752

Remaining Performance Obligations
As of September 30, 2018, the Company had $92.9 million of remaining performance obligations related to claims and non-claims services in which the price is fixed. Remaining performance obligations consist of deferred revenues as well as certain unbilled receivables that are considered contract assets. The Company expects to recognize approximately 70% of our remaining performance obligations as revenues within one year and the remaining balance thereafter. See the discussion below regarding the practical expedients elected for the disclosure of remaining performance obligations.
Costs to Obtain a Contract
The Company has a sales incentive compensation program where remuneration is based on the revenues recognized in the period and does not represent an incremental cost to the Company which provides a future benefit expected to be longer than one year and would meet the criteria to be capitalized and presented as a contract asset on the Company's unaudited Condensed Consolidated Balance Sheets.
Practical Expedients Elected
As a practical expedient, the Company does not adjust the consideration in a contract for the effects of a significant financing component it expects, at contract inception, when the period between a customer’s payment of consideration and the transfer of promised services to the customer will be one year or less.
For claims management and legal settlement administration services that are billed on a time and expense incurred or per unit basis and revenue is recognized over time, the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company does not disclose the value of remaining performance obligations for (i) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed, and (ii) contracts with variable consideration allocated entirely to a single performance obligation.






21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

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. The Company estimates that its effective income tax rate for 2018 will be approximately 32.0% after considering known discrete items. The provision for income taxes on consolidated income before income taxes totaled $1.8 million and $4.9 million for the three months ended September 30, 2018 and 2017, respectively. The provision for income taxes on consolidated income before income taxes totaled $6.3 million and $16.6 million for the nine months ended September 30, 2018 and 2017, respectively. The overall effective tax rate decreased to 31.1% for the nine months ended September 30, 2018 compared with 35.7% for the 2017 period due to current year losses or low level of taxable income in certain operations, including losses due to disposal of the Garden City Group business, partially offset by one-time tax planning related to the voluntary contribution of $10.0 million to the Company’s U.S. defined benefit pension plan, and enacted changes in U.S. tax law as a result of the December 2017 enactment of the Tax Cuts and Jobs Act (“the Tax Act”). The Tax Act significantly changes U.S. federal income tax law. The changes include, but are not limited to: a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, creation of a new minimum tax on global intangible low taxed income (“GILTI”), and a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”) as a result of the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system. 

The Company has estimated the impact of the Tax Act incorporating assumptions made based upon its current interpretation of the Tax Act and included them in its consolidated financial statements for the year ended December 31, 2017. The SEC Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has recognized provisional tax impacts related to Transition Tax and revaluation of domestic deferred tax balances, and included those amounts in its consolidated financial statements for the year ended December 31, 2017. The actual impact of the Tax Act may differ from the Company's estimates due to, among other things, further refinement of our calculations, changes in interpretations and assumptions we have made, technical guidance that may be issued related to the December 31, 2017 tax return year and actions we may take as a result of the Tax Act. The provision for income taxes for the nine months ended September 30, 2018 did not reflect any material adjustments to the previously disclosed estimated impact of the Tax Act. As of September 30, 2018 the Company expects the accounting to be completed within the one year measurement period, as allowed under SAB 118.

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 nine months ended September 30, 2018 and 2017 included the following components:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Service cost
$
355

 
$
333

 
$
1,099

 
$
980

Interest cost
5,282

 
5,656

 
16,017

 
16,829

Expected return on assets
(8,718
)
 
(8,608
)
 
(26,478
)
 
(25,623
)
Amortization of actuarial loss
2,696

 
2,782

 
8,117

 
8,297

Net periodic (benefit) cost
$
(385
)
 
$
163

 
$
(1,245
)
 
$
483



22


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

During the period ended March 31, 2018, the Company adopted ASU 2017-7 and retrospectively applied the presentation of the service costs and the other components of net periodic service costs in the unaudited Condensed Consolidated Statement of Operations. For the three months ended September 30, 2018 and 2017, the non-service components of net periodic pension costs of $740,000 and $170,000 of income, respectively, are included in "Other Income, net" on the unaudited Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2018 and 2017, the non-service components of net periodic pension costs of $2,344,000 and $497,000 of income, respectively, are included in "Other Income, net" on the Condensed Consolidated Statement of Operations. For the nine month period ended September 30, 2018, the Company made contributions of $19,000,000 and $4,168,000 to its U.S. and U.K. defined benefit pension plans, respectively, compared with contributions of $9,000,000 and $4,038,000, respectively, in the comparable 2017 period. For the quarter ended September 30, 2018, in addition to its expected $3,000,000 quarterly contribution, the Company made a one time voluntary contribution of $10,000,000 to its U.S. defined benefit pension plan. The Company does not expect to make any additional contributions to its U.S. and U.K. plans during the remainder of 2018.


23


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

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 2018 and 2017, 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
 
Nine months ended
 
September 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
(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
$
2,518

$
2,004

 
$
4,703

$
3,691

 
$
2,164

$
1,717

 
$
10,858

$
8,532

Dividends paid
2,152

1,223

 
2,193

1,226

 
6,491

3,668

 
6,593

3,695

Net income attributable to common shareholders, basic
$
4,670

$
3,227

 
$
6,896

$
4,917

 
$
8,655

$
5,385

 
$
17,451

$
12,227






 




 




 




Denominator:




 




 




 




Weighted-average common shares outstanding, basic
30,713

24,446

 
31,276

24,550

 
30,829

24,455

 
31,359

24,639

Earnings per share - basic
$
0.15

$
0.13

 
$
0.22

$
0.20

 
$
0.28

$
0.22

 
$
0.56

$
0.50

The computations of diluted net income attributable to shareholders of Crawford & Company per common share were as follows:
 
Three months ended
 
Nine months ended
 
September 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
(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
$
2,542

$
1,980

 
$
4,756

$
3,638

 
$
2,183

$
1,698

 
$
10,978

$
8,412

Dividends paid
2,152

1,223

 
2,193

1,226

 
6,491

3,668

 
6,593

3,695

Net income attributable to common shareholders, diluted
$
4,694

$<