Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 7
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements included herein have been prepared
by the Registrant, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These condensed financial statements
should be read in conjunction with the financial statements and related notes
contained in the Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1995.
In the opinion of management, the condensed financial statements
included herein contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of the Registrant
as of September 30, 1996, and the results of its operations and cash flows for
the three- and nine-month periods then ended.
2. The results of operations for the nine-month period ended September, 1996,
are not necessarily indicative of the results to be expected during the balance
of the year ending December 31, 1996.
3. Net income per share is computed by dividing net income by the weighted
average number of shares outstanding during the respective periods. The effect
of common stock equivalents was less than 3% dilutive in both 1996 and 1995
and, therefore, the effect on primary earnings per share has not been shown.
4. The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
statements of cash flows.
5. Certain reclassifications of prior year amounts have been made in the
accompanying balance sheets to conform to the current year presentation. In
addition, costs associated with the Company's distributed branch computer
network totaling $17.0 million for the 1995 nine-month period, and $5.7 million
for the 1995 third quarter, were reclassified from selling, general and
administrative expenses to costs of services provided in the accompanying
statements of income to conform to the 1996 presentation.
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 8
PART 1 - FINANCIAL INFORMATION - (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
The Company's current assets at September 30, 1996, exceeded current
liabilities by $141.5 million, a 1.5% increase from the working capital
balance at December 31, 1995. Cash and cash equivalents at September 30,
1996, totaled $53.3 million, an increase of $12.5 million from the balance
at the end of 1995. Short-term investments totaled $126,000 at September 30,
1996, decreasing from $5.6 million at December 31, 1995. Cash was generated
primarily from operating activities, while the principal uses of cash were
for repurchases of common stock, dividends paid to shareholders and
acquisitions of property and equipment. At September 30, 1996, the ratio of
current assets to current liabilities was 2.3 to 1 compared with 2.5 to 1 at
the end of 1995.
During the first quarter of 1996, the Company completed its 1994 share
repurchase program and, under that program, has reacquired 1,165,900 shares
of its Class A Common Stock and 836,500 shares of its Class B Common Stock at
an average cost of $15.76 and $15.65 per share, respectively. Additionally,
during March of 1996, the Company announced a second share repurchase program
to acquire up to an aggregate of 2,000,000 shares of its Class A or Class B
Common Stock through open market purchases. Through September 30, 1996, the
Company has reacquired 437,200 shares of its Class A Common Stock and 155,700
shares of its Class B Common Stock at an average cost of $18.13 and $18.57 per
share, respectively.
On September 27, 1996, the Company announced the signing of a provisional
agreement with Swiss Reinsurance Company of Zurich, Switzerland to merge their
existing claims service firms outside the United States. The new entity will
be a 60% owned subsidiary of the Company. The transaction is expected to be
completed by the end of 1996, pending regulatory approval. The Company will
also acquire 100% of Swiss Reinsurance Company's Thomas Howell Group - Americas
unit based in the United States for approximately $9.0 million in notes
payable. As a result of this proposed transaction the Company intends to
evaluate the recoverability of its investment in its international operations
during the fourth quarter of 1996, in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.
The Company maintains credit lines with banks in order to meet the seasonal
working capital requirements of its foreign subsidiaries or other financing
needs that may arise. Short-term borrowings outstanding as of September 30,
1996, totaled $8.5 million, as compared to $10.2 million at the end of 1995.
The Company believes that its current financial resources, together with
funds generated from operations and existing and potential long-term borrowing
capabilities, will be sufficient to maintain its current operations.
The Company does not engage in any hedging activities to compensate for the
effect of exchange rate fluctuations on the operating results of its foreign
subsidiaries. Foreign currency denominated debt is maintained primarily to
hedge the currency exposure of its net investment in foreign operations.
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 9
Shareholders' investment at September 30, 1996 was $222.0 million, compared
with $220.9 million at the end of 1995. Long-term debt totaled $9.4 million
at September 30, 1996, or approximately 4.2% of shareholders' investment.
Results of Operations
Revenues for the first nine months of 1996 were $474.1 million, increasing 5.2%
from the $450.5 million for the same period in 1995. Third quarter 1996
revenues were $154.9 million, an increase of 2.6% over the $150.9 million for
the related 1995 period. Unit volume, measured principally by chargeable
hours, increased 3.5% and 1.4% during the first nine months and third quarter
of 1996, respectively. These increases were complemented by changes in the mix
of services and in the rates charged for those services, the combined effects
of which increased revenues by approximately 1.7% in the first nine months of
1996 and 1.2% in the third quarter.
The percentage of revenue derived from each of the Company's principal service
categories is shown in the following schedule:
Nine-Month Period Three-Month Period
Ended September 30 Ended September 30
1996 1995 1996 1995
Domestic Claims Services (including
Risk Management Services) 73.7% 71.7% 74.6% 71.4%
Domestic Disability Management
Services 13.9 15.7 13.8 14.9
International Operations 12.4 12.6 11.6 13.7
100.0% 100.0% 100.0% 100.0%
Domestic revenues from claims services to insurance companies and risk
management services to self insured clients totaled $349.2 million for the
first nine months of 1996, increasing 8.0% from the $323.3 million reported
in 1995. Third quarter 1996 revenues totaled $115.4 million, an increase of
7.2% from related 1995 revenues of $107.7 million. These increases are largely
due to an increase in weather-related claims resulting from the severe weather
in the United States during the first nine months of 1996, and offset continued
weakness in the domestic self-insured corporate market where revenues have
declined 5.4% compared to the related prior year-to-date period. Revenues
from services provided to an insurance holding company and its subsidiaries
continued to decline, from 12% of total revenues in 1995 to nearly 10% in 1996.
However, this decline has been offset by services provided to other major
insurers and self-insured entities who have outsourced their claims services
to the Company.
Total revenues from domestic claims services include $29.0 million produced in
the first nine months of 1996 by the Company's catastrophe adjusters,
increasing $6.5 million from the first nine months of 1995. This increase
reflects the impact of winter storm-related losses and the completion of
Hurricane Opal property claims during the 1996 first quarter, and the effects
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 10
Results of Operations - (Continued)
of Hurricanes Bertha and Fran in the 1996 third quarter. In the third quarter
of 1996, revenues produced by the Company's catastrophe adjusters totaled
$11.6 million, as compared to $7.2 million in the 1995 third quarter.
Domestic revenues from disability management services, which serves both the
insurance company and self-insured markets, totaled $66.0 million for the first
nine months of 1996, a decrease of 6.6% from related 1995 revenues of $70.6
million. For the third quarter these revenues were $21.5 million, decreasing
4.6% from the $22.5 million reported in 1995. These declines reflect the
continued strong competition in the self-insured corporate market.
Revenues from the Company's international operations were $58.9 million in
the first nine months of 1996, a 4.1% increase over the $56.6 million for the
same period in 1995. This increase, largely generated during the 1996 first
quarter, is primarily due to the increase in claims volume from the harsh
winter experienced in the United Kingdom and the completion of Hurricanes Luis
and Marilyn property claims in the Caribbean. Third quarter 1996 revenues
totaled $18.0 million, decreasing 13.2% from related 1995 revenues of $20.7
million. This decline is primarily due to the impact of recent legislation
affecting the Canadian disability management market and lower claim volume in
the United Kingdom.
The Company's most significant expense is the compensation of its employees,
including related payroll taxes and fringe benefits. Such expense approximated
64.3% of revenues in the first nine months of 1996, up slightly from 64.0% for
the related 1995 period, and 65.3% of revenues in the current quarter as
compared to 64.4% of third quarter 1995 revenues. These increases relate
primarily to higher incentive compensation expense which is based primarily
on growth in earnings.
Expenses other than compensation and related payroll taxes and fringe benefits
approximated 24.6% of revenues for the first nine months of 1996, compared to
26.5% of revenues for the same period in 1995, and 23.0% of third quarter 1996
revenues, as compared to 25.1% of related 1995 revenues. As a result of the
Company's cost control efforts, such expenses declined 2.3% and 6.2% for the
nine-month period and third quarter of 1996, respectively, while revenues
increased 5.2% and 2.6%, respectively, over the related 1995 periods.
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 11
Review by Independent Public Accountants.
Arthur Andersen LLP, independent public accountants, has performed a review
of the interim financial information contained herein in accordance with
established professional standards and procedures for such a review and has
issued its report with respect thereto (see page 12).
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Crawford & Company:
We have made a review of the accompanying condensed consolidated balance
sheet of CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of
September 30, 1996 and the related condensed consolidated statements of
income for the three-month and nine-month periods ended September 30, 1996
and 1995 and the related condensed consolidated statements of cash flows for
the nine-month periods ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of obtaining an understanding of
the system for the preparation of interim financial information, applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
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 financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Crawford & Company and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, shareholders' investment and cashflows for the year then ended
(not presented separately herein), and in our report dated January 30, 1996,
we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1995 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
/s/Arthur Andersen LLP
Atlanta, Georgia
November 1, 1996
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
15.1 Letter from Arthur Andersen LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the period
covered by this report.
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crawford & Company
(Registrant)
Date: November 6, 1996 /s/D. A. Smith
D. A. Smith
Chairman of the Board and
Chief Executive Officer
Date: November 6, 1996 /s/D. R. Chapman
D. R. Chapman
Executive Vice President - Finance
(Principal Financial Officer)
Date: November 6, 1996 /s/J. F. Giblin
J. F. Giblin
Vice President and Controller
(Principal Accounting Officer)
Form 10-Q Crawford & Company
Quarter Ended September 30, 1996 Page 15
INDEX TO EXHIBITS
Exhibit No. Description Sequential Page No.
15.1 Letter from Arthur Andersen LLP 16
27.1 Financial Data Schedule (for SEC use only)