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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2001
OR
[ ] 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.)
5620 GLENRIDGE DRIVE, N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices) (Zip Code)
(404) 256-0830
(Registrant's telephone number, including area code)
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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 [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of July 31, 2001 was as follows:
CLASS A COMMON STOCK, $1.00 PAR VALUE: 23,843,480
CLASS B COMMON STOCK, $1.00 PAR VALUE: 24,697,172
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
2001 2000
-------- --------
REVENUES $365,982 $361,868
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $17,185 in 2001 and $16,015 in 2000 273,940 263,521
Selling, general, and administrative expenses 60,234 60,593
Corporate interest, net 2,496 2,063
Amortization of goodwill 1,747 1,561
-------- --------
TOTAL COSTS AND EXPENSES 338,417 327,738
-------- --------
INCOME BEFORE INCOME TAXES 27,565 34,130
PROVISION FOR INCOME TAXES 10,585 13,106
-------- --------
NET INCOME $ 16,980 $ 21,024
======== ========
NET INCOME PER SHARE:
Basic $ 0.35 $ 0.43
Diluted $ 0.35 $ 0.43
======== ========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,453 49,235
Diluted 48,534 49,353
======== ========
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.28 $ 0.275
Class B Common Stock $ 0.28 $ 0.275
======== ========
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
--------------------------
JUNE 30, JUNE 30,
2001 2000
---------- ----------
REVENUES $ 186,527 $ 184,436
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $8,464 in 2001 and $7,926 in 2000 140,451 135,528
Selling, general, and administrative expenses 29,569 29,877
Corporate interest, net 1,315 1,196
Amortization of goodwill 918 800
---------- ----------
TOTAL COSTS AND EXPENSES 172,253 167,401
---------- ----------
INCOME BEFORE INCOME TAXES 14,274 17,035
PROVISION FOR INCOME TAXES 5,481 6,542
---------- ----------
NET INCOME $ 8,793 $ 10,493
========== ==========
NET INCOME PER SHARE:
Basic $ 0.18 $ 0.22
Diluted $ 0.18 $ 0.22
========== ==========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,453 48,436
Diluted 48,532 48,543
========== ==========
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.14 $ 0.1375
Class B Common Stock $ 0.14 $ 0.1375
========== ==========
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,566 $ 22,136
Accounts receivable, less allowance for doubtful
accounts of $16,772 in 2001 and $17,335 in 2000 138,454 137,378
Unbilled revenues, at estimated billable amounts 96,524 87,067
Prepaid expenses and other current assets 18,120 17,144
------------ ------------
TOTAL CURRENT ASSETS 266,664 263,725
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 148,968 149,842
Less accumulated depreciation (109,064) (107,045)
------------ ------------
NET PROPERTY AND EQUIPMENT 39,904 42,797
------------ ------------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 83,637 82,599
Prepaid pension cost 45,153 47,633
Capitalized software costs, net 13,760 12,498
Other 10,278 9,099
------------ ------------
TOTAL OTHER ASSETS 152,828 151,829
------------ ------------
TOTAL ASSETS $ 459,396 $ 458,351
============ ============
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 36,205 $ 44,420
Accounts payable 26,733 25,628
Accrued compensation and related costs 24,329 25,366
Deferred revenues 21,548 23,353
Self-insured risks 12,961 10,379
Accrued income taxes 21,380 12,922
Other accrued liabilities 15,308 15,355
Current installments of long-term debt 271 216
------------ ------------
TOTAL CURRENT LIABILITIES 158,735 157,639
------------ ------------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 36,491 36,662
Deferred revenues 13,139 13,598
Self-insured risks 10,351 11,346
Deferred income taxes 3,879 3,941
Postretirement medical benefit obligation 7,087 7,785
Other 9,763 9,613
------------ ------------
TOTAL NONCURRENT LIABILITIES 80,710 82,945
------------ ------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 23,762 and 23,754 shares issued
and outstanding in 2001 and 2000, respectively 23,762 23,754
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,697 shares issued and
outstanding in 2001 and 2000 24,697 24,697
Retained earnings 187,168 183,664
Accumulated other comprehensive income (15,676) (14,348)
------------ ------------
TOTAL SHAREHOLDERS' INVESTMENT 219,951 217,767
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 459,396 $ 458,351
============ ============
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,980 $ 21,024
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 10,486 9,979
Deferred income taxes (18) 208
Loss on sales of property and equipment 170 381
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (890) (12,966)
Unbilled revenues (9,649) (3,093)
Accrued or prepaid income taxes 8,784 8,298
Accounts payable and accrued liabilities 338 (2,736)
Deferred revenues (1,774) 3,059
Prepaid expenses and other assets (259) (2,217)
---------- ----------
Net cash provided by operating activities 24,168 21,937
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (4,945) (4,989)
Acquisition of businesses, net of cash acquired (3,126) (5,244)
Capitalization of computer software costs (2,622) (5,883)
Proceeds from sales of property and equipment 111 398
---------- ----------
Net cash used in investing activities (10,582) (15,718)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (13,555) (13,608)
Repurchase of common stock 0 (26,173)
Proceeds from exercise of stock options 86 435
Increase in short-term borrowings 1,493 12,063
Payments on short-term borrowings (10,000) 0
Increase in long-term debt 0 21,000
Payments on long-term debt (92) (249)
---------- ----------
Net cash used in financing activities (22,068) (6,532)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (88) (602)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (8,570) (915)
Cash and cash equivalents at beginning of period 22,136 17,716
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,566 $ 16,801
========== ==========
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited condensed consolidated financial statements included
herein have been prepared 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.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain previously reported amounts have been reclassified to conform to the
current presentation. These condensed consolidated financial statements should
be read in conjunction with the financial statements and related notes contained
in the Company's annual report on Form 10-K for the fiscal year ended December
31, 2000.
2. The results of operations for the quarter and six months ended June 30,
2001 are not necessarily indicative of the results to be expected during the
balance of the year ending December 31, 2001.
3. During the quarter and six months ended June 30, 2001, the Company
utilized $142,000 and $365,000, respectively, of its restructuring reserves for
payments related to employee separations and lease terminations. As of June 30,
2001, remaining restructuring reserves were $2.4 million, $1.9 million of which
is included in other noncurrent liabilities. The noncurrent portion of accrued
restructuring costs consists primarily of long-term lease obligations related to
various United Kingdom offices, which the Company has vacated and is currently
attempting to sublease, and extended payments being made under employee
separation agreements. Management periodically reviews the restructuring
reserves and believes the remaining reserves are adequate to complete its plan.
4. Basic net income per share is computed based on the weighted-average
number of total common shares outstanding during the respective periods. Diluted
net income per share is computed based on the weighted-average number of total
common shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method.
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CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Below is the calculation of basic and diluted net income per share for the
quarter and six months ended June 30, 2001 and 2000:
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share data) 2001 2000 2001 2000
-------- -------- -------- --------
Net income available to common shareholders $ 8,793 $ 10,493 $ 16,980 $ 21,024
======== ======== ======== ========
Weighted-average common shares outstanding - Basic 48,453 48,436 48,453 49,235
Dilutive effect of stock options 79 107 81 118
-------- -------- -------- --------
Weighted-average common shares outstanding - Diluted 48,532 48,543 48,534 49,353
======== ======== ======== ========
Basic net income per share $ 0.18 $ 0.22 $ 0.35 $ 0.43
======== ======== ======== ========
Diluted net income per share $ 0.18 $ 0.22 $ 0.35 $ 0.43
======== ======== ======== ========
Additional options to purchase 5,005,183 shares of Class A Common Stock at
$10.00 to $19.50 per share were outstanding at June 30, 2001, but were not
included in the computation of diluted net income per share because the options'
exercise prices were greater than the average market price of the common shares;
to include them would have been antidilutive.
5. Comprehensive income for the Company consists of net income and foreign
currency translation adjustments. Below is the calculation of comprehensive
income for the quarter and six months ended June 30, 2001 and 2000:
Quarter ended Six months ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
(In thousands) 2001 2000 2001 2000
-------- -------- -------- --------
Net income $ 8,793 $ 10,493 $ 16,980 $ 21,024
Foreign currency translation adjustment (1,148) (2,185) (1,328) (1,964)
-------- -------- -------- --------
Comprehensive income $ 7,645 $ 8,308 $ 15,652 $ 19,060
======== ======== ======== ========
6. The Company has two reportable segments, one which provides claims
services through branch offices located in the United States ("Domestic
Operations") and the other which provides similar services through branch or
representative offices located in 64 other countries ("International
Operations"). Intersegment sales are recorded at cost and are not material. The
Company measures segment profit based on operating income, defined as income
before amortization of goodwill, net corporate interest, and income taxes.
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CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Financial information for the quarter and six months ended June 30, 2001 and
2000 covering the Company's reportable segments is presented below:
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands) 2001 2000 2001 2000
-------- -------- -------- --------
REVENUES:
Domestic $139,179 $134,571 $270,649 $262,963
International 47,348 49,865 95,333 98,905
-------- -------- -------- --------
TOTAL REVENUES $186,527 $184,436 $365,982 $361,868
======== ======== ======== ========
OPERATING INCOME:
Domestic $ 12,262 $ 13,480 $ 23,358 $ 26,909
International 4,245 5,551 8,450 10,845
-------- -------- -------- --------
TOTAL OPERATING INCOME $ 16,507 $ 19,031 $ 31,808 $ 37,754
======== ======== ======== ========
7. In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets". These Statements change the
accounting for business combinations and goodwill. SFAS 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method will be prohibited.
SFAS 142 changes the accounting for goodwill and certain intangible assets from
an amortization method to an impairment-only approach. The amortization of
goodwill, including goodwill recorded in past business combinations, will cease
when the Company adopts SFAS 142 on January 1, 2002. Since the Company does not
use the pooling-of-interest method to account for acquisitions, SFAS 141 will
not have a material impact on the Company's consolidated results of operations,
financial position, or cash flows. The adoption of SFAS 142 will increase net
income by approximately $3.0 million per year or $0.06 per share, net of taxes
and excluding any goodwill impairment charges.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated net income was $8.8 million and $10.5 million for the quarter ended
June 30, 2001 and 2000, respectively, and $17.0 million and $21.0 million for
the six months ended June 30, 2001 and 2000, respectively.
The following is a discussion and analysis of the consolidated financial
condition and results of operations as reported by the Company's two reportable
segments: domestic operations and international operations. Expense amounts
discussed are excluding amortization of goodwill, net corporate interest, and
income taxes.
RESULTS OF OPERATIONS
Operating results for the Company's domestic and international operations for
the quarter and six months ended June 30, 2001 and 2000 are as follows:
Quarter ended Six months ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
(In thousands) 2001 2000 2001 2000
---------- ---------- ---------- ----------
REVENUES:
Domestic $ 139,179 $ 134,571 $ 270,649 $ 262,963
International 47,348 49,865 95,333 98,905
---------- ---------- ---------- ----------
TOTAL $ 186,527 $ 184,436 $ 365,982 $ 361,868
COMPENSATION & FRINGE BENEFITS:
Domestic $ 86,115 $ 80,459 $ 167,674 $ 158,689
% of Revenues 61.9% 59.8% 62.0% 60.4%
International 31,590 30,687 62,716 61,365
% of Revenues 66.7% 61.6% 65.7% 62.0%
---------- ---------- ---------- ----------
TOTAL $ 117,705 $ 111,146 $ 230,390 $ 220,054
% of Revenues 63.2% 60.3% 62.9% 60.8%
EXPENSES OTHER THAN COMPENSATION & FRINGE BENEFITS:
Domestic $ 40,802 $ 40,632 $ 79,617 $ 77,365
% of Revenues 29.3% 30.2% 29.4% 29.4%
International 11,513 13,627 24,167 26,695
% of Revenues 24.3% 27.3% 25.4% 27.0%
---------- ---------- ---------- ----------
TOTAL $ 52,315 $ 54,259 $ 103,784 $ 104,060
% of Revenues 28.0% 29.4% 28.4% 28.8%
---------- ---------- ---------- ----------
OPERATING INCOME(1):
Domestic $ 12,262 $ 13,480 $ 23,358 $ 26,909
% of Revenues 8.8% 10.0% 8.6% 10.2%
International 4,245 5,551 8,450 10,845
% of Revenues 9.0% 11.1% 8.9% 11.0%
---------- ---------- ---------- ----------
TOTAL $ 16,507 $ 19,031 $ 31,808 $ 37,754
% of Revenues 8.8% 10.3% 8.7% 10.4%
(1) Income before amortization of goodwill, net corporate interest, and income
taxes.
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DOMESTIC OPERATIONS
REVENUES
Domestic revenues by market type for the quarter and six months ended June 30,
2001 and 2000 are as follows:
Quarter ended Six months ended
-------------------------------- --------------------------------
June 30, June 30, June 30, June 30,
(In thousands) 2001 2000 Variance 2001 2000 Variance
-------- -------- -------- -------- -------- --------
Insurance companies $ 76,419 $ 71,122 7.4% $145,480 $135,296 7.5%
Self-insured entities 49,043 49,951 (1.8)% 99,180 100,588 (1.4)%
Class action services 13,717 13,498 1.6% 25,989 27,079 (4.0)%
-------- -------- -------- --------
TOTAL DOMESTIC REVENUES $139,179 $134,571 3.4% $270,649 $262,963 2.9%
======== ======== ======== ========
Revenues from insurance companies increased to $76.4 million for the quarter due
primarily to a surge in weather-related claims related to Tropical Storm
Allison, as well as a series of storms which struck from Texas to Pennsylvania.
Surveillance services revenue growth also contributed to this increase as the
Company continues to expand these services throughout its branch network.
Revenues from self-insured clients decreased slightly to $49.0 million for the
quarter. Class action revenues, which can fluctuate based on the timing of
project awards and their completion, increased slightly to $13.7 million in the
quarter. The Company is pursuing a number of potential class action project
awards that are awaiting final court settlement.
Case Volume Analysis
Excluding the impact of class action services, domestic unit volume, measured
principally by cases received, decreased 4.4% in the second quarter of 2001
compared to the same period in 2000. This decrease was offset by a 7.6% revenue
increase from changes in the mix of services provided and in the rates charged
for those services, resulting in a net 3.2% increase in domestic revenues in the
second quarter of 2001, excluding revenues from class action services. The
Company's domestic insurance company referrals for high frequency, low severity
claims have continued to decline during the quarter resulting in an increase in
the Company's average revenue per claim. Growth in class action services
increased domestic revenues by 0.2% in the second quarter compared to the prior
year period.
Domestic unit volume, measured principally by cases received, and excluding the
impact of class action services and acquired revenues, decreased 5.4% in the
first six months of 2001 compared to the 2000 period. This decrease was offset
by an 8.2% revenue increase from changes in the mix of services provided and in
the rates charged for those services, resulting in a net 2.8% increase in
domestic revenues for the first six months of 2001, excluding revenues from
class action services and acquired revenues. The Company's domestic insurance
company referrals for high frequency, low severity claims have declined during
the year resulting in an increase in the Company's average revenue per claim.
Class action services decreased domestic revenues by 0.4% in the six months
ended June 30, 2001, compared to the prior year period. The Company's
acquisition of Greentree Investigations, Inc. in March 2000 (included in
non-class action revenues) increased domestic revenues over the prior year
period by 0.5% for the six months ended June 30, 2001.
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COMPENSATION AND FRINGE BENEFITS
The Company's most significant expense is the compensation of its employees,
including related payroll taxes and fringe benefits. Domestic compensation
expense as a percent of revenues increased to 61.9% in the second quarter of
2001 as compared to 59.8% in the 2000 quarter, and to 62.0% for the six months
ended June 30, 2001 from 60.4% in the 2000 period.
Domestic salaries and wages increased to $73.3 million and $141.5 million for
the quarter and six months ended June 30, 2001, respectively, increasing 5.3%
and 4.4%, from $69.6 million and $135.5 million in the comparable 2000 periods.
These increases resulted primarily from merit salary increases and an increase
in capacity in the Company's domestic operating units. Payroll taxes and fringe
benefits for domestic operations totaled $12.8 million and $26.2 million in the
second quarter and first six months of 2001, respectively, increasing 16.6% and
13.1% from 2000 costs of $10.9 million and $23.2 million for the comparable
periods. These increases are primarily due to higher costs related to the
Company's self-insured medical program.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Domestic expenses other than compensation and related payroll taxes and fringe
benefits decreased as a percent of revenues to 29.3% for the quarter ended June
30, 2001, from 30.2% for the same period in 2000. This decrease is due primarily
to lower costs related to the Company's self-insurance program. Domestic
expenses other than compensation and related payroll taxes and fringe benefits
approximated 29.4% of revenues for both the six month periods ended June 30,
2001 and 2000, as lower self-insurance costs were offset by higher legal fees
and outside processing fees in the Company's medical bill auditing unit due to a
December 2000 system outage.
INTERNATIONAL OPERATIONS
REVENUES
Revenues from the Company's international operations decreased 5.0%, from $49.9
million for the second quarter of 2000 to $47.3 million for the second quarter
of 2001. Revenues for the first six months of 2001 totaled $95.3 million, a 3.6%
decrease from $98.9 million reported in the first six months of 2000.
International unit volume, measured principally by cases received, decreased
4.6% and 1.5% in the quarter and six months ended June 30, 2001, respectively,
compared to the same periods in 2000. Small strategic acquisitions in France and
Brazil increased international revenues over the prior year periods by 2.2 % for
the quarter and six months ended June 30, 2001. Revenues are net of 7.6% and
8.1% declines during the quarter and six months ended June 30, 2001,
respectively, due to the negative effect of a strong U.S. dollar.
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COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, increased to 66.7% for the quarter ended June 30, 2001 from
61.6% for the same period in 2000. For the six-month period, compensation and
fringe benefits increased as a percentage of revenue from 62.0% in 2000 to 65.7%
in 2001.
Salaries and wages of international personnel increased in the quarter ended
June 30, 2001 to 58.0% of revenue from 53.3% for the comparable period in 2000.
This increase is primarily due to an increase in capacity in the Company's
international operating units due to a decline in case volume. For the six-month
period, salaries and wages increased as a percentage of revenues from 53.5% in
2000 to 56.8% in 2001. Payroll taxes and fringe benefits increased as a percent
of revenue to 8.7% and 8.9% for the quarter and six months ended June 30, 2001,
respectively, compared to 8.3% and 8.5% for the same periods in 2000.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
were 24.3% and 25.4% of international revenues for the quarter and six months
ended June 30, 2001, respectively, down from 27.3% and 27.0% for the same
periods in 2000. These decreases are due to reduced rent, professional fees, and
automobile expenses resulting from the Company's ongoing efforts to reduce its
operating costs.
FINANCIAL CONDITION
At June 30, 2001 current assets exceeded current liabilities by approximately
$107.9 million, an increase of $1.8 million from the working capital balance at
December 31, 2000. Cash and cash equivalents at June 30, 2001 totaled $13.6
million, a decrease of $8.6 million from the balance at the end of 2000. Cash
was generated primarily from operating activities, while the principal uses of
cash were for dividends paid to shareholders, payments on short-term debt, and
acquisitions of property and equipment.
During the quarter and six months ended June 30, 2001, the Company did not
repurchase any of its Class A or Class B Common Stock. As of June 30, 2001,
705,863 shares remain to be repurchased under the share repurchase program
authorized by the Company's Board of Directors.
The Company maintains credit lines with banks in order to meet seasonal working
capital requirements and other financing needs that may arise. Short-term
borrowings outstanding as of June 30, 2001 totaled $36.2 million, decreasing
from $44.4 million at the end of 2000. Long-term borrowings outstanding,
excluding current installments, as of June 30, 2001 totaled $36.5 million, as
compared to $36.7 million at the end of 2000. The Company believes that its
current financial resources, together with funds generated from operations and
existing and potential borrowing capabilities, will be sufficient to maintain
its current operations.
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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 the Company's net investment in foreign operations.
Shareholders' investment at June 30, 2001 was $220.0 million, compared with
$217.8 million at December 31, 2000.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD LOOKING STATEMENTS
Certain information presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations may include forward-looking
statements, the accuracy of which is subject to a number of risks and
assumptions. The Company's Form 10-K for the year ended December 31, 2000,
discusses such risks and assumptions and other key factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements.
CONTINGENCIES
In the normal course of the claims administration services business, the Company
is named as a defendant in suits by insureds or claimants contesting decisions
by the Company or its clients with respect to the settlement of claims.
Additionally, clients of the Company have brought actions for indemnification on
the basis of alleged negligence on the part of the Company, its agents or
employees in rendering service to clients. The majority of these claims are of
the type covered by insurance maintained by the Company; however, the Company is
self-insured for the deductibles under its various insurance coverages. In the
opinion of the Company, adequate reserves have been provided for such
self-insured risks.
The Company has received federal grand jury subpoenas requesting certain
business and financial records of the Company dating back to 1992. The Company
has been advised that the subpoenas were issued in connection with an
investigation into the Company's billings for services in its Domestic Claims
Management and Healthcare Management Services branch offices. The Company is
cooperating fully with the investigation. It is not possible to determine what
effects, if any, this investigation might ultimately have on the Company's
financial position or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
DERIVATIVES
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments.
FOREIGN CURRENCY EXCHANGE
The Company's international operations expose the Company to foreign currency
exchange rate changes that could impact translations of foreign-denominated
assets and liabilities into U.S. dollars and future earnings and cash flows from
transactions denominated in different currencies. The Company's revenues from
its international operations were 26.0% and 27.3% of total revenues for the six
months ended June 30, 2001 and 2000, respectively. Except for borrowing in
foreign currencies, the Company does not presently engage in any hedging
activities to compensate for the effect of exchange rate fluctuations on the net
assets or operating results of its foreign subsidiaries.
The Company measures currency earnings risk related to its international
operations based on changes in foreign currency rates using a sensitivity
analysis. The sensitivity analysis measures the potential loss in earnings based
on a hypothetical 10% change in currency exchange rates. Exchange rates and
currency positions as of June 30, 2001 were used to perform the sensitivity
analysis. Such analysis indicates that a hypothetical 10% change in foreign
currency exchange rates would have decreased pretax income by approximately $0.6
million during the first six months of 2001, had the U.S. dollar exchange rate
increased relative to the currencies with which the Company had exposure.
INTEREST RATES
The Company is exposed to interest rate fluctuations on certain of its variable
rate borrowings. Depending on general economic conditions, the Company uses
variable rate debt for short-term borrowings and fixed rate debt for long-term
borrowings. At June 30, 2001, the Company had $36.2 million in short-term loans
outstanding with an average variable interest rate of 6.0%.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Crawford & Company:
We have reviewed the accompanying condensed consolidated balance sheet of
CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of June 30, 2001,
and the related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 2001 and 2000 and the condensed
consolidated statements of cash flows for the six-month periods ended June 30,
2001 and 2000. 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 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 conducted in accordance
with auditing standards generally accepted in the 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 financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Crawford &
Company and subsidiaries as of December 31, 2000 (not presented separately
herein), and, in our report dated January 26, 2001, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2000, 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
August 13, 2001
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 24, 2001, the Registrant held its Annual Meeting of
Shareholders. At the Annual Meeting, the Class B Shareholders,
the only class entitled to vote at the meeting, voted on (i) the
election of ten (10) Directors for a one-year term; and (ii)
ratification of the selection of Arthur Andersen LLP as the
Registrant's auditor for the year ending December 31, 2001. The
results of that voting are as follows:
ELECTION OF DIRECTORS
For Withheld
---------- --------
Forrest L. Minix 24,194,524 25,211
J. Hicks Lanier 24,197,163 22,572
Charles Flather 24,196,996 22,739
Linda K. Crawford 24,197,024 22,711
Jesse C. Crawford 24,197,024 22,711
Larry L. Prince 24,195,163 24,572
John A. Williams 24,195,163 24,572
E. Jenner Wood, III 23,814,764 404,971
Archie Meyers, Jr. 24,193,789 25,946
Grover L. Davis 24,148,781 70,954
RATIFICATION OF APPOINTMENT OF AUDITORS
For Against Abstain
---------- ------- -------
24,207,218 10,971 1,546
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
15.1 Letter from Arthur Andersen LLP
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
period covered by this report.
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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: August 13, 2001 /s/ Grover L. Davis
-------------------------------------
Grover L. Davis
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2001 /s/ John F. Giblin
-------------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: August 13, 2001 /s/ W. Bruce Swain
-------------------------------------
W. Bruce Swain
Senior Vice President and Controller
(Principal Accounting Officer)
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INDEX TO EXHIBITS
Exhibit No. Description Sequential Page No.
15.1 Letter from Arthur Andersen LLP 20
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