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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 September 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
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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)
-------------------
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 October 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)
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
-----------------------------
REVENUES $547,394 $541,985
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $26,365 in 2001 and $24,517 in 2000 409,630 396,065
Selling, general, and administrative expenses 93,204 90,514
Corporate interest, net 3,584 3,205
Amortization of goodwill 2,605 2,393
- -------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 509,023 492,177
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 38,371 49,808
PROVISION FOR INCOME TAXES 14,734 19,126
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 23,637 $ 30,682
===================================================================================================================
NET INCOME PER SHARE:
Basic $ 0.49 $ 0.63
Diluted $ 0.49 $ 0.63
===================================================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,476 48,974
Diluted 48,542 49,064
===================================================================================================================
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.42 $ 0.4125
Class B Common Stock $ 0.42 $ 0.4125
===================================================================================================================
(See accompanying notes to condensed consolidated financial statements)
2
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
QUARTER ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
-----------------------------
REVENUES $181,412 $180,117
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $9,180 in 2001 and $8,502 in 2000 135,690 132,544
Selling, general, and administrative expenses 32,970 29,921
Corporate interest, net 1,088 1,142
Amortization of goodwill 858 832
- -------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 170,606 164,439
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 10,806 15,678
PROVISION FOR INCOME TAXES 4,149 6,020
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,657 $ 9,658
===================================================================================================================
NET INCOME PER SHARE:
Basic $ 0.14 $ 0.20
Diluted $ 0.14 $ 0.20
===================================================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,476 48,458
Diluted 48,566 48,537
===================================================================================================================
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)
3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,783 $ 22,136
Accounts receivable, less allowance for doubtful
accounts of $16,610 in 2001 and $17,335 in 2000 147,201 137,378
Unbilled revenues, at estimated billable amounts 92,672 87,067
Prepaid expenses and other current assets 16,905 17,144
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 271,561 263,725
- --------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 150,331 149,842
Less accumulated depreciation (111,588) (107,045)
- --------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 38,743 42,797
- --------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 86,763 82,599
Prepaid pension cost 44,384 47,633
Capitalized software costs, net 14,097 12,498
Other 10,857 9,099
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 156,101 151,829
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 466,405 $ 458,351
====================================================================================================================
(See accompanying notes to condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(In thousands)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 40,319 $ 44,420
Accounts payable 28,354 25,628
Accrued compensation and related costs 26,503 25,366
Deferred revenues 22,062 23,353
Self-insured risks 12,672 10,379
Accrued income taxes 24,168 12,922
Other accrued liabilities 14,500 15,355
Current installments of long-term debt 205 216
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 168,783 157,639
- --------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 36,454 36,662
Deferred revenues 12,661 13,598
Self-insured risks 9,555 11,346
Deferred income taxes 3,868 3,941
Postretirement medical benefit obligation 7,087 7,785
Other 9,454 9,613
- --------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 79,079 82,945
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000 shares authorized; 23,843 and
23,754 shares issued
and outstanding in 2001 and 2000, respectively 23,843 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 187,698 183,664
Accumulated other comprehensive income (17,695) (14,348)
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 218,543 217,767
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 466,405 $ 458,351
====================================================================================================================
(See accompanying notes to condensed consolidated financial statements)
5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,637 $ 30,682
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 15,382 14,723
Deferred income taxes (18) 278
Loss on sales of property and equipment 187 512
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (9,598) (7,719)
Unbilled revenues (5,760) (4,996)
Accrued or prepaid income taxes 11,634 12,156
Accounts payable and accrued liabilities 1,203 (881)
Deferred revenues (1,212) 650
Prepaid expenses and other assets 69 238
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 35,524 45,643
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (6,580) (7,472)
Acquisition of businesses, net of cash acquired (8,634) (7,195)
Capitalization of computer software costs (3,984) (9,264)
Proceeds from sales of property and equipment 221 478
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,977) (23,453)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (20,350) (20,273)
Repurchase of common stock 0 (26,396)
Proceeds from exercise of stock options 836 1,299
Increase in short-term borrowings 11,433 12,960
Payments on short-term borrowings (15,000) 0
Increase in long-term debt 88 21,000
Payments on long-term debt (226) (309)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (23,219) (11,719)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (681) (628)
- -------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (7,353) 9,843
Cash and cash equivalents at beginning of period 22,136 17,716
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,783 $ 27,559
===================================================================================================================
(See accompanying notes to condensed consolidated financial statements)
6
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 nine months ended
September 30, 2001 are not necessarily indicative of the results to be expected
during the balance of the year ending December 31, 2001.
3. The Company's revenues are comprised of claims processing and program
administration fees, net of any reimbursed expenses. During the course of
adjusting claims, primarily for its self-insured clients, the Company may
process claim payments which are typically pre-funded by the client. The
Company's client is ultimately responsible for the settlement and payment of
claims. The Company does not report any claim payments made on behalf of its
clients as either revenues or expenses.
4. During August 2001, the Company recorded the acquisitions of Leonard,
Hirst, & Miller Adjusters (1977), Ltd., an Alberta, Canada based loss adjusting
firm and SVS Experts B.V., a Holland based loss adjusting firm, for an aggregate
cash purchase price of $5.3 million. The Company acquired assets with a fair
value of $7.1 million, including goodwill of $4.5 million, and assumed
liabilities of $1.8 million. The purchase price of these acquisitions may be
increased based on future earnings through 2004. These transactions were
accounted for by the purchase method of accounting.
5. During the quarter and nine months ended September 30, 2001, the
Company utilized $260,000 and $625,000, respectively, of its restructuring
reserves for payments related to employee separations and lease terminations. As
of September 30, 2001, remaining restructuring reserves were $2.1 million, $1.7
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.
7
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. 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.
Below is the calculation of basic and diluted net income per share for the
quarter and nine months ended September 30, 2001 and 2000:
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
----------------------------------------------------------------
September 30, September 30, September 30, September 30,
(In thousands, except per share data) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 6,657 $ 9,658 $23,637 $30,682
======= ======= ======= =======
Weighted-average shares outstanding - Basic 48,476 48,458 48,476 48,974
Dilutive effect of stock options 90 79 66 90
------- ------- ------- -------
Weighted-average shares outstanding - Diluted 48,566 48,537 48,542 49,064
======= ======= ======= =======
Basic net income per share $ 0.14 $ 0.20 $ 0.49 $ 0.63
======= ======= ======= =======
Diluted net income per share $ 0.14 $ 0.20 $ 0.49 $ 0.63
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
Additional options to purchase 5.1 million shares of Class A Common Stock at
$10.00 to $19.50 per share were outstanding at September 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.
7. 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 nine months ended September 30, 2001 and 2000:
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
----------------------------------------------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,657 $ 9,658 $23,637 $30,682
Foreign currency translation adjustment (2,019) (1,674) ( 3,347) (3,638)
------- ------- ------- -------
Comprehensive income $ 4,638 $ 7,984 $20,290 $27,044
======= ======= ======= =======
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8
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. 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. Financial information for the quarter and nine months ended
September 30, 2001 and 2000 covering the Company's reportable segments is
presented below:
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
----------------------------------------------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Domestic $134,200 $132,290 $404,849 $395,253
International 47,212 47,827 142,545 146,732
-------- -------- -------- --------
TOTAL REVENUES $181,412 $180,117 $547,394 $541,985
======== ======== ======== ========
OPERATING INCOME:
Domestic $ 9,883 $ 13,841 $ 33,241 $ 40,750
International 2,869 3,811 11,319 14,656
-------- -------- -------- --------
TOTAL OPERATING INCOME $ 12,752 $ 17,652 $ 44,560 $ 55,406
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
9. 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 $2.7 million per year, or $0.06 per share, net of taxes
and excluding any goodwill impairment charges.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated net income was $6.7 million and $9.7 million for the quarter ended
September 30, 2001 and 2000, respectively, and $23.6 million and $30.7 million
for the nine months ended September 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 nine months ended September 30, 2001 and 2000 are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-----------------------------------------------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Domestic $134,200 $132,290 $404,849 $395,253
International 47,212 47,827 142,545 146,732
-------- -------- -------- --------
TOTAL $181,412 $180,117 $547,394 $541,985
COMPENSATION & FRINGE BENEFITS:
Domestic $ 84,269 $ 79,689 $251,943 $238,378
% of Revenues 62.8% 60.2% 62.2% 60.3%
International 31,245 31,069 93,961 92,434
% of Revenues 66.2% 65.0% 65.9% 63.0%
-------- -------- -------- --------
TOTAL $115,514 $110,758 $345,904 $330,812
% of Revenues 63.7% 61.5% 63.2% 61.0%
EXPENSES OTHER THAN COMPENSATION & FRINGE BENEFITS:
Domestic $ 40,048 $ 38,760 $119,665 $116,125
% of Revenues 29.8% 29.3% 29.6% 29.4%
International 13,098 12,947 37,265 39,642
% of Revenues 27.7% 27.0% 26.1% 27.0%
-------- -------- -------- --------
TOTAL $ 53,146 $ 51,707 $156,930 $155,767
% of Revenues 29.3% 28.7% 28.7% 28.8%
-----------------------------------------------------------
OPERATING INCOME (1):
Domestic $ 9,883 $ 13,841 $ 33,241 $ 40,750
% of Revenues 7.4% 10.5% 8.2% 10.3%
International 2,869 3,811 11,319 14,656
% of Revenues 6.1% 8.0% 8.0% 10.0%
-------- -------- -------- --------
TOTAL $ 12,752 $ 17,652 $ 44,560 $ 55,406
% of Revenues 7.0% 9.8% 8.1% 10.2%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Income before amortization of goodwill, net corporate interest, and income
taxes.
10
DOMESTIC OPERATIONS
REVENUES
Domestic revenues by market type for the quarter and nine months ended September
30, 2001 and 2000 are as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
---------------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2001 2000 Variance 2001 2000 Variance
=================================================================================================================================
Insurance companies $ 72,696 $ 72,678 0.0% $218,176 $207,975 4.9%
Self-insured entities 48,806 49,155 (0.7%) 147,986 149,743 (1.2%)
Class action services 12,698 10,457 21.4% 38,687 37,535 3.1%
-------- -------- -------- --------
TOTAL DOMESTIC REVENUES $134,200 $132,290 1.4 % $404,849 $395,253 2.4%
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues from insurance companies remained constant at $72.7 million for the
quarter as increases in weather-related claim referrals and surveillance
services were offset by decreases in referrals of high frequency, low severity
claims. Revenues from self-insured clients decreased slightly to $48.8 million
for the quarter. Class action revenues, which can fluctuate based on the timing
of project awards and their completion, increased to $12.7 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 4.8% in the third quarter of 2001
compared to the same period in 2000. This decrease was partially offset by a
4.5% revenue increase from changes in the mix of services provided and in the
rates charged for those services, resulting in a net 0.3% decrease in domestic
revenues in the third quarter of 2001, excluding revenues from class action
services. Growth in class action services increased domestic revenues by 1.7% in
the 2001 third 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 5.2% in the
first nine months of 2001 compared to the 2000 period. This decrease was offset
by a 7.0% revenue increase from changes in the mix of services provided and in
the rates charged for those services, resulting in a net 1.8% increase in
domestic revenues for the first nine 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 increased domestic revenues by 0.3% in the nine months
ended September 30, 2001, compared to the prior year period. In March 2000, the
Company acquired certain assets and assumed certain liabilities of Greentree
Investigations, Inc. ("Greentree"). Greentree's revenue (included in non-class
action revenues) increased domestic revenues over the prior year period by 0.3%
for the nine months ended September 30, 2001.
11
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 62.8% in the third quarter of 2001
as compared to 60.2% in the 2000 quarter, and to 62.2% for the nine months ended
September 30, 2001, up from 60.3% in the 2000 period.
Domestic salaries and wages increased to $71.2 million and $212.6 million for
the quarter and nine months ended September 30, 2001, respectively, increasing
2.9% and 3.9%, from $69.2 million and $204.7 million in the comparable 2000
periods. These increases resulted primarily from merit salary increases. Payroll
taxes and fringe benefits for domestic operations totaled $13.1 million and
$39.3 million in the third quarter and first nine months of 2001, respectively,
increasing 24.7% and 16.7% from 2000 costs of $10.5 million and $33.7 million
for the comparable periods. These increases are primarily due to higher costs
related to the Company's self-insured employee medical and workers' compensation
programs.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Domestic expenses other than compensation and related payroll taxes and fringe
benefits increased as a percent of revenues to 29.8% and 29.6% for the quarter
and nine months ended September 30, 2001, respectively, from 29.3% and 29.4% for
the same periods in 2000. These increases are primarily due to higher legal fees
and other professional fees (related to outsourced functions in certain
information technology units) which are partially offset by lower professional
indemnity self-insurance costs.
INTERNATIONAL OPERATIONS
REVENUES
Revenues from the Company's international operations decreased 1.3%, from $47.8
million for the third quarter of 2000 to $47.2 million for the third quarter of
2001. Revenues for the first nine months of 2001 totaled $142.5 million, a 2.9%
decrease from $146.7 million reported in the first nine months of 2000.
International unit volume, measured principally by cases received, decreased
5.8% and 3.0% in the quarter and nine months ended September 30, 2001,
respectively, compared to the same periods in 2000. Small strategic acquisitions
in France, Brazil, Holland, and Canada contributed $1.8 million and $3.9 million
to international revenues for the quarter and nine months ended September 30,
2001, respectively. Revenues are net of 6.8% and 7.6% declines during the
quarter and nine months ended September 30, 2001, respectively, due to the
negative effect of a strong U.S. dollar.
12
COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, increased to 66.2% for the quarter ended September 30, 2001
from 65.0% for the same period in 2000. For the nine-month period, compensation
and fringe benefits increased as a percentage of revenue from 63.0% in 2000 to
65.9% in 2001.
Salaries and wages of international personnel increased to 57.6% and 57.1% of
international revenues for the quarter and nine months ended September 30, 2001,
respectively, from 56.6% and 54.5% for the comparable periods in 2000. These
increases are primarily due to an increase in capacity in the Company's
international operating units due to a decline in case volume. Payroll taxes and
fringe benefits increased as a percent of revenue to 8.6% and 8.8% for the
quarter and nine months ended September 30, 2001, respectively, compared to 8.4%
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 27.7% of international revenues for the three months ended September 30,
2001, an increase from 27.0% for the same period in 2000. This increase is due
to higher bad debt expense. Expenses other than compensation and related payroll
taxes and fringe benefits were 26.1% of international revenues for the nine
months ended September 30, 2001, respectively, down from 27.0% for the same
period in 2000. This decrease is due to reduced rent, professional fees, and
automobile expenses.
FINANCIAL CONDITION
At September 30, 2001 current assets exceeded current liabilities by
approximately $102.8 million, a decrease of $3.3 million from the working
capital balance at December 31, 2000. Cash and cash equivalents at September 30,
2001 totaled $14.8 million, a decrease of $7.4 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 borrowings, acquisitions of businesses, and acquisitions of property
and equipment.
During the quarter and nine months ended September 30, 2001, the Company did not
repurchase any of its Class A or Class B Common Stock. As of September 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 September 30, 2001 totaled $40.3 million,
decreasing from $44.4 million at the end of 2000. Long-term borrowings
outstanding, excluding current installments, as of September 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.
13
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 its foreign operations.
Shareholders' investment at September 30, 2001 was $218.5 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. Legal fees associated with the
investigation were approximately $1.1 million and $2.0 million for the quarter
and nine months ended September 30, 2001, respectively.
NON-RENEWAL OF MATERIAL CONTRACT
The Company has recently been informed that a large contract with a major
domestic insurer for medical bill review services will not be renewed at
December 31, 2001. For the nine months ended September 30, 2001, revenues and
pretax earnings related to the contract totaled $11.4 million and $1.3 million,
respectively. Fourth quarter revenues and pretax earnings related to this
contract are expected to approximate $2.5 million and $54,000, respectively,
including severance and other costs associated with the contract termination.
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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 27.1% of total revenues for the nine
months ended September 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 September 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 $1.0
million during the first nine 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 September 30, 2001, the Company had $40.3 million in short-term
loans outstanding with an average variable interest rate of 5.8%.
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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 September 30,
2001, and the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 2001 and 2000 and the
condensed consolidated statements of cash flows for the nine-month periods ended
September 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
November 13, 2001
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PART II - OTHER INFORMATION
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: November 13, 2001 /s/ Grover L. Davis
------------------------------------
Grover L. Davis
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2001 /s/ John F. Giblin
------------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: November 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
19