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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, 2003
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)
-------------------
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of July 31, 2003 was as follows:
CLASS A COMMON STOCK, $1.00 PAR VALUE: 24,026,903
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,
2003 2002
---------------------------
REVENUES:
Revenues before reimbursements $ 343,568 $ 349,756
Reimbursements 19,932 17,501
- ------------------------------------------------------------------------------------
TOTAL REVENUES 363,500 367,257
- ------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of services provided, before reimbursements 261,314 265,695
Reimbursements 19,932 17,501
- ------------------------------------------------------------------------------------
Cost of services 281,246 283,196
Selling, general, and administrative expenses 65,174 67,248
Special credit (1) - (6,000)
Corporate interest, net 2,458 2,319
- ------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 348,878 346,763
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,622 20,494
PROVISION FOR INCOME TAXES 5,322 7,460
- ------------------------------------------------------------------------------------
NET INCOME $ 9,300 $ 13,034
====================================================================================
NET INCOME PER SHARE:
Basic $ 0.19 $ 0.27
Diluted $ 0.19 $ 0.27
====================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,623 48,544
Diluted 48,670 48,700
====================================================================================
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.12 $ 0.28
Class B Common Stock $ 0.12 $ 0.28
====================================================================================
(1) Special credit related to a payment from a former vendor in full settlement
of a business dispute.
(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
---------------------------
JUNE 30, JUNE 30,
2003 2002
---------------------------
REVENUES:
Revenues before reimbursements $ 176,310 $ 177,989
Reimbursements 10,317 8,867
- ------------------------------------------------------------------------------------
TOTAL REVENUES 186,627 186,856
- ------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of services provided, before reimbursements 133,522 135,104
Reimbursements 10,317 8,867
- ------------------------------------------------------------------------------------
Cost of services 143,839 143,971
Selling, general, and administrative expenses 32,095 34,091
Corporate interest, net 1,179 1,141
- ------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 177,113 179,203
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,514 7,653
PROVISION FOR INCOME TAXES 3,463 2,786
- ------------------------------------------------------------------------------------
NET INCOME $ 6,051 $ 4,867
====================================================================================
NET INCOME PER SHARE:
Basic $ 0.12 $ 0.10
Diluted $ 0.12 $ 0.10
====================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,623 48,547
Diluted 48,671 48,725
====================================================================================
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.06 $ 0.14
Class B Common Stock $ 0.06 $ 0.14
====================================================================================
(See accompanying notes to condensed consolidated financial statements)
3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
- ------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 41,290 $ 31,091
Accounts receivable, less allowance for doubtful
accounts of $19,777 in 2003 and $19,633 in 2002 146,452 135,174
Unbilled revenues, at estimated billable amounts 98,487 93,792
Prepaid expenses and other current assets 11,540 11,968
- ------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 297,769 272,025
- ------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 149,589 144,706
Less accumulated depreciation (112,959) (108,607)
- ------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 36,630 36,099
- ------------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 101,879 97,798
Capitalized software costs, net 27,823 23,977
Deferred income tax asset 32,001 31,899
Other 13,256 12,978
- ------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 174,959 166,652
- ------------------------------------------------------------------------------------
TOTAL ASSETS $ 509,358 $ 474,776
====================================================================================
(See accompanying notes to condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
- -----------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 35,617 $ 30,019
Accounts payable 33,136 31,956
Accrued compensation and related costs 30,394 26,454
Deferred revenues 23,478 18,516
Self-insured risks 15,402 15,833
Accrued income taxes 11,911 9,594
Other accrued liabilities 15,196 14,384
Current installments of long-term debt 1,842 1,493
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 166,976 148,249
- --------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 51,132 49,976
Deferred revenues 11,777 12,127
Self-insured risks 12,658 11,819
Minimum pension liability 81,429 76,747
Postretirement medical benefit obligation 6,201 6,289
Other 9,501 10,138
- --------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 172,698 167,096
- --------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 23,925 shares issued and
outstanding at June 30, 2003 and December 31, 2002 23,925 23,925
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,697 shares issued and
outstanding at June 30, 2003 and December 31, 2002 24,697 24,697
Additional paid-in capital 523 523
Retained earnings 195,232 191,767
Accumulated other comprehensive loss (74,693) (81,481)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 169,684 159,431
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $509,358 $474,776
================================================================================
(See accompanying notes to condensed consolidated financial statements)
5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
2003 2002
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,300 $ 13,034
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 8,113 8,811
Deferred income taxes 245 (287)
Loss on sales of property and equipment 76 0
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (7,215) 1,743
Unbilled revenues (2,190) (9,083)
Accrued or prepaid income taxes 1,226 1,721
Accounts payable and accrued liabilities (522) 1,497
Deferred revenues 4,830 571
Prepaid and accrued pension costs 7,884 6,690
Prepaid expenses and other assets 2,832 (3,088)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 24,579 21,609
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (5,365) (5,565)
Capitalization of computer software costs (6,458) (6,771)
Acquisitions of businesses, net of cash acquired - (3,100)
Proceeds from sales of property and equipment 161 171
- --------------------------------------------------------------------------------------
Net cash used in investing activities (11,662) (15,265)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (5,835) (13,592)
Proceeds from exercise of stock options - 62
Increase in short-term borrowings 4,522 10,514
Payments on short-term borrowings (1,923) (7,661)
Increase in long-term debt 218 8
Payments on long-term debt (621) (98)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (3,639) (10,767)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 921 609
- --------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,199 (3,814)
Cash and cash equivalents at beginning of period 31,091 21,966
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,290 $ 18,152
======================================================================================
(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 of Crawford
and Company (the "Company") 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. Such reclassifications had no effect on net income as
previously reported.
The results of operations for the six months ended June 30, 2003 are not
necessarily indicative of the results to be expected during the balance of the
year ending December 31, 2003. These condensed financial statements should be
read in conjunction with the audited financial statements and related notes
contained in the Company's annual report on Form 10-K for the fiscal year ended
December 31, 2002.
The Company accounts for stock-based compensation utilizing the intrinsic value
method in accordance with the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation expense has been recognized for
the option plans because the exercise prices of the stock options equal the
market prices of the underlying stock on the dates of grant. Had compensation
cost for these plans been determined based on the fair value at the grant dates
for awards under those plans consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
Quarter ended Six months ended
-------------------------------------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share data) 2003 2002 2003 2002
- --------------------------------------------------------------------------------------------
Net income as reported $ 6,051 $ 4,867 $ 9,300 $ 13,034
Less: compensation expense using the
fair value method, net of tax 281 469 629 925
---------- ---------- ---------- ----------
Pro forma net income $ 5,770 $ 4,398 $ 8,671 $ 12,109
========== ========== ========== ==========
Net income per share - basic:
As reported $ 0.12 $ 0.10 $ 0.19 $ 0.27
========== ========== ========== ==========
Pro forma $ 0.12 $ 0.09 $ 0.18 $ 0.25
========== ========== ========== ==========
Net income per share - diluted:
As reported $ 0.12 $ 0.10 $ 0.19 $ 0.27
========== ========== ========== ==========
Pro forma $ 0.12 $ 0.09 $ 0.18 $ 0.25
========== ========== ========== ==========
7
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair value of options is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Quarter ended Six months ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-------- -------- -------- -------
Expected dividend yield 3.6% 3.6% 3.6% 3.6%
Expected volatility 34% 33% 34% 33%
Risk-free interest rate 3.6% 3.7% 3.6% 3.7%
Expected life of options 7 years 7 years 7 years 7 years
2. During the quarter and six months ended June 30, 2003, the Company
utilized $178,000 and $236,000, respectively, of its restructuring reserves for
payments related to lease terminations. As of June 30, 2003, remaining
restructuring reserves were $1.3 million, $1.1 million of which is included in
other noncurrent liabilities. The noncurrent portion of accrued restructuring
costs consists of long-term lease obligations related to various United Kingdom
offices, which the Company has vacated and is currently attempting to sublease.
Management periodically reviews the restructuring reserves and believes the
remaining reserves are adequate to complete its plan.
3. 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
quarters and six months ended June 30, 2003 and 2002:
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(in thousands, except per share data) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $6,051 $ 4,867 $ 9,300 $13,034
====== ======= ======= =======
Weighted-average common shares outstanding - Basic 48,623 48,547 48,623 48,544
Dilutive effect of stock options 48 178 47 156
------ ------- ------- -------
Weighted-average common shares outstanding - Diluted 48,671 48,725 48,670 48,700
====== ======= ======= =======
Basic net income per share $ 0.12 $ 0.10 $ 0.19 $ 0.27
====== ======= ======= =======
Diluted net income per share $ 0.12 $ 0.10 $ 0.19 $ 0.27
====== ======= ======= =======
8
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Additional options to purchase 5,452,063 shares of Class A Common Stock at
exercise prices ranging from $4.70 to $19.50 per share were outstanding at June
30, 2003, 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.
4. Comprehensive income for the Company consists of the total of net
income and foreign currency translation adjustments. Below is the calculation of
comprehensive income for the quarters and six months ended June 30, 2003 and
2002:
Quarter ended Six months ended
----------------------------------------------------------
June 30, June 30, June 30, June 30,
(In thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net income $6,051 $4,867 $ 9,300 $13,034
Foreign currency translation adjustment 2,066 2,999 6,788 1,202
------ ------ ------- -------
Comprehensive income $8,117 $7,866 $16,088 $14,236
====== ====== ======= =======
5. The Company has two reportable segments, one which provides claims
services through branch offices located in the United States ("U.S. Operations")
and the other which provides similar services through branch or representative
offices located in 66 other countries ("International Operations"). The
Company's reportable segments represent components of the business for which
separate financial information is available that is evaluated regularly by the
chief decision maker in deciding how to allocate resources and in assessing
performance. Intersegment sales are recorded at cost and are not material. The
Company measures segment profit based on operating earnings, defined as earnings
before special credit, net corporate interest, and income taxes.
Financial information for the quarters and six months ended June 30, 2003 and
2002 covering the Company's reportable segments is presented below:
Quarter ended Six months ended
--------------------------------------------------
June 30, June 30, June 30, June 30,
(In thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------
REVENUES:
U.S. $121,858 $131,669 $236,931 $258,279
International 54,452 46,320 106,637 91,477
-------- -------- -------- --------
TOTAL REVENUES BEFORE REIMBURSEMENTS $176,310 $177,989 $343,568 $349,756
======== ======== ======== ========
OPERATING EARNINGS:
U.S. $ 10,131 $ 5,903 $ 14,180 $ 12,183
International 562 2,891 2,900 4,630
-------- -------- -------- --------
TOTAL OPERATING EARNINGS $ 10,693 $ 8,794 $ 17,080 $ 16,813
======== ======== ======== ========
9
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. During the quarter ended March 31, 2003, the Company made additional
payments of $166,000 to the former owner of Greentree Investigations, Inc.
pursuant to a purchase agreement entered into in 2000. Additional contingent
payments due under this agreement may be made through April of 2005.
7. The Company normally structures its acquisitions to include earnout
payments, which are contingent upon the acquired entity reaching certain revenue
and operating earnings targets. The amount of the contingent payments and length
of the earnout period varies for each acquisition, and the ultimate payments
when made will vary, as they are dependent on future events. Based on current
levels of revenues and operating earnings, additional payments under existing
earnout agreements would approximate $3.3 million through 2008, as follows:
- ---------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008
- ---------------------------------------------------------------------------------------------
$220,000 $333,000 $279,000 $0 $0 $2,500,000
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated net income was $6.1 million and $4.9 million for the quarters ended
June 30, 2003 and 2002, respectively, and $9.3 and $13.0 for the six months
ended June 30, 2003 and 2002, respectively. Consolidated net income for the 2002
six-month period includes a payment received in the 2002 first quarter from a
former vendor in full settlement of a business dispute of $3.8 million, net of
related income tax expense. There were no such payments received in 2003.
Operating earnings is one of the key performance measures used by our senior
management and chief decision maker to evaluate the performance of our business
and make resource allocation decisions. We believe this measure is useful to
investors in that it allows them to evaluate our performance using the same
criteria our management uses. Operating earnings (earnings before special
credit, net corporate interest, and taxes) during the quarter and six months
ended June 30, 2003, totaled $10.7 million and $17.1 million, respectively,
compared with $8.8 million and $16.8 million in the comparable 2002 periods.
Following is a reconciliation of consolidated net income to operating earnings
for the quarters and six months ended June 30, 2003 and 2002 and the related
margins as a percentage of revenues before reimbursements:
Quarter ended Six months ended
---------------------------------------------------------------------------------------
June 30, % June 30, % June 30, % June 30, %
(in thousands) 2003 Margin 2002 Margin 2003 Margin 2002 Margin
- -------------------------------------------------------------------------------------------------------------------
Net income $ 6,051 3.4% $ 4,867 2.7% $ 9,300 2.7% $ 13,034 3.7%
Add/(deduct):
Special credit - - - - - - (6,000) (1.7)
Net corporate interest 1,179 0.7 1,141 0.6 2,458 0.7 2,319 0.7
Income taxes 3,463 2.0 2,786 1.6 5,322 1.6 7,460 2.1
------- --- -------- --- -------- --- -------- ----
Operating earnings $10,693 6.1% $ 8,794 4.9% $ 17,080 5.0% $ 16,813 4.8%
======= === ======== === ======== === ======== ====
The following is a discussion and analysis of the consolidated financial
condition and results of operations of our two reportable segments: U.S.
operations and international operations. Our reportable segments represent
components of our business for which separate financial information is available
that is evaluated regularly by our chief decision maker in deciding how to
allocate resources and in assessing performance. Revenue amounts discussed
exclude reimbursements for out-of-pocket expenses. Expense amounts discussed
exclude the special credit, net corporate interest, and income taxes.
Our discussion and analysis of operating expenses is comprised of two
components. Compensation and fringe benefits include all compensation, payroll
taxes, and benefits provided to our employees which, as a service company,
represents our most significant and variable expense. Expenses other than
reimbursements, compensation and fringe benefits include office rent and
occupancy costs, other office operating expenses, and depreciation. This
discussion should be read in conjunction with our unaudited condensed
consolidated financial statements and the accompanying footnotes.
11
RESULTS OF OPERATIONS
Operating results for our U.S. and international operations for the quarters and
six months ended June 30, 2003 and 2002 are as follows:
Quarter ended Six months ended
------------- ----------------
June 30, June 30, June 30, June 30,
(in thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
REVENUES BEFORE REIMBURSEMENTS:
U.S. $121,858 $131,669 $236,931 $258,279
International 54,452 46,320 106,637 91,477
-------- -------- -------- --------
TOTAL $176,310 $177,989 $343,568 $349,756
COMPENSATION & FRINGE BENEFITS:
U.S. $ 75,302 $ 84,602 $149,646 $166,360
% of Revenues 61.8% 64.2% 63.1% 64.4%
International 38,324 31,606 73,817 63,007
% of Revenues 70.4% 68.3% 69.2% 68.9%
-------- -------- -------- --------
TOTAL $113,626 $116,208 $223,463 $229,367
% of Revenues 64.4% 65.3% 65.0% 65.6%
EXPENSES OTHER THAN REIMBURSEMENTS,
COMPENSATION & FRINGE BENEFITS:
U.S. $ 36,425 $ 41,164 $ 73,105 $ 79,736
% of Revenues 29.9% 31.3% 30.9% 30.9%
International 15,566 11,823 29,920 23,840
% of Revenues 28.6% 25.5% 28.1% 26.0%
-------- -------- -------- ---------
TOTAL $ 51,991 $ 52,987 $103,025 $103,576
% of Revenues 29.5% 29.8% 30.0% 29.6%
-------------------------------------------------------
OPERATING INCOME (1):
U.S. $ 10,131 $ 5,903 $ 14,180 $ 12,183
% of Revenues 8.3% 4.5% 6.0% 4.7%
International 562 2,891 2,900 4,630
% of Revenues 1.0% 6.2% 2.7% 5.1%
-------- -------- -------- --------
TOTAL $ 10,693 $ 8,794 $ 17,080 $ 16,813
% of Revenues 6.1% 4.9% 5.0% 4.8%
- ----------------------------------------------------------------------------------------------------
(1) Earnings before special credit, net corporate interest, and income taxes.
12
U.S. OPERATIONS
REVENUES
U.S. revenues before reimbursements, by market type, for the quarters and six
months ended June 30, 2003 and 2002 are as follows:
Quarter ended Six months ended
------------------------------------ ------------------------------------
June 30, June 30, June 30, June 30,
(in thousands) 2003 2002 Variance 2003 2002 Variance
- -------------------------------------------------------------------------------------------------------------------
Insurance companies $ 62,175 $ 68,255 (8.9%) $120,825 $133,018 (9.2%)
Self-insured entities 42,057 49,128 (14.4%) 84,542 99,477 (15.0%)
Class action services 17,626 14,286 23.4% 31,564 25,784 22.4%
-------- -------- -------- --------
TOTAL U.S. REVENUES
BEFORE REIMBURSEMENTS $121,858 $131,669 (7.5%) $236,931 $258,279 (8.3%)
======== ======== ======== ========
Revenues from insurance companies decreased 8.9% to $62.2 million for the 2003
second quarter, reflecting a continued softening in the Company's U.S. insurance
company referrals for high-frequency, low-severity claims. Lower medical bill
auditing revenues associated with the previously reported non-renewal of a
contract with a major domestic insurer contributed $2.8 million of this decline.
Revenues from self-insured clients decreased 14.4% to $42.1 million in the
quarter, due primarily to a decline in workers' compensation claim referrals.
Class action revenues increased 23.4% to $17.6 million in the current quarter,
due to the award of a new class action settlement in the quarter.
Case Volume Analysis
Excluding the impact of class action services, U.S. unit volume, measured
principally by cases received, decreased 16.5% in the second quarter of 2003
compared to the same period in 2002. This decrease was partially offset by a
6.5% revenue increase from changes in the mix of services provided and in the
rates charged for those services, resulting in a net 10.0% decrease in U.S.
revenues in the second quarter of 2003, excluding revenues from class action
services. Growth in class action services increased U.S. revenues by 2.5% in the
2003 second quarter compared to the prior year period.
Excluding the impact of class action services, U.S. unit volume by major product
line, as measured by cases received, for the quarters and six months ended June
30, 2003 and 2002 is as follows:
Quarter ended Six months ended
------------------------------------ ------------------------------------
June 30, June 30, June 30, June 30,
(whole numbers) 2003 2002 Variance 2003 2002 Variance
- -------------------------------------------------------------------------------------------------------------------
Casualty 51,518 56,049 (8.1%) 107,096 113,403 (5.6%)
Property 65,718 64,009 2.7% 116,886 110,313 6.0%
Vehicle 51,016 69,793 (26.9%) 100,081 135,419 (26.1%)
Workers' Compensation 45,432 63,581 (28.5%) 94,347 124,777 (24.4%)
Other 5,249 8,882 (40.9%) 10,632 21,647 (50.9%)
-------- -------- -------- --------
TOTAL U.S. CASES RECEIVED 218,933 262,314 (16.5%) 429,042 505,559 (15.1%)
======== ======== ======== ========
13
Our decline in workers' compensation claim referrals has been primarily due to
declines in U.S. employment levels and associated injury rates. The decline in
vehicle claims for the quarter is primarily due to the decline we are
experiencing related to U.S. insurance company referrals for high-frequency,
low-severity claims. Conservative underwriting by our insurance company clients,
including significant increases in policy deductibles, has contributed to an
industry-wide decline in property and casualty claims frequency. The decline in
casualty claims is primarily due to a reduction in claims incurred by our
existing client base. The increase in property claims is primarily related to
increases in referrals to our Contractor Connection(SM) direct repair network.
COMPENSATION AND FRINGE BENEFITS
Our most significant expense is the compensation of employees, including related
payroll taxes and fringe benefits. U.S. compensation expense as a percent of
revenues decreased to 61.8% in the second quarter of 2003 as compared to 64.2%
in the 2002 quarter, and to 63.1% for the six months ended June 30, 2003 as
compared to 64.4% in the 2002 period. In response to the ongoing decline in U.S.
claims volume, we have reduced our level of U.S. full-time equivalent employees
by over 14% as compared to employment levels through the 2002 second quarter.
There were an average of 4,702 full-time equivalent employees in the first six
months of 2003, compared to an average of 5,409 in the 2002 period.
U.S. salaries and wages decreased to $61.0 million and $120.7 million for the
quarter and six months ended June 30, 2003, respectively, decreasing 11.2% and
10.1%, from $68.6 million and $134.4 million in the comparable 2002 periods.
Payroll taxes and fringe benefits for U.S. operations totaled $14.3 million and
$28.9 million in the second quarter and first six months of 2003, respectively,
decreasing 10.2% and 9.8% from 2002 costs of $16.0 million and $32.0 million for
the comparable periods. These decreases reflect the reduction in full-time
equivalent employees during the current quarter and year-to-date period.
EXPENSES OTHER THAN REIMBURSEMENTS, COMPENSATION AND FRINGE BENEFITS
U.S. expenses other than reimbursements, compensation and related payroll taxes
and fringe benefits were 29.9% of revenues for the quarter ended June 30, 2003,
down from 31.3% for the same period in 2002. This decrease reflects a reduction
in office operating expenses, lower legal fees and reduced bad debts in the 2003
period. U.S. expenses other than reimbursements, compensation and related
payroll taxes and fringe benefits approximated 30.9% of revenues for each of the
six month periods ended June 30, 2003 and 2002.
REIMBURSEMENTS
Reimbursements in our U.S. operations decreased to $3.5 million and $7.2 million
for the quarter and six months ended June 30, 2003, respectively, from $4.4
million and $8.9 million in the comparable 2002 period, reflecting the decline
in case volume during 2003.
INTERNATIONAL OPERATIONS
REVENUES
Revenues before reimbursements from our international operations increased
17.6%, from $46.3 million in the second quarter of 2002 to $54.5 million in the
2003 second quarter. Revenues before reimbursements for the first six months of
2003 totaled $106.6 million, a 16.6% increase
14
from $91.5 million reported in the first six months of 2002. Excluding the
impact of acquisitions, international unit volume, measured principally by cases
received, decreased 11.7% and 1.7% in the current quarter and six months ended
June 30, 2003, respectively, compared to the same periods in 2002. Our third
quarter 2002 acquisition of the loss adjusting business of Robertson and Company
in Australia increased international revenues by 6.2% and 5.4% for the quarter
and six months ended June 30, 2003. Revenues reflect a 12.2% and 10.6% increase
during the quarter and six months ended June 30, 2003, due to the positive
effect of a weak U.S. dollar, primarily as compared to the British pound and the
euro.
Excluding the impact of acquisitions, international unit volume by region for
the quarters and six months ended June 30, 2003 and 2002 was as follows:
Quarter ended Six months ended
------------------------------------ ------------------------------------
June 30, June 30, June 30, June 30,
(whole numbers) 2003 2002 Variance 2003 2002 Variance
- -------------------------------------------------------------------------------------------------------------------
United Kingdom 22,944 23,512 (2.4%) 45,588 44,700 2.0%
Americas 27,208 38,775 (29.8%) 57,827 64,369 (10.2%)
CEMEA 19,396 16,496 17.6% 39,060 35,393 10.4%
Asia/Pacific 5,076 5,763 (11.9%) 10,403 11,061 (5.9%)
-------- -------- -------- --------
TOTAL INTERNATIONAL CASES RECEIVED 74,624 84,546 (11.7%) 152,878 155,523 (1.7%)
======== ======== ======== ========
The decrease in the Americas is due to the receipt of approximately 15,000
product liability claims in Canada during the 2002 second quarter. There was no
such large intake of claims in the 2003 second quarter. The increase in
Continental Europe, Middle East, & Africa ("CEMEA") is largely due to an
increase in small loss claims in South Africa. The decrease in Asia/Pacific is
primarily due to the general economic downturn in the region due in part to the
SARS epidemic.
COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, increased to 70.4% for the quarter ended June 30, 2003 from
68.3% for the same period in 2002, primarily due to an increase in capacity in
our U.K. and Canadian operating units due to an anticipated increase in case
volume. For the six-month period, compensation, payroll taxes and fringe
benefits increased slightly as a percentage of revenues to 69.2% in 2003 from
68.9% in 2002. There were an average of 3,125 full-time equivalent employees in
the first six months of 2003 (including approximately 110 full-time equivalent
employees added by our third quarter 2002 acquisition in Australia), compared to
an average of 2,963 in the 2002 period.
Salaries and wages of international personnel increased to $32.6 million for the
quarter ended June 30, 2003, from $27.2 million in the comparable 2002 period.
For the six-month period, salaries and wages increased to $62.3 million in 2003
from $53.9 million in 2002. Payroll taxes and fringe benefits for international
operations totaled $5.7 million and $11.5 million for the quarter and six months
ended June 30, 2003, respectively, compared to $4.4 and $9.1 for the same
periods in 2002. The increases in these costs reflect the effect of a weak U.S.
dollar, primarily as compared to the British pound and the euro, as well as the
third quarter 2002 acquisition in Australia.
15
EXPENSES OTHER THAN REIMBURSEMENTS, COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
were 28.6% and 28.1% of international revenues for the quarter and six months
ended June 30, 2003, respectively, up from 25.5% and 26.0% for the same period
in 2002, primarily due to higher automobile, insurance, and rent and occupancy
expenses.
REIMBURSEMENTS
Reimbursements in our international operations increased to $6.8 million and
$12.7 million for the quarter and six months ended June 30, 2003, respectively,
from $4.5 million and $8.6 million in the comparable 2002 period. This increase
is due to the effect of a weak U.S. dollar, primarily as compared to the British
pound and the euro and an increase in the use of outside experts to handle
various claims in CEMEA, typhoon related claims in Asia, and a project in
Canada.
SPECIAL CREDIT, NET CORPORATE INTEREST, AND INCOME TAXES
During the 2002 first quarter, we received a cash payment of $6.0 million from a
former vendor in full settlement of a business dispute. This special credit, net
of related income tax expense, increased net income per share by $0.08 during
the 2002 first quarter.
Net corporate interest increased to $1.2 million and $2.5 million for the
quarter and six months ended June 30, 2003, respectively, from $1.1 million and
$2.3 million in the comparable 2002 periods, reflecting an increase in total
borrowings during 2003.
Our effective tax rate was 36.4% of pretax income for the quarter and six months
ended June 30, 2003 and 2002. Taxes on income totaled $3.5 million and $5.3
million for the quarter and six months ended June 30, 2003, respectively, as
compared to $2.8 million and $7.5 million for the comparable 2002 periods.
FINANCIAL CONDITION
At June 30, 2003, current assets exceeded current liabilities by approximately
$130.8 million, an increase of $7.0 million from the working capital balance at
December 31, 2002. Cash and cash equivalents at June 30, 2003 totaled $41.3
million, an increase of $10.2 million from the balance at December 31, 2002.
Cash was generated primarily from operating activities and short-term
borrowings, while the principal uses of cash were for investments in computer
software, dividends paid to shareholders, acquisitions of property and
equipment, and payments on short-term borrowings. Cash dividends to shareholders
approximated 62.7% of net income in the first six months of 2003, compared to
104.3% for the same period in 2002. The Board of Directors declares cash
dividends to shareholders each quarter based on an assessment of current and
projected earnings and cash flows. By continuing to manage our U.S. and
international operating expenses, we believe that we will be able to preserve
our current level of dividends for the remainder of 2003.
During the first six months of 2003, we did not repurchase any Class A or Class
B Common Stock. As of June 30, 2003, 705,863 shares remain to be repurchased
under the share repurchase program authorized by the Board of Directors. We
believe it is unlikely that we will repurchase shares under this program in 2003
due to the decline in the funded status of our defined benefit pension plans.
16
We maintain 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, 2003 totaled $35.6 million, increasing from $30.0
million at December 31, 2002. Long-term borrowings outstanding, excluding
current installments, as of June 30, 2003 totaled $51.1 million compared to
$50.0 million at December 31, 2002. We believe that our current financial
resources, together with funds generated from operations and existing and
potential borrowing capabilities, will be sufficient to maintain our current
operations.
We do not engage in any hedging activities to compensate for the effect of
exchange rate fluctuations on the operating results of our foreign subsidiaries.
Foreign currency denominated debt is maintained primarily to hedge the currency
exposure of our net investment in foreign operations.
Shareholders' investment at June 30, 2003 was $169.7 million, compared with
$159.4 million at December 31, 2002. This increase is due to foreign currency
translation adjustments and net income in excess of dividends paid to
shareholders during the first six months of 2003.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. On an ongoing basis, management evaluates these
estimates and judgements based upon historical experience and on various other
factors that are believed to be reasonable under the circumstances. The results
of these evaluations form the basis for making judgements about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
For a complete discussion regarding the application of our critical accounting
policies, see our Form 10-K for the year ended December 31, 2002 filed with the
Securities and Exchange Commission, under the heading "Application of Critical
Accounting Policies" in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section.
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, uncertainties
and assumptions. Our Form 10-K for the year ended December 31, 2002, discusses
such risks, uncertainties and assumptions and other key factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements.
17
LEGAL PROCEEDINGS
In the normal course of the claims administration services business, we are
named as a defendant in suits by insureds or claimants contesting decisions made
by us or our clients with respect to the settlement of claims. Additionally, our
clients have brought actions for indemnification on the basis of alleged
negligence on our part, our agents, or our employees in rendering service to
clients. The majority of these claims are of the type covered by insurance that
we maintain; however, we are self-insured for the deductibles under various
insurance coverages. In our opinion, adequate reserves have been provided for
such self-insured risks.
In 2000, we received federal grand jury subpoenas requesting certain business
and financial records dating back to 1992. Additional document requests and
grand jury subpoenas were received in 2001 and 2002. We have been advised by the
U.S. Department of Justice Fraud Section that the subpoenas issued by the Fraud
Section and local U.S. Attorney offices were issued in connection with a
nationwide investigation into the billings for services in some of the U.S.
Claims Management and Healthcare Management Services branch offices. We are
cooperating fully with the government's inquiry and have retained outside
counsel to conduct an internal investigation into our billing practices under
the direction of the Board of Directors. In addition, we have issued written
corporate billing policies in order to clarify our billing practices and
eliminate inconsistencies in their application, and are continuing to strengthen
our internal audit and branch inspection procedures.
We are currently attempting to negotiate a settlement with the Department of
Justice, but we cannot predict when the government's investigation or the
settlement discussions will be completed, their ultimate outcome or their effect
on our financial condition or results of operations. However, the investigation
and its ultimate resolution could cause disruption in the delivery of our
services, and ultimately result in the imposition of civil, administrative or
criminal fines or sanctions, as well as potential reimbursements to clients and
loss of existing or prospective clients or business opportunities. While we
believe that we will have cash flows from operating activities and borrowing
capabilities sufficient to pay any fine or other penalty imposed, any such
result could have a material adverse effect on our financial condition and
results of operations. Expenses associated with the investigation, net of
related tax benefits, were $241,000 and $683,000, or less than $0.01 and $0.01
per share for the quarter and six months ended June 30, 2003, compared to
$629,000 and $1.4 million, or $0.01 and $0.03 per share, for the comparable 2002
periods.
EXPENSE REDUCTION INITIATIVE
We have taken aggressive steps to reduce our U.S. annual operating costs from
their historical levels. We reduced our U.S. operating costs by 11.2% during the
2003 second quarter compared to the same quarter in 2002.
INSURANCE RENEWAL
We have negotiated the renewal of our various insurance coverages effective June
2003. Our insurance premiums will increase from their current level and we will
be subject to higher self-insured retentions for certain coverages.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
DERIVATIVES
We have not entered into any transactions using derivative financial instruments
or derivative commodity instruments during the 2003 second quarter or six months
ended June 30, 2003.
FOREIGN CURRENCY EXCHANGE
Our international operations expose us 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. Revenues from our international operations
were 31.0% and 26.2% of total revenues for the six months ended June 30, 2003
and 2002, respectively. Except for borrowing in foreign currencies, we do not
presently engage in any hedging activities to compensate for the effect of
exchange rate fluctuations on the net assets or operating results of our foreign
subsidiaries.
We measure currency earnings risk related to our 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, 2003 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 $287,000
during the first six months of 2003, had the U.S. dollar exchange rate increased
relative to the currencies with which we had exposure.
INTEREST RATES
We are exposed to interest rate fluctuations on certain variable rate
borrowings. Depending on general economic conditions, we use variable rate debt
for short-term borrowings and fixed rate debt for long-term borrowings. At June
30, 2003, we had $35.6 million in short-term loans outstanding with an average
variable interest rate of 4.8%. If the average interest rate were to change by
1%, the impact to pretax income for the six months ended June 30, 2003 would be
approximately $178,000.
CREDIT RISK
We process payments for claims settlements, primarily on behalf of our
self-insured clients. The liability for the settlement cost of claims processed,
which is generally pre-funded, remains with the client. Accordingly, we do not
incur significant credit risk in the performance of these services.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As required by SEC rules, our chief executive officer and chief financial
officer have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days of the filing date of this
quarterly report. This evaluation was carried out under the supervision and with
the participation of our management, including our chief executive officer
19
and chief financial officer. Based upon that evaluation, the chief executive
officer and chief financial officer have concluded that the design and operation
of our disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other factors
that could materially affect these controls subsequent to the date of their
evaluation.
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Crawford & Company:
We have reviewed the accompanying condensed consolidated balance sheet of
CRAWFORD & COMPANY (a Georgia corporation) as of June 30, 2003, and the related
condensed consolidated statements of income for the three-month and six-month
periods ended June 30, 2003, and the condensed consolidated statement of cash
flows for the six-month period ended June 30, 2003. 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, which will be
performed for the full year with the objective of expressing 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 accompanying condensed consolidated financial statements at June
30, 2003 and for the three-month and six-month periods then ended for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of CRAWFORD &
COMPANY as of December 31, 2002, and the related consolidated statements of
income and cash flows for the year then ended and in our report dated January
27, 2003, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 2002, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Ernst & Young LLP
Atlanta, Georgia
August 1, 2003
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 2000, we received federal grand jury subpoenas requesting certain business
and financial records dating back to 1992. Additional document requests and
grand jury subpoenas were received in 2001 and 2002. We have been advised by the
U.S. Department of Justice Fraud Section that the subpoenas issued by the Fraud
Section and local U.S. Attorney offices were issued in connection with a
nationwide investigation into the billings for services in some of the U.S.
Claims Management and Healthcare Management Services branch offices. We are
cooperating fully with the government's inquiry and have retained outside
counsel to conduct an internal investigation into our billing practices under
the direction of the Board of Directors. In addition, we have issued written
corporate billing policies in order to clarify our billing practices and
eliminate inconsistencies in their application, and are continuing to strengthen
our internal audit and branch inspection procedures.
We are currently attempting to negotiate a settlement with the Department of
Justice, but we cannot predict when the government's investigation or the
settlement discussions will be completed, their ultimate outcome or their effect
on our financial condition or results of operations. However, the investigation
and its ultimate resolution could cause disruption in the delivery of our
services, and ultimately result in the imposition of civil, administrative or
criminal fines or sanctions, as well as potential reimbursements to clients and
loss of existing or prospective clients or business opportunities. While we
believe that we will have cash flows from operating activities and borrowing
capabilities sufficient to pay any fine or other penalty imposed, any such
result could have a material adverse effect on our financial condition and
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 29, 2003, 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 eight (8) Directors for a one-year
term; and (ii) ratification of the selection of Ernst & Young LLP as the
Registrant's auditor for the year ending December 31, 2003. The results of that
voting are as follows:
ELECTION OF DIRECTORS
For Withheld
--- --------
J. Hicks Lanier 22,129,389 726,969
Charles Flather 22,111,389 744,969
Linda K. Crawford 19,069,790 3,786,568
Jesse C. Crawford 19,056,032 3,800,326
Larry L. Prince 22,111,469 744,889
John A. Williams 22,110,864 745,494
E. Jenner Wood, III 21,667,714 1,188,644
Grover L. Davis 19,676,324 3,180,034
22
RATIFICATION OF APPOINTMENT OF AUDITORS
For Against Abstain
- ---------- ------- -------
22,589,729 262,326 4,303
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
15.1 Letter from Ernst & Young LLP
31.1 Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of principal executive officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of principal financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
Current Report on Form 8-K dated April 24, 2003 containing a copy of
the Registrant's press release dated April 24, 2003 titled "Crawford
Reports First Quarter 2003 Results."
23
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 1, 2003 /s/ Grover L. Davis
------------------------------------
Grover L. Davis
Chief Executive Officer
(Principal Executive Officer)
Date: August 1, 2003 /s/ John F. Giblin
------------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: August 1, 2003 /s/ W. Bruce Swain
------------------------------------
W. Bruce Swain
Senior Vice President and Controller
(Principal Accounting Officer)
24
INDEX TO EXHIBITS
Exhibit No. Description Sequential Page No.
15.1 Letter from Ernst & Young LLP 26
31.1 Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. 27
31.2 Certification of principal financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. 28
32.1 Certification of principal executive officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 29
32.2 Certification of principal financial officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 30
25