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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
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, 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 October 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)
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------- -------------
REVENUES:
Revenues before reimbursements $515,802 $525,668
Reimbursements 31,782 27,948
-------- --------
TOTAL REVENUES 547,584 553,616
-------- --------
COSTS AND EXPENSES:
Cost of services provided, before reimbursements 393,001 398,420
Reimbursements 31,782 27,948
-------- --------
Cost of services 424,783 426,368
Selling, general, and administrative expenses 97,603 100,326
Special charge/credit (1) 8,000 (6,000)
Corporate interest, net 3,855 3,565
-------- --------
TOTAL COSTS AND EXPENSES 534,241 524,259
-------- --------
INCOME BEFORE INCOME TAXES 13,343 29,357
PROVISION FOR INCOME TAXES 7,769 10,686
-------- --------
NET INCOME $ 5,574 $ 18,671
======== ========
NET INCOME PER SHARE:
Basic $ 0.11 $ 0.38
Diluted $ 0.11 $ 0.38
======== ========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,649 48,565
Diluted 48,701 48,625
======== ========
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.18 $ 0.34
Class B Common Stock $ 0.18 $ 0.34
======== ========
(1) Special charge in 2003 is an after-tax fine related to the settlement of
the Department of Justice investigation.
Special credit in 2002 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
----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------- -------------
REVENUES:
Revenues before reimbursements $172,234 $175,912
Reimbursements 11,850 10,447
-------- --------
TOTAL REVENUES 184,084 186,359
-------- --------
COSTS AND EXPENSES:
Cost of services provided, before reimbursements 131,687 132,725
Reimbursements 11,850 10,447
-------- --------
Cost of services 143,537 143,172
Selling, general, and administrative expenses 32,429 33,078
Special charge (1) 8,000 -
Corporate interest, net 1,397 1,246
-------- --------
TOTAL COSTS AND EXPENSES 185,363 177,496
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES (1,279) 8,863
PROVISION FOR INCOME TAXES 2,447 3,226
-------- --------
NET (LOSS) INCOME ($ 3,726) $ 5,637
======== ========
NET (LOSS) INCOME PER SHARE:
Basic ($ 0.08) $ 0.11
Diluted ($ 0.08) $ 0.11
======== ========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic 48,700 48,607
Diluted 48,700 48,649
======== ========
CASH DIVIDENDS PER SHARE:
Class A Common Stock $ 0.06 $ 0.06
Class B Common Stock $ 0.06 $ 0.06
======== ========
(1) Special charge in 2003 is an after-tax fine related to the settlement of
the Department of Justice investigation.
(See accompanying notes to condensed consolidated financial statements)
3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,338 $ 31,091
Accounts receivable, less allowance for doubtful
accounts of $20,863 in 2003 and $19,633 in 2002 141,629 135,174
Unbilled revenues, at estimated billable amounts 98,738 93,792
Prepaid expenses and other current assets 15,585 11,968
--------- ---------
TOTAL CURRENT ASSETS 292,290 272,025
--------- ---------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 152,431 144,706
Less accumulated depreciation (115,450) (108,607)
--------- ---------
NET PROPERTY AND EQUIPMENT 36,981 36,099
--------- ---------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 103,344 97,798
Capitalized software costs, net 29,578 23,977
Deferred income tax asset 31,955 31,899
Other 13,292 12,978
--------- ---------
TOTAL OTHER ASSETS 178,169 166,652
--------- ---------
TOTAL ASSETS $ 507,440 $ 474,776
========= =========
(See accompanying notes to condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 35,169 $ 30,019
Accounts payable 33,301 31,956
Accrued compensation and related costs 30,611 26,454
Deferred revenues 20,010 18,516
Self-insured risks 16,062 15,833
Accrued income taxes 13,770 9,594
Other accrued liabilities 25,637 14,384
Current installments of long-term debt 1,509 1,493
-------- --------
TOTAL CURRENT LIABILITIES 176,069 148,249
-------- --------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 51,799 49,976
Deferred revenues 11,765 12,127
Self-insured risks 11,901 11,819
Minimum pension liability 75,627 76,747
Postretirement medical benefit obligation 6,201 6,289
Other 9,711 10,138
-------- --------
TOTAL NONCURRENT LIABILITIES 167,004 167,096
-------- --------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 24,027 and 23,925 shares issued and outstanding
at September 30, 2003 and December 31, 2002, respectively 24,027 23,925
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,697 shares issued and
outstanding at September 30, 2003 and December 31, 2002 24,697 24,697
Additional paid-in capital 840 523
Retained earnings 188,582 191,767
Accumulated other comprehensive loss (73,779) (81,481)
-------- --------
TOTAL SHAREHOLDERS' INVESTMENT 164,367 159,431
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $507,440 $474,776
======== ========
(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,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,574 $ 18,671
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 12,095 13,145
Deferred income taxes 271 (287)
Loss (gain) on sales of property and equipment 100 (39)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (1,246) 1,596
Unbilled revenues (1,272) (7,662)
Accrued or prepaid income taxes 3,017 4,300
Accounts payable and accrued liabilities 9,807 179
Deferred revenues 1,302 1,534
Prepaid and accrued pension costs 1,788 2,161
Prepaid expenses and other assets (1,242) (6,423)
-------- --------
Net cash provided by operating activities 30,194 27,175
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (8,205) (6,769)
Capitalization of computer software costs (9,390) (8,704)
Acquisitions of businesses, net of cash acquired (412) (12,798)
Proceeds from sales of property and equipment 251 157
-------- --------
Net cash used in investing activities (17,756) (28,114)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (8,760) (16,510)
Proceeds from exercise of stock options 419 578
Increase in short-term borrowings 3,858 18,712
Payments on short-term borrowings (2,901) (13,905)
Increase in long-term debt 434 11,226
Payments on long-term debt (1,510) (118)
-------- --------
Net cash used in financing activities (8,460) (17)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 1,269 1,042
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 5,247 86
Cash and cash equivalents at beginning of period 31,091 21,966
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,338 $ 22,052
======== ========
(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 nine months ended September 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
(loss) income and net (loss) income per share would have been reduced to the pro
forma amounts indicated below:
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(in thousands, except per share data) 2003 2002 2003 2002
------------------------------------- ------------- ------------- ------------- -------------
Net (loss) income as reported $(3,726) $5,637 $5,574 $18,671
Less: compensation expense using the
fair value method, net of tax 364 410 1,029 1,335
------- ------ ------ -------
Pro forma net (loss) income $(4,090) $5,227 $4,545 $17,336
======= ====== ====== =======
Net (loss) income per share - basic:
As reported $ (0.08) $ 0.11 $ 0.11 $ 0.38
======= ====== ====== =======
Pro forma $ (0.08) $ 0.11 $ 0.09 $ 0.36
======= ====== ====== =======
Net (loss) income per share - diluted:
As reported $ (0.08) $ 0.11 $ 0.11 $ 0.38
======= ====== ====== =======
Pro forma $ (0.08) $ 0.11 $ 0.09 $ 0.36
======= ====== ====== =======
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 Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 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 nine months ended September 30, 2003, the
Company utilized $68,000 and $304,000, respectively, of its restructuring
reserves for payments related to lease terminations. As of September 30, 2003,
remaining restructuring reserves were $1.3 million, $1.0 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 (loss) income per share is computed based on the
weighted-average number of total common shares outstanding during the respective
periods. Diluted net (loss) income per share is computed based on the
weighted-average number of total common shares outstanding plus the dilutive
effect of outstanding stock options, if any, using the "treasury stock" method.
Below is the calculation of basic and diluted net (loss) income per share for
the quarters and nine months ended September 30, 2003 and 2002:
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(in thousands, except per share data) 2003 2002 2003 2002
------------------------------------- ------------- ------------- ------------- -------------
Net (loss) income available to common
shareholders $(3,726) $ 5,637 $ 5,574 $18,671
======= ======= ======= =======
Weighted-average common shares outstanding -
Basic 48,700 48,607 48,649 48,565
Dilutive effect of stock options 0 42 52 60
------- ------- ------- -------
Weighted-average common shares outstanding -
Diluted 48,700 48,649 48,701 48,625
======= ======= ======= =======
Basic net (loss) income per share $ (0.08) $ 0.11 $ 0.11 $ 0.38
======= ======= ======= =======
Diluted net (loss) income per share $ (0.08) $ 0.11 $ 0.11 $ 0.38
======= ======= ======= =======
8
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Additional options to purchase 4,975,188 shares of Class A Common Stock at
exercise prices ranging from $5.50 to $19.50 per share were outstanding at
September 30, 2003, but were not included in the computation of diluted net
(loss) 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 (loss) income for the Company consists of the total of
net (loss) income and foreign currency translation adjustments. Below is the
calculation of comprehensive (loss) income for the quarters and nine months
ended September 30, 2003 and 2002:
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(in thousands) 2003 2002 2003 2002
-------------- ------------- ------------- ------------- -------------
Net (loss) income $(3,726) $5,637 $ 5,574 $18,671
Foreign currency translation adjustment 914 2,572 7,702 3,774
------- ------ ------- -------
Comprehensive (loss) income $(2,812) $8,209 $13,276 $22,445
======= ====== ======= =======
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 charge/credit, net corporate interest, and income taxes.
9
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Financial information for the quarters and nine months ended September 30, 2003
and 2002 covering the Company's reportable segments is presented below:
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(in thousands) 2003 2002 2003 2002
-------------- ------------- ------------- ------------- -------------
REVENUES:
U.S. $117,653 $ 128,795 $354,584 $387,074
International 54,581 47,117 161,218 138,594
-------- --------- -------- --------
TOTAL REVENUES BEFORE
REIMBURSEMENTS $172,234 $ 175,912 $515,802 $525,668
======== ========= ======== ========
OPERATING EARNINGS:
U.S. $ 6,638 $ 9,237 $ 20,818 $ 21,420
International 1,480 872 4,380 5,502
-------- --------- -------- --------
TOTAL OPERATING EARNINGS $ 8,118 $ 10,109 $ 25,198 $ 26,922
======== ========= ======== ========
6. During the quarter and nine months ended September 30, 2003, the
Company made additional payments of $130,000 and $296,000, respectively, 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. Also during the quarter ended September 30,
2003, the Company acquired 51% of the net assets of Robco Claims Management Pty
Ltd., a New Guinea company, for $116,000, net of cash acquired. There are no
contingent payments associated with this acquisition.
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 projected
levels of revenues and operating earnings, additional payments under existing
earnout agreements would approximate $3.1 million through 2008, as follows:
2003 2004 2005 2006 2007 2008
- ---- ---- ---- ---- ---- ----
$ 0 $323,000 $284,000 $ 0 $ 0 $2,500,000
8. Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities" (Interpretation 46), requires the
primary beneficiary of a variable interest entity (VIE) to include the assets,
liabilities, and results of the activities of the VIE in its consolidated
financial statements, as well as disclosure of information about the assets and
liabilities, and the nature, purpose and activities of consolidated variable
interest entities. In addition, Interpretation 46 requires disclosure of
information about the nature, purpose and activities of unconsolidated VIEs in
which we hold a significant variable interest. The provisions of Interpretation
46 were effective immediately for any interests in VIEs acquired after January
31, 2003. In October 2003,
10
the Financial Standards Accounting Board deferred the effective date of
Interpretation 46 to the fourth quarter of 2003 for variable interests acquired
before February 1, 2003. This Interpretation is not expected to have a
significant effect on our consolidated results of operations, financial
position, or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated net (loss) income was $(3.7) million and $5.6 million for the
quarters ended September 30, 2003 and 2002, respectively, and $5.6 million and
$18.7 million for the nine months ended September 30, 2003 and 2002,
respectively. For the quarter and nine months ended September 30, 2003,
consolidated net loss includes an after-tax charge of $8.0 million under an
agreement reached with the Department of Justice to resolve the investigation of
our billing practices. Consolidated net income for the 2002 nine-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
charge/credit, net corporate interest, and taxes) during the quarter and nine
months ended September 30, 2003, totaled $8.1 million and $25.2 million,
respectively, compared with $10.1 million and $26.9 million in the comparable
2002 periods. Following is a reconciliation of consolidated net (loss) income to
operating earnings for the quarters and nine months ended September 30, 2003 and
2002 and the related margins as a percentage of revenues before reimbursements:
Quarter ended Nine months ended
-------------------------------------- --------------------------------------
September % September % September % September %
(in thousands) 30, 2003 Margin 30, 2002 Margin 30, 2003 Margin 30, 2002 Margin
- ---------------------- -------------------------------------- --------------------------------------
Net (loss) income $ (3,726) (2.2)% $ 5,637 3.2% $ 5,574 1.1% $ 18,671 3.5%
Add/(deduct):
Special charge/credit 8,000 4.7 - - 8,000 1.6 (6,000) (1.1)
Net corporate interest 1,397 0.8 1,246 0.7 3,855 0.7 3,565 0.7
Income taxes 2,447 1.4 3,226 1.8 7,769 1.5 10,686 2.0
-------- ---- --------- --- --------- --- --------- ----
Operating earnings $ 8,118 4.7% $ 10,109 5.7% $ 25,198 4.9% $ 26,922 5.1%
======== ==== ========= === ========= === ========= ====
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 charge/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
11
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.
RESULTS OF OPERATIONS
Operating results for our U.S. and international operations for the quarters and
nine months ended September 30, 2003 and 2002 are as follows:
Quarter ended Nine months ended
------------- -----------------
September 30, September 30, September 30, September 30,
(in thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
REVENUES BEFORE REIMBURSEMENTS:
U.S. $ 117,653 $ 128,795 $ 354,584 $ 387,074
International 54,581 47,117 161,218 138,594
--------- --------- --------- ---------
TOTAL $ 172,234 $ 175,912 $ 515,802 $ 525,668
COMPENSATION & FRINGE BENEFITS:
U.S. $ 71,725 $ 79,983 $ 221,371 $ 246,343
% of Revenues 61.0% 62.1% 62.4% 63.7%
International 39,078 32,966 112,895 95,973
% of Revenues 71.6% 69.9% 70.0% 69.2%
--------- --------- --------- ---------
TOTAL $ 110,803 $ 112,949 $ 334,266 $ 342,316
% of Revenues 64.3% 64.3% 64.8% 65.1%
EXPENSES OTHER THAN REIMBURSEMENTS,
COMPENSATION & FRINGE BENEFITS:
U.S. $ 39,290 $ 39,575 $ 112,395 $ 119,311
% of Revenues 33.4% 30.7% 31.7% 30.8%
International 14,023 13,279 43,943 37,119
% of Revenues 25.7% 28.2% 27.3% 26.8%
--------- --------- --------- ---------
TOTAL $ 53,313 $ 52,854 $ 156,338 $ 156,430
% of Revenues 31.0% 30.0% 30.3% 29.8%
--------- --------- --------- ---------
OPERATING INCOME (1):
U.S. $ 6,638 $ 9,237 $ 20,818 $ 21,420
% of Revenues 5.6% 7.2% 5.9% 5.5%
International 1,480 872 4,380 5,502
% of Revenues 2.7% 1.9% 2.7% 4.0%
--------- --------- --------- ---------
TOTAL $ 8,118 $ 10,109 $ 25,198 $ 26,922
% of Revenues 4.7% 5.7% 4.9% 5.1%
(1) Earnings before special charge/credit, net corporate interest, and income
taxes.
12
U.S. OPERATIONS
REVENUES
U.S. revenues before reimbursements, by market type, for the quarters and nine
months ended September 30, 2003 and 2002 are as follows:
Quarter ended Nine months ended
--------------------------------------- ---------------------------------------
September 30, September 30, September 30, September 30,
(in thousands) 2003 2002 Variance 2003 2002 Variance
- ---------------------------------------------------------------------------------------------------------------
Insurance companies $ 56,834 $ 65,673 (13.5%) $177,659 $198,692 (10.6%)
Self-insured entities 40,875 47,379 (13.7%) 125,417 146,855 (14.6%)
Class action services 19,944 15,743 26.7% 51,508 41,527 24.0%
-------- -------- -------- --------
TOTAL U.S. REVENUES
BEFORE REIMBURSEMENTS $117,653 $128,795 (8.7%) $354,584 $387,074 (8.4%)
======== ======== ======== ========
Revenues from insurance companies decreased 13.5% to $56.8 million for the 2003
third 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 $2.1 million of this
decline. In addition, lower revenues from the winding down of two projects
associated with mold-related claims and reopened Northridge earthquake claims
accounted for $2.0 million of the decline. Revenues from self-insured clients
decreased 13.7% to $40.9 million in the quarter, due primarily to a decline in
workers' compensation claim referrals. Class action revenues increased 26.7% to
$19.9 million in the current quarter, due to the commencement of work on 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 14.0% in the third quarter of 2003
compared to the same period in 2002. This decrease was partially offset by a
2.0% revenue increase from changes in the mix of services provided and in the
rates charged for those services, resulting in a net 12.0% decrease in U.S.
revenues in the third quarter of 2003, excluding revenues from class action
services. Growth in class action services increased U.S. revenues by 3.3% in the
2003 third quarter compared to the prior year period.
U.S. unit volume, measured principally by cases received, and excluding the
impact of class action services, decreased 14.0% in the first nine months of
2003 compared to the 2002 period. This decrease was partially offset by a 3.0%
revenue increase from changes in the mix of services provided and in the rates
charged for those services, resulting in a net 11.0% decrease in U.S. revenues
for the first nine months of 2003, excluding revenues from class action
services. Growth in class action services increased U.S. revenues by 2.6% in
the nine months ended September 30, 2003, compared to the prior year period.
13
Excluding the impact of class action services, U.S. unit volume by major product
line, as measured by cases received, for the quarters and nine months ended
September 30, 2003 and 2002 is as follows:
Quarter ended Nine months ended
-------------------------------------- ----------------------------------------
September 30, September 30, September 30, September 30,
(whole numbers) 2003 2002 Variance 2003 2002 Variance
- ---------------------------------------------------------------------------------------------------------------
Casualty 52,987 58,835 (9.9%) 160,083 172,238 (7.1%)
Property 62,329 55,628 12.0% 179,215 165,941 8.0%
Vehicle 43,318 62,293 (30.5%) 143,399 197,712 (27.5%)
Workers' Compensation 45,980 60,291 (23.7%) 140,327 178,444 (21.4%)
Other 4,773 6,371 (25.1%) 15,405 28,018 (45.0%)
------- ------- ------- -------
TOTAL U.S. CASES RECEIVED 209,387 243,418 (14.0%) 638,429 742,353 (14.0%)
======= ======= ======= =======
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 61.0% in the third quarter of 2003 as compared to 62.1% in
the 2002 quarter, and to 62.4% for the nine months ended September 30, 2003 as
compared to 63.7% 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 nearly 14% as compared to employment levels through the 2002 third quarter.
There were an average of 4,602 full-time equivalent employees in the first nine
months of 2003, compared to an average of 5,338 in the 2002 period.
U.S. salaries and wages decreased to $58.1 million and $178.9 million for the
quarter and nine months ended September 30, 2003, respectively, decreasing 11.8%
and 10.6%, from $65.9 million and $200.2 million in the comparable 2002 periods.
Payroll taxes and fringe benefits for U.S. operations totaled $13.6 million and
$42.5 million in the third quarter and first nine months of 2003, respectively,
decreasing 3.5% and 7.8% from 2002 costs of $14.1 million and $46.1 million for
the comparable periods. These decreases reflect the reduction in full-time
equivalent employees during the current quarter and year-to-date period and are
net of an increase in pension expense of $0.6 million and $1.7 million for the
quarter and nine month period ended September 30, 2003, respectively.
Under Statement of Financial Accounting Standard 87, "Employers' Accounting for
Pensions" (FAS 87), unrecognized gains and losses that exceed certain thresholds
are included in pension expense and amortized over the average remaining service
life of plan participants. As our U.S. defined benefit pension plan was frozen
as of December 31, 2002, the amortization of previously
14
unrecognized losses comprises substantially all of our pension expense related
to this plan in 2003. The amortization of unrecognized losses totaled $5.9
million for the first nine months of 2003 compared to $2.7 million for the 2002
period.
EXPENSES OTHER THAN REIMBURSEMENTS, COMPENSATION AND FRINGE BENEFITS
U.S. expenses other than reimbursements, compensation and related payroll taxes
and fringe benefits were 33.4% of revenues for the quarter ended September 30,
2003, up from 30.7% for the same period in 2002. U.S. expenses other than
reimbursements, compensation and related payroll taxes and fringe benefits
approximated 31.7% of revenues for the nine month period ended September 30,
2003 as compared to 30.8% in the 2002 period. These increases reflect higher
professional fees associated with growth in class action services revenues in
the 2003 third quarter and year-to-date period.
REIMBURSEMENTS
Reimbursements in our U.S. operations decreased to $3.4 million and $10.7
million for the quarter and nine months ended September 30, 2003, respectively,
from $5.7 million and $14.6 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
15.8%, from $47.1 million in the third quarter of 2002 to $54.6 million in the
2003 third quarter. Revenues before reimbursements for the first nine months of
2003 totaled $161.2 million, a 16.3% increase from $138.6 million reported in
the first nine months of 2002. Excluding the impact of acquisitions,
international unit volume, measured principally by cases received, increased
2.2% and decreased 0.3% in the current quarter and nine months ended September
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 5.9% and 5.6% for the quarter and
nine months ended September 30, 2003, respectively. Revenues reflect a 12.8% and
11.3% increase during the quarter and nine months ended September 30, 2003,
respectively, due to the positive effect of a weak U.S. dollar, primarily as
compared to the British pound and the euro.
15
Excluding the impact of acquisitions, international unit volume by region for
the quarters and nine months ended September 30, 2003 and 2002 was as follows:
Quarter ended Nine months ended
-------------------------------------- ---------------------------------------
September 30, September 30, September 30, September 30,
(whole numbers) 2003 2002 Variance 2003 2002 Variance
- ---------------------------------------------------------------------------------------------------------
United Kingdom 24,675 21,733 13.5% 70,263 66,433 5.8%
Americas 29,373 33,625 (12.6%) 87,200 97,994 (11.0%)
CEMEA 22,715 19,579 16.0% 61,775 54,972 12.4%
Asia/Pacific 6,628 6,635 (0.1%) 17,031 17,696 (3.8%)
------ ------ ------- -------
TOTAL INTERNATIONAL
CASES RECEIVED 83,391 81,572 2.2% 236,269 237,095 (0.3%)
====== ====== ======= =======
The increase in the United Kingdom (U.K.) is primarily due to take-over claims
associated with a recent client agreement. The decrease in the Americas is due
to the receipt of approximately 18,000 product liability claims in Canada during
the 2002 second and third quarters. There was no such large intake of claims in
the 2003 period. 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 71.6% for the quarter ended September 30, 2003
from 69.9% for the same period in 2002, primarily due to an increase in capacity
in our U.K. and Canadian operating units. This capacity is the result of an
anticipated increase in claim volumes from recent client agreements and should
decline as claims under these agreements are referred to us. For the nine-month
period, compensation, payroll taxes and fringe benefits increased slightly as a
percentage of revenues to 70.0% in 2003 from 69.2% in 2002. There were an
average of 3,123 full-time equivalent employees in the first nine months of 2003
(including approximately 110 full-time equivalent employees added by our third
quarter 2002 acquisition in Australia), compared to an average of 2,976 in the
2002 period.
Salaries and wages of international personnel increased to $33.0 million for the
quarter ended September 30, 2003, from $28.6 million in the comparable 2002
period. For the nine-month period, salaries and wages increased to $95.4 million
in 2003 from $82.6 million in 2002. Payroll taxes and fringe benefits for
international operations totaled $6.1 million and $17.5 million for the quarter
and nine months ended September 30, 2003, respectively, compared to $4.4 million
and $13.4 million 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.
EXPENSES OTHER THAN REIMBURSEMENTS, COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
were 25.7% and 27.3% of international revenues for the quarter and nine months
ended September 30, 2003, respectively, compared to 28.2% and 26.8% for the same
period in 2002. The improvement in
16
the 2003 third quarter relates to lower bad debt expense and an insurance
recovery in the quarter.
REIMBURSEMENTS
Reimbursements in our international operations increased to $8.4 million and
$21.1 million for the quarter and nine months ended September 30, 2003,
respectively, from $4.7 million and $13.4 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 flood claims in CEMEA, typhoon related claims in Asia, and a
recent project in Canada which requires the extensive use of outside experts.
SPECIAL CHARGE/CREDIT, NET CORPORATE INTEREST, AND INCOME TAXES
During the 2003 third quarter, we recorded an after-tax $8.0 million charge, or
$0.17 per share, in connection with the settlement of a Department of Justice
investigation. See the Legal Proceedings section below for further discussion.
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 $1.4 million and $3.9 million for the
quarter and nine months ended September 30, 2003, respectively, from $1.2
million and $3.6 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 nine
months ended September 30, 2003 and 2002, after adjustment for the special
charge in the 2003 third quarter. Taxes on income totaled $2.4 million and $7.8
million for the quarter and nine months ended September 30, 2003, respectively,
as compared to $3.2 million and $10.7 million for the comparable 2002 periods.
FINANCIAL CONDITION
At September 30, 2003, current assets exceeded current liabilities by
approximately $116.2 million, a decrease of $7.6 million from the working
capital balance at December 31, 2002. Cash and cash equivalents at September 30,
2003 totaled $36.3 million, an increase of $5.2 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 pension plan
funding, investments in computer software, dividends paid to shareholders,
acquisitions of property and equipment, and payments on short-term borrowings
and long-term debt. During the 2003 third quarter, we funded our frozen U.S.
defined benefit pension plan by making a $10.0 million contribution. Cash
dividends to shareholders approximated 64.5% of net income (before special
charge/credit) in the first nine months of 2003, compared to 111.1% 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.
During the first nine months of 2003, we did not repurchase any Class A or Class
B Common Stock. As of September 30, 2003, 705,863 shares are eligible to be
repurchased under the share
17
repurchase program authorized by the Board of Directors. We believe it is
unlikely that we will repurchase shares under this program in the foreseeable
future due to the decline in the funded status of our defined benefit pension
plans.
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 September 30, 2003 totaled $35.2 million, increasing from
$30.0 million at December 31, 2002. Long-term borrowings outstanding, excluding
current installments, as of September 30, 2003 totaled $51.8 million compared to
$50.0 million at December 31, 2002. Please refer to the New Financing discussion
under the Factors that May Affect Future Results section of this report for a
further discussion of our borrowing capabilities. 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 September 30, 2003 was $164.4 million, compared with
$159.4 million at December 31, 2002. This increase is due to foreign currency
translation adjustments during the first nine 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
18
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.
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.
Our wholly-owned subsidiary, Crawford Healthcare Management of Norfolk and
Baltimore, Inc. ("CHM"), has signed an agreement with the Department of Justice
("DOJ") to resolve our criminal liability and that of CHM relating to the DOJ's
investigation of our billing practices in our claims management and healthcare
management services divisions. This agreement would end the criminal
investigation of our billing practices and that of CHM.
CHM is a newly formed subsidiary which owns the assets and operations of our two
former healthcare management services offices located in Norfolk, Virginia and
Baltimore, Maryland. CHM has agreed to plead guilty to a single count of mail
fraud based on a September 21, 1995 mailing of a client invoice in Virginia. The
criminal charge covers a period of time ending in 1999. Under the terms of the
plea agreement, CHM will pay a fine of $8.0 million. As a result, we recorded an
after-tax charge of $8.0 million, or $0.17 per share, in the 2003 third quarter.
The agreement between CHM and the DOJ is subject to approval by a federal
district judge in Norfolk, Virginia.
INSURANCE RENEWAL
We negotiated the renewal of our various insurance coverages effective June
2003. Our insurance premiums have increased from their current level and we are
subject to higher self-insured retentions for certain coverages.
NEW FINANCING
In October 2003, we closed a three-year $70.0 million revolving credit facility
and issued $50.0 million in seven-year 6.08% senior notes. Debt proceeds will be
used to repay existing indebtedness and fund working capital requirements. Banks
participating in the revolving credit agreement include SunTrust Bank, Bank of
America, and Citibank. The senior notes were purchased by Prudential Capital
Group, an institutional investment management business of Prudential Financial,
Inc., in a private placement.
19
OUTSOURCING ARRANGEMENT
We have contracted with a large U.S. personal lines insurer to provide a
customized claims handling program. This agreement will generate annual revenues
of approximately $5.0 million beginning in the 2003 fourth quarter.
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 third quarter or nine months
ended September 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 31.3% and 26.4% of total revenues for the nine months ended September 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 September 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
$294,000 during the first nine 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
September 30, 2003, we had $35.2 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 nine months ended September
30, 2003 would be approximately $264,000.
Changes in the projected benefit obligations of our defined benefit pension
plans are largely dependent on changes in prevailing interest rates as of the
September 30th measurement date we use to value these obligations under FAS 87.
As of December 31, 2002, a 1% change in interest rates used to discount the
projected benefit obligation of our frozen U.S. defined benefit pension plan
would have changed that obligation by approximately $43.4 million.
20
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 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.
21
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 September 30, 2003, and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended September 30, 2003 and 2002, and the condensed
consolidated statements of cash flows for the nine-month period ended September
30, 2003 and 2002. 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 reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements,
referred to above, 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 (not presented herein) 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
November 4, 2003
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our wholly-owned subsidiary, Crawford Healthcare Management of Norfolk and
Baltimore, Inc. ("CHM"), has signed an agreement with the Department of Justice
("DOJ") to resolve our criminal liability and that of CHM relating to the DOJ's
investigation of our billing practices in our claims management and healthcare
management services divisions. This agreement would end the criminal
investigation of our billing practices and that of CHM.
CHM is a newly formed subsidiary which owns the assets and operations of our two
former healthcare management services offices located in Norfolk, Virginia and
Baltimore, Maryland. CHM has agreed to plead guilty to a single count of mail
fraud based on a September 21, 1995 mailing of a client invoice in Virginia. The
criminal charge covers a period of time ending in 1999. Under the terms of the
plea agreement, CHM will pay a fine of $8.0 million. As a result, we recorded an
after-tax charge of $8.0 million in the 2003 third quarter.
The agreement between CHM and the DOJ is subject to approval by a federal
district judge in Norfolk, Virginia.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment to the Supplemental Executive Retirement
Plan
10.2 Amendment to the Deferred Compensation Plan
15.1 Letter from Ernst & Young
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 July 21, 2003 containing a
copy of the Registrant's press release dated July 21, 2003
titled "Crawford Reports 24% Increase in Second Quarter Net
Income."
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: November 4, 2003 /s/ Grover L. Davis
----------------------------------
Grover L. Davis
Chief Executive Officer
(Principal Executive Officer)
Date: November 4, 2003 /s/ John F. Giblin
----------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: November 4, 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.
10.1 Amendment to the Supplemental Executive Retirement
Plan 26
10.2 Amendment to the Deferred Compensation Plan 36
15.1 Letter from Ernst & Young LLP 57
31.1 Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 58
31.2 Certification of principal financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 59
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 60
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 61
25