CRAWFORD & COMPANY (REGISTRANT)
5620 Glenridge Dr.
Atlanta, GA 30342
December 2, 2005
VIA EDGAR AND FACSIMILE
Mr. Jim B. Rosenberg, Senior Assistant Chief Accountant
Mr. Oscar M. Young, Jr., Senior Accountant
Division of Corporate Finance
United States Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: CRAWFORD & COMPANY
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
FILED MARCH 15, 2005
FILE NO. 001-10356
Dear Mr. Rosenberg and Mr. Young:
This letter sets forth the responses of Crawford & Company (the "Company" or
"we" or "our") to the verbal comments of the staff of the Securities and
Exchange Commission (the "Commission") received by us on November 16, 2005
related to our response dated October 28, 2005 to your letter dated September
26, 2005 ("Comment Letter") pertaining to our Form 10-K for the year ended
December 31, 2004. We have repeated below the staff's comments from the Comment
Letter that were the subject of your verbal comments. We understand that all the
other responses contained in our October 28, 2005 letter were satisfactory to
you.
EXHIBIT 13.1 -- PORTIONS OF THE REGISTRANT'S ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
1. Please tell us how your presentation of "operating earnings,"
which excludes net corporate interest and income taxes
(apparently, recurring items), complies with Item 10(e) of
Regulation S-K. In doing so, please address Answers 8 and 21
of the "Frequently Asked Questions Regarding the Use of
Non-GAAP Financial Measures." In this regard, while reporting
consolidated "operating earnings" may be necessary to provide
the reconciliation of segment "operating earnings" required by
paragraph 32(b) of SFAS 131, it does not appear appropriate to
present and discuss consolidated "operating earnings" as a
measure that would be useful to investors in evaluating your
consolidated results of operations.
Mr. Jim B. Rosenberg and Mr. Oscar M. Young, Jr.
December 2, 2005
Page 2 of 5
COMPANY'S RESPONSE:
In our prior response dated October 28, 2005, we indicated
that we believe consolidated operating earnings is a measure
that is useful to investors in evaluating our consolidated
results of operations. However, after further discussion with
you, we agree that, since we discuss operating earnings only
at the segment level, it is not necessary to present
consolidated operating earnings. Accordingly, we will
discontinue presenting operating earnings on a consolidated
basis in future filings with the Commission.
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
3. Please tell us how your inclusion of tax benefit from exercise
of stock options in comprehensive income complies with SFAS
130, as paragraphs 8 and 9 appear to indicate that investments
by owners should not be included.
COMPANY'S RESPONSE:
In our prior response dated October 28, 2005, we agreed with
you that the tax benefit from the exercise of stock options
recorded in 2002 should have been credited to Additional
Paid-In Capital rather than Other Comprehensive Income. We
disclosed that the error occurred and corrected the error in
our Form 10-Q filed for the quarterly period ended September
30, 2005. We also concluded in our prior response that our
historical financial statements did not need to be restated
for this error and that amended filings with the Commission
for interim and annual periods in 2005, 2004, 2003 and 2002
were not required. You have asked us in your verbal comments
to clarify our basis for this conclusion.
We understand that comprehensive income is an important
financial measure required by generally accepted accounting
principles and that any misstatement of comprehensive income
is a serious matter. However, after evaluating the issue and
discussing the matter with our audit committee, independent
accountants and outside legal counsel, we concluded that we
did not need to amend our prior filings with the Commission
for the following reasons:
- The error occurred in 2002. Our 2005 10-K will be
filed next quarter and will exclude the 2002 year.
Given the passage of time and the nature of the
error, we do not believe that it would be beneficial
to the users of our financial statements to incur the
costs involved in restating our historical financial
statements and amending prior filings with the
Commission.
Mr. Jim B. Rosenberg and Mr. Oscar M. Young, Jr.
December 2, 2005
Page 3 of 5
- We did actually realize a tax benefit from the
exercise of stock options, and this tax benefit was
correctly determined and specifically disclosed as a
separate line item in the 2002 Consolidated Statement
of Shareholders' Investment. The error was not
intentional and since the amount was presented as a
separate line item in the statement of shareholders'
investment, the accounting treatment was clear to
readers of our financial statements.
- The error did not mask any change in earnings or
other trends, including trends in other comprehensive
income or loss or total comprehensive income or loss.
The error did not change a loss into income or income
into a loss. The error represented less than 5% of
the adjusted accumulated other comprehensive loss as
of December 31, 2002. Defining the error as a
percentage of total comprehensive loss in 2002 is
somewhat problematic given the large $43.2 million
minimum pension liability adjustment recorded in that
period. In paragraph 13 of SFAS No.130, "Reporting
Comprehensive Income," the FASB states, "Although
total comprehensive income is a useful measure,
information about the components that make up
comprehensive income also is needed. A single focus
on total comprehensive income is likely to result in
a limited understanding of an enterprise's
activities. Information about the components of
comprehensive income often may be more important than
the total amount of comprehensive income." The fact
that we disclosed the tax benefit as a separate line
item in the 2002 Consolidated Statement of
Shareholders' Investment was an important
consideration for us in assessing the materiality of
the error.
- The error did not hide a failure to meet analysts'
consensus expectations for the Company since, as we
noted in our prior response, analysts covering the
Company do not report on comprehensive income or
loss. The error did not affect consolidated
shareholders' investment, assets, liabilities,
revenues, expenses, cash flows, net income or
earnings per share at December 31, 2002 or in any
subsequent period.
- The error did not concern a segment or other portion
of the Company's business that has been identified as
playing a significant role in the Company's
operations or profitability.
- The error did not affect the Company's compliance
with any regulatory requirements.
- The error had no effect on the Company's compliance
with loan covenants or other contractual
requirements.
Mr. Jim B. Rosenberg and Mr. Oscar M. Young, Jr.
December 2, 2005
Page 4 of 5
- The error had no effect on management's compensation.
- The error did not conceal an unlawful transaction.
Staff Accounting Bulletin No. 99 -- Materiality, provides the
following guidance in assessing materiality in preparing
financial statements:
"The use of a percentage as a numerical threshold, such as 5%,
may provide the basis for a preliminary assumption that --
without considering all relevant circumstances -- a deviation
of less than the specified percentage with respect to a
particular item on the registrant's financial statements is
unlikely to be material. The staff has no objection to such a
"rule of thumb" as an initial step in assessing materiality.
But quantifying, in percentage terms, the magnitude of a
misstatement is only the beginning of an analysis of
materiality; it cannot appropriately be used as a substitute
for a full analysis of all relevant considerations.
Materiality concerns the significance of an item to users of a
registrant's financial statements. A matter is "material" if
there is a substantial likelihood that a reasonable person
would consider it important. In its Statement of Financial
Accounting Concepts No. 2, the FASB stated the essence of the
concept of materiality as follows:
The omission or misstatement of an item in a financial report
is material if, in the light of surrounding circumstances, the
magnitude of the item is such that it is probable that the
judgment of a reasonable person relying upon the report would
have been changed or influenced by the inclusion or correction
of the item...Magnitude by itself, without regard to the
nature of the item and the circumstances in which the judgment
has to be made, will not generally be a sufficient basis for a
materiality judgment."
Based on the nature of the error as described above and in
light of the surrounding circumstances, we believe that the
judgment of a reasonable person relying upon our historical
financial statements would not have been changed or influenced
by this error. Accordingly, we do not believe it would be
beneficial to the users of our financial statements to incur
the costs involved in restating our historical financial
statements and amending our prior filings with the Commission.
************************************************************************
Mr. Jim B. Rosenberg and Mr. Oscar M. Young, Jr.
December 2, 2005
Page 5 of 5
In reference to all responses above, the Company is aware that: it is
responsible for the adequacy and accuracy of the disclosure in the filings;
staff comments or changes to disclosures in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and
the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of
the United States.
We believe this letter fully responds to the questions you raised in your verbal
comments to us dated November 16, 2005. However, if there are any further
questions, please contact me at (404) 847-4571 or at the address on record for
Crawford & Company.
Sincerely,
/s/ John F. Giblin
John F. Giblin
Executive Vice President and Chief Financial Officer
cc: Mr. Thomas W. Crawford, President and Chief Executive Officer
Mr. W. Bruce Swain, Jr., Senior VP and Controller (Principal Accounting
Officer)
Mr. Robert T. Johnson, Chairman of the Audit Committee of the Board of
Directors
Ernst & Young, Atlanta, GA
King & Spalding, Atlanta, GA