-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TQh5uybFH2MY8xBgfaXIbUUeOy6UrOAP7PZowDzeop3Nu+gl3zNoX0pSz2n0z4NC 8WQWbYZKqYilNfcJVFq9iQ== /in/edgar/work/0000950144-00-013569/0000950144-00-013569.txt : 20001114 0000950144-00-013569.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950144-00-013569 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAWFORD & CO CENTRAL INDEX KEY: 0000025475 STANDARD INDUSTRIAL CLASSIFICATION: [6411 ] IRS NUMBER: 580506554 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10356 FILM NUMBER: 762063 BUSINESS ADDRESS: STREET 1: 5620 GLENRIDGE DR NE CITY: ATLANTA STATE: GA ZIP: 30342 BUSINESS PHONE: 4042560830 MAIL ADDRESS: STREET 1: 5620 GLENRIDE DR CITY: ATLANTA STATE: GA ZIP: 30342 10-Q 1 g65291e10-q.txt CRAWFORD & COMPANY 1 ================================================================================ 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, 2000 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 [ ] The number of shares outstanding of each of the issuer's classes of common stock, as of October 31, 2000 was as follows: CLASS A COMMON STOCK, $1.00 PAR VALUE: 23,774,067 CLASS B COMMON STOCK, $1.00 PAR VALUE: 24,697,172 ================================================================================ 2 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, 2000 1999 ------------- ------------- REVENUES $ 541,985 $ 510,699 COSTS AND EXPENSES: Cost of services provided, less reimbursed expenses of $24,517 in 2000 and $27,083 in 1999 396,065 373,405 Selling, general, and administrative expenses 90,514 86,656 Corporate interest, net 3,205 2,452 Amortization of goodwill 2,393 1,766 ---------- ---------- TOTAL COSTS AND EXPENSES 492,177 464,279 ---------- ---------- INCOME BEFORE INCOME TAXES 49,808 46,420 PROVISION FOR INCOME TAXES 19,126 17,825 ---------- ---------- NET INCOME $ 30,682 $ 28,595 ========== ========== NET INCOME PER SHARE: BASIC $ 0.63 $ 0.57 DILUTED $ 0.63 $ 0.57 ========== ========== WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC 48,974 50,257 DILUTED 49,064 50,436 ========== ========== CASH DIVIDENDS PER SHARE: CLASS A COMMON STOCK $ 0.4125 $ 0.39 CLASS B COMMON STOCK $ 0.4125 $ 0.39 ========== ==========
(See accompanying notes to condensed consolidated financial statements) 2 3 CRAWFORD & COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED ---------------------------- SEPTEMBER 30, SEPTEMBER 30, 2000 1999 ------------- ------------- REVENUES $ 180,117 $ 168,251 COSTS AND EXPENSES: Cost of services provided, less reimbursed expenses of $8,502 in 2000 and $9,090 in 1999 132,544 123,421 Selling, general, and administrative expenses 29,921 30,155 Corporate interest, net 1,142 945 Amortization of goodwill 832 577 ---------- ---------- TOTAL COSTS AND EXPENSES 164,439 155,098 ---------- ---------- INCOME BEFORE INCOME TAXES 15,678 13,153 PROVISION FOR INCOME TAXES 6,020 5,060 ---------- ---------- NET INCOME $ 9,658 $ 8,093 ========== ========== NET INCOME PER SHARE: BASIC $ 0.20 $ 0.16 DILUTED $ 0.20 $ 0.16 ========== ========== WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC 48,458 50,361 DILUTED 48,537 50,548 ========== ========== CASH DIVIDENDS PER SHARE: CLASS A COMMON STOCK $ 0.1375 $ 0.13 CLASS B COMMON STOCK $ 0.1375 $ 0.13 ========== ==========
(See accompanying notes to condensed consolidated financial statements) 3 4 CRAWFORD & COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 27,559 $ 17,716 Accounts receivable, less allowance for doubtful accounts of $17,822 in 2000 and $20,182 in 1999 147,038 141,841 Unbilled revenues, at estimated billable amounts 92,946 91,039 Prepaid expenses and other current assets 14,118 17,240 ---------- ---------- TOTAL CURRENT ASSETS 281,661 267,836 ---------- ---------- PROPERTY AND EQUIPMENT: Property and equipment, at cost 156,894 165,113 Less accumulated depreciation (113,210) (117,016) ---------- ---------- NET PROPERTY AND EQUIPMENT 43,684 48,097 ---------- ---------- OTHER ASSETS: Intangible assets arising from acquisitions, net 83,137 80,566 Prepaid pension cost 48,227 49,995 Capitalized software costs, net 27,046 19,243 Other 11,847 8,291 ---------- ---------- TOTAL OTHER ASSETS 170,257 158,095 ---------- ---------- TOTAL ASSETS $ 495,602 $ 474,028 ========== ==========
(See accompanying notes to condensed consolidated financial statements) 4 5 CRAWFORD & COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 49,009 $ 38,914 Accounts payable 28,992 29,575 Accrued compensation and related costs 23,419 23,825 Accrued restructuring costs 721 973 Self-insured risks 13,536 11,360 Other accrued liabilities 40,491 30,044 Deferred revenues 23,367 22,836 Current installments of long-term debt 219 463 ---------- ---------- TOTAL CURRENT LIABILITIES 179,754 157,990 ---------- ---------- NONCURRENT LIABILITIES: Long-term debt, less current installments 36,814 16,053 Deferred income taxes 6,716 6,571 Deferred revenues 13,616 13,644 Postretirement medical benefit obligation 7,785 7,756 Self-insured risks 8,922 10,241 Other 10,042 11,494 ---------- ---------- TOTAL NONCURRENT LIABILITIES 83,895 65,759 ---------- ---------- SHAREHOLDERS' INVESTMENT: Class A Common Stock, $1.00 par value; 50,000 shares authorized; 23,774 and 25,892 shares issued in 2000 and 1999, respectively 23,774 25,892 Class B Common Stock, $1.00 par value; 50,000 shares authorized; 24,697 and 24,826 shares issued in 2000 and 1999, respectively 24,697 24,826 Additional paid-in-capital 0 22,309 Retained earnings 195,843 185,975 Cumulative translation adjustment (12,361) (8,723) ---------- ---------- TOTAL SHAREHOLDERS' INVESTMENT 231,953 250,279 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 495,602 $ 474,028 ========== ==========
(See accompanying notes to condensed consolidated financial statements) 5 6 CRAWFORD & COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 2000 1999 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 30,682 $ 28,595 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 14,723 12,289 Deferred income taxes 278 650 Loss on sales of property and equipment 512 278 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable, net (7,719) 4,968 Unbilled revenues (4,996) (4,887) Accrued income taxes 12,156 2,815 Accounts payable and accrued liabilities 875 1,793 Accrued restructuring costs (1,756) (7,169) Deferred revenues 650 11,336 Prepaid expenses and other assets 238 8,237 ---------- ---------- Net cash provided by operating activities 45,643 58,905 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment, net (6,994) (14,769) Capitalization of software costs (9,264) (5,035) Acquisition of businesses, net of cash acquired (7,195) (9,555) ---------- ---------- Net cash used in investing activities (23,453) (29,359) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (20,273) (19,650) Repurchase of common stock (26,396) (13,071) Proceeds from exercise of stock options 1,299 948 Increase in short-term borrowings 12,960 5,383 Proceeds from long-term borrowings 21,000 15,000 Payments on long-term debt (309) (792) ---------- ---------- Net cash used in financing activities (11,719) (12,182) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (628) (97) ---------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS 9,843 17,267 Cash and cash equivalents at beginning of period 17,716 8,423 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,559 $ 25,690 ========== ==========
(See accompanying notes to condensed consolidated financial statements) 6 7 CRAWFORD & COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain previously reported amounts have been reclassified to conform to the current presentation. These condensed financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999. 2. The results of operations for the quarter and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected during the balance of the year ending December 31, 2000. 3. On March 3, 2000, the Company acquired the net assets and business of Greentree Investigations, Inc. ("Greentree") for a cash purchase price of $942,301. The Company acquired assets with a fair value of $1,653,902, including goodwill related to the purchase of $1,150,827, and assumed liabilities of $711,601. The purchase price may be increased based on future earnings of Greentree through April 3, 2005. This transaction was accounted for by the purchase method of accounting. 4. On March 9, 2000, the Company repurchased 1,900,000 shares of the Company's Class A Common Stock from a subsidiary of the Swiss Reinsurance Group ("Swiss Re") at a cost of $11.00 per share. The shares were originally issued in June of 1998 in connection with the acquisition of Swiss Re's 40% minority interest in Crawford's international subsidiaries. This share repurchase was financed by a $21 million, five-year term loan with a fixed interest rate of 7.7%. 5. During the quarter ended September 30, 2000, the Company recorded international acquisitions in Holland and France, for an aggregate cash purchase price of $3,633,238. The Company acquired assets with a fair value of $4,561,282, including goodwill related to the purchases of $1,737,406, and assumed liabilities of $928,044. These transactions were accounted for by the purchase method of accounting. 6. During the quarter and nine months ended September 30, 2000, the Company utilized $545,000 and $1.7 million, respectively, of its restructuring reserves for payments related to employee separations and lease terminations. As of September 30, 2000, remaining restructuring reserves were $3.4 million, $2.7 million of which is included in other noncurrent liabilities. The noncurrent portion of accrued restructuring costs consists primarily of long-term lease obligations related to various United Kingdom offices, which the Company has vacated and is currently attempting to sublease, and extended payments being made under employee separation agreements. Management periodically reviews the restructuring reserves and believes the 7 8 CRAWFORD & COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) remaining reserves are adequate to complete its plan. 7. Basic net income per share is computed based on the weighted-average number of total common shares outstanding during the respective periods. Diluted net income per share is computed based on the weighted-average number of total common shares outstanding plus the dilutive effect of outstanding stock options using the "treasury stock" method. Below is the calculation of basic and diluted net income per share for the quarter and nine months ended September 30, 2000 and 1999:
Quarter ended Nine months ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, (In thousands, except per share data) 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net income available to common shareholders $ 9,658 $ 8,093 $ 30,682 $ 28,595 ======== ======== ======== ======== Weighted-average shares outstanding - Basic 48,458 50,361 48,974 50,257 Dilutive effect of stock options 79 187 90 179 -------- -------- -------- -------- Weighted-average shares outstanding - Diluted 48,537 50,548 49,064 50,436 ======== ======== ======== ======== Basic net income per share $ 0.20 $ 0.16 $ 0.63 $ 0.57 ======== ======== ======== ======== Diluted net income per share $ 0.20 $ 0.16 $ 0.63 $ 0.57 ======== ======== ======== ========
Additional options to purchase 4,004,160 shares of Class A Common Stock at $11.00 to $19.50 per share were outstanding at September 30, 2000 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. 8. Comprehensive income for the Company consists of net income and foreign currency translation adjustments. Below is the calculation of comprehensive income for the quarter and nine months ended September 30, 2000 and 1999:
Quarter ended Nine months ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, (In thousands) 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net income $ 9,658 $ 8,093 $ 30,682 $ 28,595 Foreign currency translation adjustment (1,674) 423 (3,638) (1,161) -------- -------- -------- -------- Comprehensive income $ 7,984 $ 8,516 $ 27,044 $ 27,434 ======== ======== ======== ========
9. The Company has two reportable segments, one which provides claims services through branch offices located in the United States ("Domestic Operations") and the other which provides similar services through branch or representative offices located in 64 other countries 8 9 CRAWFORD & COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ("International Operations"). Intersegment sales are recorded at cost and are not material. The Company measures segment profit based on operating income, defined as income before taxes, net corporate interest, and amortization of goodwill. Financial information for the quarter and nine months ended September 30, 2000 and 1999 covering the Company's reportable segments is presented below:
Quarter ended Nine months ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, (In thousands) 2000 1999 2000 1999 ------------- ------------- ------------- ------------- REVENUES: Domestic $132,290 $126,876 $395,253 $381,319 International 47,827 41,375 146,732 129,380 -------- -------- -------- -------- TOTAL REVENUES $180,117 $168,251 $541,985 $510,699 ======== ======== ======== ======== OPERATING INCOME: Domestic $ 13,841 $ 14,592 $ 40,750 $ 43,600 International 3,811 83 14,656 7,038 -------- -------- -------- -------- TOTAL OPERATING INCOME $ 17,652 $ 14,675 $ 55,406 $ 50,638 ======== ======== ======== ========
10. In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments. SFAS 133, which will be effective for the Company in 2001, requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Except for borrowing in foreign currencies, the Company does not presently engage in any hedging activities to compensate for the effect of exchange rate fluctuations on the net assets or operating results of its foreign subsidiaries. As a result, the new standard is not expected to have a significant effect on the Company's consolidated results of operations, financial position, or cash flows. In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB 101, which will be adopted by the Company in the fourth quarter 2000, provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company does not anticipate the adoption of this SAB will have a material impact on the Company's consolidated results of operations, financial position, or cash flows. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion analyzing the Company's results reported by its two reportable segments: domestic operations and international operations. Expense amounts discussed are excluding taxes on income, net corporate interest, and amortization of goodwill. RESULTS OF OPERATIONS Operating results for the Company's domestic and international operations for the quarter and nine months ended September 30, 2000 and 1999 are as follows:
Quarter ended Nine months ended ----------------------------- ----------------------------- September 30, September 30, September 30, September 30, (In thousands) 2000 1999 2000 1999 ------------- ------------- ------------- ------------- REVENUES: Domestic $132,290 $126,876 $395,253 $381,319 International 47,827 41,375 146,732 129,380 -------- -------- -------- -------- TOTAL $180,117 $168,251 $541,985 $510,699 COMPENSATION & FRINGE BENEFITS: Domestic $ 79,689 $ 77,956 $238,378 $234,676 % of Revenues 60.2% 61.4% 60.3% 61.5% International 31,069 27,423 92,434 82,534 % of Revenues 65.0% 66.3% 63.0 % 63.8% -------- -------- -------- -------- TOTAL $110,758 $105,379 $330,812 $317,210 % of Revenues 61.5% 62.6% 61.0% 62.1% EXPENSES OTHER THAN COMPENSATION & FRINGE BENEFITS: Domestic $ 38,760 $ 34,328 $116,125 $103,043 % of Revenues 29.3% 27.1% 29.4% 27.1% International 12,947 13,869 39,642 39,808 % of Revenues 27.0% 33.5% 27.0% 30.8% -------- -------- -------- -------- TOTAL $ 51,707 $ 48,197 $155,767 $142,851 % of Revenues 28.7% 28.7% 28.8% 28.0% -------- -------- -------- -------- OPERATING INCOME(1): Domestic $ 13,841 $ 14,592 $ 40,750 $ 43,600 % of Revenues 10.5% 11.5% 10.3% 11.4% International 3,811 83 14,656 7,038 % of Revenues 8.0% 0.2% 10.0% 5.4% -------- ------ ------ ------ TOTAL $ 17,652 $ 14,675 $ 55,406 $ 50,638 % of Revenues 9.8% 8.7% 10.2% 9.9%
(1) Income before taxes, net corporate interest, and amortization of goodwill. 10 11 DOMESTIC OPERATIONS REVENUES Domestic revenues by market type for the quarter and nine months ended September 30, 2000 are as follows:
Quarter ended Nine months ended ---------------------------------------- ---------------------------------------- September 30, September 30, September 30, September 30, (In thousands) 2000 1999 Variance 2000 1999 Variance ------------- ------------- -------- ------------- ------------- -------- Insurance companies $ 72,678 $ 67,852 7.1% $207,975 $205,554 1.2% Self-insured entities 49,155 48,654 1.0% 149,743 145,519 2.9% Class action services 10,457 10,370 0.8% 37,535 30,246 24.1% -------- -------- -------- -------- TOTAL DOMESTIC REVENUES $132,290 $126,876 4.3% $395,253 $381,319 3.7% ======== ======== ======== ========
Revenues from insurance companies increased for the second consecutive quarter, to $72.7 million, due primarily to an increase in managed care revenues resulting from the Company's recent strategic partnership with a large domestic insurance company. Revenues from self-insured clients increased to $49.2 million in the quarter, while class action administration and inspection revenues increased to $10.5 million. The Company has a strong backlog of class action administration contract awards that will contribute to its revenues in 2001. Case Volume Analysis Excluding the impact of class action services and acquired revenues, domestic unit volume, measured principally by cases received, decreased 5.4% in the third quarter of 2000 compared to the same period in 1999. This decrease was offset by a 7.5% revenue increase from changes in the mix of services provided and in the rates charged for those services, resulting in a net 2.1% increase in domestic revenues in the third quarter, excluding revenues from class action services and acquired revenues. Growth in class action services increased domestic revenues by 0.1% in the third quarter compared to the prior year period. The Company's acquisitions of PRISM Network Inc. ("PRISM") in August 1999 and Greentree in March 2000 (included in non-class action revenues) increased domestic revenues over the prior year period by 2.1% for the quarter ended September 30, 2000. Domestic unit volume, measured principally by cases received, and excluding the impact of class action services and acquired revenues, decreased 7.7% in the first nine months of 2000 compared to the same period in 1999. This decrease was offset by an 8.0% revenue increase from changes in the mix of services provided and in the rates charged for those services, resulting in a net 0.3% increase in domestic revenues for the first nine months of 2000, excluding revenues from class action services and acquired revenues. The Company's domestic insurance company referrals for high frequency, low severity claims have declined during the year as the Company's insurance company clients have chosen to handle these claims telephonically to improve short-term operating margins. This has resulted in an increase in the Company's average revenue per claim. Growth in class action services increased domestic revenues by 1.9% in the nine months ended September 30, 2000, compared to the prior year period. The Company's acquisitions of PRISM in August 1999 and Greentree in March 2000 (included in non-class action revenues) increased 11 12 domestic revenues over the prior year period by 1.5% for the nine months ended September 30, 2000. COMPENSATION AND FRINGE BENEFITS The Company's most significant expense is the compensation of its employees, including related payroll taxes and fringe benefits. Domestic compensation expense as a percent of revenues decreased to 60.2% in the third quarter of 2000 as compared to 61.4% in the 1999 quarter, and to 60.3% for the nine months ended September 30, 2000 from 61.5% in the 1999 period. These decreases are due primarily to the Company's outsourcing of certain information technology functions. Domestic salaries and wages increased to $69.2 million and $204.7 million for the quarter and nine months ended September 30, 2000, respectively, from $66.9 million and $199.9 million in the comparable 1999 periods. These increases resulted primarily from merit salary increases and higher compensation expense in the Company's class action and medical bill auditing units. Payroll taxes and fringe benefits for domestic operations totaled $10.5 million and $33.7 million in the third quarter and first nine months of 2000, respectively, decreasing 4.5% and 3.2% from 1999 costs of $11.0 million and $34.8 million for the comparable periods. These decreases are primarily due to lower pension expense in 2000 resulting from higher interest rates and favorable investment returns. EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS Domestic expenses other than compensation and related payroll taxes and fringe benefits approximated 29.3% and 29.4% of revenues for the quarter and nine months ended September 30, 2000, respectively, up from 27.1% of revenues for the same periods in 1999. These increases are due primarily to higher professional fees (related to outsourced functions in certain information technology units) and higher costs related to the Company's self-insurance program. INTERNATIONAL OPERATIONS REVENUES Revenues from the Company's international operations increased 15.6%, from $41.4 million for the third quarter of 1999 to $47.8 million for the third quarter of 2000. Revenues for the first nine months of 2000 totaled $146.7 million, a 13.4% increase from the $129.4 million reported in the first nine months of 1999. These increases are largely due to increased referrals from new claims handling agreements entered into during the 1999 fourth quarter. Several small strategic acquisitions in Holland and France contributed 2.1% and 1.7% of the revenue increase for the quarter and nine months ended September 30, 2000, respectively. Revenues are net of 3.7% and 4.9% declines during the quarter and nine months ended September 30, 2000, respectively, due to the negative effect of a strong U.S. dollar. COMPENSATION AND FRINGE BENEFITS As a percent of revenues, compensation expense, including related payroll taxes and fringe benefits, decreased to 65.0% for the quarter ended September 30, 2000 from 66.3% for the same period in 1999. For the nine-month period, compensation and fringe benefits decreased slightly 12 13 as a percentage of revenue from 63.8% in 1999 to 63.0% in 2000. These decreases are due to the Company's increased use of existing service delivery capacity resulting from the growth in revenues. Salaries and wages of international personnel decreased in the quarter ended September 30, 2000 to 56.6% of revenue from 57.3% for the comparable period in 1999. For the nine-month period, salaries and wages decreased slightly as a percentage of revenues from 54.9% in 1999 to 54.5% in 2000. Payroll taxes and fringe benefits decreased as a percent of revenue to 8.4% and 8.5% for the quarter and nine months ended September 30, 2000, respectively, compared to 9.0% and 8.9% for the same periods in 1999. EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS Expenses other than compensation and related payroll taxes and fringe benefits were 27.0% of international revenues for the quarter and nine months ended September 30, 2000, respectively, down from 33.5% and 30.8% for the same periods in 1999. These decreases are due to the Company's increased use of existing service delivery capacity resulting from the growth in revenues and reduced bad debt expense during the quarter due to the collection of old, outstanding accounts. FINANCIAL CONDITION At September 30, 2000 current assets exceeded current liabilities by approximately $101.9 million, a decrease of $7.9 million from the working capital balance at December 31, 1999. Cash and cash equivalents at September 30, 2000 totaled $27.6 million, an increase of $9.8 million from the balance at the end of 1999. Cash was generated primarily from operating activities and short-term and long-term borrowings, while the principal uses of cash were for repurchases of common stock, dividends paid to shareholders, investments in computer software, and acquisitions of businesses. During the first nine months of 2000, the Company repurchased 2,236,000 shares of its Class A Common Stock and 143,000 shares of its Class B Common Stock at an average per share cost of $11.19 and $12.21, respectively. As of September 30, 2000, 725,900 shares remain to be repurchased under share repurchase programs authorized by the Company's Board of Directors. The Company maintains credit lines with banks in order to meet seasonal working capital requirements and other financing needs that may arise. Short-term borrowings outstanding as of September 30, 2000 totaled $49.0 million, as compared to $38.9 million at the end of 1999. In March 2000, the Company obtained a five-year, $21 million term loan with a fixed interest rate of 7.7% to finance the repurchase of 1.9 million shares of its Class A Common Stock. This new loan increased the Company's long-term debt to $36.8 million as of September 30, 2000, compared to $16.1 million at December 31, 1999. The Company believes that its current financial resources, together with funds generated from operations and existing and potential borrowing capabilities, will be sufficient to maintain its current operations. The Company does not engage in any hedging activities to compensate for the effect of exchange rate fluctuations on the operating results of its foreign subsidiaries. Foreign currency denominated debt is maintained as a natural hedge against the currency exposure of the Company's net investment in foreign operations. 13 14 Shareholders' investment at September 30, 2000 was $232.0 million, compared with $250.3 million at December 31, 1999. The decrease is primarily a result of the Company's share repurchase activity in the first nine months of 2000. FACTORS THAT MAY AFFECT FUTURE RESULTS FOREIGN CURRENCY EXCHANGE The Company's international operations expose the Company to foreign currency exchange rate changes that could impact translations of foreign-denominated assets and liabilities into U.S. dollars, and future earnings and cash flows from transactions denominated in different currencies. The Company's revenues from its international operations were 27.1% of total revenues for the nine months ended September 30, 2000. Except for borrowing in foreign currencies, the Company does not presently engage in any hedging activities to compensate for the effect of exchange rate fluctuations on the net assets or operating results of its foreign subsidiaries. NEW CLAIMS MANAGEMENT SYSTEM During 1998, the Company began the development of a new domestic claims management system. As of September 30, 2000, approximately $16.4 million of internal and external costs have been capitalized in connection with this development project. The server-based system is designed to streamline and automate the claims intake, assignment, management, and reporting functions. The first phase of deployment for the system, originally scheduled for 1999, is currently scheduled for the first half of 2001. If the system fails to function as planned, it could adversely affect the Company's results of operations. FORWARD LOOKING STATEMENTS Certain information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations may include forward-looking statements, the accuracy of which is subject to a number of risks and assumptions. The Company's Form 10-K for the year ended December 31, 1999, discusses such risks and assumptions and other key factors that could cause actual results to differ materially from those expressed in such forward-looking statements. 14 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK DERIVATIVES The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments. FOREIGN CURRENCY The operating results of the Company's foreign subsidiaries are affected by fluctuations in foreign currency exchange rates. Fluctuations in foreign currency exchange rates affect the shareholders' investment of the Company. Amounts invested in the Company's foreign subsidiaries are considered to be permanently invested and are translated into U.S. dollars at the exchange rates in effect at the end of the respective periods. The resulting translation adjustments are recorded in shareholders' investment as cumulative translation adjustments. The cumulative translation adjustment reduced shareholders' investment by $3.6 million during the first nine months of 2000. INTEREST RATES The Company is exposed to interest rate fluctuations on its borrowings. Depending on general economic conditions, the Company has typically used variable rate debt for short-term borrowings and fixed rate debt for long-term borrowings. At September 30, 2000, the Company had $49.0 million in short-term loans outstanding with an average variable interest rate of 5.7%. Long-term debt consisted of the following (in thousands):
Description Interest Rate Amount Maturity - ----------- ------------- -------- -------- Term loans 6.8% $ 15,000 September 2004, interest payable quarterly 7.7% 21,000 March 2005, interest payable quarterly Mortgages secured by buildings 7.3% - 7.8% 832 Various dates through 2003 Capital lease obligations 201 -------- Total debt 37,033 Less current installments (219) -------- Total long-term debt $ 36,814 ========
With the exception of the capital lease obligations, the above loans carry a fixed rate of interest. 15 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Crawford & Company: We have reviewed the accompanying condensed consolidated balance sheet of CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of September 30, 2000, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Crawford & Company and subsidiaries as of December 31, 1999 (not presented separately herein), and, in our report, dated January 28, 2000, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Arthur Andersen LLP Atlanta, Georgia November 13, 2000 16 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 15.1 Letter from Arthur Andersen LLP 27.1 Financial Data Schedule (For SEC use only) (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the period covered by this report. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CRAWFORD & COMPANY (Registrant) Date: November 13, 2000 /s/ Archie Meyers, Jr. ---------------------------------------- Archie Meyers, Jr. Chairman and Chief Executive Officer (Principal Executive Officer) Date: November 13, 2000 /s/ John F. Giblin ---------------------------------------- John F. Giblin Executive Vice President - Finance (Principal Financial Officer) Date: November 13, 2000 /s/ W. Bruce Swain ---------------------------------------- W. Bruce Swain Senior Vice President and Controller (Principal Accounting Officer) 18 19 INDEX TO EXHIBITS
Exhibit No. Description Sequential Page No. 15.1 Letter from Arthur Andersen LLP 20 27.1 Financial Data Schedule (For SEC use only)
19 EX-15.1 2 g65291ex15-1.txt LETTER FROM ARTHUR ANDERSEN, LLP. 1 Exhibit 15.1 To Crawford & Company We are aware that Crawford & Company has incorporated by reference in its previously filed Registration Statement File Nos. 2-78989, 33-22595, 33-47536, 33-36116, 333-02051, 333-24425, 333-24427, 333-43740, 333-87465, and 333-87467 its Form 10-Q for the quarter ended September 30, 2000, which includes our report dated November 13, 2000 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), that report is not considered a part of the Registration Statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. /s/ Arthur Andersen LLP Atlanta, Georgia November 13, 2000 20 EX-27.1 3 g65291ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CRAWFORD & COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND CRAWFORD & COMPANY CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 SEP-30-2000 27,559 0 164,860 17,822 0 281,661 156,894 113,210 495,602 179,754 36,814 0 0 48,471 183,482 495,602 0 541,985 0 396,065 92,907 0 3,205 49,808 19,126 30,682 0 0 0 30,682 0.63 0.63
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