-----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, Sc+1U4i6l6snxIfcaRiBXLr8IMporswgSgs7XnSGBHF22BF4XK9wcxirEj5zGB+2 8T05FLvZgI317NcGJos4ow== 0000950144-03-012300.txt : 20031105 0000950144-03-012300.hdr.sgml : 20031105 20031105155704 ACCESSION NUMBER: 0000950144-03-012300 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAWFORD & CO CENTRAL INDEX KEY: 0000025475 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 580506554 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10356 FILM NUMBER: 03979577 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 g85632e10vq.txt CRAWFORD & COMPANY ================================================================================ 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 ================================================================================ 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 EX-10.1 3 g85632exv10w1.txt AMENDMENT TO THE SUPPL. EXECUTIVE RETIREMENT PLAN Exhibit 10.1 CRAWFORD & COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AS AMENDED AND RESTATED JULY 22, 2003 EFFECTIVE AS OF JANUARY 1, 2003 26 TABLE OF CONTENTS
Page ---- Section 1 PURPOSE...................................... 28 Section 2 DEFINITIONS.................................. 28 Section 3 PARTICIPATION................................ 28 Section 4 BENEFIT...................................... 29 Section 5 SOURCE OF BENEFIT PAYMENTS................... 30 Section 6 NOT A CONTRACT OF EMPLOYMENT................. 31 Section 7 NO ALIENATION OR ASSIGNMENT.................. 31 Section 8 ERISA........................................ 31 Section 9 ADMINISTRATION. AMENDMENT AND TERMINATION.... 31 Section 10 CLAIMS PROCEDURES............................ 31 Section 11 CONSTRUCTION................................. 33 Section 12 EXECUTION.................................... 34
27 CRAWFORD & COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AS AMENDED AND RESTATED JULY 22, 2003 EFFECTIVE AS OF JANUARY 1, 2003 Section 1 PURPOSE Crawford & Company hereby amends and restates the Crawford & Company Supplemental Executive Retirement Plan as originally effective as of January 1, 1986 and as thereafter amended. The primary purpose of this SERP is to provide a supplemental retirement benefit to the Participants described in Exhibit A to supplement certain benefits payable to each of them under the Savings Plan, Deferred Compensation Plan or Retirement Plan to the extent payment of such benefits is limited by the application of Code Sections 401(a)(17) and 415. Section 2 DEFINITIONS The capitalized terms used in this SERP shall have the same meanings assigned to those terms in the Retirement Plan except that the following terms shall have the following meanings: 2.1 Committee - means the Senior Compensation and Stock Option Committee of the Board of Directors of Crawford & Company. 2.2 Deferred Compensation Plan - means the Crawford & Company Deferred Compensation Plan, and any successor plan, as amended from time to time. 2.3 Retirement Plan - means the Crawford & Company Retirement Plan and Trust Agreement, as amended from time to time. 2.4 Savings Plan - means the Crawford Saving and Investment Plan, as amended from time to time. 2.5 SERP - means this Crawford & Company Supplemental Executive Retirement Plan, as amended from time to time. Section 3 PARTICIPATION The Committee shall have the power to designate an executive as a Participant in this SERP and such designations shall be reflected on Exhibit A to this SERP. 28 Section 4 BENEFIT 4.1 SERP Retirement Benefit. (a) General. This Section 4.1 shall not apply to any executive designated as a participant after December 31, 2002. (b) Amount of Benefit. A benefit shall be payable under this SERP to, or on behalf of, each o Participant, which benefit shall equal the excess, if any, of (1) over (2) where: (1) equals the aggregate of (i) the benefits which would have been payable to him or her, or on his or her behalf, under the Retirement Plan, plus (ii) Restoration Benefits under the Deferred Compensation Plan in the form elected by him or her, or his or her beneficiary, under the terms of the Retirement Plan and Deferred Compensation Plan absent the limitations of Code Sections 401(a)(17) and 415, without regard to when such executive became a participant; and (2) Equals the aggregate benefits actually payable to him or her, or on his or her behalf, in such form under (i) the Retirement Plan, and (ii) the Restoration Benefits provisions of the Deferred Compensation Plan. (c) Payment of SERP Retirement Benefit. The SERP Retirement Benefit payable to, or on behalf of, a Participant under this Section 4.1 shall be paid as of the same date, in the same benefit payment form and to the same person as his or her benefit under the Retirement Plan or Deferred Compensation Plan, and no payment shall be made to, or on behalf of, a Participant under this Section 4.1 unless a benefit is paid to him or her or on his or her behalf under the Retirement Plan. (d) Previously Retired Participants. Notwithstanding Section 4.1(c), if an executive, at the time of his or her designation as a Participant, is currently receiving benefits under the Retirement Plan, he shall not receive any SERP Retirement Benefit until such time as such Participant's employment terminates following his or her designation as a Participant ("Subsequent Retirement"). Such Participant's SERP Retirement Benefit under Section 4.1(b) shall, at the time of the Subsequent Retirement, be determined by including all periods of employment up to the Subsequent Retirement, without regard to any previous retirement, as if the Participant first started receiving benefits under the Retirement Plan as of the time of his or her Subsequent Retirement. Any Participant who retires and then returns to employment shall receive additional SERP benefits in accordance with this Section 4.1 with respect to such period of subsequent employment if designated a continuing Participant by the Committee before January 1, 2003. 4.2 SERP Service Credit Benefit. 29 (a) General. This Section 4.2 shall apply to any executive who is a Participant on or after January 1, 2003. (b) Amount of Benefit. On and after January 1, 2003, the Company will make a SERP Service Credit on behalf of each Participant for each Plan Year, which will be equal to the excess of (1) over (2) where: (1) equals the amount that would have been allocated to the Participant's account as a "service contribution" under the Savings Plan for such Plan Year if "compensation" under the Savings Plan had been determined without regard to the Participant's deferrals under the Deferred Compensation Plan for such Plan Year and without regard to the limitations of Code Sections 401(a)(17) and 415 and (2) equals the sum of the amount actually allocated for such Plan Year (i) as a "service contribution" to the Participant's account under the Savings Plan and (ii) as a "service credit" to the Participant's account under the Deferred Compensation Plan. Each Participant's SERP Service Credit shall be allocated to a bookkeeping account maintained as a part of the Company's books and records to show as of any date the interest of each Participant in this SERP Service Credit Benefit, which is referred to as such Participant's SERP account. Deemed interest shall be credited to each such SERP account at the same rate and in the same manner that deemed interest is credited to accounts maintained under the Deferred Compensation Plan. Crawford & Company shall furnish a statement to each Participant annually, which shows the deemed SERP account balance at the end of the Plan Year preceding the statement date and, at Crawford & Company's discretion, such other account data as Crawford & Company deems appropriate. (c) Payment of SERP Service Credit Benefit. The SERP Service Credit benefit payable to, or on behalf of, a Participant under this Section 4.2 shall be paid as of the later of the date the Participant terminates his or her employment with Crawford & Company and its affiliates or the date the Participant attains age 55. Each Participant may elect to have his or her SERP account distributed in the same manner as a "retirement distribution" under Section 8.3 of the Deferred Compensation Plan. Section 5 SOURCE OF BENEFIT PAYMENTS All benefits payable under the terms of this SERP shall be paid by Crawford & Company from its general assets. No person shall have any right or interest or claims whatsoever to the payment of a benefit under this SERP from any person whomsoever other than Crawford & Company, and no Participant or beneficiary shall have any right or interest whatsoever to the payment of a benefit under this SERP which is superior in any manner to the right of any other general and unsecured creditor of Crawford & Company. 30 Section 6 NOT A CONTRACT OF EMPLOYMENT Participation in this SERP shall not grant to any Participant the right to remain an employee for any specific term of employment or in any specific capacity or at any specific rate of compensation. Section 7 NO ALIENATION OR ASSIGNMENT A Participant or a beneficiary under this SERP shall have no right or power to alienate, commute, anticipate or otherwise assign at law or equity all or any portion of any benefit otherwise payable under this SERP, and the Committee shall have the right in light of any such action to suspend temporarily or terminate permanently the payment of benefits to, or on behalf of, any Participant or beneficiary who attempts to do so. Section 8 ERISA Crawford & Company intends that this SERP come within the various exceptions and exemptions of ERISA and for an unfunded deferred compensation plan maintained primarily for a select group of management or highly compensated employees within the meaning of ERISA Section 201(2), Section 302(a)(3) and Section 401(a)(1) and any ambiguities in this SERP shall be construed to effect that intent. Section 9 ADMINISTRATION. AMENDMENT AND TERMINATION Crawford & Company shall have all powers necessary to administer this SERP in its absolute discretion and shall have the right, by action of the Committee, to amend this SERP from time to time in any respect whatsoever and to terminate this SERP at any time; provided, however, that any such amendment or termination shall not be applied retroactively to deprive a Participant of benefits accrued under this Plan to the date of such amendment or termination. This SERP shall be binding on any successor in interest to Crawford & Company. Section 10 CLAIMS PROCEDURES 10.l Presentation of Claim. Any Participant or beneficiary (such Participant or beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant 31 from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 10.2 Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant not later than 90 days after receipt of the claim: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (1) the specific reason(s) for the denial of the claim, or any part of it; (2) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (3) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; (4) an explanation of the claim review procedure, and (5) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended, following an adverse determination on review. 10.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, the Claimant (or the Claimant's duly authorized representative): (a) may review all documents relevant to the claim for benefits under this Plan and receive copies of such documents upon request and free of charge; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 32 10.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances required additional time, in which case the decision must be rendered within 120 days after such date. If special circumstances, such as the need to hold a hearing, require additional time, the Claimant will be provided with notice of the need for additional time before the end of the initial 60-day period. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; (c) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended; (d) a statement of the Claimant's right to receive upon request and free of charge, copies of all documents relevant to the claim for benefits under this Plan; and (e) such other matters as the Committee deems relevant. 10.5 Manner of Notification. The Committee may notify a Claimant of its decision either in writing or, where electronic notification would be appropriate under ERISA, electronically. 10.6 Legal Action. A Claimant's compliance with the foregoing provisions of this Section 10 is a mandatory prerequisite to Participant's or beneficiary's right to commence any legal action with respect to any claim for benefits under this Plan. Section 11 CONSTRUCTION This SERP shall be construed in accordance with the laws of the State of Georgia, and the masculine shall include the feminine and the singular the plural whenever appropriate. 33 Section 12 EXECUTION Crawford & Company, as the SERP sponsor, has executed this SERP to evidence the adoption of this amendment and restatement by the Senior Compensation and Stock Option Committee of its Board of Directors this 24th day of July, 2003. CRAWFORD & COMPANY By: /s/ Grover L. Davis Title: Chairman and CEO 34 EXHIBIT A CRAWFORD & COMPANY SUPPLEMENTAL RETIREMENT PLAN AS AMENDED AND RESTATED JULY 22, 2003 EFFECTIVE AS OF JANUARY 1, 2003 Name of Participant T. G. Germany F. L. Minix R. P. Albright P. A. Bollinger D. R. Chapman J. F. Osten D. A. Smith J. F. Giblin A. L. Meyers, Jr. G. L. Davis J. A. McGee H. L. Rogers S. V. Festa Victoria Holland Gregory P. Hodson Marshall G. Long 35 EX-10.2 4 g85632exv10w2.txt AMENDMENT TO THE DEFERRED COMPENSATION PLAN Exhibit 10.2 CRAWFORD & COMPANY DEFERRED COMPENSATION PLAN FOR ELIGIBLE EMPLOYEES AND ELIGIBLE DIRECTORS (AS AMENDED AND RESTATED AS OF JANUARY 1, 2003) 36 TABLE OF CONTENTS
PAGE ---- SECTION 1 PURPOSE 40 SECTION 2 DEFINITIONS 40 2.1. Account 40 2.2. Account Balance 40 2.3. Annual Deferral Amount 40 2.4. Beneficiary 40 2.5. Board of Directors 40 2.6. Cash Compensation 40 2.7. Cause 41 2.8. Change of Control 41 2.9. Company 41 2.10. Company Discretionary Credit 41 2.11. Committee 41 2.12. Eligible Director 42 2.13. Eligible Employee 42 2.14. Entry Date 42 2.15. Long Term Incentive Credit 42 2.16. Plan 42 2.17. Restoration Benefit 42 2.18. Retirement Plan 42 2.19. Savings Plan 42 2.20. Service Credit 42 2.21. Subsidiary 42 2.22. Year 42 SECTION 3 ELIGIBLE EMPLOYEES AND DIRECTORS 42 3.1. Starting Date 42 (a) Eligible Employee 43 (b) Eligible Director 43 3.2. Ending Date 43 (a) Eligible Employee 43 (b) Transfer 43 (c) Eligible Director 43 3.3. Enrollment 43 3.4. Participation 43 SECTION 4 DEFERRAL ELECTION RULES AND PROCEDURES 43 4.1. Cash Compensation Only 43 4.2. Classification and Limitations 44 (a) General Rules 44
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PAGE ---- (b) Base Salary 44 (c) Bonuses, Incentive Compensation and Profit Sharing 44 (d) Directors' Fees 44 (e) Short Year 44 4.3. Irrevocable Election and Filing Deadlines 44 (a) General Rule 44 (b) Special Rule 44 (c) Expiration of Election 44 (d) Irrevocable Election 45 (e) Revocation of Election 45 (f) Annual Election 46 (g) Percentage Figure 46 4.4. Withholding of Deferral Amounts and FICA 46 4.5. Subsidiary 46 SECTION 5 ALLOCATION OF COMPANY DISCRETIONARY CREDIT AND SERVICE CREDIT 46 5.1. Company Discretionary Credit 46 5.2. Service Credit 47 SECTION 6 ALLOCATION OF LONG TERM INCENTIVE CREDIT 47 6.1. Eligibility for Long Term Incentive Credit 47 6.2. Allocation of Long Term Incentive Credit 48 6.3. Vesting of Long Term Incentive Credit 48 6.4. Forfeiture of Long Term Incentive Credit 48 SECTION 7 MAINTENANCE OF ACCOUNTS 49 SECTION 8 DISTRIBUTIONS 49 8.1. Distribution Events 49 8.2. Manner of Distribution 49 8.3. Installments 49 (a) Portion of Account Distributed in Installments 49 (b) Installment Election 49 (c) Failure to Elect Installments 50 (d) Payment of Installments 50 8.4. Short-term Distribution 50 8.5. Distribution of Company Discretionary Credit 50 8.6. Unforeseeable Emergency 50 8.7. Distribution of Restoration Benefits 51 SECTION 9 DEEMED INTEREST CREDITING 51 9.1. Interest Rate 51 9.2. Prior to Distribution 51 9.3. Installments 51 (a) Interest Rate 52 (b) "Deemed" Installment Payments 52
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PAGE ---- (c) Amortization 52 (d) Monthly Payments 52 SECTION 10 SOURCE OF DISTRIBUTION 52 SECTION 11 CLAIMS PROCEDURES 52 11.1. Presentation of Claim 52 11.2. Notification of Decision 53 11.3. Review of a Denied Claim 53 11.4. Decision on Review 53 11.5. Manner of Notification 54 11.6. Legal Action 54 SECTION 12 MISCELLANEOUS 54 12.1. Beneficiary 54 12.2. No Assignment; Binding Effect 54 12.3. ERISA 55 12.4. Committee Powers 55 12.5. Construction 55 12.6. Employment Contract 55 12.7. Term of Office 55 12.8. Amendment and Termination 55 12.9. Distribution in the Event of Taxation 55 12.10. Furnishing Information 56
39 CRAWFORD & COMPANY DEFERRED COMPENSATION PLAN FOR ELIGIBLE EMPLOYEES AND ELIGIBLE DIRECTORS AS EFFECTIVE AS OF JANUARY 1, 1995 (AMENDED AND RESTATED AS JANUARY 1, 2003) SECTION 1 PURPOSE The purpose of this Plan is to allow each Eligible Employee of the Company or a Subsidiary and each Eligible Director of the Company to defer the payment of a percentage of his or her Cash Compensation otherwise actually payable during each Year for services rendered and to provide a benefit equal to the benefit the Eligible Employee would have had if the amounts deferred under this Plan had been treated as "compensation" for purposes of the Retirement Plan (the Restoration Benefit) and for purposes of the "service contribution" under the Savings Plan (the Service Credit). Certain employees will also receive Long Term Incentive Credits under this Plan. In addition, the Company or a Subsidiary, in its sole discretion may credit an Eligible Employee's Account with a Company Discretionary Credit. SECTION 2 DEFINITIONS 2.1 Account -- means the bookkeeping entry maintained as part of the Company's books and records in accordance with Section 7 to show as of any date the interest of each Eligible Employee and each Eligible Director in this Plan. 2.2 Account Balance -- means as of any date for each Account the amount that is in excess of credits to such Account over debits to such Account where (i) credits are the total dollar amount, if any, deferred under Section 4 through such date, the Company Discretionary Credits and Service Credits, if any, contributed under Section 5 through such date and the deemed interest credited under Section 9, if applicable, through such date and (ii) debits are the total dollar amount distributed through such date under Section 8. 2.3 Annual Deferral Amount -- means for any Year, that portion of an Eligible Employee's or Eligible Director's Cash Compensation which is deferred pursuant to such Eligible Employee's or Eligible Director's election for that Year. 2.4 Beneficiary -- means the person or persons designated as such in accordance with Section 12.1. 2.5 Board of Directors -- means the Board of Directors of the Company. 2.6 Cash Compensation -- means the following types of compensation payable to an Eligible Employee or Eligible Director by the Company or a Subsidiary in cash or cash equivalents: (a) For each Eligible Employee: (1) base salary, including basic wages and commission payments, but excluding draws (guaranteed or otherwise), reimbursed expenses, fringe benefits, moving expenses and auto allowances; (2) bonuses; (3) incentive compensation and (4) profit sharing. 40 (b) For each Eligible Director who is not an Eligible Employee, directors' meeting and committee fees. 2.7 Cause -- means one or more of the following reasons: (a) a violation of any law; (b) insubordination; (c) violation of Company policies; (d) unsatisfactory attendance or performance; (e) refusal or failure to comply with a change in job conditions; or (f) refusal to cooperate with transition or redeployment activities; each as determined by the Chief Executive Officer in his or her absolute discretion. 2.8 Change of Control -- means the first to occur of any of the following events: (a) any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more of the Company's capital stock entitled to vote in the election of directors; (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least three-quarters of the directors still in office who were directors at the beginning of the period; (c) any consolidation or merger of the Company, other than a merger of the Company in which the holders of the shares of stock of the Company entitled to vote immediately prior to the merger hold more than 50% of the shares of stock of the surviving corporation entitled to vote immediately after the merger; (d) the liquidation or dissolution of the Company; or (e) substantially all of the assets of the Company are sold or otherwise transferred to a parties that are not within a "controlled group of corporations" (as defined in Section 1563 of the Internal Revenue Code of 1986, as amended) of which the Company is member. 2.9 Company -- means Crawford & Company, a Georgia corporation, and any successor to such corporation. 2.10 Company Discretionary Credit -- means for any Year, any amount that the Company or a Subsidiary, in its sole discretion, may credit to the Account of an Eligible Employee. 2.11 Committee -- means the committee chosen by the Board of Directors to manage and administer the Plan. 41 2.12 Eligible Director -- means a member of the Board of Directors. 2.13 Eligible Employee -- means an employee of the Company or a Subsidiary who is designated as such by the Committee in its sole discretion. 2.14 Entry Date -- means, in the case of an Eligible Employee, the first day of the Year following the date on which the Committee designates an employee as an Eligible Employee and the Eligible Employee complies with all the requirements under Section 3.3, or, in the case of an Eligible Director, the first day of the Year following the date on which the director commences serving on the Board of Directors and complies with all the requirements under Section 3.3, or, in the case of either an Eligible Employee or an Eligible Director, such other date as determined by the Committee in its sole discretion. 2.15 Long Term Incentive Credit -- means an amount credited to an Eligible Employee's account under Section 6 of the Plan. 2.16 Plan -- means this Crawford & Company Deferred Compensation Plan for Eligible Employees and Eligible Directors as amended and restated, effective January 1, 2003. 2.17 Restoration Benefit -- means, for an Eligible Employee, the difference between (a) the benefit that would be paid under the Retirement Plan based on employment completed on or before December 31, 2002 if base salary, bonuses and profit sharing deferred under this Plan through such date is included in the definition of compensation under the Retirement Plan at the time the deferral is made, and (b) the benefit that is actually payable under the Retirement Plan, calculated based on a single life annuity form of payment. 2.18 Retirement Plan -- means the Crawford & Company Retirement Plan and Trust Agreement, as amended from time to time. 2.19 Savings Plan -- means the Crawford Savings and Investment Plan, as amended from time to time. 2.20 Service Credit -- means for each Eligible Employee for each Year the excess of (a) the "company service contribution" (as that term is defined in the Savings Plan) that would have been contributed to the Savings Plan if "compensation" (as defined in the Savings Plan) was determined by including amounts deferred under this Plan at the time the deferral is made over (b) the "company service contribution" that is actually allocated to the Eligible Employee's account under the Savings Plan for such Year. 2.21 Subsidiary -- means a direct or indirect subsidiary of which the Company owns (directly or indirectly) fifty percent (50%) or more of the outstanding voting stock. 2.22 Year -- means a calendar year. SECTION 3 ELIGIBLE EMPLOYEES AND DIRECTORS 3.1 Starting Date. 42 (a) Eligible Employee. An Eligible Employee shall be treated as such under this Plan starting as of the later of (1) January 1, 1995, or (2) the date he or she is so designated by the Committee. (b) Eligible Director. An Eligible Director shall be treated as such under this Plan starting as of the later of (1) January 1, 1995, or (2) the date his or her election to the Board of Directors becomes effective. 3.2 Ending Date. (a) Eligible Employee. Except with regard to any Restoration Benefit, an Eligible Employee's treatment as such under this Plan shall end as of the earlier of (1) the date his or her employment by the Company or a Subsidiary terminates for any reason whatsoever, or (2) the date the Committee revokes his or her designation as an Eligible Employee, and any deferral election made by him or her under Section 4 automatically shall become ineffective on such date as to any Cash Compensation otherwise payable on or after such date. With regard to any Restoration Benefit, an Eligible Employee's treatment as such shall continue until all Restoration Benefits are paid to such Eligible Employee under this Plan. (b) Transfer. A transfer from the Company to a Subsidiary, from one Subsidiary to another Subsidiary or from a Subsidiary to the Company shall not be treated as a termination of employment under this Plan. (c) Eligible Director. An Eligible Director's treatment as such under this Plan shall end as of the date he or she no longer serves as a member of the Board of Directors, and any deferral election made by him or her under Section 4 automatically shall become ineffective on such date as to any Cash Compensation payable on or after such date. 3.3 Enrollment. As a condition to participation, each Eligible Employee and Eligible Director shall complete, execute and submit to the Committee, at least 15 days prior to his or her Entry Date, such agreements, election forms, consents and other forms as the Committee deems are necessary for enrollment in the Plan. In the event the Eligible Employee or Eligible Director fails to meet all applicable enrollment requirements at least 15 days prior to his or her Entry Date, such Eligible Employee or Eligible Director shall not be eligible to participate in the Plan until the first day of the Year next following the date upon which such enrollment requirements are satisfied. 3.4 Participation. An Eligible Employee's or Eligible Director's participation in the Plan shall commence on his or her Entry Date. SECTION 4 DEFERRAL ELECTION RULES AND PROCEDURES 4.1 Cash Compensation Only. Subject to Section 4.2, each Eligible Employee and Eligible Director can elect to defer the payment of a portion of his or her Cash Compensation otherwise payable during each Year. No election shall be effective as to compensation otherwise payable in a form other than in cash or cash equivalents, and an election shall (except as provided in Section 3.2, Section 4.3(e)(2) and Section 7.5) be effective only for Cash Compensation otherwise actually payable during the Year covered by such election under Section 4.3. 43 4.2 Classification and Limitations. (a) General Rules. (1) An election to defer the payment of a percentage of an Eligible Employee's or Eligible Director's Cash Compensation otherwise actually payable during any Year shall not be effective to the extent that such election either fails to meet the minimum or exceeds the maximum limits set forth in this Section 4.2. (2) Cash Compensation shall be deemed "otherwise actually payable" under this Plan on the date such compensation otherwise actually would have been paid under the compensation and payroll practices of the Company, and a deferral shall be credited to the Eligible Employee or Eligible Director as of that date. (b) Base Salary. If an election applies to base salary, such election shall apply to no less than two percent (2%) and no more than fifty percent (50%) of an Eligible Employee's base salary otherwise actually payable during the Year covered by such election under Section 4.3. (c) Bonuses, Incentive Compensation and Profit Sharing. If an election applies to bonuses, incentive compensation and profit sharing such election shall apply to no less than two percent (2%) and no more than one hundred percent (100%) of any cash bonus, incentive compensation or profit sharing otherwise actually payable during the Year covered by such election under Section 4.3. (d) Directors' Fees. If an election applies to directors' meeting and committee fees, such election shall apply collectively to no more than one hundred percent (100%) of an Eligible Director's meeting and committee fees otherwise payable during the Year covered by such election. (e) Short Year. If an Eligible Employee commences participation after the first day of a Year, the minimum Cash Compensation which may be deferred shall be an amount equal to five percent (5%) of such Eligible Employee's Cash Compensation. 4.3 Irrevocable Election and Filing Deadlines. (a) General Rule. An election to defer the payment of a percentage of an Eligible Employee's or Eligible Director's Cash Compensation shall be made on the form provided for this purpose by the Committee. Such election shall be effective for the Year which begins after the date the Eligible Employee or Eligible Director files the election form with the Committee. (b) Special Rule. If an Eligible Employee's or Eligible Director's Entry Date is not the first day of a Year, he or she can elect to defer the payment of a portion of his or her Cash Compensation otherwise actually payable during the remainder of such Year. (c) Expiration of Election. An election made for any Year shall expire on the last day of the Year unless such election is earlier revoked in accordance with Section 4.3(e). 44 (d) Irrevocable Election. An election which becomes effective for a Year under Section 4.3(a) or for the remainder of a Year under Section 4.3(b) shall (except as provided in Section 4.3(e)(2), Section 4.3(e)(4), Section 3.2 or Section 7.5) be irrevocable for the remainder of such Year. (e) Revocation of Election. (1) An Eligible Employee or Eligible Director can revoke an election otherwise effective for any Year if he or she delivers written notice of such revocation to the Committee in a form acceptable to the Committee before the beginning of such Year. (2) An Eligible Employee may request the Committee to revoke his or her election after the beginning of any Year. If an election applies to an Eligible Employee's base salary under Section 4.2(b) or bonuses, incentive compensation or profit-sharing under Section 4.2(c), the Committee shall have the power to revoke such an election for any Year if such Eligible Employee demonstrates to the Committee's satisfaction that a failure to so revoke such election will result in a severe financial hardship for him or her for such Year, and any such revocation shall be effective for payroll periods (otherwise covered by such election) which begin after the date the Committee exercises such power under this Section 4.3(e)(2). If an Eligible Employee's election for any Year is revoked under this Section 4.3(e)(2), he or she shall be ineligible to make or to continue any deferral elections under this Plan with respect to Cash Compensation otherwise actually payable during: (i) the remainder of the Year which includes the date the Committee exercises its power under this Section 4.3(e)(2), and (ii) for a period of one Year thereafter. (3) The election of an Eligible Employee on an authorized unpaid leave of absence shall be revoked during the period of such unpaid absence. At such time as the Eligible Employee returns to active employment, the Committee shall resume deferrals for the remainder of the Year in accordance with the election filed by the Eligible Employee for that Year. (4) The Committee shall have the authority to offer an Eligible Employee the opportunity to revoke his election and, at the Eligible Employee's option, make a new election during any Year in which the Eligible Employee's compensation package is significantly modified by the Company or a Subsidiary such that the Committee determines that the Eligible Employee's current election form is no longer reflective of the original intent regarding the deferral of the Eligible Employee's Cash Compensation. This determination shall be made by the Committee in its sole discretion. In no event shall a new election apply to amounts otherwise payable to the Eligible Employee prior to the effective date of the revised election. The Eligible Employee may elect to defer a different type of Cash Compensation or a different percentage of amount of such Cash Compensation but shall not be permitted to modify the form and timing of the distribution as described in Section 7 hereof. 45 (f) Annual Election. An Eligible Employee or Eligible Director shall make a new election for each Year during which he or she wishes to defer his or her Cash Compensation otherwise payable during that Year by submitting a completed and executed election form to the Committee no later than December 15th of the Year prior to the Year for which the Eligible Employee or Eligible Director wishes to make the election. (g) Percentage Figure. An election may only describe a deferral as a percentage of Cash Compensation. 4.4 Withholding of Deferral Amounts and FICA. For Each Year that an election is in effect with respect to an Eligible Employee's Cash Compensation, the Company shall withhold the Annual Deferral Amount from an Eligible Employee's Cash Compensation in the percentage specified in his or her election pursuant to Section 4.3 or the special election in Section 4.3(b). The portion of the Annual Deferral Amount to be deferred from all other types of Cash Compensation shall be withheld at such time as the Cash Compensation is otherwise due to be paid to the Eligible Employee or Eligible Director. The Company shall withhold the Eligible Employee's or Eligible Director's share of FICA taxes from that portion of the Eligible Employee's or Eligible Director's Cash Compensation which is not being deferred. In the event FICA taxes required to be withheld on the Annual Deferral Amount or the Company Discretionary Credit exceed the amount of Cash Compensation not being deferred by the Eligible Employee or Eligible Director, the Eligible Employee's or Eligible Director's Annual Deferral Amount shall be automatically reduced by that amount by which FICA taxes exceed the Eligible Employee's or Eligible Director's Cash Compensation not being deferred. 4.5 Subsidiary. If an Eligible Employee is employed by a Subsidiary and makes a deferral election under this Section 4, the Committee shall direct such Subsidiary to stop paying the Cash Compensation which he or she has elected to defer in accordance with his or her election under this Section 4 to the extent that such election is effective with respect to such Cash Compensation. Similarly, if an Eligible Employee terminates a deferral election under this Section 4, the Committee shall direct the Subsidiary to resume paying his or her Cash Compensation in accordance with the termination of such election to the extent that such termination of election is effective under this Plan with respect to such Cash Compensation. The Subsidiary shall withhold the Eligible Employee's or Eligible Director's share of FICA taxes from that portion of the Eligible Employee's or Eligible Director's Cash Compensation which is not being deferred. In the event FICA taxes required to be withheld on the Annual Deferral Amount or the Company Discretionary Credit exceed the amount of Cash Compensation not being deferred by the Eligible Employee or Eligible Director, the Eligible Employee's or Eligible Director's Annual Deferral Amount shall be automatically reduced by that amount by which FICA taxes exceed the Eligible Employee's or Eligible Director's Cash Compensation not being deferred. SECTION 5 ALLOCATION OF COMPANY DISCRETIONARY CREDIT AND SERVICE CREDIT 5.1 Company Discretionary Credit. A Company Discretionary Credit may be credited to the Account of an Eligible Employee at any time, in the sole discretion of the Company or a Subsidiary, regardless of whether such Eligible Employee has elected to participate in the Plan for the Year during which the Company Discretionary Credit is made. 46 5.2 Service Credit. For each Year with respect to which the Company makes a "company service contribution" under the Savings Plan, the Company shall credit the Account of each Eligible Employee to whom is allocated a "company service contribution" under the Savings Plan a Service Credit under this Plan. If an Eligible Employee terminates his or her employment with the Company or a Subsidiary before attaining five "years of service" (as defined under the Savings Plan), then his or her Service Credits under this Plan shall be forfeited to the same extent they would be forfeited if they were a Company Service Contribution under the Savings Plan. SECTION 6 ALLOCATION OF LONG TERM INCENTIVE CREDIT 6.1 Eligibility for Long Term Incentive Credit. An Eligible Employee is eligible for allocation of a Long Term Incentive Credit if he or she: (a) works in the United States as an active, full-time employee; (b) is assigned to the Technical Services organization; and (c) is in one of the following job codes: (1) RA2600 - Executive General Adjuster, (2) DB1100 - Technical Services Non-Contract Manager, or (3) DA4350 - Managing Director, Technical Services. (d) An Eligible Employee who is on "positive improvement" (under the Company's evaluation criteria) will not be eligible for allocation of a Long Term Incentive Credit to his or her Account until the first January 1 when (1) the Eligible Employee is not on "positive improvement" and (2) the Eligible Employee has a "coaching for continuous improvement" rating of 3.5 or better (under the Company's evaluation criteria). (e) An Eligible Employee must maintain a 3.5 or better "coaching for continuous improvement" rating to have a Long Term Incentive Credit allocated to his or her Account. An Eligible Employee who receives a "coaching for continuous improvement" rating of less than 3.5 will not be eligible to have a Long Term Incentive Credit allocated to his or her Account for the Year in which the rating drops. (f) An Eligible Employee who is terminated for Cause or demoted to an ineligible position shall not be eligible for allocation of a Long Term Incentive Contribution for the Year in which the demotion or termination occurred. (g) Eligible Employees in job code RA2600 must meet the following performance requirements for allocation of a Long Term Incentive Credit to his or her Account: (1) The Eligible Employee must achieve at least $250,000 annual net production (net of any billing adjustments) while maintaining acceptable accounts receivable within the Year. 47 (2) An acceptable level of management of accounts receivable includes both year end accounts receivable unbilled of less than 84 workdays and year end accounts receivable billed of less than 116 workdays. (3) To qualify for the Long Term Incentive Credit, the Eligible Employee must meet both the production threshold and the accounts receivable management threshold. 6.2 Allocation of Long Term Incentive Credit. A Long Term Incentive Credit will be allocated to the account of an Eligible Employee who meets the requirements of Section 6.1, as follows: (a) Allocations for Eligible Employees in job code RA2600 will be made according to the following production thresholds: (1) The Eligible Employee must achieve in excess of $275,000 annual net production (net of any billing adjustments) while maintaining acceptable accounts receivable (as described in Section 6.1(g)), within the Year for allocation of a Long Term Incentive Credit equal to 5% of the sum of base salary and incentive compensation paid during the Year. (2) The Eligible Employee must achieve between $250,000 and $275,000 annual net production (net of any billing adjustments) while maintaining acceptable accounts receivable (as described in Section 6.1(g)), within the Year for allocation of a Long Term Incentive Credit equal to 3% of the sum of base salary and incentive compensation paid during the Year. (b) The annual Long Term Incentive Credit for Eligible Employees in job codes DB1100 and DA4350 will be 5% of the sum of base salary and incentive compensation paid during the Year. (c) The Long Term Incentive Credit will be allocated to the Account of each Eligible Employee entitled to receive such a credit not later than the end of February following the Year to which such Long Term Incentive Credit relates. 6.3 Vesting of Long Term Incentive Credit. Long Term Incentive Credits will become vested in five years following the end of the Year for which such credit was allocated, provided the Eligible Employee remains employed by the Company or a Subsidiary during that five-year period. All Long Term Incentive Credits become vested upon the earliest of (i) the Eligible Employee's attainment of age 62, (ii) the Eligible Employee's having completed ten (10) years continuous service after January 1, 2003 or (iii) the Eligible Employee's death while employed by the Company or a Subsidiary. 6.4 Forfeiture of Long Term Incentive Credit. In the event that an Eligible Employee's employment with the Company or a Subsidiary is terminated for Cause, his or her Long Term Incentive Credits shall be forfeited. Further, if an Eligible Employee is employed by a person or entity other than the Company or a Subsidiary as a technical adjuster, then his or her Long Term Incentive Credit shall be forfeited. Forfeiture shall occur without regard to whether such Long Term Incentive Credits are vested. 48 SECTION 7 MAINTENANCE OF ACCOUNTS The Committee shall maintain for each Eligible Employee or Eligible Director separate Accounts for his or her Company Discretionary Credits, if any; Service Credits, if any; Long Term Incentive Credits, if any; and for Annual Deferral Amounts, if any; which shall show as of any date (1) the Account Balance, at the end of each such date and (2) such other data as the Committee deems relevant. Each Account shall be cancelled when the Account Balance reaches zero. If an Account is maintained during a Year for an Eligible Employee or Eligible Director, the Committee after the end of such Year (or such other time as the Committee determines) shall furnish a statement to that Eligible Employee or Eligible Director which shows the Account Balance in each of his or her Accounts at the end of such Year and (at the Committee's discretion) such other Account data as the Committee deems appropriate. SECTION 8 DISTRIBUTIONS 8.1 Distribution Events. The distribution of an Eligible Employee's or Eligible Director's Account shall commence at the direction of the Committee as soon as practical after the earlier of (a) the date his or her employment by the Company or a Subsidiary terminates for any reason whatsoever, including death or retirement, (b) the date he or she no longer serves as a member of the Board of Directors as to any Account maintained for him or her as an Eligible Director, (c) the date upon which an Annual Deferral Amount is scheduled to be distributed pursuant to the election made by the Eligible Employee or Eligible Director with respect to that Annual Deferral Amount pursuant to Section 8.4 hereof, (d) such other date as determined by the Committee in its sole discretion pursuant to Section 8.6 hereof, or (e) a Change of Control of the Company. Each distribution to an Eligible Employee or Eligible Director under this Section 8 shall become a debit against his or her Account as of the date the distribution is made by the Company. 8.2 Manner of Distribution. Subject to Section 8.3 and Section 8.5, the distribution of the Account for Annual Deferral Amounts, Company Discretionary Credits or Service Credits to an Eligible Employee or Eligible Director shall be made in a lump sum. An Account for Long Term Incentive Credits is not subject to distribution in a lump sum and must be distributed in installments as provided in Section 8.3. 8.3 Installments. An Eligible Employee who terminates employment by "retirement" and an Eligible Employee whose Account includes Long Term Incentive Credits may elect (on a form provided by the Committee for this purpose) to receive monthly installments over five (5), ten (10) or fifteen (15) years commencing as of the date of termination. (a) Portion of Account Distributed in Installments. For an Eligible Employee whose Account includes Long Term Incentive Credits, the election shall apply only to the portion of his or her Account attributable to the Long Term Incentive Credits (unless he or she also terminates employment by "retirement"). For an Eligible Employee who terminates employment by "retirement", the election shall apply to his or her entire Account. (b) Installment Election. An election for installments must be made on or before the last business day of the Year prior to the final Year during which an Annual Deferral Amount is deferred or for which a Long Term Incentive Credit is allocated before termination of employment. By way of example, an Eligible Employee could elect to 49 receive his or her Account Balances in monthly installments over ten (10) years if he or she submitted a form containing such election on or before the last business day of 2002, deferred a portion of her salary during 2003, and retired in 2003 or later. An election to receive an installment payout made on the last business day of 2002 would not be effective if the Eligible Employee did not defer any amounts under this Plan or have any Long Term Incentive Credits allocated to his or her Account after 2002. An Eligible Employee terminates employment by retirement if he or she terminates on or after the earlier of: (i) the date he or she attains age 65 or (ii) the date he or she attains age 55 with ten (10) years of service to the Company or a Subsidiary. Years of service shall be calculated, for purposes of this Plan, in the same manner as "vesting service" is calculated under the terms of the Retirement Plan as in effect on the date the calculation is made hereunder. (c) Failure to Elect Installments. If an Eligible Employee fails to properly elect installments under this Section 8.3, his or her Account Balance attributable to Company Discretionary Credits, Service Credits and Annual Deferral Amounts shall be distributed in a lump sum as provided in Section 8.2, and his or her Account Balance attributable to Long Term Incentive Credits shall be paid in monthly installments over fifteen (15) years. In the event an Eligible Employee makes more than one election hereunder, the election made latest in time, in compliance with this Section 8.3, shall govern such Eligible Employee's payout. (d) Payment of Installments. All monthly installments shall be distributed as of the first day of a month, and the calculation of each monthly installment shall be made as provided in Section 9.3 hereof. 8.4 Short-term Distribution. An Eligible Employee or Eligible Director may elect, with respect to any Annual Deferral Amount, to receive a lump sum distribution of that Annual Deferral Amount, plus deemed interest credited to his or her Account with respect to that Annual Deferral Amount, within sixty (60) days after the first day of any Year that is either: (a) seven (7) Years; or (b) fifteen (15) Years after the Year in which the Annual Deferral Amount is deferred. 8.5 Distribution of Company Discretionary Credit. If a Company Discretionary Credit is credited on behalf of an Eligible Employee who has elected to participate in the Plan for such Year, the Company Discretionary Credit shall be paid to the Eligible Employee at the same time and in the same manner as the accompanying Annual Deferral Amount. If a Company Discretionary Credit is credited on behalf of an Eligible Employee who has elected not to participate in the Plan for such Year, the Company Discretionary Credit shall be paid at such time as the Eligible Employee may elect pursuant to Section 8.4, or, in the absence of such election, as provided by Section 8.1, and, if the Eligible Employee satisfies the requirements of Section 8.3, the Eligible Employee may elect to receive distribution of the Company Discretionary Credit in monthly installments as provided by Section 8.3, or, absent such election, distribution shall be made in the manner provided by Section 8.2. Any election made by an Eligible Employee under this Section 8.5 shall be made on the same forms and shall be subject to the same election periods as elections made with respect to Annual Deferral Amounts. 8.6 Unforeseeable Emergency. The Committee shall have the power in its absolute discretion to distribute all or a portion of an Eligible Employee's or Eligible Director's Account Balances attributable to Annual Deferral Amounts, Company Discretionary 50 Credits or Service Credits on any date in the event that the Eligible Employee or Eligible Director, in the judgment of the Committee, experiences an "unforeseeable emergency". Account Balances attributable to Long Term Incentive Credits are not available for distribution in the event of an "unforeseeable emergency." An "unforeseeable emergency" is an event or circumstance which would, but for an immediate distribution, result in a severe financial hardship to the Eligible Employee or Eligible Director resulting from a sudden and unexpected illness or accident of the Eligible Employee or Eligible Director or a dependent of the Eligible Employee or Eligible Director, disability of the Eligible Employee or Eligible Director, loss of the Eligible Employee's or Eligible Director's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Eligible Employee or Eligible Director. The need to send an Eligible Employee's or Eligible Director's dependent to college or the desire to purchase a home shall not be an "unforeseeable emergency". The Committee shall have the authority to require such evidence as it deems necessary to determine if, and to what extent, a distribution is warranted. The Committee also shall have the power, in its absolute discretion, to accelerate the distribution of an Eligible Employee's Accounts (other than the Account for his or her Long Term Incentive Credit, if any) under Section 8.3 to the extent the Committee acting in its absolute discretion deems appropriate under the circumstances to meet the "unforeseeable emergency". No Eligible Employee or Eligible Director shall have the right to make or to continue any deferral election under this Plan with respect to Cash Compensation otherwise actually payable during: (i) the remainder of the Year which includes the date the Committee exercises its power under this Section 8.6 to distribute, or to accelerate the distribution of, his or her Accounts, and (ii) for a period of one Year thereafter. 8.7 Distribution of Restoration Benefits. An Eligible Employee's Restoration Benefit shall commence at the same time that benefits commence to such Eligible Employee under the Retirement Plan based on the employment completed on or before the December 31, 2002. Except as provided below, if an Eligible Employee is receiving monthly payments from the Plan at the time that his or her Restoration Benefit commences, the Restoration Benefit shall be paid monthly. In all other circumstances, Restoration Benefits shall be paid in a lump sum, calculated using the actuarial assumptions used for calculating lump sum benefits under the Retirement Plan. If at any time the present value of an Eligible Employee's Restoration Benefit is less than $10,000, such amount shall be paid in a lump sum. SECTION 9 DEEMED INTEREST CREDITING 9.1 Interest Rate. Deemed interest shall be credited to each Account monthly at an annual rate to be determined by the Committee and specified in advance of the Eligible Employee's or Eligible Director's election for the Year. 9.2 Prior to Distribution. Deemed interest shall be credited and compounded monthly on each Eligible Employee's or Eligible Director's Account on the last day of each calendar month. If a distribution is made, for purposes of crediting deemed interest, an Eligible Employee's or Eligible Director's Account Balance shall be reduced as of the first day of the month in which the distribution is made. 9.3 Installments. In the event an Account or any portion thereof is distributed in installments, installment amounts shall be determined in the following manner: 51 (a) Interest Rate. The interest rate to be used to calculate installment payment amounts shall be a fixed interest rate that is determined by averaging the interest rates for the Year in which installment payments commence and the four (4) preceding Years. If an Eligible Employee has participated in the Plan for fewer than five (5) Years, this average shall be determined using the interest rate for the Years during which the Eligible Employee participated in the Plan. (b) "Deemed" Installment Payments. For purposes of calculating installment payment amounts only (and notwithstanding the fact that installment payments shall actually be paid monthly), installment payments for each twelve (12) month period, starting with the date that the Eligible Employee becomes eligible to receive a distribution of an Account under this Plan (the "Eligibility Date") and continuing thereafter for each additional twelve (12) month period until the Eligible Employee's Account Balances are paid in full, shall be deemed to have been paid in one sum as of the first day of each such twelve (12) month period. (The result of this is that interest crediting shall be made on an annual basis after taking into account the "deemed" annual installment payment for the twelve (12) month period.) (c) Amortization. Based on the interest rate determined in accordance with Section 9.1 above and the "deemed" form of installment payments determined in accordance with Section 9.3(b) above, the Eligible Employee's Account Balances shall be amortized in equal annual installment payments over the term of the specified payment period (starting as of the Eligibility Date and stated in years rather than months). (d) Monthly Payments. The annual installment payment determined in Section 9.3(c) above shall be divided by twelve (12), and the resulting number shall be the monthly installment payment that is to be paid each month during the specified payment period in accordance with Section 8.3. SECTION 10 SOURCE OF DISTRIBUTION All distributions under this Plan shall be made by the Company, from its general assets, and the status of each Eligible Employee's or Eligible Director's claim to his or her Accounts (and the claim of any Beneficiary) shall be the same as the status of a claim against the Company by any of its general and unsecured creditors. No person whomsoever shall look to, or have any claim whatsoever against, any officer, director, employee or agent of the Company or any Subsidiary in his or her individual capacity for the payment of any amounts under this Plan. SECTION 11 CLAIMS PROCEDURES 11.1 Presentation of Claim. Any Participant or beneficiary (such Participant or beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 52 11.2 Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant not later than 90 days after receipt of the claim: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (1) the specific reason(s) for the denial of the claim, or any part of it; (2) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (3) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; (4) an explanation of the claim review procedure, and (5) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended, following an adverse determination on review. 11.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, the Claimant (or the Claimant's duly authorized representative): (a) may review all documents relevant to the claim for benefits under this Plan and receive copies of such documents upon request and free of charge; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 11.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the decision must be rendered within 120 days after such date. If special circumstances, such as the need to hold a hearing, require additional time, the Claimant will be provided with notice of the need for additional time before the end of the initial 60-day period. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; 53 (c) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended; (d) a statement of the Claimant's right receive upon request and free of charge, copies of all documents relevant to the claim for benefits under this Plan; and (e) such other matters as the Committee deems relevant. 11.5 Manner of Notification. The Committee may notify a Claimant of its decision either in writing or, where electronic notification would be appropriate under ERISA, electronically. 11.6 Legal Action. A Claimant's compliance with the foregoing provisions of this Section 11 is a mandatory prerequisite to Participant's or beneficiary's right to commence any legal action with respect to any claim for benefits under this Plan. SECTION 12 MISCELLANEOUS 12.1 Beneficiary. Each Eligible Employee and Eligible Director (for whom an Account is maintained) shall designate a Beneficiary, or more than one Beneficiary, to receive the balance, if any, of his or her Accounts under this Plan in the event of his or her death. Such designation shall be made on a form acceptable to the Committee and shall become effective when received by such Committee. An Eligible Employee or Eligible Director who is legally married shall be required to provide the Committee with a properly executed spousal consent form in order to name any individual or entity other than the Eligible Employee's or Eligible Director's current spouse as Beneficiary of fifty percent (50%) or more of the Eligible Employee's or Eligible Director's aggregate Account Balances. An Eligible Employee or Eligible Director may revoke any such designation by delivering a properly executed form revoking such prior designation and designating a new Beneficiary to the Committee, provided such form is received by the Committee prior to the date of the Eligible Employee's or Eligible Director's death. If no such designated Beneficiary survives an Eligible Employee or Eligible Director or if no designation is made, the Eligible Employee's or Eligible Director's estate shall be deemed his or her designated Beneficiary under this Plan. Upon the death of an Eligible Employee or Eligible Director before distribution of the Eligible Employee's or Eligible Director's Accounts has begun, the Company shall distribute the Eligible Employee's or Eligible Director's Accounts to the Beneficiary designated by such Eligible Employee or Eligible Director at such time and in such manner as the Eligible Employee or Eligible Director had elected. Upon the death of an Eligible Employee or Eligible Director after distribution has begun, the Company shall pay the Accounts to the Beneficiary in the same manner such distribution as being made before the Eligible Employee's or Eligible Director's death. 12.2 No Assignment; Binding Effect. No Eligible Employee, Eligible Director or Beneficiary shall have the right to alienate, assign, commute or otherwise encumber an Account or Restoration Benefit for any purpose whatsoever, and any attempt to do so shall be disregarded completely as null and void. The provisions of this Plan shall be binding on each Eligible Employee, Eligible Director and Beneficiary (and on each person who claims a benefit under the foregoing) and on the Company. 54 12.3 ERISA. The Company intends that this Plan come within the various exceptions and exemptions to the Employee Retirement Income Security Act of 1974, as amended, for an unfunded deferred compensation plan maintained primarily for a select group of management or highly compensated employees, and any ambiguities in this Plan shall be construed to effect that intent. 12.4 Committee Powers. The Committee, in the administration of this Plan, shall have the power to take such equitable and other action as the Committee acting in its absolute discretion deems proper or appropriate under the circumstances (including the power to delegate Committee functions to others) to the extent that such action is not inconsistent with the express provisions of this Plan as approved by the Board of Directors. The Committee shall have the exclusive responsibility and complete discretionary authority to control the operation, management and administration of this Plan, with all powers necessary to enable it properly to carry out such responsibilities, including (but not limited to) the power to construe this Plan, to determine eligibility for benefits, to resolve all interpretative, operational, equitable and other questions that arise under this Plan and to settle disputed claims. The decisions of the Committee shall be final and binding upon all persons. Members of the Committee who are Eligible Employees or Eligible Directors may defer Cash Compensation in accordance with the terms of the Plan; provided, however, that no member of the Committee shall act on any determination under Section 4.3(e)(2) or Section 8.5 which relates to him or her. 12.5 Construction. This Plan shall be construed in accordance with the laws of the State of Georgia. Headings and subheadings have been added only for convenience of reference and shall have no substantive effect. All references to sections shall be to sections of this Plan. References to the singular shall include the plural whenever appropriate. The term "Eligible Employee" and "Eligible Director" shall include (except under Section 4) a former Eligible Employee or Eligible Director and any Beneficiary of a deceased Eligible Employee or Eligible Director. 12.6 Employment Contract. Participation in this Plan shall not constitute an employment contract, and the Company shall have the right at any time to terminate an Eligible Employee's employment, to reduce his or her Cash Compensation or other compensation or to take such other action in connection with his or her employment as the Company deems appropriate without regard to this Plan. 12.7 Term of Office. An Eligible Director's participation in this Plan shall not constitute a contract for him or her to serve as a member of the Board of Directors for any particular term or any particular fee, and participation in this Plan shall have no bearing on such terms, fees or any other conditions of membership on the Board of Directors. 12.8 Amendment and Termination. The Company acting through the Committee shall have the right at its discretion to amend this Plan from time to time and to terminate this Plan at any time. In the event the Plan is terminated, all deferrals shall cease and the Company shall retain all Accounts until distribution is scheduled to commence under Section 8. 12.9 Distribution in the Event of Taxation. If, for any reason, all or any portion of an Eligible Employee's or Eligible Director's Accounts become taxable to the Eligible Employee or Eligible Director prior to distribution, an Eligible Employee or Eligible Director may petition the Committee for a distribution of the Accounts sufficient to meet the Eligible Employee's or Eligible Director's tax liability (including penalties and interest). 55 12.10 Furnishing Information. An Eligible Employee or Eligible Director shall cooperate with the Committee by furnishing all information requested by the Committee and shall take such other actions as may be requested in order to facilitate administration of the Plan and the distribution of Accounts or Restoration Benefits hereunder, including without limitation, taking such physical examinations as the Committee may deem necessary. IN WITNESS WHEREOF, Grover L. Davis, Chairman & Chief Executive Officer, has executed this Plan this 21st day of August, 2003. /s/ Grover L. Davis --------------------------- GROVER L. DAVIS CHAIRMAN & CHIEF EXECUTIVE OFFICER 56 EX-15.1 5 g85632exv15w1.txt LETTER FROM ERNST & YOUNG LLP Exhibit 15.1 To the Shareholders and Board of Directors of Crawford & Company: We are aware of the incorporation by reference in the previously filed Registration Statement File Nos. 33-47536, 33-36116, 333-02051, 333-24425, 333-24427, 333-43740, 333-87465, and 333-87467 of Crawford & Company's Form 10-Q of our reports dated April 24, 2003, August 1, 2003, and November 4, 2003 related to the unaudited condensed consolidated interim financial statements of Crawford & Company that are included in its Form 10-Q for the quarters ended March 31, 2003, June 30, 2003, and September 30, 2003. /s/ Ernst & Young LLP Atlanta, Georgia November 4, 2003 57 EX-31.1 6 g85632exv31w1.txt SECTION 302 CERTIFICATION OF THE PEO Exhibit 31.1 SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Grover L. Davis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Crawford & Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2003 /s/ Grover L. Davis --------------------------------- Grover L. Davis Chief Executive Officer (Principal Executive Officer) 58 EX-31.2 7 g85632exv31w2.txt SECTION 302 CERTIFICATION OF THE PFO Exhibit 31.2 SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, John F. Giblin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Crawford & Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2003 /s/ John F. Giblin ----------------------------------- John F. Giblin Executive Vice President - Finance (Principal Financial Officer) 59 EX-32.1 8 g85632exv32w1.txt SECTION 906 CERTIFICATION OF THE PEO Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Crawford & Company (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Grover L. Davis, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 4, 2003 /s/ Grover L. Davis ------------------------------------- Grover L. Davis Chief Executive Officer 60 EX-32.2 9 g85632exv32w2.txt SECTION 906 CERTIFICATION OF THE PFO Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Crawford & Company (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Giblin, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 4, 2003 /s/ John F. Giblin -------------------------------------- John F. Giblin Executive Vice President - Finance Chief Financial Officer 61 -----END PRIVACY-ENHANCED MESSAGE-----