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Crawford Reports 2007 Fourth Quarter Improvement in Revenues and Net Income - Quarter and Annual Record Results Generated by International Operations
ATLANTA, Feb. 4 /PRNewswire-FirstCall/ -- Crawford & Company (NYSE: CRDA) (NYSE: CRDB) , the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, today announced its financial results for the fourth quarter and year ended December 31, 2007. Consolidated Results Fourth quarter 2007 consolidated revenues before reimbursements totaled $245.2 million compared to $228.3 million in the 2006 fourth quarter. Fourth quarter 2007 net income was $3.3 million compared to a net loss of ($1.3) million for the 2006 fourth quarter. Fourth quarter 2007 earnings per share was $0.07 compared to a loss per share of ($0.03) in the prior-year quarter. During the 2007 fourth quarter the Company recognized previously unrecognized tax benefits which increased net income by approximately $640,000, or $0.01 per share. Net loss in the 2006 fourth quarter included a restructuring charge and loss on early extinguishment of debt of $1.9 million, net of related income taxes, or $0.04 per share, resulting from the purchase of Broadspire Services, Inc during the 2006 fourth quarter. Consolidated revenues before reimbursements for the year ended December 31, 2007 were $975.1 million compared with $819.5 million in 2006. Net income for 2007 totaled $16.1 million, or $0.32 per share, compared with $15.0 million, or $0.30 per share, for 2006. Comparison of net income year-over- year is affected by several non-recurring items, including: a current year gain on disposal of assets of $2.5 million, net of related income taxes, or $0.05 per share, as a result of the 2007 sale of the Company's subrogation services unit; the recognition of a $3.1 million gain in 2007, net of related income taxes, or $0.06 per share, related to the 2006 sale of the Company's former corporate headquarters; a gain in the prior year of $2.0 million, net of related income taxes, or $0.04 per share, resulting from the third quarter 2006 sale of the Company's investigative services units; and a loss of $1.9 million, net of related income taxes, or $0.04 per share, in the 2006 fourth quarter resulting from a restructuring charge and loss on early extinguishment of debt from the purchase of Broadspire Services, Inc. During the 2007 fourth quarter, the Company made a discretionary $2.5 million prepayment on its long-term debt. For the year, the Company made $12.5 million in discretionary prepayments on its long-term borrowings. Crawford's operating cash flows for 2007 reflected cash provided of $23.3 million compared to the prior year of $52.7 million. This change was primarily due to growth in unbilled revenues during 2007 and the reduction of deferred revenues associated with the completion of claims assumed in the Broadspire acquisition. The Company's consolidated cash and cash equivalent position as of December 31, 2007 totaled $50.9 million, down $10.8 million from $61.7 million at December 31, 2006. International Operations Fourth quarter 2007 revenues before reimbursements for international operations grew to a record of $107.3 million from $84.5 million for the same period in 2006. Compared to the 2006 fourth quarter, during the current quarter the U.S. dollar was weaker against most major foreign currencies, resulting in a net exchange rate benefit in the current quarter. Excluding the benefit of exchange rate fluctuations, international revenues would have been $97.8 million in the 2007 fourth quarter, reflecting growth in revenues on a constant dollar basis of 15.8%. The acquisition of Specialty Liability Services, Ltd. in the United Kingdom during the 2006 fourth quarter contributed incremental revenues of $1.3 million in the 2007 fourth quarter. International operating expenses increased by $19.9 million in U.S. dollars, a 25.7% increase, and by 14.9% on a constant dollar basis. Operating earnings improved to a record $9.9 million in the current quarter, increasing 42.6% over last year's fourth quarter operating earnings of $6.9 million. The related operating margin was 9.2% in the 2007 fourth quarter, improving over the 8.2% operating margin in the 2006 fourth quarter. U.S. Property & Casualty U.S. property & casualty revenues before reimbursements were $40.4 million in the fourth quarter of 2007 compared to $44.0 million in the 2006 fourth quarter, primarily as a result of lower claims volumes. Revenues generated by the Company's catastrophe adjuster group were $1.8 million in the 2007 fourth quarter, declining slightly from $2.1 million in the 2006 period. The prior- year quarter included $588,000 in revenues generated by the Company's subrogation services unit which was sold February 28, 2007. Operating earnings in the U.S. property and casualty segment declined to a loss of ($911,000), or (2.3%) of revenues, compared to a loss of ($39,000), or (0.1%) of revenues in the 2006 fourth quarter. Broadspire Revenues before reimbursements from the Broadspire segment were $75.0 million in the 2007 fourth quarter compared to $68.2 million generated in the 2006 quarter. Incremental revenues associated with Broadspire Management Services, Inc., acquired in the 2006 fourth quarter, totaled $12.9 million in the 2007 fourth quarter. In the 2007 fourth quarter, the Broadspire segment's operating earnings improved to an operating loss of ($277,000), or (0.4%) of revenues from a loss of ($3.5) million, or (5.2%) of revenues. Legal Settlement Administration Legal settlement administration revenues before reimbursements were $22.5 million for the 2007 fourth quarter, compared to $31.7 million in the 2006 quarter. Operating earnings totaled $3.4 million in the 2007 fourth quarter, or an operating margin of 15.3% of revenues, compared to $3.7 million, or 11.7% of revenues, in the prior-year period. The segment's awarded project backlog totaled approximately $45.0 million at December 31, 2007. Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "Our fourth quarter 2007 operating results reflect strong performance in our international business which generated record revenues and operating earnings for both the fourth quarter and full year, offset by declining revenues in our U.S. property & casualty and legal settlement administration segments. During 2006, the legal settlement administration segment was completing several major securities class action projects and by comparison is experiencing today a period of comparatively slower class action activity. Our U.S. property & casualty segment continues to experience a downturn in revenues, primarily as a result of lower industry-wide frequency and the absence of significant storm activity. We were pleased to make progress against our outstanding long-term borrowings by making $12.5 million in voluntary payments during the year." Mr. Bowman concluded, "Despite challenging macro trends in U.S. property and casualty claims frequencies and in our class action business, our outlook for 2008 anticipates improved operating results in each of our operating segments. This company and management team is focused on key financial measures and we are committed to managing our operations toward improved operating margins during the coming year."
Crawford & Company provided guidance for 2008 as follows:
-- Consolidated revenues before reimbursements between $990 million and
$1.02 billion.
-- Consolidated operating earnings between $54.0 million and $58.7
million.
-- After reflecting stock-based compensation expense, net corporate
interest expense, intangible asset amortization expense, and income
taxes, consolidated net income between $19.1 million and $22.1 million,
or $0.38 to $0.44 per share.
Crawford & Company's management will host a conference call with analysts on Monday, February 4, 2008 at 3:00 p.m. EST to discuss quarterly earnings and other developments. The call will be recorded and available for replay through February 11, 2008. You may dial 1-800-642-1687 (706-645-9291 international) to listen to the replay. The access code is 32434094. Alternatively, please visit our web site at www.crawfordandcompany.com for a live audio web cast. Further information regarding the Company's financial position, operating results, and cash flows for the quarter and year ended December 31, 2007 is shown on the attached unaudited statements. Operating earnings (a non-GAAP financial measure) is the key financial performance measure used by the Company's senior management to evaluate the performance of its segments and make resource allocation decisions. The Company believes this measure is useful to investors in that it allows them to evaluate operating performance using the same criteria that management uses. Operating earnings exclude net corporate interest expense, stock option expense, income tax expense, amortization of customer relationship intangible assets, unallocated corporate and shared costs and certain other charges and credits. Net corporate interest expense, stock option expense and income taxes are recurring components of the Company's net income, but they are not considered part of operating earnings since they are managed on a corporate-wide basis. Net corporate interest expense results from capital structure decisions made by the Company, stock option expense relates to historically granted stock options which are not allocated to its operating units, and income taxes are based on statutory rates in effect in each of the locations where the Company provides services and vary throughout the world. Amortization expense relates to non-cash amortization of customer relationship intangible assets resulting from business combinations. These costs are not allocated to the segments for assessing performance. None of the aforementioned costs relate directly to the performance of the Company's services and are therefore excluded in order to accurately assess the results of segment operating activities on a consistent basis. Certain other credits and charges represent events (gain on disposal of assets, loss on extinguishment of debt, etc.) that are not considered part of segment operating earnings since they historically have not regularly impacted the Company's operating performance and are not expected to regularly impact future performance. Following is a reconciliation of segment operating earnings (loss) to consolidated net income on a GAAP basis and the related margins as a percentage of revenues before reimbursements for all periods presented:
Quarter ended Year ended
Dec. 31, % Dec. 31, % Dec. 31, % Dec. 31, %
2007 Margin 2006 Margin 2007 Margin 2006 Margin
Operating
Earnings
(Loss):
U.S. property
& casualty $(911) (2.3)% $(39) (0.1)% $4,675 2.6% $13,014 6.2%
International
operations 9,850 9.2 6,906 8.2 24,660 6.5 14,451 4.8
Broadspire (277) (0.4) (3,522) (5.2) 3,821 1.2 (21,603) (12.3)
Legal
settlement
admin-
istration 3,449 15.3 3,707 11.7 12,521 12.5 22,982 17.6
Unallocated
corporate
and shared
(costs)
credits (2,055) (0.8) (381) (0.1) (8,447) (0.9) 3,351 0.4
Add/(Deduct):
Other
credits
(charges) - - (3,096) (1.4) 8,824 0.9 (27) -
Stock
option
expense (290) (0.1) (355) (0.2) (1,191) (0.1) (1,220) (0.1)
Amortization
expense (1,507) (0.6) (1,124) (0.5) (6,025) (0.6) (1,124) (0.1)
Net
corporate
interest
expense (4,154) (1.7) (3,322) (1.5) (17,326) (1.8) (5,753) (0.7)
Income
taxes (801) (0.3) (72) (-) (5,396) (0.6) (9,060) (1.1)
Net income $3,304 1.3 $(1,298) (0.6) $16,116 1.7 $15,011 1.8
Based in Atlanta, Georgia, Crawford & Company (www.crawfordandcompany.com) is the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, with a global network of more than 700 offices in 63 countries. Major service lines include property and casualty claims management, integrated claims and medical management for workers' compensation, legal settlement administration, including class action and warranty inspections, and risk management information services. The Company's shares are traded on the NYSE under the symbols CRDA and CRDB. Except for historical information contained herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties. The results achieved in the quarter and year-to-date periods ended December 31, 2007 are not necessarily indicative of future prospects for the Company. Actual results in future quarters may differ materially. For a discussion regarding factors which could affect the Company's financial performance, see the Company's Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission, in particular the information under the headings "Business," "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. The Company's actual results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company.
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In Thousands, Except Per Share Amounts)
Year Ended December 31 2007 2006 % Change
Revenues:
Revenues Before Reimbursements $975,143 $819,522 19%
Reimbursements 76,135 80,858 -6%
Total Revenues 1,051,278 900,380 17%
Costs and Expenses:
Cost of Services Before Reimbursements 733,392 638,174 15%
Reimbursements 76,135 80,858 -6%
Total Cost of Services 809,527 719,032 13%
Selling, General, and Administrative 211,737 151,497 40%
Corporate Interest Expense, Net 17,326 5,753 201%
Restructuring Costs - 1,695 nm
Total Costs and Expenses 1,038,590 877,977 18%
Loss on Early Retirement of Debt - (1,401) nm
Gain on Disposal of Investigations
Business - 3,069 nm
Gain on Disposal of Subrogation
Business 3,980 - nm
Gain on Sale of Former Corporate
Headquarters 4,844 - nm
Income Before Income Taxes 21,512 24,071 -11%
Income Taxes 5,396 9,060 -40%
Net Income $16,116 $15,011 7%
Earnings Per Share - Basic and Diluted $0.32 $0.30 7%
Average Numbers of Shares Used to Compute:
Basic Earnings Per Share 50,464 49,423
Diluted Earnings Per Share 50,598 49,576
Cash Dividends Per Share:
Class A Common Stock $0.00 $0.18
Class B Common Stock $0.00 $0.18
nm = not meaningful
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In Thousands, Except Per Share Amounts)
Quarter Ended December 31 2007 2006 % Change
Revenues:
Revenues Before Reimbursements $245,224 $228,256 7%
Reimbursements 21,261 18,352 16%
Total Revenues 266,485 246,608 8%
Costs and Expenses:
Cost of Services Before
Reimbursements 186,203 177,646 5%
Reimbursements 21,261 18,352 16%
Total Cost of Services 207,464 195,998 6%
Selling, General, and Administrative 50,762 45,418 12%
Corporate Interest Expense, Net 4,154 3,322 25%
Restructuring Costs - 1,695 nm
Total Costs and Expenses 262,380 246,433 6%
Loss on Early Retirement of Debt - (1,401) nm
Income (Loss) Before Income Taxes 4,105 (1,226) -435%
Income Taxes 801 72 1013%
Net Income (Loss) $3,304 ($1,298) 255%
Earnings (Loss) Per Share - Basic and
Diluted $0.07 ($0.03) 233%
Average Numbers of Shares Used to Compute:
Basic Earnings Per Share 50,551 50,229
Diluted Earnings Per Share 50,643 50,229
Cash Dividends Per Share:
Class A Common Stock $0.00 $0.00
Class B Common Stock $0.00 $0.00
nm = not meaningful
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT
Year Ended December 31
Unaudited
(In Thousands, Except Percentages)
U.S. Property
& Casualty % International %
2007 2006 Change 2007 2006 Change
Revenues Before
Reimbursements $177,179 $209,985 -15.6% $376,639 $303,697 24.0%
Compensation &
Benefits 117,347 135,422 -13.3% 260,041 212,522 22.4%
% of Revenues 66.3% 64.5% 69.1% 69.9%
Expenses Other than
Reimbursements,
Compensation &
Benefits 55,157 61,549 -10.4% 91,938 76,724 19.8%
% of Revenues 31.1% 29.3% 24.4% 25.3%
Total Operating
Expenses 172,504 196,971 -12.4% 351,979 289,246 21.7%
Operating Earnings
(Loss) (1) $4,675 $13,014 -64.1% $24,660 $14,451 70.6%
% of Revenues 2.6% 6.2% 6.5% 4.8%
Legal Settlement
Broadspire % Administration %
2007 2006 Change 2007 2006 Change
Revenues Before
Reimbursements $320,774 $175,149 83.1% $100,551 $130,691 -23.1%
Compensation &
Benefits 197,893 118,342 67.2% 50,483 53,122 -5.0%
% of Revenues 61.7% 67.5% 50.2% 40.6%
Expenses Other than
Reimbursements,
Compensation &
Benefits 119,060 78,410 51.8% 37,547 54,587 -31.2%
% of Revenues 37.1% 44.8% 37.3% 41.8%
Total Operating
Expenses 316,953 196,752 61.1% 88,030 107,709 -18.3%
Operating Earnings
(Loss) (1) $3,821 ($21,603) 117.7% $12,521 $22,982 -45.5%
% of Revenues 1.2% -12.3% 12.5% 17.6%
Quarter Ended December 31
Unaudited
(In Thousands, Except Percentages)
U.S. Property
& Casualty % International %
2007 2006 Change 2007 2006 Change
Revenues Before
Reimbursements $40,393 $43,960 -8.1% $107,309 $84,460 27.1%
Compensation &
Benefits 27,053 29,813 -9.3% 71,019 57,532 23.4%
% of Revenues 67.0% 67.8% 66.2% 68.1%
Expenses Other than
Reimbursements,
Compensation &
Benefits 14,251 14,186 0.5% 26,440 20,022 32.1%
% of Revenues 35.3% 32.3% 24.6% 23.7%
Total Operating
Expenses 41,304 43,999 -6.1% 97,459 77,554 25.7%
Operating Earnings
(Loss) (1) ($911) ($39) 2235.9% $9,850 $6,906 42.6%
% of Revenues -2.3% -0.1% 9.2% 8.2%
Legal Settlement
Broadspire % Administration %
2007 2006 Change 2007 2006 Change
Revenues Before
Reimbursements $75,002 $68,159 10.0% $22,520 $31,677 -28.9%
Compensation &
Benefits 45,750 44,596 2.6% 11,859 14,493 -18.2%
% of Revenues 61.0% 65.5% 52.7% 45.8%
Expenses Other than
Reimbursements,
Compensation &
Benefits 29,529 27,085 9.0% 7,212 13,477 -46.5%
% of Revenues 39.4% 39.7% 32.0% 42.5%
Total Operating
Expenses 75,279 71,681 5.0% 19,071 27,970 -31.8%
Operating Earnings
(Loss) (1) ($277) ($3,522) 92.1% $3,449 $3,707 -7.0%
% of Revenues -0.4% -5.2% 15.3% 11.7%
(1) A non-GAAP financial measurement which represents earnings before gain
on disposal of assets, net corporate interest expense, acquisition
related intangible assets amortization expense, stock option expense,
income tax expense, and certain unallocated corporate and shared costs
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2007 and December 31, 2006
(In Thousands)
Unaudited *
December 31 December 31
Assets 2007 2006
Current Assets:
Cash and Cash Equivalents $50,855 $61,674
Short-term Investment - 5,000
Accounts Receivable, Net 178,528 178,447
Unbilled Revenues, Net 136,652 117,098
Prepaid Expenses and Other Current Assets 17,398 19,924
Total Current Assets 383,433 382,143
Property and Equipment, at Cost 153,733 140,729
Less Accumulated Depreciation (104,467) (99,845)
Net Property and Equipment 49,266 40,884
Other Assets:
Goodwill 263,769 256,700
Intangible Assets, Net 118,678 127,869
Capitalized Software Costs, Net 40,032 36,903
Deferred Income Tax Assets 14,222 13,498
Other Noncurrent Assets 29,362 34,991
Total Other Assets 466,063 469,961
Total Assets $898,762 $892,988
Liabilities and Shareholders' Investment
Current Liabilities:
Short-Term Borrowings $29,389 $27,795
Accounts Payable 39,601 42,262
Accrued Compensation and Related Costs 69,655 64,636
Other Accrued Liabilities 57,360 46,526
Self-Insured Risks 18,290 21,722
Accrued Income Taxes 6,415 363
Deposit on Sale of Former Corporate Headquarters - 8,000
Deferred Revenues 64,363 68,359
Current Installments of Notes Payable and
Capital Leases 2,475 2,621
Total Current Liabilities 287,548 282,284
Noncurrent Liabilities:
Notes Payable and Capital Leases, net of
current portions 183,449 199,044
Deferred Revenues 58,925 77,110
Self-Insured Risks 18,439 12,338
Postretirement Medical Benefit Obligation 1,898 2,440
Accrued Pension Liabilities 76,977 90,058
Other Noncurrent Liabilities 12,265 14,019
Total Noncurrent Liabilities 351,953 395,009
Minority Interest in Equity of Consolidated
Affiliates 5,046 4,544
Shareholders' Investment:
Class A Common Stock, $1.00 Par Value 25,935 25,741
Class B Common Stock, $1.00 Par Value 24,697 24,697
Additional Paid-in Capital 19,057 15,468
Retained Earnings 223,793 207,891
Accumulated Other Comprehensive Loss (39,267) (62,646)
Total Shareholders' Investment 254,215 211,151
Total Liabilities and Shareholders' Investment $898,762 $892,988
* Derived from the audited Consolidated Balance Sheet
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2007 and December 31, 2006
Unaudited
(In Thousands)
2007 2006
Cash Flows From Operating Activities:
Net Income $16,116 $15,011
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization Expense 29,646 20,545
Deferred Income Tax (Benefit) Provision (1,103) 3,063
Stock-Based Compensation Costs 2,929 3,567
Net Loss on Sales of Property and Equipment 554 267
Loss on Early Extinguishment of Debt - 1,401
Gain on Sale of Investigations Business - (3,069)
Gain on Sale of Subrogation Business (3,980) -
Gain on 2006 Sale of Former Corporate
Headquarters (4,844) -
Changes in Operating Assets and Liabilities,
net of effects of acquisitions and
disposition:
Accounts Receivable, net 12,450 11,078
Unbilled Revenues, net (11,298) 6,144
Accrued Income Taxes 3,988 (2,920)
Accounts Payable and Accrued Liabilities (1,949) 210
Deferred Revenues (22,571) (6,091)
Accrued Retirement Costs 2,188 5,064
Prepaid Expenses and Other Operating
Activities 1,158 (1,553)
Net Cash Provided by Operating Activities 23,284 52,717
Cash Flows From Investing Activities:
Acquisitions of Property and Equipment, net (15,734) (12,707)
Capitalization of Computer Software Costs (11,980) (9,852)
Proceeds from Sale of Investment Security 5,000 -
Proceeds from Sale of Subrogation Unit 5,000 -
Deposit Received on Sale of Real Estate - 8,000
Proceeds from Sale of Investigations Unit - 3,000
Payments for Business Acquisitions, net of Cash
Acquired (1,323) (162,461)
Other Investing Activities (50) (586)
Net Cash Used in Investing Activities (19,087) (174,606)
Cash Flows From Financing Activities:
Dividends Paid - (8,869)
Proceeds from Stock Issued to Employees Under
Incentive Plans 717 1,912
Short-Term Borrowings, net (1,483) (1,617)
Proceeds from Long-Term Borrowings - 210,000
Payments on Long-Term Debt and Capital Lease
Obligations (15,515) (60,946)
Other Financing Activities (908) (4,694)
Net Cash (Used in) Provided by Financing Activities (17,189) 135,786
Effect of Exchange Rate Changes on Cash and Cash
Equivalents 2,173 929
(Decrease) Increase in Cash and Cash Equivalents (10,819) 14,826
Cash and Cash Equivalents at Beginning of Year 61,674 46,848
Cash and Cash Equivalents at End of Year $50,855 $61,674
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