<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarter ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
COMMISSION FILE NUMBER 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
GEORGIA 58-0506554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5620 GLENRIDGE DRIVE, N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices) (Zip Code)
(404) 256-0830
(Registrant's telephone number, including area code)
-------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of April 30, 1999 was as follows:
CLASS A COMMON STOCK, $1.00 PAR VALUE: 24,990,134
CLASS B COMMON STOCK, $1.00 PAR VALUE: 24,818,117
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAWFORD AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
MARCH 31, MARCH 31,
1999 1998
--------------------------
<S> <C> <C>
REVENUES $172,621 $166,133
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $7,868 in 1999 and $9,351 in 1998 127,589 123,782
Selling, general, and administrative expenses 26,947 22,803
Year 2000 expenses 1,789 1,028
- -----------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 156,325 147,613
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 16,296 18,520
PROVISION FOR INCOME TAXES 6,258 7,113
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST 10,038 11,407
MINORITY INTEREST IN LOSS OF JOINT VENTURE -- 13
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 10,038 $ 11,420
=====================================================================================================
NET INCOME PER SHARE:
BASIC $ 0.20 $ 0.23
DILUTED $ 0.20 $ 0.23
=====================================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 50,614 49,320
DILUTED 50,740 50,082
=====================================================================================================
CASH DIVIDENDS PER SHARE:
CLASS A COMMON STOCK $ 0.13 $ 0.125
CLASS B COMMON STOCK $ 0.13 $ 0.125
=====================================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,064 $ 8,423
Accounts receivable, less allowance for doubtful
accounts of $19,393 in 1999 and $19,346 in 1998 131,755 134,094
Unbilled revenues, at estimated billable amounts 92,998 88,871
Prepaid expenses and other current assets 17,561 19,758
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 262,378 251,146
- ----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 155,761 154,073
Less accumulated depreciation and amortization (112,681) (111,130)
- ----------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 43,080 42,943
- ----------------------------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 69,279 64,092
Prepaid pension cost 53,783 55,377
Capitalized software costs 12,946 11,885
Other 11,570 7,826
- ----------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 147,578 139,180
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 453,036 $ 433,269
====================================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 53,974 $ 37,196
Accounts payable 24,270 21,971
Accrued compensation and related costs 16,580 24,219
Accrued restructuring costs 4,129 7,362
Other accrued liabilities 42,792 31,688
Deferred revenues 26,557 17,575
Current installments of long-term debt 555 563
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 168,857 140,574
- --------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 1,509 1,854
Deferred income taxes 8,720 8,720
Deferred revenues 13,764 13,594
Postretirement medical benefit obligation 8,108 7,983
Self-insured risks 8,954 9,002
Other 11,224 11,491
- --------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 52,279 52,644
- --------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 25,073 and 25,735
shares issued in 1999 and 1998, respectively 25,073 25,735
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,898 and 25,168
shares issued in 1999 and 1998, respectively 24,898 25,168
Additional paid-in-capital 14,725 24,560
Retained earnings 176,383 172,958
Cumulative translation adjustment (9,179) (8,370)
- --------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 231,900 240,051
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 453,036 $ 433,269
========================================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1999 1998
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,038 $ 11,420
Reconciliation of net income to net cash
provided by operating activities:
Minority interest in loss of joint venture -- (13)
Depreciation and amortization 4,199 3,832
Loss (gain) on sales of property and equipment 26 (75)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net 4,212 (1,951)
Unbilled revenues (3,558) (1,091)
Prepaid or accrued income taxes 6,050 5,686
Accounts payable and accrued liabilities (4,635) (5,443)
Accrued restructuring costs (3,728) (1,253)
Deferred revenues 7,997 (370)
Prepaid expenses and other assets 379 (4,386)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,980 6,356
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (3,961) (4,630)
Acquisition of business, net of cash acquired (6,813) --
Capitalization of software costs (1,308) (1,954)
Proceeds from sales of property and equipment 244 31
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,838) (6,553)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (6,612) (6,176)
Repurchase of common stock (7,588) (7,427)
Proceeds from exercise of stock options 56 4,301
Increase in short-term borrowings 17,418 905
Decrease in long-term debt (535) (115)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,739 (8,512)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (240) (1,362)
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,641 (10,071)
Cash and cash equivalents at beginning of period 8,423 55,380
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,064 $ 45,309
============================================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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CRAWFORD AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited condensed financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain previously reported amounts have been reclassified to conform to the
current presentation. These condensed financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1998.
2. The results of operations for the three-month period ended March 31, 1999,
are not necessarily indicative of the results to be expected during the balance
of the year ending December 31, 1999.
3. On January 6, 1999, the Company acquired the Garden City Group ("GCG") for
$7.6 million. The Company acquired assets with a fair value of $11.1 million and
assumed liabilities of approximately $3.5 million. This transaction was
accounted for by the purchase method of accounting. Goodwill related to the
initial purchase was $5.4 million. In April 1999, the Company made additional
payments to the former owners of GCG pursuant to the purchase agreement. Such
additional purchase price was approximately $3.2 million and will be recorded as
additional goodwill in the second quarter. The purchase price may be increased
based on future earnings of GCG.
4. During the three months ended March 31, 1999, the Company utilized $3.7
million of its restructuring reserves for payments due to employee and lease
terminations. As of March 31, 1999, remaining restructuring reserves were $9.8
million, $5.7 million of which is included in other noncurrent liabilities.
Management periodically reviews the restructuring reserves and believes the
remaining reserves are adequate to complete its plan.
5. Basic earnings per share is computed based on the weighted- average number
of total common shares outstanding during the respective periods. Diluted
earnings per share is computed based on the weighted-average number of total
common shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method.
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CRAWFORD AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Below is the calculation of basic and diluted net income per share for the
three-months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
(In thousands, except per share data)
Net income available to common shareholders $10,038 $11,420
======= =======
Weighted-average common shares outstanding - Basic 50,614 49,320
Dilutive effect of stock options 126 762
------- -------
Weighted-average common shares outstanding - Diluted 50,740 50,082
======= =======
Basic net income per share $ 0.20 $ 0.23
======= =======
Diluted net income per share $ 0.20 $ 0.23
======= =======
--------------------------------------------------------------------------------------
</TABLE>
Additional options to purchase 3,707,662 shares of Class A Common Stock at
$12.50 to $19.50 per share were outstanding at March 31, 1999 but were not
included in the computation of diluted net income per share because the options'
exercise price was greater than the average market price of the common shares;
to include them would have been antidilutive.
6. The Company has adopted Statement of Financial Accounting Standards
("SFAS") 130, "Reporting Comprehensive Income", which establishes standards for
the reporting and display of "comprehensive income" and its components.
Comprehensive income for the Company consists of net income and foreign currency
translation adjustments. Total comprehensive income (in thousands) for the
quarters ended March 31, 1999 and 1998 was $9,229 and $9,951, respectively.
7. The Company adopted SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. Under SFAS 131, the
Company has two reportable segments, one which provides claims services through
branch offices located in the United States ("Domestic Operations") and the
other which provides similar services through branch offices located in 51 other
countries ("International Operations"). Intersegment sales are recorded at cost
and are not material. The Company measures segment profit based on income before
taxes, nonrecurring charges, and minority interest.
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CRAWFORD AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial information for the quarter ended March 31, 1999 and 1998 covering the
Company's reportable segments is presented below (in thousands):
<TABLE>
<CAPTION>
Domestic International Total
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $128,295 $127,257 $ 44,326 $ 38,876 $172,621 $166,133
Pretax Income Before Year 2000
Expenses and Minority Interest 15,067 19,508 3,018 40 18,085 19,548
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
8. In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivatives Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments. SFAS
133, which will be effective for the Company in 2000, requires that entities
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Except for borrowing in foreign
currencies, the Company does not presently engage in any hedging activities to
compensate for the effect of exchange rate fluctuations on the net assets or
operating results of its foreign subsidiaries. As a result, the new standard is
not expected to have a significant effect on the Company's consolidated results
of operations, financial position, or cash flows.
9. Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which establishes guidelines for capitalizing such costs. Adoption of SOP 98-1
had no material impact on the Company's consolidated results of operations,
financial position, or cash flows.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Operating results for the Company's domestic and international operations for
the three-month periods ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Domestic International Total
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Revenues $128,295 $127,257 $ 44,326 $ 38,876 $172,621 $ 166,133
Compensation & Benefits 80,824 80,194 27,105 25,267 107,929 105,461
% of Revenues 63.0% 63.0% 61.1% 65.0% 62.5% 63.5%
Expenses Other than
Compensation & Benefits 32,404 27,555 14,203 13,569 46,607 41,124
% of Revenues 25.3% 21.7% 32.0% 34.9% 27.0% 24.7%
--------------------------------------------------------------------------------
Pretax Income Before
Year 2000 Expenses
and Minority Interest $ 15,067 $ 19,508 $ 3,018 $ 40 $ 18,085 19,548
% of Revenues 11.7% 15.3% 6.8% 0.1% 10.5% 11.8%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The following discussion analyzes the Company's results reported by its two
reportable segments, domestic operations and international operations. Expense
amounts discussed are excluding Year 2000 expenses and minority interest.
DOMESTIC OPERATIONS
REVENUES
Domestic revenues from insurance companies and self-insured entities totaled
$128.3 million for the three months ended March 31, 1999, an increase of 0.8%
from the $127.3 million reported for the same period in 1998. Domestic revenues
from insurance companies increased 1% to $73.1 million. The Garden City Group
("GCG") acquisition contributed $4.8 million of revenue in the quarter. However,
these gains were largely offset by a decline in revenues related to the winding
down of a major class action project, from $5.5 million in the first quarter of
1998 to $1.8 million in the first quarter of 1999. Revenues from self-insured
entities, excluding the class action project, decreased 1.7% to $48.6 million in
the first quarter of 1999.
Excluding the impact of the GCG acquisition, domestic unit volume, measured
principally by cases received, decreased 0.7% in the first quarter of 1999,
compared to the same period in 1998. Additionally, changes in the mix of
services provided and in the rates charged for those services had the combined
effect of decreasing revenues by approximately 2.2% in the quarter, compared to
the same period in 1998. The Company's acquisition of GCG increased domestic
revenues by 3.7% in the quarter.
9
<PAGE> 10
COMPENSATION AND FRINGE BENEFITS
The Company's most significant expense is the compensation of its employees,
including related payroll taxes and fringe benefits. Domestic compensation
expense as a percent of revenues remained at 63.0% in the first quarter of 1999
as compared to the same period in 1998.
Domestic salaries and wages increased slightly in the first quarter of 1999 to
$68.1 million from $67.0 million in the 1998 period. Payroll taxes and fringe
benefits for domestic operations totaled $12.7 million in the first quarter of
1999, decreasing 4% from 1998 costs of $13.2 million for the same period in
1998. This decline was due primarily to fewer full-time equivalent employees,
which reduced benefits expenses. Lower self-insured worker's compensation costs
were offset by increased pension expenses. Pension expense in 1998 was lower due
to favorable investment returns.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Domestic expenses other than compensation and related payroll taxes and fringe
benefits approximated 25.3% of revenues for the quarter ended March 31, 1999, up
from 21.7% of revenues for the same period in 1998. This increase is due
primarily to higher professional fees, higher interest costs as a result of
increased borrowings in 1999, and nonrecurring foreign currency transaction
gains in the 1998 quarter.
INTERNATIONAL OPERATIONS
REVENUES
Revenues from the Company's international operations totaled $44.3 million for
the first three months of 1999, a 14.0% increase from $38.9 million in the first
three months of 1998. This increase is due to the July 1998 acquisition of
Adjusters Canada Incorporated ("ACI"). Revenues in 1999 are net of a 2.0%
decline for the quarter due to the negative effect of a strong U.S. dollar.
COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, declined to 61.1% for the quarter ended March 31, 1999,
from 65.0% for the comparable period in 1998. The Company restructured its
United Kingdom operations in the third quarter of 1998, resulting in a reduction
of approximately 150 staff and the elimination of the related compensation
expenses.
Salaries and wages of international personnel decreased to 52.4% of revenue for
the quarter ended March 31, 1999, from 55.8% for the comparable period in 1998.
Payroll taxes and fringe benefits decreased as a percent of revenues, to 8.8% in
the quarter ended March 31, 1999, from 9.2% for the same period in 1998.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
approximated 32.0% of international revenues for the first quarter of 1999,
compared to 34.9% of revenues for the same period in 1998. These expenses
comprise a higher percentage of revenues than the Company's domestic operations
due primarily to amortization of intangible assets and higher
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automobile, occupancy, and interest costs. The decline in these expenses is
primarily due to lower professional fees in 1999, as significant fees were
incurred in 1998 related to the restructuring of the Company's U.K. operations.
FINANCIAL CONDITION
At March 31, 1999, current assets exceeded current liabilities by approximately
$93.5 million, a decrease of $17.1 million from the working capital balance at
December 31, 1998. Cash and cash equivalents at March 31, 1999 totaled $20.1
million, increasing $11.6 million from the balance at the end of 1998. Cash was
generated primarily from operating activities and short-term borrowings, while
the principal uses of cash were for repurchases of common stock, the acquisition
of GCG and dividends paid to shareholders.
During 1997, the Company announced a share repurchase program to acquire up to
an aggregate of 3,000,000 shares of its Class A or Class B Common Stock through
open market purchases. During the first quarter of 1999, the Company repurchased
667,400 shares of its Class A Common Stock and 274,000 shares of its Class B
Common Stock at an average per share cost of $11.53 and $11.42, respectively. As
of March 31, 1999, 379,100 shares were remaining to be repurchased under the
1997 Board authorization. In April 1999, the Board of Directors authorized a
share repurchase program to acquire an additional 3,000,000 shares of Class A or
Class B Common Stock through open market purchases.
The Company maintains credit lines with banks in order to meet seasonal working
capital requirements and other financing needs that may arise. Short-term
borrowings outstanding as of March 31, 1999 totaled $54.0 million, as compared
to $37.2 million at the end of 1998. The Company believes that its current
financial resources, together with funds generated from operations and existing
and potential long-term borrowing capabilities, will be sufficient to maintain
its current operations.
The Company does not engage in any hedging activities to compensate for the
effect of exchange rate fluctuations on the operating results of its foreign
subsidiaries. Foreign currency denominated debt is maintained primarily to hedge
the currency exposure of the Company's net investment in foreign operations.
Shareholders' investment at March 31, 1999 was $231.9 million, compared with
$240 million at December 31, 1998. The decline was due to share repurchases
during the quarter.
11
<PAGE> 12
FACTORS THAT MAY AFFECT FUTURE RESULTS
YEAR 2000
The Company's project to remediate its computer systems to address the Year 2000
issue is proceeding on schedule. The Year 2000 issue, which is common to most
organizations, concerns the inability of information systems, including embedded
chips, to properly distinguish the year 2000 from the year 1900. This could
result in a system failure or a temporary inability to process claims, to make
claims payments, or to transact similar normal business activities.
The Company's Year 2000 project contains five primary remediation phases:
identification, assessment, repair, testing, and contingency planning.
Additionally, the Company prioritizes each information technology ("IT") and
non-IT system according to its criticality to the Company's operations. As of
April 30, 1999, the Company has completed the remediation of and placed into
production approximately 90% (determined on the basis of lines of code) of its
U.S. systems. For the remainder of the U.S. systems, the Company is either in
the repair or testing phase. The Company plans to have substantially all of
these systems repaired and tested by May 31, 1999. During the third quarter of
1998, the Company began its contingency planning efforts for critical business
processes. The Company expects to complete these contingency plans by June 30,
1999. Except for personal computers, non-IT systems, and one computer system
(which represents less than 1% of the Company's lines of code), the Company
expects to complete its remediation (including development of contingency plans,
where appropriate) by June 30, 1999. With respect to personal computers, non-IT
systems (primarily telephones), and the remaining computer system, the Company
expects to complete remediation or replacement by September 30, 1999.
The Company is also corresponding with vendors and business partners regarding
their Year 2000 readiness. Requests for verification of Year 2000 compliance
have been sent to key vendors, and the Company is actively soliciting responses
from external parties identified as critical (e.g. telecommunications
providers). For critical external parties for which the Company is unable to
obtain satisfactory assurances of compliance, the Company intends to either
change suppliers or develop detailed contingency plans. The Company plans to
complete this process by June 30, 1999.
The Company has determined that the Year 2000 efforts required in its
international operations are significantly less than those required in the U.S.,
primarily due to the use of newer systems and less automation internationally.
Remediation efforts in the international operations are progressing, and the
established deadlines for completion are similar to those discussed above for
domestic operations.
The Company has engaged an independent consultant to evaluate its Year 2000
project and to report on its findings to the Company's Board of Directors.
The Company believes the most significant risks related to the project are the
ability to effectively remediate its U.S. claims management systems. The
worst-case scenario, a complete failure of these systems, would require the
Company to shift temporarily to a manual processing mode. Such a scenario could
significantly delay the processing, payment, and reporting of claims and, thus,
the Company's revenue from such services. If the Company were forced to
12
<PAGE> 13
operate in such a mode for an extended length of time, the adverse impact on the
Company's financial position and results of operations would likely be material.
However, the Company believes that its remediation efforts will reduce the risk
of such an occurrence to a very low level.
The total cost associated with the Year 2000 project is not expected to be
material to the Company's financial position. The Company estimates the total
cost of its Year 2000 compliance efforts to be approximately $13 million, with
approximately $9.8 million having been incurred through March 31, 1999. The
Company expects to incur approximately $2.7 million for the remainder of 1999
and $0.5 million in 2000 in such costs.
Due to the general uncertainty inherent in the Year 2000 issue, resulting in
large part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
EURO
On January 1, 1999, the euro was introduced as the official currency in eleven
European countries in which the Company operates. Companies and individuals in
those countries may now enter into transactions either in euros or in the local
currency. Management does not believe the introduction of the euro will
materially affect the Company's financial position or results of operations.
FOREIGN CURRENCY EXCHANGE
The Company's international operations expose the Company to foreign currency
exchange rate changes and 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. During the first quarter of
1999, 26% of the Company's total revenue was generated from its international
operations. Except for borrowing in foreign currencies, the Company does not
presently engage in any hedging activities to compensate for the effect of
exchange rate fluctuations on the net assets or operating results of its foreign
subsidiaries.
NEW CLAIMS MANAGEMENT SYSTEM
During 1998, the Company began the development of a new claims management
system. As of March 31, 1999, approximately $10.7 million of internal and
external costs have been capitalized in connection with this development
project. The server-based system, which is scheduled to be completed by the end
of 1999, is designed to streamline and automate the claims intake, assignment,
management and reporting functions. The Company believes the system will
increase its competitive advantages, particularly in the self-insured corporate
market. However, if the system fails to function as planned, it could adversely
affect the Company's competitive position and revenues.
FORWARD LOOKING STATEMENTS
Certain information presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations may include forward-looking
statements, the accuracy of which is subject to a number of risks and
assumptions. The Company's Form 10-K for the year ended December 31, 1998,
discusses such risks and assumptions and other key factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Crawford & Company:
We have reviewed the accompanying condensed consolidated balance sheets of
CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of March 31, 1999
and the related condensed consolidated statements of income and cash flows for
the three-month period then ended. 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 generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Crawford & Company and subsidiaries
as of December 31, 1998 (not presented herein), and, in our report dated January
29, 1999, we expressed an unqualified opinion on that statement. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 7, 1999
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
15 Letter from Arthur Andersen LLP
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999
15
<PAGE> 16
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: May 14, 1999 /s/ F. L. Minix
--------------------------------------
F. L. Minix
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1999 /s/ J. F. Giblin
--------------------------------------
J. F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: May 14, 1999 /s/ W. L. Hudson
--------------------------------------
W. L. Hudson
Senior Vice President and Controller
(Principal Accounting Officer)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
<S> <C> <C>
15 Letter from Arthur Andersen 18
27 Financial Data Schedule (for SEC use only)
</TABLE>
17
<PAGE> 1
EXHIBIT 15
LETTER FROM ARTHUR ANDERSEN
We are aware that Crawford & Company has incorporated by reference in its
previously filed Registration Statement File Nos. 2-78989, 33-22595, 33-47536,
33-36116, 333-02051, 333-24425 and 333-24427, its Form 10-Q for the quarter
ended March 31, 1999, which includes our report dated May 7, 1999 covering the
unaudited interim financial information contained herein. Pursuant to Regulation
C of the Securities Act of 1933 (the "Act"), that report is not considered a
part of the Registration Statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of the
Act.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 12, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CRAWFORD &
COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND CRAWFORD & COMPANY CONSOLIDATED BALANCE SHEET AT MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,064
<SECURITIES> 0
<RECEIVABLES> 224,753
<ALLOWANCES> 19,393
<INVENTORY> 0
<CURRENT-ASSETS> 262,378
<PP&E> 155,761
<DEPRECIATION> 112,681
<TOTAL-ASSETS> 453,036
<CURRENT-LIABILITIES> 168,857
<BONDS> 1,509
0
0
<COMMON> 49,971
<OTHER-SE> 181,929
<TOTAL-LIABILITY-AND-EQUITY> 453,036
<SALES> 0
<TOTAL-REVENUES> 172,621
<CGS> 0
<TOTAL-COSTS> 127,589
<OTHER-EXPENSES> 28,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,296
<INCOME-TAX> 6,258
<INCOME-CONTINUING> 10,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,038
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
