<PAGE> 1
================================================================================
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
COMMISSION FILE NUMBER 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
GEORGIA 58-0506554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5620 GLENRIDGE DRIVE, N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices) (Zip Code)
(404) 256-0830
(Registrant's telephone number, including area code)
-------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of July 31, 2000 was as follows:
CLASS A COMMON STOCK, $1.00 PAR VALUE: 23,771,768
CLASS B COMMON STOCK, $1.00 PAR VALUE: 24,697,172
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
2000 1999
--------------------------
<S> <C> <C>
REVENUES $361,868 $342,448
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $16,015 in 2000 and $17,993 in 1999 263,521 249,984
Selling, general, and administrative expenses 60,593 56,501
Corporate interest, net 2,063 1,507
Amortization of goodwill 1,561 1,189
------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 327,738 309,181
------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 34,130 33,267
PROVISION FOR INCOME TAXES 13,106 12,765
------------------------------------------------------------------------------------------
NET INCOME $ 21,024 $ 20,502
==========================================================================================
NET INCOME PER SHARE:
BASIC $ 0.43 $ 0.41
DILUTED $ 0.43 $ 0.41
==========================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 49,235 50,205
DILUTED 49,353 50,297
==========================================================================================
CASH DIVIDENDS PER SHARE:
CLASS A COMMON STOCK $ 0.275 $ 0.26
CLASS B COMMON STOCK $ 0.275 $ 0.26
==========================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
2
<PAGE> 3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
JUNE 30, JUNE 30,
2000 1999
--------------------------
<S> <C> <C>
REVENUES $184,436 $169,827
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $7,926 in 2000 and $10,125 in 1999 135,528 122,470
Selling, general, and administrative expenses 29,877 28,962
Corporate interest, net 1,196 796
Amortization of goodwill 800 628
------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 167,401 152,856
------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 17,035 16,971
PROVISION FOR INCOME TAXES 6,542 6,507
------------------------------------------------------------------------------------------
NET INCOME $ 10,493 $ 10,464
==========================================================================================
NET INCOME PER SHARE:
BASIC $ 0.22 $ 0.21
DILUTED $ 0.22 $ 0.21
==========================================================================================
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 48,436 49,814
DILUTED 48,543 49,876
==========================================================================================
CASH DIVIDENDS PER SHARE:
CLASS A COMMON STOCK $ 0.1375 $ 0.13
CLASS B COMMON STOCK $ 0.1375 $ 0.13
==========================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
3
<PAGE> 4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
---------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 16,801 $ 17,716
Accounts receivable, less allowance for doubtful
accounts of $18,930 in 2000 and $20,182 in 1999 152,983 141,841
Unbilled revenues, at estimated billable amounts 91,888 91,039
Prepaid expenses and other current assets 16,336 17,240
--------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 278,008 267,836
--------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 158,297 166,552
Less accumulated depreciation (112,567) (117,661)
--------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 45,730 48,891
--------------------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 83,042 80,566
Prepaid pension cost 48,756 49,995
Capitalized software costs, net 23,312 18,449
Other 12,284 8,291
--------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 167,394 157,301
--------------------------------------------------------------------------------------------
TOTAL ASSETS $ 491,132 $ 474,028
============================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
4
<PAGE> 5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
---------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 48,362 $ 38,914
Accounts payable 28,711 29,575
Accrued compensation and related costs 21,770 23,825
Accrued restructuring costs 929 973
Self-insured risks 13,480 11,360
Other accrued liabilities 37,255 30,044
Deferred revenues 25,835 22,836
Current installments of long-term debt 236 463
--------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 176,578 157,990
--------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 36,923 16,053
Deferred income taxes 6,737 6,571
Deferred revenues 13,442 13,644
Postretirement medical benefit obligation 7,785 7,756
Self-insured risks 9,401 10,241
Other 10,312 11,494
--------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 84,600 65,759
--------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 23,692 and 25,892
shares issued in 2000 and 1999, respectively 23,692 25,892
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,707 and 24,826
shares issued in 2000 and 1999, respectively 24,707 24,826
Additional paid-in-capital 0 22,309
Retained earnings 192,242 185,975
Cumulative translation adjustment (10,687) (8,723)
--------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 229,954 250,279
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 491,132 $ 474,028
============================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
5
<PAGE> 6
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
2000 1999
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,024 $ 20,502
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 9,979 8,267
Deferred income taxes 208 0
Loss on sales of property and equipment 381 133
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (12,966) (1,010)
Unbilled revenues (3,093) (1,765)
Accrued income taxes 8,298 6,455
Accounts payable and accrued liabilities (1,525) (1,383)
Accrued restructuring costs (1,211) (5,772)
Deferred revenues 3,059 3,346
Prepaid expenses and other assets (2,217) 4,290
------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,937 33,063
------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment, net (4,726) (8,090)
Capitalization of software costs (5,748) (3,202)
Acquisition of businesses, net of cash acquired (5,244) (10,048)
------------------------------------------------------------------------------------------
Net cash used in investing activities (15,718) (21,340)
------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (13,608) (13,049)
Repurchase of common stock (26,173) (12,845)
Proceeds from exercise of stock options 435 112
Increase in short-term borrowings 12,063 15,156
Proceeds from long-term borrowings 21,000 0
Payments on long-term debt (249) (727)
------------------------------------------------------------------------------------------
Net cash used in financing activities (6,532) (11,353)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (602) (264)
------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (915) 106
Cash and cash equivalents at beginning of period 17,716 8,423
------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,801 $ 8,529
==========================================================================================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
6
<PAGE> 7
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited condensed financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain previously reported amounts have been reclassified to conform to the
current presentation. These condensed financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1999.
2. The results of operations for the quarter and six months ended June 30,
2000 are not necessarily indicative of the results to be expected during the
balance of the year ending December 31, 2000.
3. On March 3, 2000, the Company completed the acquisition of Greentree
Investigations, Inc. ("Greentree") for a cash payment of $900,000. The Company
acquired assets with a fair value of $1,611,601, including goodwill related to
the purchase of $1,108,526, and assumed liabilities of $711,601. The purchase
price may be increased based on future earnings of Greentree through April 3,
2005. This transaction was accounted for by the purchase method of accounting.
4. On March 9, 2000, the Company repurchased 1,900,000 shares of the
Company's Class A Common Stock from a subsidiary of the Swiss Reinsurance Group
("Swiss Re") at a cost of $11.00 per share. The shares were originally issued in
June of 1998 in connection with the acquisition of Swiss Re's 40% minority
interest in Crawford's international subsidiaries. This share repurchase was
financed by a $21 million, five-year term loan with a fixed interest rate of
7.7%.
5. During the quarter and six months ended June 30, 2000, the Company
utilized $618,000 and $1.2 million, respectively, of its restructuring reserves
for payments due to employee separations and lease terminations. As of June 30,
2000, remaining restructuring reserves were $3.9 million, $3.0 million of which
is included in other noncurrent liabilities. The noncurrent portion of accrued
restructuring costs consists primarily of long-term lease obligations related to
various United Kingdom offices, which the Company has vacated and is currently
attempting to sublease, and extended payments being made under employee
separation agreements. Management periodically reviews the restructuring
reserves and believes the remaining reserves are adequate to complete its plan.
6. Basic net income per share is computed based on the weighted-average
number of total common shares outstanding during the respective periods. Diluted
net income per share is computed based on the weighted-average number of total
common shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method.
7
<PAGE> 8
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Below is the calculation of basic and diluted net income per share for the
quarter and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share data) 2000 1999 2000 1999
--------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 10,493 $ 10,464 $ 21,024 $ 20,502
======== ======== ======== ========
Weighted-average shares outstanding - Basic 48,436 49,814 49,235 50,205
Dilutive effect of stock options 107 62 118 92
-------- -------- -------- --------
Weighted-average shares outstanding - Diluted 48,543 49,876 49,353 50,297
======== ======== ======== ========
Basic net income per share $ 0.22 $ 0.21 $ 0.43 $ 0.41
======== ======== ======== ========
Diluted net income per share $ 0.22 $ 0.21 $ 0.43 $ 0.41
======== ======== ======== ========
</TABLE>
Additional options to purchase 3,984,160 shares of Class A Common Stock at
$11.02 to $19.50 per share were outstanding at June 30, 2000 but were not
included in the computation of diluted net income per share because the options'
exercise prices were greater than the average market price of the common shares;
to include them would have been antidilutive.
7. Comprehensive income for the Company consists of net income and foreign
currency translation adjustments. Below is the calculation of comprehensive
income for the quarter and six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 10,493 $ 10,464 $ 21,024 $ 20,502
Less: Foreign currency translation adjustment 2,185 775 1,964 1,584
-------- -------- -------- --------
Comprehensive income $ 8,308 $ 9,689 $ 19,060 $ 18,918
======== ======== ======== ========
</TABLE>
8. The Company has two reportable segments, one which provides claims
services through branch offices located in the United States ("Domestic
Operations") and the other which provides similar services through branch or
representative offices located in 64 other countries ("International
Operations"). Intersegment sales are recorded at cost and are not material. The
Company measures segment profit based on operating income, defined as income
before taxes, net corporate interest, and amortization of goodwill.
8
<PAGE> 9
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Financial information for the quarter and six months ended June 30, 2000 and
1999 covering the Company's reportable segments is presented below:
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Domestic $134,571 $126,148 $262,963 $254,443
International 49,865 43,679 98,905 88,005
-------- -------- -------- --------
TOTAL REVENUES $184,436 $169,827 $361,868 $342,448
OPERATING INCOME:
Domestic $ 13,480 $ 15,509 $ 26,909 $ 29,008
International 5,551 2,886 10,845 6,955
-------- -------- -------- --------
TOTAL OPERATING INCOME $ 19,031 $ 18,395 $ 37,754 $ 35,963
</TABLE>
9. In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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 2001, requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Except for borrowing in foreign currencies, the
Company does not presently engage in any hedging activities to compensate for
the effect of exchange rate fluctuations on the net assets or operating results
of its foreign subsidiaries. As a result, the new standard is not expected to
have a significant effect on the Company's consolidated results of operations,
financial position, or cash flows.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion analyzing the Company's results reported by its
two reportable segments: domestic operations and international operations.
Expense amounts discussed are excluding net corporate interest and amortization
of goodwill.
RESULTS OF OPERATIONS
Operating results for the Company's domestic and international operations for
the quarter and six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands)
REVENUES:
Domestic $134,571 $126,148 $262,963 $254,443
International 49,865 43,679 98,905 88,005
-------- -------- -------- --------
TOTAL $184,436 $169,827 $361,868 $342,448
COMPENSATION & FRINGE BENEFITS:
Domestic $ 80,459 $ 75,896 $158,689 $156,720
% of Revenues 59.8% 60.2% 60.4% 61.6%
International 30,687 28,006 61,365 55,111
% of Revenues 61.6% 64.1% 62.0% 62.6%
-------- -------- -------- --------
TOTAL $111,146 $103,902 $220,054 $211,831
% of Revenues 60.3% 61.2% 60.8% 61.9%
EXPENSES OTHER THAN COMPENSATION & FRINGE BENEFITS:
Domestic $ 40,632 $ 34,743 $ 77,365 $ 68,715
% of Revenues 30.2% 27.5% 29.4% 27.0%
International 13,627 12,787 26,695 25,939
% of Revenues 27.3% 29.3% 27.0% 29.5%
-------- -------- -------- --------
TOTAL $ 54,259 $ 47,530 $104,060 $ 94,654
% of Revenues 29.4% 28.0% 28.8% 27.6%
OPERATING INCOME (1):
Domestic $ 13,480 $ 15,509 $ 26,909 $ 29,008
% of Revenues 10.0% 12.3% 10.2% 11.4%
International 5,551 2,886 10,845 6,955
% of Revenues 11.1% 6.6% 11.0% 7.9%
-------- -------- -------- --------
TOTAL $ 19,031 $ 18,395 $ 37,754 $ 35,963
% of Revenues 10.3% 10.8% 10.4% 10.5%
-------- -------- -------- --------
</TABLE>
(1) Income before taxes, net corporate interest, and amortization of goodwill.
10
<PAGE> 11
DOMESTIC OPERATIONS
REVENUES
Domestic revenues from insurance companies, self-insured entities, and class
action services totaled $134.6 million for the second quarter of 2000, an
increase of 6.7% from the $126.1 million reported for the same period in 1999.
Revenues from insurance companies increased 6.1% to $71.1 million for the second
quarter of 2000, due primarily to an increase in managed care revenues resulting
from the Company's recent strategic partnership with the Commercial Insurance
Division of CNA. A surge in claim referrals related to the severe weather
experienced in the Midwestern and Southwestern United States also contributed to
this increase. Revenues from self-insured entities increased 3.4% to $50.0
million in the second quarter of 2000, continuing the trend that began in the
fourth quarter of 1999. The insurance market continues to harden, which
generally leads to higher insurance premiums, making self-insurance more
attractive to Crawford's corporate clients. Revenues from class action services
increased 24.6% to $13.5 million in the quarter ended June 30, 2000 due to the
award of several new class action administration and inspection contracts to the
Company.
Domestic revenues for the first six months of 2000 totaled $263.0 million, a
3.3% increase from 1999 revenues of $254.4 million. Revenues from insurance
companies decreased 1.8% to $135.3 million for the six months ended June 30,
2000 due to a decline in claim referrals. Revenues from self-insured entities
increased 3.8% to $100.6 million in the six months ended June 30, 2000. Revenues
from class action services increased 36.2% to $27.1 million for the six months
ended June 30, 2000.
Claims Volume Analysis
Excluding the impact of class action services and acquired revenues, domestic
unit volume, measured principally by cases received, decreased 1.8% in the
second quarter of 2000 compared to the same period in 1999. This decrease was
offset by a 5.4% revenue increase from changes in the mix of services provided
and in the rates charged for those services, resulting in a net 3.6% increase in
domestic revenues in the second quarter, excluding revenues from class action
services and acquired revenues. New class action services contracts increased
domestic revenues by 2.0% in the second quarter compared to the prior year
period. The Company's acquisitions of PRISM Network Inc. in August 1999 and
Greentree in March 2000 increased domestic revenues over the prior year quarter
by 1.1% for the quarter ended June 30, 2000.
Domestic unit volume, measured principally by cases received, and excluding the
impact of class action services and acquired revenues, decreased 8.8% in the
first six months of 2000. This decrease was partially offset by an 8.1% revenue
increase from changes in the mix of services provided and in the rates charged
for those services, resulting in a net 0.7% decline in domestic revenues in the
first six months of 2000, excluding revenues from class action services and
acquired revenues. New class action services contracts increased domestic
revenues by 2.8% in the six months ended June 30, 2000, compared to the prior
year period. The Company's acquisitions of PRISM Network Inc. in August 1999 and
Greentree in March 2000 increased domestic revenues over the prior year period
by 1.2% for the six months ended June 30, 2000.
11
<PAGE> 12
COMPENSATION AND FRINGE BENEFITS
The Company's most significant expense is the compensation of its employees,
including related payroll taxes and fringe benefits. Domestic compensation
expense as a percent of revenues decreased to 59.8% in the second quarter of
2000 as compared to 60.2% in the 1999 quarter and to 60.4% for the six months
ended June 30, 2000 from 61.6% in the 1999 period. These decreases are due
primarily to the Company's outsourcing of certain information technology
functions.
Domestic salaries and wages increased to $69.5 million and $135.5 million for
the quarter and six months ended June 30, 2000, respectively, from $64.8 million
and $132.9 million in the comparable 1999 periods. These increases resulted
primarily from merit salary increases and higher compensation expense in the
Company's class action and medical bill auditing units. Payroll taxes and fringe
benefits for domestic operations totaled $10.9 million and $23.2 million in the
second quarter and first six months of 2000, respectively, decreasing 1.6% and
2.4% from 1999 costs of $11.1 million and $23.8 million for the comparable
periods. These decreases are due to lower pension expense in 2000 due to higher
interest rates and favorable investment returns.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Domestic expenses other than compensation and related payroll taxes and fringe
benefits approximated 30.2% and 29.4% of revenues for the quarter and six months
ended June 30, 2000, respectively, up from 27.5% and 27.0% of revenues for the
same periods in 1999. These increases are due primarily to higher professional
fees (related to outsourced functions in certain information technology and
medical bill auditing units) and higher costs related to the Company's
self-insurance program.
INTERNATIONAL OPERATIONS
REVENUES
Revenues from the Company's international operations increased from $43.7
million for the second quarter of 1999 to $49.9 million for the second quarter
of 2000. Revenues from the first six months of 2000 totaled $98.9 million, a
12.4% increase from the $88.0 million reported in the first six months of 1999.
These increases are largely due to increased referrals from new claims handling
agreements entered into during the 1999 fourth quarter. Revenues are net of 4.8%
and 4.0% declines during the quarter and six months ended June 30, 2000,
respectively, due to the negative effect of a strong U.S. dollar.
COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, decreased to 61.6% for the quarter ended June 30, 2000 from
64.1% for the same period in 1999. For the six-month period, compensation and
fringe benefits decreased slightly as a percentage of revenue from 62.6% in 1999
to 62.0% in 2000. These decreases are due to the Company's increased use of
existing service delivery capacity resulting from the growth in revenues.
12
<PAGE> 13
Salaries and wages of international personnel decreased in the quarter ended
June 30, 2000 to 53.3% of revenue from 55.3% for the comparable period in 1999.
For the six-month period, salaries and wages decreased slightly as a percentage
of revenues from 53.8% in 1999 to 53.5% in 2000. Payroll taxes and fringe
benefits decreased as a percent of revenue to 8.3% and 8.5% for the quarter and
six months ended June 30, 2000, respectively, compared to 8.8% for the same
periods in 1999.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
were 27.3% and 27.0% of international revenues for the quarter and six months
ended June 30, 2000, respectively, down from 29.3% and 29.5% for the same
periods in 1999. These decreases are due to the Company's increased use of
existing service delivery capacity resulting from the growth in revenues.
FINANCIAL CONDITION
At June 30, 2000 current assets exceeded current liabilities by approximately
$101.4 million, a decrease of $8.4 million from the working capital balance at
December 31, 1999. Cash and cash equivalents at June 30, 2000 totaled $16.8
million, a decrease of $0.9 million from the balance at the end of 1999. Cash
was generated primarily from operating activities and short-term and long-term
borrowings, while the principal uses of cash were for repurchases of common
stock, dividends paid to shareholders, investments in computer software, and
acquisitions of businesses.
During the first six months of 2000, the Company repurchased 2,226,000 shares of
its Class A Common Stock and 133,000 shares of its Class B Common Stock at an
average per share cost of $11.02 and $12.28, respectively. As of June 30, 2000,
745,900 shares remain to be repurchased under share repurchase programs
authorized by the Company's Board of Directors.
The Company maintains credit lines with banks in order to meet seasonal working
capital requirements and other financing needs that may arise. Short-term
borrowings outstanding as of June 30, 2000 totaled $48.4 million, as compared to
$38.9 million at the end of 1999. In March 2000, the Company obtained a
five-year, $21 million term loan with a fixed interest rate of 7.7% to finance
the repurchase of 1.9 million shares of its Class A Common Stock. This new loan
increased the Company's long-term debt to $36.9 million as of June 30, 2000,
compared to $16.1 million at December 31, 1999. The Company believes that its
current financial resources, together with funds generated from operations and
existing and potential borrowing capabilities, will be sufficient to maintain
its current operations.
The Company does not engage in any hedging activities to compensate for the
effect of exchange rate fluctuations on the operating results of its foreign
subsidiaries. Foreign currency denominated debt is maintained primarily to hedge
the currency exposure of the Company's net investment in foreign operations.
Shareholders' investment at June 30, 2000 was $230.0 million, compared with
$250.3 million at December 31, 1999. The decrease is primarily a result of the
Company's share repurchase activity in the first six months of 2000.
13
<PAGE> 14
FACTORS THAT MAY AFFECT FUTURE RESULTS
FOREIGN CURRENCY EXCHANGE
The Company's international operations expose the Company to foreign currency
exchange rate changes that could impact translations of foreign-denominated
assets and liabilities into U.S. dollars, and future earnings and cash flows
from transactions denominated in different currencies. The Company's revenues
from its international operations were 27.3% of total revenues for the six
months ended June 30, 2000. Except for borrowing in foreign currencies, the
Company does not presently engage in any hedging activities to compensate for
the effect of exchange rate fluctuations on the net assets or operating results
of its foreign subsidiaries.
NEW CLAIMS MANAGEMENT SYSTEM
During 1998, the Company began the development of a new claims management
system. As of June 30, 2000, approximately $18.9 million of internal and
external costs have been capitalized in connection with this development
project. The server-based system is designed to streamline and automate the
claims intake, assignment, management, and reporting functions. The first phase
of deployment for the system is scheduled for the second half of 2000. The
Company believes the system will increase its competitive advantages. However,
if the system fails to function as planned, it could adversely affect the
Company's competitive position and results of operations.
FORWARD LOOKING STATEMENTS
Certain information presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations may include forward-looking
statements, the accuracy of which is subject to a number of risks and
assumptions. The Company's Form 10-K for the year ended December 31, 1999,
discusses such risks and assumptions and other key factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
DERIVATIVES
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments.
FOREIGN CURRENCY
The operating results of the Company's foreign subsidiaries are affected by
fluctuations in foreign currency exchange rates. Fluctuations in foreign
currency exchange rates affect the shareholders' investment of the Company.
Amounts invested in the Company's foreign subsidiaries are considered to be
permanently invested and are translated into U.S. dollars at the exchange rates
in effect at the end of the respective periods. The resulting translation
adjustments are recorded in shareholders' investment as cumulative translation
adjustments. The cumulative translation adjustment reduced shareholders'
investment $2.0 million during the first six months of 2000.
INTEREST RATES
The Company is exposed to interest rate fluctuations on its borrowings.
Depending on general economic conditions, the Company has typically used
variable rate debt for short-term borrowings and fixed rate debt for long-term
borrowings.
At June 30, 2000, the Company had $48.4 million in short-term loans outstanding
with an average variable interest rate of 5.60%.
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
Description Interest Rate Amount Maturity
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Term Loans 6.8% $15,000 September 2004, interest payable
quarterly
7.7% 21,000 March 2005, interest payable
quarterly
Mortgages secured
by buildings 7.3% - 7.8% 832 Various dates through 2003
Capital lease obligations 327
-------
Total Debt 37,159
Less Current Installments (236)
-------
Total Long-term debt $36,923
=======
</TABLE>
With the exception of the capital lease obligations, the above loans carry a
fixed rate of interest.
15
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Crawford & Company:
We have reviewed the accompanying condensed consolidated balance sheet of
CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of June 30, 2000,
and the related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 2000 and 1999 and the condensed
consolidated statements of cash flows for the six-month periods ended June 30,
2000 and 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Crawford &
Company and subsidiaries as of December 31, 1999 and the related statements of
income, retained earnings and cash flows for the year then ended (not presented
separately herein), and, in our report, dated January 28, 2000, we expressed an
unqualified opinion on those statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 11, 2000
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 25, 2000, the Registrant held its Annual Meeting of
Shareholders. At the Annual Meeting, the Class B Shareholders,
the only class entitled to vote at the meeting, voted on (i)
the election of ten (10) Directors for a one-year term; (ii)
amendment of the 1997 Key Employee Stock Option Plan; and
(iii) ratification of the selection of Arthur Andersen LLP as
the Registrant's auditor for the year ending December 31,
2000. The results of that voting are as follows:
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Forrest L. Minix 23,963,197 203,811
J. Hicks Lanier 23,967,531 199,477
Charles Flather 23,966,731 200,277
Linda K. Crawford 23,965,796 201,212
Jesse C. Crawford 23,968,726 198,282
Larry L. Prince 23,966,731 200,277
John A. Williams 23,966,581 200,427
E. Jenner Wood, III 23,920,366 246,642
Archie Meyers, Jr. 23,966,146 200,862
Grover L. Davis 23,967,531 199,477
</TABLE>
AMEND 1997 KEY EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
For Against Abstain Broker No Vote
---------- --------- ------- --------------
<S> <C> <C> <C>
20,585,196 1,640,213 94,351 1,847,248
</TABLE>
RATIFICATION OF APPOINTMENT OF AUDITORS
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
24,146,189 6,590 14,229
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
15.1 Letter from Arthur Andersen LLP
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
period covered by this report.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAWFORD & COMPANY
(Registrant)
Date: August 11, 2000 /s/ Archie Meyers, Jr.
------------------------------------
Archie Meyers, Jr.
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 /s/ John F. Giblin
------------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: August 11, 2000 /s/ W. Bruce Swain
------------------------------------
W. Bruce Swain
Senior Vice President and Controller
(Principal Accounting Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
<S> <C> <C>
15.1 Letter from Arthur Andersen LLP 20
27.1 Financial Data Schedule (For SEC use only)
</TABLE>
19
