<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 quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
COMMISSION FILE NUMBER 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
GEORGIA 58-0506554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5620 GLENRIDGE DRIVE, N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices) (Zip Code)
(404) 256-0830
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of October 31, 2000 was as follows:
CLASS A COMMON STOCK, $1.00 PAR VALUE: 23,774,067
CLASS B COMMON STOCK, $1.00 PAR VALUE: 24,697,172
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
REVENUES $ 541,985 $ 510,699
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $24,517 in 2000 and $27,083 in 1999 396,065 373,405
Selling, general, and administrative expenses 90,514 86,656
Corporate interest, net 3,205 2,452
Amortization of goodwill 2,393 1,766
---------- ----------
TOTAL COSTS AND EXPENSES 492,177 464,279
---------- ----------
INCOME BEFORE INCOME TAXES 49,808 46,420
PROVISION FOR INCOME TAXES 19,126 17,825
---------- ----------
NET INCOME $ 30,682 $ 28,595
========== ==========
NET INCOME PER SHARE:
BASIC $ 0.63 $ 0.57
DILUTED $ 0.63 $ 0.57
========== ==========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 48,974 50,257
DILUTED 49,064 50,436
========== ==========
CASH DIVIDENDS PER SHARE:
CLASS A COMMON STOCK $ 0.4125 $ 0.39
CLASS B COMMON STOCK $ 0.4125 $ 0.39
========== ==========
</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
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
REVENUES $ 180,117 $ 168,251
COSTS AND EXPENSES:
Cost of services provided, less reimbursed expenses
of $8,502 in 2000 and $9,090 in 1999 132,544 123,421
Selling, general, and administrative expenses 29,921 30,155
Corporate interest, net 1,142 945
Amortization of goodwill 832 577
---------- ----------
TOTAL COSTS AND EXPENSES 164,439 155,098
---------- ----------
INCOME BEFORE INCOME TAXES 15,678 13,153
PROVISION FOR INCOME TAXES 6,020 5,060
---------- ----------
NET INCOME $ 9,658 $ 8,093
========== ==========
NET INCOME PER SHARE:
BASIC $ 0.20 $ 0.16
DILUTED $ 0.20 $ 0.16
========== ==========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 48,458 50,361
DILUTED 48,537 50,548
========== ==========
CASH DIVIDENDS PER SHARE:
CLASS A COMMON STOCK $ 0.1375 $ 0.13
CLASS B COMMON STOCK $ 0.1375 $ 0.13
========== ==========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
3
<PAGE> 4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,559 $ 17,716
Accounts receivable, less allowance for doubtful
accounts of $17,822 in 2000 and $20,182 in 1999 147,038 141,841
Unbilled revenues, at estimated billable amounts 92,946 91,039
Prepaid expenses and other current assets 14,118 17,240
---------- ----------
TOTAL CURRENT ASSETS 281,661 267,836
---------- ----------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 156,894 165,113
Less accumulated depreciation (113,210) (117,016)
---------- ----------
NET PROPERTY AND EQUIPMENT 43,684 48,097
---------- ----------
OTHER ASSETS:
Intangible assets arising from acquisitions, net 83,137 80,566
Prepaid pension cost 48,227 49,995
Capitalized software costs, net 27,046 19,243
Other 11,847 8,291
---------- ----------
TOTAL OTHER ASSETS 170,257 158,095
---------- ----------
TOTAL ASSETS $ 495,602 $ 474,028
========== ==========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
4
<PAGE> 5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 49,009 $ 38,914
Accounts payable 28,992 29,575
Accrued compensation and related costs 23,419 23,825
Accrued restructuring costs 721 973
Self-insured risks 13,536 11,360
Other accrued liabilities 40,491 30,044
Deferred revenues 23,367 22,836
Current installments of long-term debt 219 463
---------- ----------
TOTAL CURRENT LIABILITIES 179,754 157,990
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt, less current installments 36,814 16,053
Deferred income taxes 6,716 6,571
Deferred revenues 13,616 13,644
Postretirement medical benefit obligation 7,785 7,756
Self-insured risks 8,922 10,241
Other 10,042 11,494
---------- ----------
TOTAL NONCURRENT LIABILITIES 83,895 65,759
---------- ----------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 23,774 and 25,892
shares issued in 2000 and 1999, respectively 23,774 25,892
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,697 and 24,826
shares issued in 2000 and 1999, respectively 24,697 24,826
Additional paid-in-capital 0 22,309
Retained earnings 195,843 185,975
Cumulative translation adjustment (12,361) (8,723)
---------- ----------
TOTAL SHAREHOLDERS' INVESTMENT 231,953 250,279
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 495,602 $ 474,028
========== ==========
</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>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,682 $ 28,595
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 14,723 12,289
Deferred income taxes 278 650
Loss on sales of property and equipment 512 278
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (7,719) 4,968
Unbilled revenues (4,996) (4,887)
Accrued income taxes 12,156 2,815
Accounts payable and accrued liabilities 875 1,793
Accrued restructuring costs (1,756) (7,169)
Deferred revenues 650 11,336
Prepaid expenses and other assets 238 8,237
---------- ----------
Net cash provided by operating activities 45,643 58,905
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment, net (6,994) (14,769)
Capitalization of software costs (9,264) (5,035)
Acquisition of businesses, net of cash acquired (7,195) (9,555)
---------- ----------
Net cash used in investing activities (23,453) (29,359)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (20,273) (19,650)
Repurchase of common stock (26,396) (13,071)
Proceeds from exercise of stock options 1,299 948
Increase in short-term borrowings 12,960 5,383
Proceeds from long-term borrowings 21,000 15,000
Payments on long-term debt (309) (792)
---------- ----------
Net cash used in financing activities (11,719) (12,182)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (628) (97)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 9,843 17,267
Cash and cash equivalents at beginning of period 17,716 8,423
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,559 $ 25,690
========== ==========
</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 nine months ended
September 30, 2000 are not necessarily indicative of the results to be expected
during the balance of the year ending December 31, 2000.
3. On March 3, 2000, the Company acquired the net assets and business of
Greentree Investigations, Inc. ("Greentree") for a cash purchase price of
$942,301. The Company acquired assets with a fair value of $1,653,902, including
goodwill related to the purchase of $1,150,827, and assumed liabilities of
$711,601. The purchase price may be increased based on future earnings of
Greentree through April 3, 2005. This transaction was accounted for by the
purchase method of accounting.
4. On March 9, 2000, the Company repurchased 1,900,000 shares of the
Company's Class A Common Stock from a subsidiary of the Swiss Reinsurance Group
("Swiss Re") at a cost of $11.00 per share. The shares were originally issued in
June of 1998 in connection with the acquisition of Swiss Re's 40% minority
interest in Crawford's international subsidiaries. This share repurchase was
financed by a $21 million, five-year term loan with a fixed interest rate of
7.7%.
5. During the quarter ended September 30, 2000, the Company recorded
international acquisitions in Holland and France, for an aggregate cash purchase
price of $3,633,238. The Company acquired assets with a fair value of
$4,561,282, including goodwill related to the purchases of $1,737,406, and
assumed liabilities of $928,044. These transactions were accounted for by the
purchase method of accounting.
6. During the quarter and nine months ended September 30, 2000, the
Company utilized $545,000 and $1.7 million, respectively, of its restructuring
reserves for payments related to employee separations and lease terminations. As
of September 30, 2000, remaining restructuring reserves were $3.4 million, $2.7
million of which is included in other noncurrent liabilities. The noncurrent
portion of accrued restructuring costs consists primarily of long-term lease
obligations related to various United Kingdom offices, which the Company has
vacated and is currently attempting to sublease, and extended payments being
made under employee separation agreements. Management periodically reviews the
restructuring reserves and believes the
7
<PAGE> 8
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
remaining reserves are adequate to complete its plan.
7. Basic net income per share is computed based on the weighted-average
number of total common shares outstanding during the respective periods. Diluted
net income per share is computed based on the weighted-average number of total
common shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method.
Below is the calculation of basic and diluted net income per share for the
quarter and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(In thousands, except per share data) 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 9,658 $ 8,093 $ 30,682 $ 28,595
======== ======== ======== ========
Weighted-average shares outstanding - Basic 48,458 50,361 48,974 50,257
Dilutive effect of stock options 79 187 90 179
-------- -------- -------- --------
Weighted-average shares outstanding - Diluted 48,537 50,548 49,064 50,436
======== ======== ======== ========
Basic net income per share $ 0.20 $ 0.16 $ 0.63 $ 0.57
======== ======== ======== ========
Diluted net income per share $ 0.20 $ 0.16 $ 0.63 $ 0.57
======== ======== ======== ========
</TABLE>
Additional options to purchase 4,004,160 shares of Class A Common Stock at
$11.00 to $19.50 per share were outstanding at September 30, 2000 but were not
included in the computation of diluted net income per share because the options'
exercise prices were greater than the average market price of the common shares;
to include them would have been antidilutive.
8. Comprehensive income for the Company consists of net income and foreign
currency translation adjustments. Below is the calculation of comprehensive
income for the quarter and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 9,658 $ 8,093 $ 30,682 $ 28,595
Foreign currency translation adjustment (1,674) 423 (3,638) (1,161)
-------- -------- -------- --------
Comprehensive income $ 7,984 $ 8,516 $ 27,044 $ 27,434
======== ======== ======== ========
</TABLE>
9. The Company has two reportable segments, one which provides claims
services through branch offices located in the United States ("Domestic
Operations") and the other which provides similar services through branch or
representative offices located in 64 other countries
8
<PAGE> 9
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
("International Operations"). Intersegment sales are recorded at cost and are
not material. The Company measures segment profit based on operating income,
defined as income before taxes, net corporate interest, and amortization of
goodwill.
Financial information for the quarter and nine months ended September 30, 2000
and 1999 covering the Company's reportable segments is presented below:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Domestic $132,290 $126,876 $395,253 $381,319
International 47,827 41,375 146,732 129,380
-------- -------- -------- --------
TOTAL REVENUES $180,117 $168,251 $541,985 $510,699
======== ======== ======== ========
OPERATING INCOME:
Domestic $ 13,841 $ 14,592 $ 40,750 $ 43,600
International 3,811 83 14,656 7,038
-------- -------- -------- --------
TOTAL OPERATING INCOME $ 17,652 $ 14,675 $ 55,406 $ 50,638
======== ======== ======== ========
</TABLE>
10. In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments. SFAS 133, which will be
effective for the Company in 2001, requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Except for borrowing in foreign currencies, the
Company does not presently engage in any hedging activities to compensate for
the effect of exchange rate fluctuations on the net assets or operating results
of its foreign subsidiaries. As a result, the new standard is not expected to
have a significant effect on the Company's consolidated results of operations,
financial position, or cash flows.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB 101, which will be adopted by the Company in the fourth quarter
2000, provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company does not
anticipate the adoption of this SAB will have a material impact on the Company's
consolidated results of operations, financial position, or cash flows.
9
<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 taxes on income, net corporate interest,
and amortization of goodwill.
RESULTS OF OPERATIONS
Operating results for the Company's domestic and international operations for
the quarter and nine months ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Domestic $132,290 $126,876 $395,253 $381,319
International 47,827 41,375 146,732 129,380
-------- -------- -------- --------
TOTAL $180,117 $168,251 $541,985 $510,699
COMPENSATION & FRINGE BENEFITS:
Domestic $ 79,689 $ 77,956 $238,378 $234,676
% of Revenues 60.2% 61.4% 60.3% 61.5%
International 31,069 27,423 92,434 82,534
% of Revenues 65.0% 66.3% 63.0 % 63.8%
-------- -------- -------- --------
TOTAL $110,758 $105,379 $330,812 $317,210
% of Revenues 61.5% 62.6% 61.0% 62.1%
EXPENSES OTHER THAN COMPENSATION & FRINGE BENEFITS:
Domestic $ 38,760 $ 34,328 $116,125 $103,043
% of Revenues 29.3% 27.1% 29.4% 27.1%
International 12,947 13,869 39,642 39,808
% of Revenues 27.0% 33.5% 27.0% 30.8%
-------- -------- -------- --------
TOTAL $ 51,707 $ 48,197 $155,767 $142,851
% of Revenues 28.7% 28.7% 28.8% 28.0%
-------- -------- -------- --------
OPERATING INCOME(1):
Domestic $ 13,841 $ 14,592 $ 40,750 $ 43,600
% of Revenues 10.5% 11.5% 10.3% 11.4%
International 3,811 83 14,656 7,038
% of Revenues 8.0% 0.2% 10.0% 5.4%
-------- ------ ------ ------
TOTAL $ 17,652 $ 14,675 $ 55,406 $ 50,638
% of Revenues 9.8% 8.7% 10.2% 9.9%
</TABLE>
(1) Income before taxes, net corporate interest, and amortization of goodwill.
10
<PAGE> 11
DOMESTIC OPERATIONS
REVENUES
Domestic revenues by market type for the quarter and nine months ended September
30, 2000 are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------------------------------- ----------------------------------------
September 30, September 30, September 30, September 30,
(In thousands) 2000 1999 Variance 2000 1999 Variance
------------- ------------- -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Insurance companies $ 72,678 $ 67,852 7.1% $207,975 $205,554 1.2%
Self-insured entities 49,155 48,654 1.0% 149,743 145,519 2.9%
Class action services 10,457 10,370 0.8% 37,535 30,246 24.1%
-------- -------- -------- --------
TOTAL DOMESTIC REVENUES $132,290 $126,876 4.3% $395,253 $381,319 3.7%
======== ======== ======== ========
</TABLE>
Revenues from insurance companies increased for the second consecutive quarter,
to $72.7 million, due primarily to an increase in managed care revenues
resulting from the Company's recent strategic partnership with a large domestic
insurance company. Revenues from self-insured clients increased to $49.2 million
in the quarter, while class action administration and inspection revenues
increased to $10.5 million. The Company has a strong backlog of class action
administration contract awards that will contribute to its revenues in 2001.
Case Volume Analysis
Excluding the impact of class action services and acquired revenues, domestic
unit volume, measured principally by cases received, decreased 5.4% in the third
quarter of 2000 compared to the same period in 1999. This decrease was offset by
a 7.5% revenue increase from changes in the mix of services provided and in the
rates charged for those services, resulting in a net 2.1% increase in domestic
revenues in the third quarter, excluding revenues from class action services and
acquired revenues. Growth in class action services increased domestic revenues
by 0.1% in the third quarter compared to the prior year period. The Company's
acquisitions of PRISM Network Inc. ("PRISM") in August 1999 and Greentree in
March 2000 (included in non-class action revenues) increased domestic revenues
over the prior year period by 2.1% for the quarter ended September 30, 2000.
Domestic unit volume, measured principally by cases received, and excluding the
impact of class action services and acquired revenues, decreased 7.7% in the
first nine months of 2000 compared to the same period in 1999. This decrease was
offset by an 8.0% revenue increase from changes in the mix of services provided
and in the rates charged for those services, resulting in a net 0.3% increase in
domestic revenues for the first nine months of 2000, excluding revenues from
class action services and acquired revenues. The Company's domestic insurance
company referrals for high frequency, low severity claims have declined during
the year as the Company's insurance company clients have chosen to handle these
claims telephonically to improve short-term operating margins. This has resulted
in an increase in the Company's average revenue per claim. Growth in class
action services increased domestic revenues by 1.9% in the nine months ended
September 30, 2000, compared to the prior year period. The Company's
acquisitions of PRISM in August 1999 and Greentree in March 2000 (included in
non-class action revenues) increased
11
<PAGE> 12
domestic revenues over the prior year period by 1.5% for the nine months ended
September 30, 2000.
COMPENSATION AND FRINGE BENEFITS
The Company's most significant expense is the compensation of its employees,
including related payroll taxes and fringe benefits. Domestic compensation
expense as a percent of revenues decreased to 60.2% in the third quarter of 2000
as compared to 61.4% in the 1999 quarter, and to 60.3% for the nine months ended
September 30, 2000 from 61.5% in the 1999 period. These decreases are due
primarily to the Company's outsourcing of certain information technology
functions.
Domestic salaries and wages increased to $69.2 million and $204.7 million for
the quarter and nine months ended September 30, 2000, respectively, from $66.9
million and $199.9 million in the comparable 1999 periods. These increases
resulted primarily from merit salary increases and higher compensation expense
in the Company's class action and medical bill auditing units. Payroll taxes and
fringe benefits for domestic operations totaled $10.5 million and $33.7 million
in the third quarter and first nine months of 2000, respectively, decreasing
4.5% and 3.2% from 1999 costs of $11.0 million and $34.8 million for the
comparable periods. These decreases are primarily due to lower pension expense
in 2000 resulting from higher interest rates and favorable investment returns.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Domestic expenses other than compensation and related payroll taxes and fringe
benefits approximated 29.3% and 29.4% of revenues for the quarter and nine
months ended September 30, 2000, respectively, up from 27.1% of revenues for the
same periods in 1999. These increases are due primarily to higher professional
fees (related to outsourced functions in certain information technology units)
and higher costs related to the Company's self-insurance program.
INTERNATIONAL OPERATIONS
REVENUES
Revenues from the Company's international operations increased 15.6%, from $41.4
million for the third quarter of 1999 to $47.8 million for the third quarter of
2000. Revenues for the first nine months of 2000 totaled $146.7 million, a 13.4%
increase from the $129.4 million reported in the first nine months of 1999.
These increases are largely due to increased referrals from new claims handling
agreements entered into during the 1999 fourth quarter. Several small strategic
acquisitions in Holland and France contributed 2.1% and 1.7% of the revenue
increase for the quarter and nine months ended September 30, 2000, respectively.
Revenues are net of 3.7% and 4.9% declines during the quarter and nine months
ended September 30, 2000, respectively, due to the negative effect of a strong
U.S. dollar.
COMPENSATION AND FRINGE BENEFITS
As a percent of revenues, compensation expense, including related payroll taxes
and fringe benefits, decreased to 65.0% for the quarter ended September 30, 2000
from 66.3% for the same period in 1999. For the nine-month period, compensation
and fringe benefits decreased slightly
12
<PAGE> 13
as a percentage of revenue from 63.8% in 1999 to 63.0% in 2000. These decreases
are due to the Company's increased use of existing service delivery capacity
resulting from the growth in revenues.
Salaries and wages of international personnel decreased in the quarter ended
September 30, 2000 to 56.6% of revenue from 57.3% for the comparable period in
1999. For the nine-month period, salaries and wages decreased slightly as a
percentage of revenues from 54.9% in 1999 to 54.5% in 2000. Payroll taxes and
fringe benefits decreased as a percent of revenue to 8.4% and 8.5% for the
quarter and nine months ended September 30, 2000, respectively, compared to 9.0%
and 8.9% for the same periods in 1999.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
Expenses other than compensation and related payroll taxes and fringe benefits
were 27.0% of international revenues for the quarter and nine months ended
September 30, 2000, respectively, down from 33.5% and 30.8% for the same periods
in 1999. These decreases are due to the Company's increased use of existing
service delivery capacity resulting from the growth in revenues and reduced bad
debt expense during the quarter due to the collection of old, outstanding
accounts.
FINANCIAL CONDITION
At September 30, 2000 current assets exceeded current liabilities by
approximately $101.9 million, a decrease of $7.9 million from the working
capital balance at December 31, 1999. Cash and cash equivalents at September 30,
2000 totaled $27.6 million, an increase of $9.8 million from the balance at the
end of 1999. Cash was generated primarily from operating activities and
short-term and long-term borrowings, while the principal uses of cash were for
repurchases of common stock, dividends paid to shareholders, investments in
computer software, and acquisitions of businesses.
During the first nine months of 2000, the Company repurchased 2,236,000 shares
of its Class A Common Stock and 143,000 shares of its Class B Common Stock at an
average per share cost of $11.19 and $12.21, respectively. As of September 30,
2000, 725,900 shares remain to be repurchased under share repurchase programs
authorized by the Company's Board of Directors.
The Company maintains credit lines with banks in order to meet seasonal working
capital requirements and other financing needs that may arise. Short-term
borrowings outstanding as of September 30, 2000 totaled $49.0 million, as
compared to $38.9 million at the end of 1999. In March 2000, the Company
obtained a five-year, $21 million term loan with a fixed interest rate of 7.7%
to finance the repurchase of 1.9 million shares of its Class A Common Stock.
This new loan increased the Company's long-term debt to $36.8 million as of
September 30, 2000, compared to $16.1 million at December 31, 1999. The Company
believes that its current financial resources, together with funds generated
from operations and existing and potential borrowing capabilities, will be
sufficient to maintain its current operations.
The Company does not engage in any hedging activities to compensate for the
effect of exchange rate fluctuations on the operating results of its foreign
subsidiaries. Foreign currency denominated debt is maintained as a natural hedge
against the currency exposure of the Company's net investment in foreign
operations.
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Shareholders' investment at September 30, 2000 was $232.0 million, compared with
$250.3 million at December 31, 1999. The decrease is primarily a result of the
Company's share repurchase activity in the first nine months of 2000.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FOREIGN CURRENCY EXCHANGE
The Company's international operations expose the Company to foreign currency
exchange rate changes that could impact translations of foreign-denominated
assets and liabilities into U.S. dollars, and future earnings and cash flows
from transactions denominated in different currencies. The Company's revenues
from its international operations were 27.1% of total revenues for the nine
months ended September 30, 2000. Except for borrowing in foreign currencies, the
Company does not presently engage in any hedging activities to compensate for
the effect of exchange rate fluctuations on the net assets or operating results
of its foreign subsidiaries.
NEW CLAIMS MANAGEMENT SYSTEM
During 1998, the Company began the development of a new domestic claims
management system. As of September 30, 2000, approximately $16.4 million of
internal and external costs have been capitalized in connection with this
development project. The server-based system is designed to streamline and
automate the claims intake, assignment, management, and reporting functions. The
first phase of deployment for the system, originally scheduled for 1999, is
currently scheduled for the first half of 2001. If the system fails to function
as planned, it could adversely affect the Company's results of operations.
FORWARD LOOKING STATEMENTS
Certain information presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations may include forward-looking
statements, the accuracy of which is subject to a number of risks and
assumptions. The Company's Form 10-K for the year ended December 31, 1999,
discusses such risks and assumptions and other key factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
DERIVATIVES
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments.
FOREIGN CURRENCY
The operating results of the Company's foreign subsidiaries are affected by
fluctuations in foreign currency exchange rates. Fluctuations in foreign
currency exchange rates affect the shareholders' investment of the Company.
Amounts invested in the Company's foreign subsidiaries are considered to be
permanently invested and are translated into U.S. dollars at the exchange rates
in effect at the end of the respective periods. The resulting translation
adjustments are recorded in shareholders' investment as cumulative translation
adjustments. The cumulative translation adjustment reduced shareholders'
investment by $3.6 million during the first nine months of 2000.
INTEREST RATES
The Company is exposed to interest rate fluctuations on its borrowings.
Depending on general economic conditions, the Company has typically used
variable rate debt for short-term borrowings and fixed rate debt for long-term
borrowings.
At September 30, 2000, the Company had $49.0 million in short-term loans
outstanding with an average variable interest rate of 5.7%.
Long-term debt consisted of the following (in thousands):
<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 201
--------
Total debt 37,033
Less current installments (219)
--------
Total long-term debt $ 36,814
========
</TABLE>
With the exception of the capital lease obligations, the above loans carry a
fixed rate of interest.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Crawford & Company:
We have reviewed the accompanying condensed consolidated balance sheet of
CRAWFORD & COMPANY (a Georgia corporation) AND SUBSIDIARIES as of September 30,
2000, and the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 2000 and 1999 and the
condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 2000 and 1999. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Crawford &
Company and subsidiaries as of December 31, 1999 (not presented separately
herein), and, in our report, dated January 28, 2000, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 13, 2000
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
15.1 Letter from Arthur Andersen LLP
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the period
covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAWFORD & COMPANY
(Registrant)
Date: November 13, 2000 /s/ Archie Meyers, Jr.
----------------------------------------
Archie Meyers, Jr.
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 /s/ John F. Giblin
----------------------------------------
John F. Giblin
Executive Vice President - Finance
(Principal Financial Officer)
Date: November 13, 2000 /s/ W. Bruce Swain
----------------------------------------
W. Bruce Swain
Senior Vice President and Controller
(Principal Accounting Officer)
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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
