Crawford Reports Substantial Improvement in 2010 Third Quarter Results

ATLANTA, Nov. 4, 2010 /PRNewswire-FirstCall/ -- Crawford & Company (www.crawfordandcompany.com) (NYSE: CRDA and CRDB), the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, today announced its financial results for the third quarter ended September 30, 2010.

Consolidated Results

Third quarter 2010 consolidated revenues before reimbursements totaled $254.5 million up 4% over $245.8 million in the 2009 third quarter.  Third quarter 2010 net income attributable to Crawford & Company was $13.0 million, compared to a net loss of $39.5 million recorded in the 2009 third quarter. Third quarter 2010 diluted earnings per share was $0.24 compared to the loss per share of ($0.76) reported in the prior-year quarter.

During the 2009 third quarter, the Company recorded a goodwill impairment charge of $46.9 million, or ($0.90) per share. Earnings per share, and the related non-GAAP  adjusted diluted earnings per share, including the required reconciliation for the impact of the special item, is set out in the table below:

Revenues, net income attributable to Crawford & Company and earnings per share in the 2010 third quarter were impacted by a number of items, including the positive effects of decreased defined benefit pension expense and the slightly negative impact of foreign currency exchange rate changes. These are reflected in the table below:

Crawford used $25.1 million of cash in operations during the 2010 year-to-date period, compared to $9.8 million in cash provided by operations during the comparable 2009 period. The $34.9 million growth in cash used in operations was due to increases in unbilled revenues and accounts receivable, and higher contributions to the Company's frozen U.S. defined benefit pension plan. The Company's consolidated cash and cash equivalents position as of September 30, 2010 totaled $42.2 million compared to $55.1 million at September 30, 2009 and $70.4 million at December 31, 2009.

International Operations

Third quarter 2010 revenues before reimbursements for the International Operations segment increased 4.1% to $105.7 million from $101.5 million for the same period in 2009. During the 2010 third quarter compared to the 2009 third quarter, the U.S. dollar strengthened against most major foreign currencies, resulting in a slightly negative exchange rate impact to revenues of $ 0.3 million. Excluding the negative impact of exchange rate changes, International Operations revenues would have been $106.0 million in the 2010 third quarter. International Operations operating expenses for the 2010 third quarter increased by $3.8 million in U.S. dollars, a 4.1% increase, and increased by 4.6% on a constant dollar basis, compared to the 2009 period. Operating earnings increased to $7.8 million in the 2010 third quarter, up 4.7% from last year's third quarter operating earnings of $7.5 million, due primarily to weather-related claim surges in our Canadian and Asia-Pacific operating regions. The related operating margin was 7.4% in both the 2010 and 2009 third quarters.

U.S. Property & Casualty

U.S. Property & Casualty revenues before reimbursements were $48.7 million in the third quarter of 2010, decreasing 7.2% from $52.5 million in the 2009 third quarter, due primarily to a reduction in industry-wide claim volumes year over year. Revenues generated by the Company's catastrophe adjuster group were $4.1 million in the 2010 third quarter, declining from $6.3 million in the 2009 period. Operating earnings in the 2010 third quarter in the segment declined to $3.6 million, or an operating margin of 7.4%, compared to operating earnings of $4.8 million, or 9.1% of revenues in the 2009 third quarter.

Broadspire

Revenues before reimbursements from the Broadspire segment were $61.7 million in the 2010 third quarter, down 12.4% from $70.4 million in the 2009 quarter. Broadspire had an operating loss of $0.7 million in the 2010 third quarter, or a negative operating margin of (1.1)% of revenues, compared to an operating loss of $1.2 million, or (1.7)% of revenues, in the prior year period. This decline was primarily due to lower workers' compensation claim referrals as a result of lower U.S. employment levels and the impact of a previously-announced 2009 nonrenewal of a major contract within the segment.

Legal Settlement Administration

Legal Settlement Administration revenues before reimbursements were $38.4 million in the 2010 third quarter, compared to $21.3 million in the 2009 quarter.  Operating earnings totaled $11.0 million in the 2010 third quarter, or an operating margin of 28.5% of revenues, compared to $4.1 million, or 19.2% of revenues, in the prior-year period. The segment's awarded project backlog totaled a record of approximately $75.0 million at September 30, 2010 as compared to $55.4 million at September 30, 2009.

Management's Comments

Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "The strength of our quarterly results reflects both strong performance in our Legal Settlement Administration segment, and benefits from our ongoing efforts in cost control, which have reduced our selling, general and administrative expense by 6% year-to-date. We expect these trends to continue at least through the remainder of 2010.

"In our Legal Settlement Administration segment, revenues increased sharply, leveraging fixed costs and driving operating earnings up substantially. At the heart of these revenue increases was volume from our engagement in the independent Gulf Coast Claims Facility (GCCF) special project as well as strong bankruptcy administration and securities class action caseload. We continue to have a substantial backlog of awarded projects in this segment and expect the special project activity to continue into the fourth quarter and possibly into early next year.

Mr. Bowman concluded, "Strong volumes are expected to continue over the near term in our Legal Settlement Administration segment. We continue to face challenges in our North American property & casualty business due to benign weather conditions.  In our Broadspire segment, the general economic conditions continue to be affected by employment levels in the United States. Overall, our business continues to improve in delivering services globally to major clients, supported by new technology and service innovation which is being recognized by our clients."

2010 Guidance

Crawford & Company revises and increases aspects of its previously issued guidance for 2010 as follows:

• Consolidated revenues before reimbursements between $980 million and $990 million.
• Consolidated operating earnings between $63.0 million and $66.0 million.
• Consolidated cash provided by operating activities between $25.0 and $30.0 million.
• After reflecting stock-based compensation expense, net corporate interest expense, customer-relationship intangible asset amortization expense, goodwill impairment and special charges, and income taxes, net income attributable to Crawford & Company on a GAAP basis between $23.0 million and $25.0 million, or $0.43 to $0.47 diluted earnings per share.
• Before reflecting the goodwill impairment charge of $0.13 per share, net income attributable to Crawford & Company on a non-GAAP basis between $30.0 million and $32.0 million, or $0.56 to $0.60 diluted earnings per share.

Crawford & Company's management will host a conference call with investors on Thursday, November 4, 2010 at 3:00 p.m. EDT to discuss earnings and other developments. The call will be recorded and available for replay through November 11, 2010. You may dial 1-800-642-1687 (706-645-9291 international) to listen to the replay. The access code is 20079739. Alternatively, please visit our web site at http://www.crawfordandcompany.com for a live audio web cast and related financial presentation.

Further information regarding the Company's financial position, operating results, and cash flows for the quarter and year-to-date period ended September 30, 2010 is shown on the attached unaudited condensed consolidated financial statements.

In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are reported as revenues and expenses, respectively, in our consolidated results of operations. In the foregoing discussion and analysis of segment results of operations, we do not include a gross up of segment revenues and expenses for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income (loss) or operating earnings (loss). A reconciliation of revenues before reimbursements to consolidated revenues determined in accordance with GAAP is self-evident from the face of the accompanying unaudited condensed consolidated statements of operations.

Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker ("CODM") to evaluate the financial performance of our operating segments and make resource allocation decisions. Unlike net income, our operating earnings measure is not a standard performance measure found in GAAP. However, since it is our segment measure of profitability presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting," it is not considered a non-GAAP financial measure requiring reconciliation pursuant to Securities and Exchange Commission ("SEC") guidance contained in Regulation G and Item 10(e) of Regulation S-K. We believe this measure is useful to others in that it allows them to evaluate segment operating performance using the same criteria our management and CODM use. Operating earnings represent segment earnings excluding income tax expense, net corporate interest expense, amortization of customer-relationship intangible assets, stock option expense, certain other gains and expenses, and certain unallocated corporate and shared costs. Net income or loss attributable to noncontrolling interests has also been removed from operating earnings.

Income tax expense, net corporate interest expense, amortization of customer-relationship intangible assets, and stock option expense are recurring components of our net income or loss, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income tax expense is based on statutory rates in effect in each of the jurisdictions where we provide services, and vary throughout the world. Net corporate interest expense results from capital structure decisions made by management and affecting the Company as a whole. Amortization expense relates to non-cash amortization expense of customer-relationship intangible assets resulting from business combinations. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.

Certain other gains and expenses may arise from events (expenses related to restructurings, losses on subleases, and goodwill impairment charges) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.

Following is a reconciliation of segment operating earnings (loss) to net income (loss) attributable to Crawford & Company on a GAAP basis and the related margins as a percentage of revenues before reimbursements for all periods presented (in thousands, except percentages):

Based in Atlanta, Georgia, Crawford & Company (www.crawfordandcompany.com) is the world's largest independent provider of claims management solutions to the risk management and insurance industry as well as self-insured entities, with a global network of more than 700 locations in 63 countries. The Crawford System of Claims Solutions(SM) offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management; workers' compensation claims and medical management, and legal settlement administration. The Company's shares are traded on the NYSE under the symbols CRDA and CRDB.

SOURCE Crawford & Company