Crawford Reports Strong 2011 First Quarter Results

ATLANTA, May 5, 2011 /PRNewswire/ -- Crawford & Company (www.crawfordandcompany.com) (NYSE: CRDA; 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 first quarter ended March 31, 2011.

(Logo: http://photos.prnewswire.com/prnh/20110207/CL42828LOGO)

Consolidated Results

First quarter 2011 consolidated revenues before reimbursements totaled $285.0 million up 21% over $236.3 million reported in the 2010 first quarter. First quarter 2011 net income attributable to Crawford & Company was $12.1 million, increasing 298% over net income of $3.1 million reported in the 2010 first quarter. First quarter 2011 diluted earnings per share was $0.23 compared to $0.06 in the prior-year quarter.

During the 2010 first quarter, the Company incurred a loss on sublease of $2.0 million, after related income taxes. These costs reduced earnings per share by $0.04 for the 2010 first quarter. Similar costs were not incurred in the 2011 first quarter. Earnings per share, and the related non-GAAP  adjusted diluted earnings per share, including a reconciliation for the impact of the loss on sublease, is set out in the table below:

The Company's consolidated cash and cash equivalents position as of March 31, 2011 totaled $46.7 million compared to $48.3 million at March 31, 2010 and $93.5 million at December 31, 2010. Crawford used $50.2 million of cash in operations during the 2011 first quarter, compared to $23.8 million used in the comparable 2010 period. The $26.4 million increase in cash used in operations was due to increases in unbilled revenues and accounts receivable, and reflects an additional $10.0 million in accelerated contributions to the Company's frozen U.S. defined benefit pension plan.

During the first quarter of 2011, the Company realigned two of its reportable segments by moving the Canada and Latin America/Caribbean operations from the former International Operations segment to the new Americas segment. In addition, the Company's former U.S. Property & Casualty segment is now included in the new Americas segment. The results of the former U.S. Property & Casualty segment will no longer be reported separately. The remaining operations in the former International Operations segment will now be called "Europe, Middle East, Africa, Asia Pacific" or "EMEA/AP". EMEA/AP will include all operations in the U.K., continental Europe, the Middle East, Africa, and Asia Pacific (which includes Australia). The results of the former International Operations segment will no longer be reported separately. The changes were implemented to more closely align the segments with the current management reporting structure. The results of prior periods have been revised to conform to the current presentation of our reportable segments. The historical results of operations for 2010, 2009 and 2008, and for each quarter of 2010 and 2009, revised for these segment changes, are included in the attachments.  The change in reportable segments does not have any impact on previously reported consolidated financial results.

Americas

Americas revenues before reimbursements were $85.3 million in the first quarter of 2011, increasing 1% from $84.9 million in the 2010 first quarter. During the 2011 first quarter compared to the 2010 first quarter, the U.S. dollar weakened against foreign currencies in Canada, Latin America and the Caribbean, resulting in a positive exchange rate impact to revenues of $2.3 million. Excluding the positive impact of exchange rate changes, Americas revenues would have been $83.1 million in the 2011 first quarter. Revenues generated by the Company's catastrophe adjuster group in the U.S. were $5.4 million in the 2011 first quarter, increasing from $3.2 million in the 2010 period. Americas operating expenses for the 2011 first quarter increased by $4.2 million in U.S. dollars, a 5% increase, and increased by 3% on a constant dollar basis, compared to the 2010 period. Operating earnings in the 2011 first quarter in the segment declined to $3.1 million, resulting in an operating margin of 4%, compared to operating earnings of $6.8 million, or 8% of revenues in the 2010 first quarter.

EMEA/AP

First quarter 2011 revenues before reimbursements for the EMEA/AP segment increased 16% to $79.8 million from $68.8 million for the same period in 2010. During the 2011 first quarter compared to the 2010 first quarter, the U.S. dollar was slightly stronger than most major EMEA/AP foreign currencies, resulting in a slightly negative exchange rate impact to revenues of $0.3 million. Excluding the negative impact of exchange rate changes, EMEA/AP revenues would have been $80.1 million in the 2011 first quarter. EMEA/AP operating expenses for the 2011 first quarter increased by $8.7 million in U.S. dollars, a 14% increase, and increased by $9.0 million on a constant dollar basis, compared to the 2010 period. Operating earnings increased to $7.2 million in the 2011 first quarter, up 49% from last year's first quarter operating earnings of $4.8 million. The related operating margin was 9% for the first quarter of 2011, compared to 7% in the first quarter of 2010.

Broadspire

Revenues before reimbursements from the Broadspire segment were $59.8 million in the 2011 first quarter, down 3% from $62.0 million in the 2010 quarter. Broadspire had an operating loss of $3.2 million in the 2011 first quarter, or an operating margin of (5)% of revenues, compared to an operating loss of $2.3 million, or (4)% of revenues, in the prior-year period.

Legal Settlement Administration

Legal Settlement Administration revenues before reimbursements were $60.2 million in the 2011 first quarter, compared to $20.7 million in the 2010 quarter, primarily the result of revenues from a special project that began in the summer of 2010.  Operating earnings totaled $17.0 million in the 2011 first quarter, or an operating margin of 28% of revenues, compared to $3.3 million, or 16% of revenues, in the prior-year period. The segment's awarded project backlog totaled approximately $110.0 million at March 31, 2011 as compared to $50.7 million at March 31, 2010.

Management's Comments

Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "Our first quarter 2011 operating results reflect continued strong performance in our Legal Settlement Administration segment, and improvement in EMEA/AP results, primarily as a result of a surge in weather-related claims activity. Overall, we saw an encouraging 10.5% increase in new claim assignments over the prior year's first quarter.

"In our Legal Settlement Administration segment, revenues increased sharply, which drove a substantial increase in operating earnings for the quarter. This increase was driven primarily from our continued engagement in the Gulf Coast Claims Facility (GCCF) special project. We continue to have a substantial backlog of awarded projects in this segment and expect the special project activity to continue through most of 2011, although at a reduced level.

"Our EMEA/AP segment was a strong contributor to operating performance for the quarter, with revenues increasing 16% over the 2010 quarter and operating earnings up nearly 50%. This part of our business was positively impacted by a substantial increase in weather-related claims activity in the 2011 quarter, particularly in our key United Kingdom and Australian markets. More recently, we have mobilized our global resources to assist our clients as they respond to the devastating earthquakes in New Zealand and Japan.

"Operating cash flow for the 2011 first quarter showed a seasonal decline from year-end 2010 levels. Historically, our cash requirements are highest in the first quarter and cash balances replenish over the course of the year. We are continuing to drive our Company to improve its working capital profile."

Mr. Bowman concluded, "Our overall results for the 2011 first quarter were substantially better than our expectations and the upward revisions to our guidance reflect our increased confidence for the remainder of the year. However, we do expect industry conditions to continue to be challenging, particularly with the effects of employment levels and market conditions in our Broadspire and U.S. property & casualty businesses. We expect to continue to focus significant attention on these areas to drive market share expansion and operating efficiencies."

2011 Guidance

Crawford's business is dependent, to a significant extent, on case volumes. The Company cannot predict the future trend of case volumes for a number of reasons, including the fact that frequency and severity of weather-related claims and the occurrence of natural and man-made disasters, which are a significant source of claims and revenue for the Company, are generally not subject to accurate forecasting. Notwithstanding the foregoing, however, based upon first quarter 2011 results and management's expectations with respect to the development of business for the remainder of the year, Crawford & Company revises and increases aspects of its previously issued guidance for 2011 as follows:

• Consolidated revenues before reimbursements between $1.04 billion and $1.07 billion.
• Consolidated operating earnings between $74.0 million and $82.0 million.
• Consolidated cash provided by operating activities between $30.0 million and $35.0 million.
• After reflecting stock-based compensation expense, net corporate interest expense, customer-relationship intangible asset amortization expense, and income taxes, net income attributable to shareholders of Crawford & Company on a GAAP basis between $33.0 million and $38.0 million, or $0.60 to $0.70 diluted earnings per share.

Crawford & Company's management will host a conference call with investors on Friday, May 6, 2011 at 3:00 p.m. EDT to discuss earnings and other developments. The call will be recorded and available for replay through May 13, 2011. You may dial 1-800-642-1687 (706-645-9291 international) to listen to the replay. The access code is 61726158. Alternatively, please visit our web site at 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 ended March 31, 2011 is shown on the attached unaudited condensed consolidated financial statements. In addition, the historical results of operations for 2010, 2009 and 2008, and for each quarter of 2010 and 2009, revised for the segment changes, are included in the attachments.

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 (such as 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 to net income 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 an expansive global network serving clients in more than 70 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.

Other than voting rights, the Company's two classes of stock have essentially identical rights, except that the Board of Directors may pay greater or equal (but not lesser) cash dividends on the Class A Common Stock than on the Class B Common Stock. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless approved by the holders of 75% of the Class A Common Stock, voting as a class.

This press release contains forward-looking statements, including statements about the financial condition, results of operations and earnings outlook of Crawford & Company.  Statements, both qualitative and quantitative, that are not historical facts may be "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from historical experience or Crawford & Company's present expectations.  Accordingly, no one should place undue reliance on forward-looking statements, which speak only as of the date on which they are made.  Crawford & Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise or not arise after the date the forward-looking statements are made.  For further information regarding Crawford & Company, including factors that could cause our actual financial condition, results or earnings to differ from those described in any forward-looking statements, please read Crawford & Company's reports filed with the SEC and available at www.sec.gov or in the Investor Relations section of Crawford & Company's website at www.crawfordandcompany.com.

SOURCE Crawford & Company