CRD.A Crawford and Company

ATLANTA, Feb. 13, 2012 /PRNewswire/ -- 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 fourth quarter and year ended December 31, 2011.

Consolidated Results

Full year consolidated revenues before reimbursements totaled a record of more than $1.125 billion for 2011, increasing $94.9 million from 2010.  Net income attributable to shareholders of Crawford & Company in 2011 was $45.4 million, increasing 60% over net income in 2010 of $28.3 million. Full year 2011 diluted earnings per share were $0.85 for CRDA and $0.83 for CRDB, respectively, compared with diluted earnings per share for each class of $0.53 in the prior year.

The 2011 difference in earnings per share between CRDA and CRDB is due to the payment of a higher per share dividend on CRDA than CRDB beginning in the third quarter of 2011, and the impact that has on the earnings per share calculation according to generally accepted accounting principles. Further references in this release will generally be only to CRDB, as that presents a more dilutive measure.

Fourth quarter 2011 consolidated revenues before reimbursements totaled $265.6 million, a decrease of 12% from $301.5 million in the 2010 fourth quarter.  Fourth quarter 2011 net income attributable to shareholders of Crawford & Company was $4.5 million, decreasing 70% from $14.8 million in the 2010 fourth quarter. Fourth quarter 2011 diluted earnings per CRDB share was $0.08 compared with diluted earnings per share of $0.28 in the prior-year quarter.

During the 2011 fourth quarter, the Company recorded $4.6 million in special charges, consisting of a $3.4 million write-off of deferred financing costs related to the repayment of its then-outstanding Term Loan B and $1.2 million in severance expense related to the Broadspire segment. The Company also recorded a tax benefit of $5.5 million related to a change in the valuation allowance for foreign tax credits. In the third quarter of 2011, the Company recorded a gain of $7.0 million ($5.9 million net of tax) related to the final settlement of a previously disclosed arbitration award. Excluding the arbitration award, tax adjustment, and other special charges, 2011 fourth quarter and full-year net income attributable to shareholders of Crawford & Company would have been $1.9 million and $37.0 million, respectively, and diluted earnings per CRDB share would have been $0.03 and $0.67, respectively.  

During the 2010 fourth quarter, the Company recorded a net $3.5 million goodwill impairment charge related in part to additional consideration paid for the purchase of its Broadspire business. This was in addition to the $7.3 million goodwill impairment charge recorded in the 2010 second quarter for related matters. The Company recorded special charges in early 2010 of $2.0 million related to severance costs and $2.7 million for a loss on a sublease. Excluding these impairment charges and other special charges, 2010 fourth quarter and full-year net income attributable to shareholders of Crawford & Company would have been $17.8 million and $43.4 million, respectively, and diluted earnings per CRDB share would have been $0.33 and $0.81, respectively.

Diluted earnings per CRDB share and the related non-GAAP adjusted diluted earnings per CRDB share, including the reconciliation for the impact of the arbitration award, tax adjustments, special charges and credits, and goodwill impairment charges, are set out in the table below:

Balance Sheet and Cash Flow

Crawford & Company's consolidated cash and cash equivalents position as of December 31, 2011 totaled $77.6 million compared with $93.5 million at December 31, 2010.

The Company generated $36.7 million of cash from operations during 2011, compared with $26.2 million during 2010. As previously announced, in December 2011 we entered into a new five-year $325.0 million senior secured revolving credit facility with a syndicate of banks, replacing a $100.0 million revolving credit facility and repaying $218.6  million outstanding under a syndicated Term Loan B.

Management's Comments

Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "We are very pleased to report record revenues of $1.125 billion for the full year and a 60% increase in our earnings. We saw revenue growth in three of our four segments driven by an increase in overall claims received during the year.

"Our fourth quarter 2011 operating results reflect an expected decline in our Legal Settlement Administration segment and weakness in the Americas segment. These were partially offset by a sequential improvement in our Broadspire and EMEA/AP segments over 2011's third quarter.

"As previously announced, during the 2011 fourth quarter we entered into a new revolving credit facility which provides us with numerous benefits, including the financial flexibility to pursue our strategic plans. We believe this agreement is a reflection of our solid operational performance.  

"In our Legal Settlement Administration segment, we saw a decline in work required to support the Gulf Coast Claims Facility (GCCF) special project. This project continues to wind down and we expect activity to decline significantly through the first half of 2012. However, we still have a healthy backlog of awarded projects in this segment and are confident in the future of this business.  

"The Americas segment saw a sharp decline in case referrals during the 2011 fourth quarter as relatively mild weather in the U.S. and Canada reduced industry-wide claim volumes and our related revenues. This drop in new cases and related revenues offset increased catastrophe revenues from the completion of Hurricane Irene claims in the 2011 fourth quarter.

"Our EMEA/AP segment turned in its best performance of the year during the fourth quarter.  As reported previously, this part of our business continued to be positively impacted by revenues from an increase in weather-related claims activity in our Australian market throughout 2011. We expect the recent catastrophic flooding and related events in Thailand to benefit this segment in 2012.  

"In Broadspire we were keenly focused on business development execution and cost control measures during the quarter. We saw continuing progress on both fronts and were successful in narrowing our operating loss during the 2011 fourth quarter. We continue to focus on driving operating improvement during 2012. The turnaround of Broadspire is one of the key objectives for our management team."

Mr. Bowman concluded, "As we enter 2012, we are capitalizing on the strength of our global footprint and increasing technological integration and innovation. We expect to expand market share, to drive efficiencies in all our operations and to deliver sequential quarterly operating improvement in our Broadspire operation as we seek to return it to profitability."

2011 Segment Results For the Fourth Quarter and Full Year

Americas

Americas revenues before reimbursements were $82.0 million in the fourth quarter of 2011, substantially unchanged from $82.1 million in the 2010 fourth quarter. During the 2011 fourth quarter compared with the 2010 fourth quarter, the impact  of changes in foreign exchange rates for this segment was insignificant. Operating earnings in the 2011 fourth quarter in the segment were nearly break-even, compared with  $2.4 million, or 3% of revenues in the 2010 fourth quarter.

For the year, Americas revenues before reimbursements increased 7% to $357.7 million compared with $334.9 million in 2010. During 2011, the U.S. dollar weakened against foreign currencies in the segment, resulting in a positive exchange rate impact to revenues of $7.8 million on this segment's revenues from 2010 to 2011. Operating earnings decreased from $20.7 million in 2010 to $19.9 million in 2011, representing an operating margin of 6% in both 2010 and 2011.

EMEA/AP

Fourth quarter 2011 revenues before reimbursements for the EMEA/AP segment increased 11% to $86.2 million from $77.9 million for the same period of 2010. During the 2011 fourth quarter compared with the 2010 fourth quarter, the U.S. dollar weakened against most major foreign currencies, resulting in a positive exchange rate impact to revenues of $3.8 million in this segment. Operating earnings decreased to $8.0 million in the 2011 fourth quarter, down 17% from last year's fourth quarter operating earnings of $9.6 million. The related operating margin was 9% in the 2011 fourth quarter, decreasing from 12%  in the 2010 fourth quarter.

For the year, revenues before reimbursements from our EMEA/AP segment totaled $340.2 million, a 19% increase from $285.8 million in 2010. During 2011, the U.S. dollar weakened against most major foreign currencies, resulting in a positive exchange rate impact to revenues of $19.5 million on this segment's revenues from 2010 to 2011. EMEA/AP operating earnings increased to $28.4 million in 2011, an increase of 14% from 2010 operating earnings of $24.8 million. The operating margin declined from 9% in 2010 to 8% in 2011.

Broadspire

Revenues before reimbursements from the Broadspire segment were $58.2 million in the 2011 fourth quarter, down 4% from $60.7 million in the 2010 quarter. Broadspire had an operating loss of $2.3 million in the 2011 fourth quarter, or a negative operating margin of 4%, compared with an operating loss of $6.9 million, or a negative operating margin of 11%, in the prior-year period.

For the year, Broadspire segment revenues before reimbursements decreased 4% to $234.8 million compared with $245.5 million in 2010. Broadspire recorded an operating loss of $11.4 million in 2011, or a negative operating margin of 5%, compared with an operating loss of $11.7 million, or a negative operating margin of 5% in 2010.

Legal Settlement Administration

Legal Settlement Administration revenues before reimbursements were $39.2 million in the 2011 fourth quarter, compared with $80.8 million in the 2010 fourth quarter. Operating  earnings totaled $8.8 million in the 2011 fourth quarter, or 22% of revenues, compared with $27.8 million, or 34% of revenues, in the prior-year period.

For the year, Legal Settlement Administration revenues before reimbursements were $192.6 million, compared with $164.2 million in 2010. Operating earnings were $51.3 million, increasing 8% from $47.7 million in 2010, with the related operating margin decreasing from 29% in 2010 to 27% in 2011.

2012 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 the 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,  Crawford & Company is providing initial guidance for 2012 as follows:

• Consolidated revenues before reimbursements between $990 million and $1.03 billion.
• Consolidated operating earnings between $63.0 million and $70.0 million.
• Consolidated cash provided by operating activities between $30.0 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 $30.5 million and $35.5 million, or $0.52 to $0.62 diluted earnings per CRDB share.

Crawford & Company's management will host a conference call with investors on Monday, February 13, 2012 at 3:00 p.m. EST to discuss earnings and other developments. The call will be recorded and available for replay through February 28, 2012. You may dial 1-855-859-2056 (404-537-3406 international) to listen to the replay. The access code is 47598056. 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 and year ended December 31, 2011 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 required to be included when reporting expenses and revenues, 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 expenses and revenues 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, special charges and credits, 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, 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 in which 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 is a non-cash expense for 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.

Special charges and credits may arise from events (such as expenses related to restructurings, losses on subleases, arbitration awards, 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 (loss) earnings to net income attributable to shareholders of 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.

The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the Class A Common Stock than on the Class B Common Stock, subject to certain limitations. 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.