CRD.A Crawford and Company

ATLANTA, Nov. 5, 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 third quarter ended September 30, 2012.

Consolidated Results
Third quarter 2012 consolidated revenues before reimbursements totaled $302.1 million, an increase of  7% from $283.0 million in the 2011 third quarter.  Third quarter 2012 net income attributable to shareholders of Crawford & Company was $18.2 million, increasing 19% over the $15.3 million recorded in the 2011 third quarter. Third quarter 2012 diluted earnings per share were $0.33 for CRDA and CRDB, compared with diluted earnings per share for each class of $0.28 in the prior-year quarter.

During the 2012 third quarter, the Company incurred pretax special charges of approximately $0.3 million, or less than $0.01 per share of CRDA and CRDB after related income taxes, for the completion of a project to outsource certain aspects of our U.S. technology infrastructure. During the 2011 third quarter, the Company recorded a special credit of $7.0 million, or $0.11 per share of CRDA and CRDB after related income taxes, resulting from an arbitration award.

Balance Sheet and Cash Flow
The Company's consolidated cash and cash equivalents position as of September 30, 2012 totaled $66.4 million, compared with $77.6 million at December 31, 2011 and $68.0 million at September 30, 2011.

Crawford generated $10.3 million of cash from operations during the 2012 year-to-date period, compared with $17.6 million used during the comparable 2011 period. The $27.9 million increase in cash provided by operations was largely due to lower cash payments for accounts payable, accrued liabilities and accrued compensation in 2012 compared with 2011 and reductions in defined benefit pension contributions and taxes paid. 

Management's Comments
Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "For the 2012 third quarter we achieved new quarterly records for revenues, net income and earnings per share. These results were driven by strong performance in our EMEA/AP and Legal Settlement Administration segments and improvements in our Broadspire segment. We are mobilizing our resources to assist our clients in the aftermath of Superstorm Sandy. We anticipate that this event will generate significant  claims volumes for us in the 2012 fourth quarter.

"During the 2012 third quarter our Legal Settlement Administration segment was heavily involved in the Deepwater Horizon class action settlement. We expect activity in this special project to continue for the remainder of 2012, although at a reduced rate.

"In the Broadspire segment, we continued to see substantial improvement over the 2011 comparable period results of that segment, as we reduced operating losses by $8.8 million for the year-to-date period through revenue increases and cost management. Our 2012 third quarter claims activity was up 4.4% over the 2011 third quarter. We remain focused on driving sequential operating improvement in this segment. The turnaround of Broadspire is one of the key objectives for our management team and we are optimistic that Broadspire will end the year profitably.

"Our EMEA/AP segment results continue to be driven primarily by the ongoing handling of catastrophic flood losses in Thailand. We have been encouraged with the operating performance of this segment during the 2012 third quarter, which has seen strong growth in revenues and operating earnings.

"The Americas segment saw an increase in claims activity during the 2012 third quarter resulting from Hurricane Isaac in the U.S. and catastrophe related claims in Canada. This helped generate sequential improvement over the 2012 second quarter results of this segment, despite relatively weak industry-wide claim volumes which have persisted throughout 2012."

Mr. Bowman concluded, "We remain focused on our core strategic and operational goals and expect to further expand market share, drive efficiencies and capitalize on emerging opportunities as we enter 2013. In order to improve the Company's financial performance in 2013, we anticipate taking a restructuring charge in the 2012 fourth quarter of approximately $5.0 million, before tax. We expect the cost efficiencies gained by our actions to produce annualized operating savings of approximately $4.2 million in our North American operations, helping to improve future operating margins in our Americas and Broadspire segments. This charge is included in the updated 2012 guidance we are providing today."

Third Quarter 2012 Segment Results

Americas
Americas revenues before reimbursements were $85.9 million in the third quarter of 2012, decreasing 9% from $94.7 million in the 2011 third quarter. During the 2012 third quarter compared with the 2011 third quarter, the U.S. dollar strengthened against foreign currencies in the segment, resulting in a negative exchange rate impact to revenues of $0.9 million in this segment. Excluding the negative impact of exchange rate changes, Americas revenues would have been $86.8 million in the 2012 third quarter. Revenues generated by the Company's catastrophe adjuster group in the U.S. were $9.6 million in the 2012 third quarter, decreasing from $12.9 million in the 2011 period.  Americas operating expenses for the 2012 third quarter decreased by $8.5 million in U.S. dollars, a 10% decrease, and decreased by 8% on a constant dollar basis, compared with the 2011 period. Operating earnings in the 2012 third quarter decreased to $6.5 million, or an operating margin of 8%, compared with operating earnings of $6.8 million, or 7% of revenues, in the 2011 third quarter.

EMEA/AP
Third quarter 2012 revenues before reimbursements for the EMEA/AP segment increased 10% to $95.9 million from $87.0 million in the same period of 2011. During the 2012 third quarter compared with the 2011 third quarter, the U.S. dollar strengthened against most major foreign currencies, resulting in a negative exchange rate impact to revenues of $6.7 million in this segment. Excluding the negative impact of exchange rate changes, EMEA/AP  revenues would have been $102.6 million in the 2012 third quarter. EMEA/AP operating expenses for the 2012 third quarter increased by $1.6 million in U.S. dollars, a  2% increase, and increased by 10% on a constant dollar basis, compared with the 2011 period. Operating earnings increased to $13.0 million in the 2012 third quarter from 2011 third quarter operating earnings of $5.7 million. The related operating margin was 14% in the 2012 third quarter compared with 7% in the 2011 third quarter.

Broadspire
Revenues before reimbursements from the Broadspire segment were $59.8 million in the 2012 third quarter, an increase of 2% from $58.9 million in the 2011 third quarter. Broadspire had an operating loss of $0.2 million in the 2012 third quarter, or a slightly negative operating margin, compared with an operating loss of $2.9 million, or  a negative operating margin of 5%, in the prior year period.

Legal Settlement Administration
Legal Settlement Administration revenues before reimbursements were $60.6 million in the 2012 third quarter, compared with $42.5 million in the 2011 third quarter.  Operating earnings totaled $15.6 million in the 2012 third quarter, or 26% of revenues, compared with $10.8 million, or 25% of revenues, in the prior-year period. The segment's awarded project backlog totaled approximately $118.0 million at September 30, 2012 as compared with $72.5 million at September 30, 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 raising its guidance for 2012 as follows:

• Consolidated revenues before reimbursements between $1.13 and $1.14 billion
• Consolidated operating earnings between $85.0 and $90.0 million
• Consolidated cash provided by operating activities between $45.0 and $50.0 million
•  After reflecting stock option expense, net corporate interest expense, customer-relationship intangible asset amortization expense, special charges, and income taxes, net income attributable to shareholders of Crawford & Company on a GAAP basis between $37.5 and $40.8 million, or $0.68 to $0.74 diluted earnings per CRDB share
• Before reflecting a 2012 fourth quarter special charge of $5.0 million, or $0.06 per share, net income attributable to shareholders of Crawford & Company on a non-GAAP basis between $40.7 and $44.0 million, or $0.74 to $0.80 diluted earnings per CRDB share

The foregoing 2012 guidance does not include any estimated impact from the Company's anticipated response to claims resulting from Superstorm Sandy.

Earnings per share may be different between CRDA and CRDB due to the payment of a higher per share dividend on CRDA than CRDB, and the impact that has on the earnings per share calculation according to generally accepted accounting principles. References in this release are generally only to CRDB, as that presents a more dilutive measure.

Crawford & Company's management will host a conference call with investors on Monday, November 5, 2012 at 3:00 p.m. EST to discuss earnings and other developments. The call will be recorded and available for replay through November 26, 2012. You may dial 1-855-859-2056 (404-537-3406 international) to listen to the replay. The access code is 53763973. 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 as of and for the quarter and year-to-date periods ended September 30, 2012 is shown on the attached unaudited condensed consolidated financial statements.

Non-GAAP Presentation
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 income.

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, segment operating earnings 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 (loss) represent segment earnings (loss) before certain unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, special charges and credits, income taxes, and net income or loss attributable to noncontrolling interests.

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 (loss) because they are managed on a corporate-wide basis. Income tax expense is calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and varies significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and affecting the Company as a whole. Amortization expense is a non-cash expense for customer-relationship intangible assets acquired in 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 may arise from events (such as expenses related to restructurings, losses on subleases, etc.) 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.

Unallocated corporate and shared costs and credits represent expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.

Following is a reconciliation of segment operating earnings (loss) 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):

Company Information
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^® 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.

SOURCE Crawford & Company