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, 2002 | ||
| OR | ||
| o | 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 incorporation or organization) |
(I.R.S. Employer 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 o
The number of shares outstanding of each of the issuer’s classes of common stock, as of October 31, 2002 was as follows:
Class A Common Stock, $1.00 par value: 23,925,383
Class B Common Stock, $1.00 par value: 24,697,172
PART I — Financial Information
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
(In thousands, except per share data)
| Nine months ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2002 | 2001 | ||||||||||
Revenues: |
|||||||||||
Revenues before reimbursements |
$ | 525,668 | $ | 547,394 | |||||||
Reimbursements |
25,688 | 27,563 | |||||||||
Total revenues |
551,356 | 574,957 | |||||||||
Costs and Expenses: |
|||||||||||
Cost of services provided, before reimbursements |
398,420 | 409,630 | |||||||||
Reimbursements |
25,688 | 27,563 | |||||||||
Cost of services |
424,108 | 437,193 | |||||||||
Selling, general, and administrative expenses |
100,326 | 93,204 | |||||||||
Nonrecurring credit (1) |
(6,000 | ) | — | ||||||||
Corporate interest, net |
3,565 | 3,584 | |||||||||
Amortization of goodwill |
— | 2,605 | |||||||||
Total costs and expenses |
521,999 | 536,586 | |||||||||
Income Before Income Taxes |
29,357 | 38,371 | |||||||||
Provision for Income Taxes |
10,686 | 14,734 | |||||||||
Net Income |
$ | 18,671 | $ | 23,637 | |||||||
Net Income Per Share: |
|||||||||||
Basic |
$ | 0.38 | $ | 0.49 | |||||||
Diluted |
$ | 0.38 | $ | 0.49 | |||||||
Weighted-Average Shares Outstanding: |
|||||||||||
Basic |
48,565 | 48,476 | |||||||||
Diluted |
48,625 | 48,542 | |||||||||
Cash Dividends Per Share: |
|||||||||||
Class A Common Stock |
$ | 0.34 | $ | 0.42 | |||||||
Class B Common Stock |
$ | 0.34 | $ | 0.42 | |||||||
| (1) | Nonrecurring credit related to a payment from a former vendor in full settlement of a business dispute. |
(See accompanying notes to condensed consolidated financial statements)
2
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
(In thousands, except per share data)
| Quarter ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2002 | 2001 | ||||||||||
Revenues: |
|||||||||||
Revenues before reimbursements |
$ | 175,912 | $ | 181,412 | |||||||
Reimbursements |
8,880 | 9,346 | |||||||||
Total revenues |
184,792 | 190,758 | |||||||||
Costs and Expenses: |
|||||||||||
Cost of services provided, before reimbursements |
132,725 | 135,690 | |||||||||
Reimbursements |
8,880 | 9,346 | |||||||||
Cost of services |
141,605 | 145,036 | |||||||||
Selling, general, and administrative expenses |
33,078 | 32,970 | |||||||||
Corporate interest, net |
1,246 | 1,088 | |||||||||
Amortization of goodwill |
— | 858 | |||||||||
Total costs and expenses |
175,929 | 179,952 | |||||||||
Income Before Income Taxes |
8,863 | 10,806 | |||||||||
Provision for Income Taxes |
3,226 | 4,149 | |||||||||
Net Income |
$ | 5,637 | $ | 6,657 | |||||||
Net Income Per Share: |
|||||||||||
Basic |
$ | 0.11 | $ | 0.14 | |||||||
Diluted |
$ | 0.11 | $ | 0.14 | |||||||
Weighted-Average Shares Outstanding: |
|||||||||||
Basic |
48,607 | 48,476 | |||||||||
Diluted |
48,649 | 48,566 | |||||||||
Cash Dividends Per Share: |
|||||||||||
Class A Common Stock |
$ | 0.06 | $ | 0.14 | |||||||
Class B Common Stock |
$ | 0.06 | $ | 0.14 | |||||||
(See accompanying notes to condensed consolidated financial statements)
3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| (Unaudited) | ||||||||||
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
ASSETS |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 22,052 | $ | 21,966 | ||||||
Accounts receivable, less allowance for doubtful
accounts of $16,784 in 2002 and $16,755 in 2001 |
141,347 | 139,380 | ||||||||
Unbilled revenues, at estimated billable amounts |
100,456 | 88,399 | ||||||||
Prepaid expenses and other current assets |
14,261 | 11,539 | ||||||||
Total current assets |
278,116 | 261,284 | ||||||||
Property and Equipment: |
||||||||||
Property and equipment, at cost |
145,589 | 146,626 | ||||||||
Less accumulated depreciation |
(107,974 | ) | (107,898 | ) | ||||||
Net property and equipment |
37,615 | 38,728 | ||||||||
Other Assets: |
||||||||||
Intangible assets arising from acquisitions, net |
97,089 | 86,239 | ||||||||
Prepaid pension cost |
7,803 | 7,138 | ||||||||
Capitalized software costs, net |
22,431 | 16,402 | ||||||||
Deferred income tax asset |
11,758 | 11,817 | ||||||||
Other |
12,690 | 9,807 | ||||||||
Total other assets |
151,771 | 131,403 | ||||||||
TOTAL ASSETS |
$ | 467,502 | $ | 431,415 | ||||||
(See accompanying notes to condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
(In thousands)
| (Unaudited) | ||||||||||
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
LIABILITIES AND SHAREHOLDERS’ INVESTMENT |
||||||||||
Current Liabilities: |
||||||||||
Short-term borrowings |
$ | 41,516 | $ | 36,440 | ||||||
Accounts payable |
30,164 | 31,275 | ||||||||
Accrued compensation and related costs |
27,139 | 25,771 | ||||||||
Deferred revenues |
22,356 | 20,543 | ||||||||
Self-insured risks |
16,384 | 12,833 | ||||||||
Accrued income taxes |
20,536 | 16,001 | ||||||||
Other accrued liabilities |
12,953 | 13,118 | ||||||||
Current installments of long-term debt |
859 | 326 | ||||||||
Total current liabilities |
171,907 | 156,307 | ||||||||
Noncurrent Liabilities: |
||||||||||
Long-term debt, less current installments |
47,360 | 36,378 | ||||||||
Deferred revenues |
13,232 | 12,707 | ||||||||
Self-insured risks |
10,269 | 11,249 | ||||||||
Minimum pension liability |
13,154 | 10,328 | ||||||||
Postretirement medical benefit obligation |
6,639 | 6,645 | ||||||||
Other |
10,129 | 9,501 | ||||||||
Total noncurrent liabilities |
100,783 | 86,808 | ||||||||
Shareholders’ Investment: |
||||||||||
Class A Common Stock, $1.00 par value; 50,000
shares authorized; 23,925 and 23,843 shares issued
and outstanding in 2002 and 2001, respectively |
23,925 | 23,843 | ||||||||
Class B Common Stock, $1.00 par value; 50,000
shares authorized; 24,697 shares issued and
outstanding in 2002 and 2001 |
24,697 | 24,697 | ||||||||
Additional paid-in capital |
523 | 27 | ||||||||
Retained earnings |
188,843 | 186,683 | ||||||||
Accumulated other comprehensive loss |
(43,176 | ) | (46,950 | ) | ||||||
Total shareholders’ investment |
194,812 | 188,300 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT |
$ | 467,502 | $ | 431,415 | ||||||
(See accompanying notes to condensed consolidated financial statements)
5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)
| Nine months ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2002 | 2001 | ||||||||||
Cash Flows From Operating Activities: |
|||||||||||
Net income |
$ | 18,671 | $ | 23,637 | |||||||
Reconciliation of net income to net cash provided by
operating activities: |
|||||||||||
Depreciation and amortization |
13,145 | 15,382 | |||||||||
Deferred income taxes |
(287 | ) | (18 | ) | |||||||
(Gain) loss on sales of property and equipment |
(39 | ) | 187 | ||||||||
Changes in operating assets and liabilities,
net of effects of acquisitions: |
|||||||||||
Accounts receivable, net |
1,596 | (9,565 | ) | ||||||||
Unbilled revenues |
(7,662 | ) | (4,368 | ) | |||||||
Accrued or prepaid income taxes |
4,300 | 11,634 | |||||||||
Accounts payable and accrued liabilities |
179 | 1,203 | |||||||||
Deferred revenues |
1,534 | (1,212 | ) | ||||||||
Prepaid and accrued pension costs |
2,161 | 3,249 | |||||||||
Prepaid expenses and other assets |
(6,423 | ) | (4,605 | ) | |||||||
Net cash provided by operating activities |
27,175 | 35,524 | |||||||||
Cash Flows From Investing Activities: |
|||||||||||
Acquisitions of property and equipment |
(6,769 | ) | (6,580 | ) | |||||||
Acquisition of businesses, net of cash acquired |
(12,798 | ) | (8,634 | ) | |||||||
Capitalization of computer software costs |
(8,704 | ) | (3,984 | ) | |||||||
Proceeds from sales of property and equipment |
157 | 221 | |||||||||
Net cash used in investing activities |
(28,114 | ) | (18,977 | ) | |||||||
Cash Flows From Financing Activities: |
|||||||||||
Dividends paid |
(16,510 | ) | (20,350 | ) | |||||||
Proceeds from exercise of stock options |
578 | 836 | |||||||||
Increase in short-term borrowings |
18,712 | 11,433 | |||||||||
Payments on short-term borrowings |
(13,905 | ) | (15,000 | ) | |||||||
Increase in long-term borrowings |
11,226 | 88 | |||||||||
Payments on long-term debt |
(118 | ) | (226 | ) | |||||||
Net cash used in financing activities |
(17 | ) | (23,219 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
1,042 | (681 | ) | ||||||||
Increase
(decrease) in cash and cash equivalents |
86 | (7,353 | ) | ||||||||
Cash and cash equivalents at beginning of period |
21,966 | 22,136 | |||||||||
Cash and cash equivalents at end of period |
$ | 22,052 | $ | 14,783 | |||||||
(See accompanying notes to condensed consolidated financial statements)
6
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited condensed consolidated 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, 2001.
2. The results of operations for the nine months ended September 30, 2002 are not necessarily indicative of the results to be expected during the balance of the year ending December 31, 2002.
3. During the quarter and nine months ended September 30, 2002, the Company’s restructuring reserve increased $76,000 and decreased $132,000, respectively, due to exchange rate fluctuations and payments related to employee separations and lease terminations. As of September 30, 2002, remaining restructuring reserves were $1.8 million, $1.5 million of which is included in other noncurrent liabilities. The noncurrent portion of accrued restructuring costs consists of long-term lease obligations related to various United Kingdom offices, which the Company has vacated and is currently attempting to sublease. Management periodically reviews the restructuring reserves and believes the remaining reserves are adequate to complete its plan.
4. During the quarter ended June 30, 2002, the Company made additional payments of $2.9 million to the former owners of the Garden City Group pursuant to the 1999 purchase agreement. There are no additional contingent payments due under this agreement. During the quarter ended September 30, 2002, the Company made additional payments of $142,000 to Greentree Investigations, Inc. pursuant to the 2000 purchase agreement. Additional contingent payments due under this agreement may be made through the second quarter of 2005. On July 3, 2002, in order to expand its presence in the Australian market, the Company acquired the operations of the Robertson & Company Group (“Robertson”) in Australia for an initial cash purchase price of $10.2 million. The Company acquired assets with an approximate fair value of $12.7 million and assumed liabilities of approximately $2.5 million. The strength of the going concern, the established locations, and the assembled workforce of Robertson supported a premium above the fair value of the separately identifiable net assets. This premium is reported as goodwill of approximately $7.7 million. The purchase price of this acquisition may be increased based on future earnings through 2008. Robertson’s operating results are included in the consolidated statements of income from September 1, 2002, due to a two-month lag in reporting international results. These transactions were accounted for by the purchase method of accounting.
7
CRAWFORD & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. The Company normally structures its acquisitions to include earnout payments which are contingent upon the acquired entity reaching certain revenue and operating earnings targets. The amount of the contingent payments and length of the earnout period varies for each acquisition, and the ultimate payments when made will vary, as they are dependent on future events. Based on current levels of revenues and operating earnings, additional payments under existing earnout agreements would approximate $3.8 million through 2008, as follows: