Atlanta-based Crawford & Company announced its financial results for the first quarter ended March 31, 2003.
First quarter 2003 revenues before reimbursements totaled $167.3 million compared with $171.8 million in the 2002 first quarter. First quarter 2003 net income was $3.2 million versus $8.2 million for the 2002 first quarter. Net income in the 2002 first quarter included a payment received from a former vendor in full settlement of a business dispute of $3.8 million, net of related income tax expense, or $0.08 per share. First quarter 2003 net income per share was $0.07 per share, compared with $0.17 in the prior-year quarter.
Operating earnings (earnings before special credit, net corporate interest and taxes) in the 2003 first quarter totaled $6.4 million compared with $8.0 million in the comparable 2002 quarter. Following is a reconciliation of consolidated net income to operating earnings and the related margin as a percentage of revenues before reimbursements:
U.S. revenues before reimbursements were $115.1 million in the first quarter of 2003 compared with $126.6 million in the 2002 first quarter. Revenues from the insurance company market were $58.7 million in the 2003 first quarter compared with $64.8 million in the 2002 period, reflecting a continued softening in the company’s U.S. insurance company referrals for high-frequency, low-severity claims in the current quarter. Lower medical bill auditing revenues associated with the previously reported non-renewal of a contract with a major domestic insurer contributed $3.1 million of this decline.
Revenues from self-insured clients were $42.5 million in the 2003 first quarter compared with $50.3 million in the 2002 quarter, primarily reflecting declines in U.S. employment levels and associated injury rates which have contributed to a reduction in workers’ compensation claims. Class action services revenues were $13.9 million for the 2003 first quarter, compared with $11.5 million in the comparable year-ago quarter.
First quarter 2003 international revenues grew to $52.2 million from $45.2 million for the same period in 2002. The growth is largely due to the company’s third quarter 2002 acquisition of the loss adjusting business of Robertson and company in Australia and growth within its Canadian and United Kingdom operations. During the 2003 first quarter, the U.S. dollar weakened significantly against the British Pound and the Euro, resulting in a net exchange rate benefit in the quarter. Excluding the benefit of exchange rate fluctuations, international revenues would have been $48.1 million in the 2003 first quarter.
Grover Davis, CEO of Crawford & Company, noted, “Our first quarter results reflect a continued industry-wide decline in property and casualty claims frequency. Conservative underwriting, increases in policy deductibles, and mild weather have contributed to a decline in property and casualty claims frequency, resulting in an overall 14 percent decline in cases received in the U.S. These factors impacted our U.S. insurance company referrals for high-frequency, low-severity claims and resulted in lower U.S. revenues. In addition, our self-insured market revenues in the U.S. were negatively impacted by a reduction in workers’ compensation claims frequency. In fact, the Bureau of Labor Statistics recently reported an 8 percent decline in private sector workplace injuries, and employee absentee rates are at their lowest levels since 1991.
“In the face of challenging industry circumstances, we successfully reduced our U.S. operating expenses nearly 8 percent in the current quarter in response to the decline in claims volume. While we could not maintain our operating margin, we remain committed to preserving our profitability and are currently taking aggressive steps to reduce our U.S. annual operating costs by approximately $15 million from their current level. This is a difficult and painful decision, but we believe that it is essential in order to increase our U.S. operating margin to an acceptable level of 6 percent to 7percent over the remainder of the year. This operating margin would equate to an after-tax margin of approximately 4 percent. By achieving these cost reductions, we believe that we will be able to preserve our current level of dividends, which is of paramount importance to us in delivering shareholder value and building investor confidence.”
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