Atlanta-based Crawford & Company announced its financial results for the fourth quarter ended Dec. 31, 2003.
Fourth quarter 2003 revenues before reimbursements totaled $175.1 million compared with $173.7 million in the 2002 fourth quarter. Fourth quarter 2003 net income was $2.1 million, or $0.04 per fully diluted share, compared with net income of $5.8 million, or $0.12 per fully diluted share, for the 2002 fourth quarter.
Operating earnings (earnings before special charge/credit, net corporate interest and taxes) in the 2003 fourth quarter totaled $4.8 million compared with $10.3 million in the comparable 2002 quarter. Operating earnings for the 2003 full year totaled $30.0 million compared with $37.2 million in 2002.
U.S. revenues before reimbursements were $117.3 million in the fourth quarter of 2003 compared with $121.7 million in the 2002 fourth quarter. Revenues from the insurance company market were $52.1 million in the 2003 fourth quarter compared with $60.4 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 revenues from the winding down of two projects associated with mold-related claims and reopened Northridge earthquake claims accounted for $1.3 million of the decline. Revenues from self-insured clients were $42.1 million in the 2003 fourth quarter compared with $44.4 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 a record $23.0 million for the 2003 fourth quarter, compared with $16.8 million in the comparable year-ago quarter.
Fourth quarter 2003 international revenues grew to $57.9 million from $52.1 million for the same period in 2002. During the 2003 fourth quarter, the U.S. dollar weakened significantly against most major international currencies, resulting in a net exchange rate benefit in the quarter. Excluding the benefit of exchange rate fluctuations, international revenues would have been $51.4 million in the 2003 fourth quarter.
Grover Davis, chairman and CEO of Crawford & Company, stated, “Our fourth quarter results reflect a continued industry-wide decline in property and casualty claims frequency. Conservative underwriting by our insurance company clients, including significant increases in policy deductibles, has contributed to a decline in property and casualty claims frequency, resulting in an overall 15 percent decline in claims referred to Crawford in the U.S. In addition, our self-insured market revenues in the U.S. were negatively affected by a reduction in workers’ compensation claims frequency due to the high U.S. unemployment rate, which is driving down private sector workplace injuries.”
“We continue to endure very challenging industry circumstances in the U.S. which have placed extraordinary pressure on our operating margins. Primarily as a result of the strong growth we achieved in our Class Action unit, which posted record quarterly revenues, our consolidated fourth quarter revenues grew 1 percent over revenues reported in the 2002 period. This is the first quarter- to-quarter revenue increase we have generated since the 2001 fourth quarter. However, due to incremental expenses associated with the growth in class action revenues, we experienced an increase in our cost of services of 2 percent in the current quarter. This overall increase occurred despite reductions we have made in other areas of our business in response to the continued decline in U.S. claims volume. In addition, our selling, general and administrative expenses increased 11 percent, or $3.4 million, during the 2003 fourth quarter, primarily as a result of higher costs associated with our self-insurance programs and severance expense.”
“In response to the decline in U.S. claims volume in the quarter, we have taken aggressive measures during December 2003 and January 2004 to reduce our annual level of administrative costs by approximately $5.0 million. Additional severance expense associated with these reductions will be recognized in our 2004 first quarter, so these cost reductions will not fully benefit our results until the 2004 second quarter. As with any cost reduction initiative, this was a difficult and painful decision to make, but it was absolutely essential in order for us to be a more flexible and cost effective company. The operating margins in our international operations improved in the fourth quarter to better than 4 percent from less than 3 percent in the 2003 third quarter. We anticipate further improved international operating margins during 2004.”
Total revenues before reimbursements for the year ended December 31, 2003 were $690.9 million compared with $699.4 million in 2002. Operating earnings for full year 2003 totaled $30.0 million compared with $37.2 million in 2002. Net income for the current year totaled $7.7 million, or $0.16 per share, compared with $24.5 million, or $0.50 per share, reported in the prior year. Net income in 2003 included an after-tax charge of $8.0 million, or $0.16 per share, under an agreement reached with the Department of Justice to resolve the investigation of the company’s billing practices. Net income in 2002 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.
U.S. revenues before reimbursements for 2003 were $471.8 million compared with $508.7 million in 2002. International revenues before reimbursements were $219.1 million in 2003 compared with $190.7 million during 2002. Excluding the benefit of exchange rate fluctuations, international revenues would have been $197.0 million in the current year.
Davis concluded, “We were very pleased with the growth in our class action services business during all of 2003 and especially the fourth quarter. Both periods reflect new record levels of revenues, with the 2003 fourth quarter benefiting from the performance of work on several large contracts. Overall, our cash and cash equivalents at December 31, 2003 have grown $10.5 million from the end of 2002 after reflecting a $10.0 million contribution to the company’s defined benefit pension plan during September 2003 and the $8.0 million payment to the Department of Justice in November 2003.”
“We are also pleased with the recent appointments of Crawford & Company to the preferred adjuster lists of several major property and casualty insurers in the U.S., United Kingdom and Canada which should greatly strengthen our market penetration and enable us to capture a greater share of revenues when claim volumes increase.”
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