Crawford Sees Gain in Q4 Revenues, Net Income

Atlanta-based Crawford & Company announced its financial results for the fourth quarter ended Dec. 31, 2004.

Fourth quarter 2004 revenues before reimbursements totaled $205.8 million, up 18% over the $175.1 million reported in the 2003 fourth quarter. Fourth quarter 2004 net income grew to $7.7 million from $2.1 million in the 2003 fourth quarter. Fourth quarter 2004 net income per share rose to $0.16 per share from $0.04 per share in the prior-year quarter. Operating earnings (earnings before special credit/charge, net corporate interest, and taxes) more than doubled in the 2004 fourth quarter, to $13.2 million from $4.8 million in the prior-year quarter.

U.S. revenues before reimbursements were $135.8 million in the fourth
quarter of 2004, increasing nearly 16% over the $117.3 million reported in the 2003 fourth quarter. Revenues from the insurance company market were $76.7 million in the 2004 fourth quarter compared with $52.1 million in the 2003 period, reflecting a $21.0 million increase in revenues generated by the company’s catastrophe adjusters in response to the hurricanes which struck the southeastern United States during the 2004 third quarter.

Revenues provided by the company’s catastrophe adjusters totaled $26.3 million in the 2004 fourth quarter compared to $5.2 million in the prior-year period. Revenues from self-insured clients were $37.9 million in the 2004 fourth quarter compared with $42.1 million in the 2003 quarter, due primarily to a reduction in claim referrals from the company’s existing clients, only partially offset by new business gains.

Class action services revenues, including administration and inspection services, declined 8% to $21.1 million during the 2004 fourth quarter, compared with $23.0 million in the 2003 fourth
quarter. Class action services revenues can fluctuate depending on the timing of project awards.

Fourth quarter 2004 international revenues grew to $70.1 million from
$57.9 million for the same period in 2003. This growth is partially due to foreign currency fluctuations. During the 2004 fourth quarter, the U.S. dollar weakened 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 $65.5 million in the 2004 fourth quarter, reflecting growth in revenues on a constant dollar basis of 13.2%. This growth is due to an increase in revenues in the Caribbean region
related to Hurricanes Francis, Ivan and Jeanne and a substantial increase in case referrals from recently awarded claims management agreements in the United Kingdom. International operating expenses increased by $8.4 million in U.S. dollars, a 15.2% increase, and by 6.6% on a constant dollar basis.

Thomas Crawford, chief executive officer of Crawford & Company,
stated, “During the fourth quarter, we continued to benefit from the sharp increase in property claims referred to us due to the hurricanes that hit Florida and other southeastern states during August and September. Claim referrals from the U.S. insurance company market were up nearly 23% during the 2004 fourth quarter. This surge in claims drove the highest quarterly revenues from our insurance company clients since the third quarter of 1998 and also contributed to the first year-over-year increase in total U.S. revenues since 2001. The growth in hurricane-related revenues helped to offset the declines in our class action and self-insured market revenues during the quarter.

“Our U.S. operating margin improved to 5.2% in the quarter, up from 2.1% in last year’s fourth quarter, while our International operating margin surged to 8.8% from 4.1% in the 2003 fourth quarter. Hurricane-related claims in the U.S. and Caribbean region and strong case referrals, primarily as a result of recent client wins in our United Kingdom operation, contributed to the margin improvements. The substantial new business awarded to us in the United Kingdom
during 2004 should help us to maintain healthy international operating margins in future quarters.”

Total revenues before reimbursements for the year ended Dec. 31, 2004 grew by just over 6%, to $733.6 million from $690.9 million in 2003. Operating earnings totaled $32.4 million, up 8% over the $30.0 million reported in 2003. Net income totaled $25.2 million, or $0.51 per share, compared with $7.7 million, or $0.16 per share in 2003.

During the 2004 second quarter, the company settled a tax credit refund claim with the Internal Revenue Service which increased net income by $2.8 million, or $0.06 per share. Net income in the 2004 third quarter includes a special credit of $5.2 million, net of related income taxes, or $0.11 per share, resulting from the sale of an undeveloped parcel of real estate during the quarter. Net income in the 2003 third quarter included an after-tax charge of $8.0
million, or $0.17 per share, under an agreement reached with the Department of Justice to resolve an investigation of the Company’s billing practices.

U.S. revenues before reimbursements for full year 2004 were $478.1
million, just over the $471.8 million reported in 2003. Class action services revenues grew 16%, to a record $86.4 million in 2004 from $74.5 million reported in 2003. International revenues before reimbursements grew nearly 17%, to $255.4 million in 2004 from $219.1 million in 2003. Excluding the benefit of exchange rate fluctuations, international revenues would have been $233.3 million in the current year, reflecting growth in revenues on a constant dollar basis of 6.5%. International operating expenses increased by
$31.5 million in U.S. dollars, a 14.8% increase, and by 4.5% on a constant dollar basis.

Crawford concluded, “We are very pleased with the growth in U.S.
revenues during 2004, helped by the contribution of our catastrophe adjusters and record revenues in our class action services unit. But we know we have hard work in front of us to return the Company to a sustainable growth track. We have spent the last few months strengthening our leadership team and improving the quality of our service delivery. Our outlook for 2005 remains cautious, but we believe our continued focus on excellence in everything we do
will ultimately pay off for us in top-line growth and improved operating
margins. We’ve defined our critical objectives for 2005, largely focused on enhancing client satisfaction, and installed a management control program designed to improve our business planning process and management accountability throughout the company.”

The company also announced that it is continuing to cooperate with the Office of the Attorney General of the State of New York in response to the subpoena received during the fourth quarter of 2004. The subpoena seeks various documents relating to the operations of the company. At this point, the company does not know the full scope or subject matter of the subpoena or any related investigation.