Crawford & Company (CRDA/CRDB) - Q1 2009 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended March 31, 2009. Crawford & Company is the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, operating globally with over 700 locations. The company operates through four segments: U.S. Property & Casualty, International Operations, Broadspire (U.S. self-insurance), and Legal Settlement Administration.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $250,283 | $274,673 |
| Net Income (Attributable to Company) | $3,082 | $9,068 |
| Earnings Per Share (Diluted) | $0.06 | $0.18 |
| Cash and Cash Equivalents | $42,526 | $73,124 (Dec 31, 2008) |
| Net Cash Used in Operating Activities | ($11,982) | ($4,047) |
| Short-term Borrowings | $9,758 | $13,366 (Dec 31, 2008) |
| Long-term Debt | $180,565 | $181,206 (Dec 31, 2008) |
| Working Capital | $58,468 | $69,661 (Dec 31, 2008) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8.9% year-over-year. This was driven by an 8% reduction in revenues before reimbursements, primarily due to negative foreign currency exchange impacts on International Operations and weakness in the Broadspire and Legal Settlement Administration segments.
- Profitability Drop: Net income attributable to the company fell 66.0% to $3.1 million. This was caused by lower revenues, a 2% increase in SG&A expenses (partially due to the absence of a $1.3M receivable recovery recorded in Q1 2008), and a $1.8 million pre-tax restructuring charge.
- Cash Flow: Operating cash flow turned negative, using $12.0 million compared to $4.0 million in Q1 2008. This was driven by lower net income and increased contributions to underfunded pension plans ($3.7M in Q1 2009 vs $1.7M in Q1 2008).
- Segment Performance:
- U.S. Property & Casualty: Revenues increased 11.2% due to higher claims volume and catastrophe activity.
- International Operations: Revenues decreased 14.8% due to a stronger U.S. dollar; constant currency revenue growth was 7%.
- Broadspire: Reported an operating loss of $2.0 million (vs. $1.7M profit in 2008) due to a 19.8% drop in case volumes linked to rising U.S. unemployment.
- Legal Settlement Administration: Revenues declined 18.0% due to lower class action activity.
Guidance, Outlook, and Risks
- Restructuring: The company incurred $1.8 million in professional fees for a realignment of legal entities. This is a one-time charge and does not impact segment reporting.
- Pension Funding: The company faces significant funding obligations for its underfunded U.S. and U.K. defined benefit pension plans. Estimated minimum funding requirements for 2010 are $20.9 million, rising to $34.9 million in 2011.
- Impairment Risk: Management performed an interim impairment test due to economic decline and stock price weakness. While no impairment was recorded, the Broadspire segment is noted as sensitive to changes in assumptions (e.g., a 50 basis point increase in WACC could trigger further testing).
- Foreign Exchange: A stronger U.S. dollar is expected to negatively impact revenues and operating earnings for the remainder of 2009.
- Legal Contingencies: The company is involved in arbitration with Platinum Equity regarding the Broadspire acquisition purchase price adjustment. The outcome is currently undeterminable.
Investor Verification Checklist
- Verify the sustainability of the 11.2% revenue growth in the U.S. Property & Casualty segment amidst a hardening insurance market.
- Monitor the Broadspire segment's ability to recover from the 20% drop in claim referrals and the resulting operating loss.
- Assess the impact of the stronger U.S. dollar on International Operations' reported revenue versus constant currency performance.
- Review the company's liquidity position given the $30.6 million decrease in cash and the upcoming $20.9 million pension funding requirement for 2010.
- Track the resolution of the arbitration dispute with Platinum Equity regarding the Broadspire acquisition.