Crawford & Co (CRD.A) 2005 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the Crawford & Company fourth-quarter 2005 earnings release conference call. All lines have been placed on mute prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. Instructions will follow at that time. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, February 6th, 2006.

Some of the matters to be discussed in this conference call may include forward-looking statements that involves risks and uncertainties. The Company's actual results achieved in future quarters could differ materially from results that may be implied by such forward-looking statements. The Company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events.

For a complete discussion regarding factors which could affect the Company's financial performance, please refer to the Company's Form 10-K for the year ended December 31st, 2004 filed with the Securities and Exchange Commission, particularly the information under the headings "Business," "Legal Proceedings," and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

This presentation also includes certain non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most comparable GAAP measures, which is available on our website at www.CrawfordAndCompany.com/UA_quarterly.html.

I would now like to introduce Mr. Tom Crawford, Chief Executive Officer of Crawford & Company.

Good afternoon, everyone. Thanks for joining us today for our fourth-quarter conference call. I'm Tom Crawford, Chief Executive Officer of Crawford & Company. And joining me today is John Giblin, our Chief Financial Officer; Jeff Bowman, our recently announced Chief Operating Officer of Global, Property, and Casualty Services; and Allen Nelson, our General Counsel. Today, we'll be discussing the Company's performance for the quarter ended December 31st, 2005. And later on, we'll be happy to respond to any questions you have. And hopefully, all of you received the press release we issued this morning. And hopefully, all of you predicted and analyzed the game correctly last night.

With that, we're going to change things around just a little bit. Before John does the numbers, I'd like to provide an overview of the year, and touch on some of the factors that have affected our business and that will continue to affect us in the year to come.

In my first earnings call with you at the beginning at the year, I suggested that 2005 would be a transition year. And as I said last quarter, that has proven to be more true than I expected.

I believe this management team has done the correct things over the past year to put Crawford on the right footing for success. We have maximized the opportunities of both our class action services unit and our international operations to grow and increase earnings. And at the same time, we have dramatically improved the quality of our service of USA, as evidenced from our clients and regulatory bodies.

And I guess what I have to do is give thanks to quality compliance and the training unit, along with the commitment of the associates in the field to really address the quality scores in the U.S. They have risen dramatically, and they are at a consistently high level. And this has been verified by our own audits and those of our clients and regulatory bodies -- their audit teams.

The multiple actions and programs that we've put into the U.S. branches have made great strides in generating the consistently high-quality work product for our clients. I think, as I've said over and over again, this really has been the key to turning the U.S. operations. And I feel very, very comfortable today that we have the quality where we want it, and it is still improving. This was driven by a lot of the programs we put into place. I'll be glad to chat about that later when we get into questions and answers, but we put a lot of things in place to drive quality.

I guess the outcropping of that is that we've been recently renamed to the approved list of key insurers in the U.S. -- again, something extremely important to us as we start to turn the U.S. operation.

We had built a new service offering from the joining of our risk management -- the self-insured side and healthcare units into a single, seamless Crawford Integrated Services model. We introduced it on January 1st, 2006. This will move us a long way toward providing quality work comp care across our businesses, and should begin to impact our results later this year as our self-insured programs renew along with other programs that we don't have.

I think if we sit back and look at things, we knew the self-insured and work comp markets for our risk management and healthcare management area was changing in the outside world, and we were behind the times. We've addressed this in a similar way as we addressed the CMS opportunities at the beginning of '05. If you'll recall, that's when we re-addressed the CMS operations in the field. We called together our employees, our clients, our nurses and doctors, and basically gave them a challenge to design a division or unit that would address the self-insured programs in a way that the industry has not been addressing them.

The new division is unlike anything else in the marketplace. And we called some risk managers together. We have had them review it and basically have gotten a tremendously good response from risk managers of the new program. It's up and operating as of January 1st.

We redesigned the business model to deliver a streamlined standard claims management process. And I have to tell you, I've been in the business 40 years. And it developed something that I had not seen before, and that was at the beginning at the claim, identifies potential issues in the work comp claim and suggests actions to bring it to an early, fair resolution that ensures employees get the care they need. This is developed by claim professionals using the information gathered in the interview process at the initiation of the claim.

And then we develop a comprehensive plan of action based on proactive, clear, and defensible fact. Again, when you open up a file today, if you're an auditor -- very difficult to follow the plan of action or how we plan to settle the claim. This model basically has a plan of action on top of the claim. It's not only how we're going to open and close that file, but the default process behind it. So we're very happy with it. We plan to use it as a stimulator for new business and had a very satisfactory rollout of the program.

Another area in the company that we feel strongly about is the moral of the Company. It's improving, and it's improving rapidly. As you know, I said last time we have taken several surveys. And we've responded to what we learned. Our last survey [respected] a very strong improvement in the attitude of our people, the enthusiasm of our people. And I think the measuring point here is the fact that we've got a 4 to 5 point improvement in turnover ratio over the last six months.

Now, this is continuing. And I would tell you it's not where we want it. But a 4 or 5 point improvement, and it's still moving in a positive direction are signs that we have some things addressed that we did not have squared away before.

Now again, another area that is building strength in our Company is our senior management team. The leadership we introduced in early '05 has led to quality improvement campaign, and we'll continue to mature our initiatives over the coming year.

In December, it gave me great pleasure to announce Jeff Bowman's promotion to Chief Operating Officer of Global, Property, and Casualty Services. In his new role, Jeff will bring global consistency to our property and casualty lines, along with the focus needed to grow revenue in the U.S. P&C market. I think Jeff has proven himself over a long period of time that he not only can bring the accountability of controls in place, but he can grow revenue and improve profitability. So we're delighted that Jeff is in the new role. In fact, he's here with us today.

Financially, one of the things I talk about a lot is the bright spots in the Company. And I want to talk about a few of them right now. The international, as you know, is growing and improving in profitability. It now provides over a third of our revenue.

Particularly strong is the UK, with about 11.4% revenue improvement. I'd mentioned before that there's a lot of consolidation going on in the European markets to one, two, or three TPAs. And we are within the one, two, or three in all markets that we are in in the European area. This will continue, and we expect to be named on all companies' list of -- in the top three.

We're making a concentrated effort to win more business from multinational corporations, as exemplified by the success of the global Marine and Transportation unit. An example of this is the fact that we have been appointed by Lloyds to be agents in North and South America for the marine markets. This is a growing area for us, and it is unlimited. We're just scratching the surface of it. But it's moving very rapidly under the direction of a real strong leader in the marine area.

Now, late last year, we continued to extend our business through strategic partnerships -- and I hope you read about this in the paper -- in China, India, and New Zealand. I just saw -- something crossed my desk yesterday that was exciting for me, because it was coming from a global corporation that in a training session listed Crawford & Company as the marketplace for claims settlement on a global basis, and gave all the reasons why -- and basically outlining the multitude of services and offices we have around the world. So again, an area that growth is -- I don't see it slacking off anytime in the near future for us on the international scene.

Now let's talk about another bright spot for us -- and that's the GCG group, our class-action administrators. They posted a record year and a remarkable fourth quarter. They pulled a lot of projects through at the end of the year that we thought would fall into the first quarter of this year.

But take heart -- they're still extremely busy. They have a strong pipeline. To give you an example of just how strong the fourth quarter was, just in the class-action administration alone, it was 35.2 million compared to 16.6 million in '04, a remarkable performance. And just in a telephone call recently, they are still busier than they've ever been -- again, with a strong pipeline.

Another item of interest to you may be the fact that we've expanded the Garden City Group's footprint in the Midwest and the West -- Columbus, Ohio and in Seattle -- to give us a broader customer base and reach. And it is paying off for us, with quite a bit of activity coming from both locations.

At this point in time, Garden City is the leader -- the GCG group is the leader in securities class-action administration. We take great pride in that, and I know the leadership team at Garden City is taking a great deal of pride in that movement.

And we look forward to a continued strong performance throughout this year's -- although I do think this year's gains will be a challenge to match. We say that every year, by the way. But it's a good thing to have to say. But they are pulling some business in from what we thought would hit in '06 into '05. We think it will be a challenge, but we think they are also up to it. I said this a couple of times already -- they have a very strong pipeline, and we'll be glad to talk about that later.

Now, we can talk about the progress in these areas. As our financial results reflect the fact that our domestic property and casualty operations, which make up approximately half of the volume and are the core of our business, are not yet meeting the expectations that we have. We've accomplished a great deal to put in place the factors that encourage and lead to growth. We are implementing programs to emphasize new business development. We can go into these in the question-and-answer section if you like.

But just to give you a quick overview of the infrastructure on the Crawford Integrated Services is in place. We have looked at how we pay our salespeople. We have modified them. We've just done a lot of things now that we have the quality where we want it to get the sales moving.

We continue to give our people better tools, better training, and continued support. We put over 600 people through our training facility in 2005. And this was made up mostly of our people. But the good news is about 100 of these 600 came from outside, with clients sending their people to our training classes. As you'll recall, in our history, this was something that Crawford did a lot of. In fact, we were known as the trainers in the industry. We will have that title back again over the next several years.

Now, clearly I had hoped for faster progress in delivering new business volumes in the U.S. However I am as convinced as ever that these programs -- as they evolve and mature, our domestic claims operations will turn the financial quarter.

We have done much to develop and improve the corporate management team, systems, and infrastructure. Our outlook and guidance for 2006, however, are decidedly conservative until we begin to see the revenue growth in the U.S. Our new business development in the U.S. remains our top challenge. And I'll say it again -- our new business development in U.S. remains our top challenge.

We have built very modest expectations for catastrophe-driven claims in the back half of the year '06. To give you an idea of what I'm saying, our plans for about $20 million of catastrophe revenue in '06 -- just to give you an example of how that stacks up over -- '04, we had 42 million, and in '05, we had 36 million.

I do not think we plan the success of this Company on the fact that we have major catastrophes. But you and I know both know what the predictions are for '06. And therefore, when we look at any incremental new business increase, it should provide additional leverage as the year progresses.

Let me summarize quickly. It's easy -- the quality of our work is now very, very good, and being recognized by the industry. And there are specifics -- we may be able to share a few of them with you in the question-and-answer session.

We believe our international business will continue to perform well. The GCG group will continue to extremely well. Our energy and resources will be focused on delivering incremental business in the U.S. marketplace. And maybe I need to repeat that one again too -- but I won't.

As our U.S. initiatives mature, we are taking a more conservative outlook in fiscal year 2006. And it's indicated by the guidance given in today's press release.

I'll sit back a moment, and I'll just tell you that I am more confident and encouraged about the long-term prospects for Crawford & Company than at any other time in my 16-month history with the Company. I'm not telling you I'm comfortable. We're working hard as a management team. But we know where the issues are, and I think we've put things in place to address them.

With that, I'm going to turn things over to John, and let him review the financials. And I look forward to coming back and answering some of your questions. John?

Thanks, Tom. Companywide revenues before reimbursements grew 5.4% in the quarter to $216.9 million. Pretax income totaled $9.2 million down 22.7% from the 11.9 million we reported in last year's fourth quarter. We generated earnings per share of $0.12 for the quarter as compared to $0.16 in last year's fourth quarter, but $0.04 in the third quarter of 2005.

Revenues from U.S. insurance company clients totaled 70 million in the fourth quarter, off 8.7% from the $76.7 million we reported in last year's fourth quarter on a 13.2% decline in claim referrals. Revenues generated by our catastrophe adjusters due primarily to the handling of hurricane-related claims totaled $21.8 million in the quarter, as compared to 26.3 million in the fourth quarter of 2004. We currently project hurricane-related revenues to approximate $8 million in the first quarter of 2006.

Revenues from our self-insured clients declined 2.4% in the quarter to $37 million on a 10.3% decline in claims volume. Class-action revenues, including both administration and inspection services, grew 81% in the quarter to $38.2 million, a new quarterly record. Our backlog of contracts awarded as of the end of the quarter totaled $40 million as compared to $38 million at the end of the third quarter.

International revenues grew by 1.5% in the quarter on a local currency basis and by 2.3% in U.S. dollars to 71.7 million on a 21.9% increase in claim referrals. This revenue growth is largely due to increased claims volume in our United Kingdom and European operations from new contract awards offset by lower storm-related revenues in our Caribbean region.

Our U.S. operating margin declined from 5.2% in the fourth quarter of 2004 to 4.7% in the current quarter. The continuing decline in claim referrals for both our insurance company and self-insured clients has put severe pressure on our U.S. operating margins. We have maintained our staffing levels and continued to focus, as Tom indicated in his remarks, on improving the quality of our work product and investing in the training and development of our employees in order to grow our domestic market shares.

Operating earnings in our international segment declined from $6.1 million or 8.8% of revenue in last year's fourth quarter to 3.3 million or 4.6% of revenue in the current quarter, due to the limited storm-related activity in the Caribbean region in 2005.

Our cash position at the end of the quarter totaled $49.4 million as compared to 43.6 million at the end of last year. Cash provided by operations totaled 39.8 million in 2005, up from $35.8 million in 2004, due largely to the collection of hurricane-related receivables and improved collections in our class-action services unit.

After deducting 22 million in capital additions in 2005 and reflecting 7.6 million in proceeds from last year's sale of undeveloped land, we generated excess cash during the year of $25.3 million, which we used to pay 11.7 million in dividends and reduce our debt by $8 million.

Tom, this wraps up my comment. Now I'd like to give our callers a chance to ask any questions they might have about our fourth-quarter release. Kimberly, would you please explain the procedure for handling questions to our audience?

(Operator Instructions) David Lewis, SunTrust Robinson Humphrey.

A number of questions. First for Tom, you indicated you're feeling a lot more comfortable with the consistent servicing capabilities of your branches. Are you now able to go out and ask your contacts to give you more business, or start doing business with Crawford?

I have. And I've been doing that, and I'm very comfortable with asking. I'm comfortable because I'm getting the feedback from the people as we had our clients audits around the country. I think in the last 59 to 60 audits, we've had, I think we've had one or maybe two that have shown some issues in several branches.

But when we are talking about 59 out of 61, that's a remarkable change and the words "remarkable" have been used by some of the people looking at our work. This been a tremendous emphasis on quality. And it's being recognized by the clients. I am very comfortable seeing any client on the streets today, and I have been.

And how long does that process take for you to start really seeing some revenues out of that? Is that a 12-month process, six-month process --?

I think I'm fairly comfortable in telling you that I think we'll see it quicker on the insurance company side. I think we'll see that to some degree in the first quarter. I think it will take us a little longer on the self-insured side, as we roll out our new divisions -- our new unit, Crawford Integrated Services, which has been well, well received by the risk managers around the country.

But I think with the renewal cycle of the self-insured market getting the relationships built and being able to demonstrate our new unit, I think that will be in the latter half of the year. I think that will be after the June time period, more decidedly in the third quarter plus.

That's just because of the time it takes to lineup the renewals. I would tell you I have more RFPs in here today than I've had at any point in time that I've been here. And they are nice RFPs.

That's both on the self-insured and the insurance company?

No. I'm talking self-insured when I say the RFPs, because again, these are lead ways of anywhere from six months to a year and a quarter on some very nice pieces of business -- some starting as early as April. So this is good news for us. But I think until we see the revenue, I still would tell you that I think it will be second half of the year for self-insured, first half of the year for the insurance market.

And if I do the math, it appears to me that even if you -- well, after adjusting for the decline in expected cat revenues in 2006, it looks like your domestic business is still flat on a revenue basis. Is there something more than just the difficult environment where the referrals continue to decline? Or is it Garden City is going to be flat or down, or what is it?

Well, Garden City certainly is -- we're projecting it to be down after the extremely strong fourth quarter. That is a major factor as far as the domestic revenues.

But the other one -- we think the claim company side will grow revenues this year. We think that we'll bottom out on the self-insured side, and [that's] very slight growth from the self-insured side the business.

The biggest difference is the Garden City projections. I think it would be irresponsible to try to duplicate over and over again the fourth quarter for Garden City Group.

What did Garden City do for the full year?

95 million -- actually, the way we record it and the way you see it, probably is 111 million, John?

That includes both on (multiple speakers) administration and inspection services. But just the administration piece was $95 million.

I would also tell you that one of the makeups that declined from the projection from the GCG group is on the inspection services side, where the Weyerhaeuser -- one of our large accounts; sorry about that -- one of our larger accounts that's been on the line for three or four years, John, I believe --?

Yes.

(multiple speakers) about three or four years with a fairly large volume of business is slowly going away. And that's projected probably to go away faster in '06 than in prior year. And we're out on the streets right now, everything we can do to make up for that and strengthen our inspection and investigative services on the Garden City side.

How much does that one account produce?

That one account produced about 16, 17 million for us in '05.

The bulk of -- all of it?

Right.

So a single account --

It's still there, but it's certainly getting smaller. That's what we've got to offset, and we will offset it.

I think the individual responsible for that area -- Kevin Frawley, a senior VP -- has put a team together to -- there's a great opportunity in that market for us. And we're going after it. But until I touch it and get it in here, we'll keep the projections where they are.

Would you care to tell us what your projections are for '06 for Garden City?

Far less than -- a substantial amount of difference in '05, but John --?

Yes, we can -- if you look at both the class-action administration and class action inspection revenues, they totaled 112 million in '05 as compared to 86 million in '04. And that was split between about 95 million for the administration piece in '05 compared to 66 million in '04 and 17 million in the inspection services compared to 20 million in '04.

It's a very difficult thing to project what the class-action administration piece will do, because it's project-based revenue. It depends on the class-actions that we are awarded during the year. And those projects have a starting point and an ending point. Certainly what was generated in '05 was significantly in excess of what we projected. But at this point, we're projecting in terms of class-action revenues that they will be about -- the administration piece will be about down 10 million, around 85 million as compared to 95 million in '05. And the inspection piece would be down about 9 million from the 17 million that was reported for '05 -- so cut basically in half.

The budget for '05 was $65 million -- just on the administration side; they did 95 million in actual. So we have to really look at this fourth quarter and how much of the business they thought would fall into '06 and that was accelerated into 2005. And they've done well against their plans every year, so I think you know that.

All right. That's helpful. And John, the debt that was paid down -- was that all early in the fourth quarter? What kind of the new interest run rate?

We're projecting in the neighborhood of between 4 and 5 million -- 4.7 million for next year.

Okay. How about tax rate? Is it going to hold it to 36%?

We think it's going to stay right around that range.

Okay. And just lastly for me, can you give us some further guidance on your 2006 pension costs expected versus '05? And then also, maybe throw in the increase in the [RiskTech] expenses?

On pension, we are getting hit with an additional charge for pension expense due to the decline in long-term interest rates from last year's measurement date of September 30, '04 to this year's measurement date of September 30, '05. And so our pension expense in the U.S. is expected to grow by $3 million from -- what was it, about 2.5 to $5.5 million.

And the incremental cost related to the RiskTech deployment in '06 compared to '05 is estimated to be in the $5 million range.

I wanted to add the fact that RiskTech is -- we believe strongly that it will be operational in the claims insurance company side about the middle of the year. And we're hoping to bring, and we believe we will bring on new account into RiskTech in selling that feature as we go forward this quarter. That's certainly on our agenda to demonstrate and to sell. So that's good news for us.

(Operator Instructions) [Manny Reiser], Wachovia Securities.

Maybe first a housekeeping note. Since part of David's discussion, as well as mine, will be on Garden City, I think it might be helpful if on future calls, we have somebody from Garden City here. Certainly I'd like to get more of a flavor for their perspective and --

That's not a problem at all. I think we can do that, and I think they would enjoy being a part of it.

Okay, wonderful. With Garden City, because I don't have the previous quarter numbers in front of me -- John, do you have maybe a quarter-by-quarter breakdown (multiple speakers)

Yes, I can give you that. The first quarter of '05 was 14.1 million; second quarter, 22.1 million; third quarter, 22.9 million; fourth quarter, 35.2 million. And that is just the administration side or the GCG side. That doesn't include the inspection services.

And inspection services -- the largest part of it was the Weyerhaeuser part?

It wasn't Weyerhaeuser, it was another large client -- but not Weyerhaeuser.

Okay. Now in the press release, we indicated that what -- a backlog of 40 million at year end for Garden City?

Yes, up from the 38 million at the end of the third quarter.

And is that backlog administration backlog?

That's all administration backlog, yes.

Now certainly, I recognize that we had a phenomenal fourth quarter. But with a record backlog, I'm kind of confused as to why we're basically budgeting down as opposed to maybe even flat or a slight increase with a record backlog and quarter-by-quarter progression the way it was. Is there something I'm missing?

No, you're not missing anything. We've got a team of people up there that seem to get good results for us. And they are convinced that it's an ebb-and-flow business. They've got a good pipeline. They're very comfortable with their projections. They normally beat it.

I'm not picking on people getting the job done for us right now as far as pushing them. I think that they've got a great opportunity to exceed the budget, and that will be good for us. And when I say we've been conservative, we have been. But I'm not taking it to them too hard on their projections. They outperform themselves every year, and I expect that to happen this year.

Okay. And going a little further into the GCG group, how many offices do they currently have, and what is their staffing as we ended the year? And how would this comparison with a year ago?

Well, I can tell you clearly -- I can take you all the way back in a couple of years, but let's just go to '04 -- 283 employees in '04; 315 people in '05. It's rapidly growing. They are in three major offices around the country -- one in Garden City, Long Island; one in Columbus, Ohio; and one in Seattle. And the two new operations are performing very nicely as far as giving us coverage on the West Coast and in the Midwest.

Okay. And --

And I can take you back just to give you an idea of the growth -- in 2000, it was 110 people, and it's 315 today.

Right, and I'm certainly aware of the increased revenue that they've contributed. And this 315 -- does that include any personnel up in Canada, or that's strictly domestic?

That's domestic.

And do we have any representation up there in Canada?

Yes, we do. Jeff, you can tell --

We have a class actions unit that's based in both Toronto (technical difficulty) and in Ottawa. We handle the Hep-C class-action, and then we have a number under our control in the Toronto office.

And so these revenues that we reported for the year end does not include any --

No, they're not. They are included in the international revenue. The size of the class actions in Canada are obviously much, much smaller.

Correct, I understand that. (multiple speakers) Well, I would just find it helpful, guys, again, on a housekeeping note -- perhaps if Garden City is representing an increasing amount of revenues and certainly profits for us, that maybe we broke it out a little differently on these press releases as well as quarterly reports? I certainly would find it helpful if we listed it as a line item and did quarter-by-quarter numbers -- I would find it extremely beneficial.

Okay. We'll do what we can.

Okay. I'm aware of the concern about competitors. But certainly I think I would find it extremely beneficial, and I'm sure others would feel the same.

And furthermore, are you able to save what part of the profit (technical difficulty) for the fourth quarter as well as the year Garden City represented?

I can tell you -- we don't break out profitability by GCG and our inspection services. But I can tell you that the margins that we earn on the GCG business are in the low double digits.

Okay. So to the other side to the business right now -- Tom, I guess it was one or two quarterly reports back David alluded to it -- you had indicated that you would be going out and meeting with customers. Are there any new business contracts that have been signed that you can talk about that we haven't seen in this press release or other press releases?

Yes, there are some clients. I'd rather not name them. I'm not sure how they'd feel about that. I usually don't mention companies. But yes, we have signed -- we've got more new business activity than we've had before. And I'm in front of the officers of the companies and their risk managers.

And this new business has actually taken effect or we'll see it as the year progresses?

You'll see the new business as it progresses. I again would emphasize the self-insured side will pick up throughout the year, but the majority of it is going to hit in the latter half of the year.

What you want to be looking for is the growth in the first part of the year for the claims management services [by] the insurance company business. And we've had a lot of good contact on the Company side. In fact, some just extremely good news for the Company side.

That's certainly helpful. On the self-insured side, I know that's tied into the employment cycle. And certainly, employment numbers have been relatively strong. Are you getting a sense that the market is on the verge of changing for us?

I can't see the change at this point in time. The employment is strong. We are getting RFPs, which is something that's a little different. You know, we didn't get RFPs to speak of in '05. And toward the latter part of '04, we had zero in the fourth quarter of '04, and very few in '05. So that comes from taking your eye off the ball of quality. And if that's not there any longer, the word is out. And we expect to see growth in both sides of the U.S. side this year.

Self-insured represented what part of the revenue numbers for 2005?

Self-insured was about 150 million. John, have you got a --

Yes, we do disclose that in our press release. Hold on just a second. Self-insured entities '05, 150 -- 2.5 million compared to 158.2 million in '04

And what do we think is reasonable for 2006?

We're budgeting basically flat for '06 in the self-insured (multiple speakers)

I would guess then based on what Tom is saying a run rate in the third and fourth quarter should start to show growth -- (multiple speakers)

Right. (multiple speakers). When you look at it year to year, it looks flat. But it actually shows growth when you look at the run rate from the fourth quarter.

Okay. Now going to a question of margins -- in the past we've talked about our margin goals, margin targets -- where do we think we're at as far as reaching that -- I guess it was 7% was our target goal overall?

Well, actually, [Tom's] goal a year ago, as you would call it, was 6, 8, 10. I'm sure you recall that -- and Tom's a [little] wiser -- 15 months, 16 months into this.

I think what we have to say -- and I think I'd still like to remain conservative -- is that we are looking for 7.5 over the next three- to five-year period of time on average, which can tell you lower and then higher than 7.5 toward the latter part of the three- to five-year period.

And I think once we get there we have to reanalyze that. But I think that's a reasonable target for us to shoot for over the next three- to five-year period of time is 7.5 on an average basis.

Okay. And one or two more questions, and that would be it for me right now. Would the projected numbers for next year -- I think it was what -- $0.25 to $0.32, I think is what we talked about?

Yes. That's in the press release.

Certainly if we are on the lower end, again, it would mean a penny coverage on the dividend or just barely meeting that dividend. How comfortable are we on the dividend side of the question going forward?

Well, I think it's something that as a management team we put in front of the Board with our recommendations of what we should be doing, and so far, they've listened. But it is a Board decision. We're comfortable with their cash at this point. In fact, we're very happy with the cash in the Company.

And I'd be less than honest if I told you I wouldn't be disappointed at $0.25. I think that's just a little grain of -- a little more conservatism we put into our projections. But that's certainly not what we're shooting for.

Okay. And --

We're shooting for the higher end, if not exceeding it.

Okay. And are we expecting to see the year as a whole -- not just on the insurance side, but as we move later into the latter part of the year, the numbers should show some growth sequentially from the first part?

Yes.

So whatever we do next year should be more back-end loaded -- second half of the year?

Yes. I like easy answers.

[Josh Petker], [Pektide Partners].

Can you help me with two things? I saw on the balance sheet that the minimum pension liability -- and you said it was related to interest rates -- what was the assumption of interest rates that got us from 70 to 100 million? (multiple speakers) I must have got something really wrong here.

Well, no, it's just the actual corporate rate as of a measurement date. And our measurement date happens to be September 30th of each year. And so it's not a matter of getting it wrong -- it's a matter of the rates declining about 50 basis points from September 30, '04 to September 30, '05. And that 50 basis point change in our discount rate results in a sizable increase in the liability -- and the minimum liability that we have to report on our balance sheet.

So you're carrying about 150 or $200 million in bonds for the pension liability at the moment? The pension fund has what equity to bond exposure then?

It's about 60% equities, 40% bonds

40% bonds. So essentially you'll be able to recapture this -- if interest rates move 55 to 75 basis points in '06 to '07, you should be able to show a positive incremental against this in the '07 balance sheet. Is that right?

Josh, that's a good question, because the issue of interest rates -- and I think I've talked a little bit about this on prior calls -- has such a significant effect on the accounting for our pension liability as well as for our pension expense. Now, that rate is not what we are earning on our investments. We're assuming we're earning 8.5%, and we've exceeded that long-term investment return assumption over (multiple speakers)

I guess I was -- the scale of that difference year over year was sizable.

Oh, it is. It's amazing what a 50 basis point change in the long-term discount rate will do to us. And in fact, we do -- in our 10-Qs and 10-Ks, you'll see some sensitivity analysis around that. It might help you to see what a 1% change in discount rate or investment return rate would do.

But it does have that kind of a significant effect. And so the opposite way -- if interest rates go up, it has a significant effect on bringing down that pension liability as well as on future funding requirements.

Right. And since the last -- well, I'll go back to the filing. But I thought the last one was basing off a 30-year rate, and since we don't have one, it will go off a 10-year rate, which will show -- I was surprised that the number would go so big.

But Tom, let me ask you this. The deal that [Sedgwick] had for the TPA business, I wondered -- what's the TPA market like, given that Sedgwick sold at such a premium to your TPA business? What's going on in that market?

Well, I think you're seeing consolidation. And I think you will see it probably continue. And I think you'll see the fact that the regulations that are out through Sarbanes-Oxley, the additional expenses, the procurement crises in the companies that's driving some of the TPAs to consolidate. And you take a Sedgwick over the last seven years -- they started from scratch seven years ago, and put together from scratch a very quality organization focused on the indemnity of the claim. And that's an easy product to sell if you can deliver it, and Sedgwick delivered it. And therefore, the multiple was there. And quite frankly, they earned it. (multiple speakers)

Last time we talked, [you had] 45 million of long-term debt -- you said a portion of it is still being held in European currency. Is there still a piece?

I'm sorry, can you repeat that question?

Last time we talked, of the 45 million in long-term debt that you had, a piece of it was in a foreign currency held for the benefit of a business that you're running over there. Is that still there?

Not the long-term debt --

The short-term debt, the 28 million?

Yes, right. That is all foreign-denominated debt. It's 29 million at the end of '05 compared to 37 million at the end of '04. And yes, that is and continues to be foreign-denominated debt, whereas the long-term debt is U.S. dollar-denominated debt.

Can just finally we were looking at the -- listening to the call, Tom, and you mentioned that there are a lot of RFPs piled up on your desk --

No, no. (laughter) I didn't say a lot. I said I had more than I've ever had before.

Okay. Well, more is better than less.

More is better than less.

An empty desk is no help to anyone.

But I was thinking maybe you could talk us through the last three months. Our hope was that even if we didn't have enough cat people to become the dominant player in Katrina, and maybe that wasn't what we really wanted anyway, that Katrina was going to suck up a tremendous amount of supply in the United States, and that even if you just sat there and waited, eventually someone would need services ex-catastrophe, and maybe you could help. We understand that there are different people, but this was such a large catastrophe that people were coming out of the woodwork.

Can you talk about how you're working with clients, what's actually happened to get yourself back on track in the sense of getting them to realize you're alive and kicking? And then the effect of this hurricane to kind of suck the supply out, to make your 300 very valuable people kind of shine in the midst of everybody else?

Well, one, the quality of what we did in the cat was outstanding. I have not had one complaint come to my desk on the quality of handling during the cats this year.

We focused on that because it does open the door to business around the country. And in fact, in the last quarter, it probably played a role in our claim services operation making money. It was operating at capacity for several months in the fourth quarter. We feel we have about 20 to 30% capacity in the field right now to handle additional business.

We also think once the doors are open and people touch our work, that the doors will stay open. That's probably the fastest way to get their attention.

But the other thing that happening as we speak are the client audits. Every company is auditing us. Those audits are coming back very favorable -- in fact, at a pace that -- we think that will generate business from the companies over the next few months on the insurance company side.

So it's an issue -- you lose quality in a very short period of time. You gain back and get the confidence in people that's closed to the door to you -- to open those doors again is not as fast. And we've discovered that. And slowly, but surely, those doors are opening up. And we're in front of the key people who are making the decisions.

And you know I've mentioned before that there was a major client affected by last year's handling of cat. And we're doing everything possible to bring that client back on board. We have every confidence that that will happen.

And they also touched our quality during the storms in various ways around the country, even though they didn't touch us very much in the cat itself.

So I think that's the best way to get the companies back, is let them touch it either through their own audits, which they are doing, or through the work that they touched us with in the fourth quarter through the cats.

David Lewis, SunTrust Robinson Humphrey.

Just a couple of follow-ups. One, John, what do you expect the stock-based comp expense estimate for 2006 to be?

Our expense for stock options -- existing stock options will be in the neighborhood of $0.02 a share, just under 2 million pretax and about 1 million net of tax. So that's stock option expense -- have yet to conclude on our new program, the performance share program. That will be dependent on share awards that we make this year.

But that probably won't be material. And won't you amortized over that, or you wait until the end of the year?

Well, they do best over five years. But I'll have better information on that after the compensation committee meeting this week. And so we can probably talk a little bit further about that in our next conference call.

Okay. And let's see -- a couple of other things. Is there any progress being made on the overall profitability of the self-insured business, and can you actually give us the numbers? I think there will probably be losses in both the self-insured and healthcare in '05 versus '04?

Well, certainly, there was a loss on the self-insured side. And it was -- certainly, it was substantial. That's the area that's probably the weakest on the U.S. operating side right now. It's the area that I'm focused on. One of the rationales for putting a person of Jeff's capabilities and looking at property and casualty on the company side was for me to focus along with Bob Kulbick on the self-insured side, and get it fixed -- not only with the new model, but with the way we pay our salespeople and being in front of people and getting that revenue. It's a revenue issue. It's not quality and it's not pricing.

Having said that, I think it's important to note that it still has produced income against overhead. I mean, it's only on a fully-costed basis that it loses money. But it still make a significant contribution to the Company's overhead.

Weren't there a couple of -- or at least one major office that was producing fairly substantial losses? And is there any progress developing there?

Yes, I would assume you're talking about Fresno, California?

Yes.

And it was, and it has been fixed. I would say that from an operating standpoint, it is operating at a very high-quality level today as verified by probably over 30 audits from clients and by the State of California.

And as we go forward, paying penalties and interest, it's very negligible as we operate today. We were dealing with history, and that is also being addressed. And we would hope that the next call [would] give you a resolution to it. If it was a few more weeks out, I probably could give you a resolution. But at this point in time, I can't, other than just to say that I'm very confident that Fresno is fixed.

And if I recall correctly, that was losing about $6 million a year?

You recall correctly.

On a fully-costed basis.

On a fully-costed basis. But if that goes away you've got a $6 million improvement in earnings.

That's right.

That's right.

So that's a pretty big driver. Will that full savings develop in '06?

Some will fall into '06, especially on the legal side. The legal bills here are very high.

And that's included in the 6 million?

Yes.

But were not anticipating it to fully reverse in '06. We're going to make significant progress, but we have a lot of capacity in that office. And it's going to require additional growth, but we think that it will take us a couple of years to get there.

The other issue I mentioned is the history of Fresno, we're going back -- the problems were out there from '01 and '02. And as those bills come forward, we still are having to pay and pay the penalty. So it is a fade away, but it's fading away rapidly throughout '06 and '07.

And Tom, you basically, if I understood correctly, said that there will be resolution to come? You probably can't talk too much about it, but can you give us a sense of how that develops?

Well, I'd just like to -- I'll more in a position to talk about it at the end of the first quarter. It's -- but I can tell you that the work that's been done out there has been recognized.

Okay. And one final. At the beginning of your remarks, you said you had been placed on an approved list of something?

Yes, you know there was the issues of the past, there were some companies that closed the door to operating with us and --

Yes, but did you not mention a name?

I did not.

It was an approved list of something, and I didn't understand --

Well, it's of our key large clients. And those basically we've reversed, and that's good news for our Company. I mean, it's outstanding news for Crawford & Company.

At this time there are no further questions. I'll now turn the call back over to Mr. Crawford for any closing remarks.

Well, I will close by just telling you I look forward to the first-quarter call. We have got a lot going on, and maybe we can expand upon some of the things that we feel good about -- we could expand further as we get into the first-quarter call. So we look forward to it, and thanks for being with us.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 4 p.m. today through 11:59 p.m. on February 13th, 2006. The conference ID number for the replay is 440-4801. The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

Thank you. You may now disconnect.