Crawford & Co (CRD.A) 2006 Q3 法說會逐字稿

Good afternoon. My name is Paige, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company third-quarter 2006 earnings release conference call. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, Monday, October 23, 2006.

Some of the matters to be discussed in this conference call may include forward-looking statements that involve risks and uncertainties, including statements regarding our pending acquisition of Broadspire Services, the timing of the closing, the integration, results of the acquisition, and our ability to pay dividends. Crawford & Company faces risks associated with the acquisition, including but not limited to, risks that the transaction may close more slowly than expected or not at all, that the integration of Broadspire Services into the Company's operations may not be successful or may be more expensive than anticipated, and that the anticipated results of the combined company following the acquisition may not meet expectations.

The results achieved in the quarter ended September 30, 2006 are not necessarily indicative of future prospects for the Company. Actual results in future quarters may differ materially. 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 31, 2005 filed with the Securities and Exchange Commission, particularly the information under the headings "Business," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Conditions and Results Of Operations."

The Company undertakes no obligation to publicly release revisions of any forward-looking statement 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.

This presentation also includes non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most directly-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. Mr. Crawford, you may begin your conference.

Thank you. Well, good afternoon, everyone. Thanks for joining us today for our third-quarter conference call. As you know, I'm Tom Crawford, Chief Executive Officer of Crawford & Company. Joining me today is Bruce Swain, our newly-announced Chief Financial Officer; Jeff Bowman, our Chief Operating Officer.

And as you know, today, we will be discussing the Company's performance for the quarter ended September 30, '06. Later on, we will be happy to respond to any questions you have. And hopefully all of you have received the press release we issued this morning.

As I begin this session today, I think how much better it would be if we were all face to face. It sure would make it easier than talking into a box. But, that being said, I think most of you know we've had a pretty active quarter with a number of announcements that will continue to shape Crawford & Company into what we want to be the global market leader in the years ahead.

The activities we are announcing in the third quarter are excellent opportunities, and I am extremely encouraged with the progress we've made to date. My belief is that the acquisitions and strategic alliances we are undertaking would not have been possible two years ago.

I have been asked more than once about why now. Clearly, we are in a much better position from several reasons. One, is people, quality, the controls and accountability that we've been working hard to put in place in the Company.

Again, saying that, we have restored the quality to our operations. We have built the strong and accountable management team, and we are improving the client relationship. Those things being in place have opened up the door for additional business opportunities. We have talked that we're going to be talking about.

I hope you agree with me that we are making progress in building a better Crawford, the Company that can be number one in each of our four markets. Let me just bring you up-to-date for a moment about that statement -- the leader in four markets.

We are already number one in the insurance claim market -- insurance company claim market. We are number one in the legal class-action settlement area. We're number two and very close to being number one on the international scene and soon with this acquisition, number three in the self-insured marketplace. That is pretty dramatic. And even though it may be the largest, we're going for the TPA or the claim administrator choice in the world.

Let me talk about the first event that we announced on August 21, which was a definitive agreement under which Crawford will acquire Broadspire Services. They are a leading third-party administrator offering casualty claim and medical management services for a total consideration of $150 million. The combination of Crawford's self-insured business with Broadspire is exciting both from a strategic and financial standpoint.

Let me just talk about a few of these. It adds up to the leadership position of Crawford & Company in the TPA arena. And it more than doubles the scale of our operations in the self-insured marketplace. It's going to offer great opportunities to address capacity and improved profitability of the combined entity, and that is going to begin immediately upon closing. It is going to support our client current business and immediately bring us additional business opportunities in the large national account market. And again, this is primarily in the FORTUNE 1000 firms.

In preparing to close this acquisition on October 31, we're currently completing arrangements to refinance our existing borrowing by entering into a new credit facility comprised of $210 million in senior secured notes as well as a $100 million revolving credit facility for ongoing working capital requirements. I think most of you may already know that today's credit line or credit for our Company is about $80 million, made up of about $30 million in revolving credit and about $50 million in senior debt. We can talk about that later if you like.

Following the closing of the acquisition and the new credit agreement, we plan to have another conference call with investors. At which time, we will be able to discuss further details of the acquisition and provide a better understanding of our plans for integration and walk through the financing arrangements and their implications in greater detail than we're able to provide today.

Now, this communication session should take place within days of the closing, and we expect it to happen very quickly in the neighborhood of the end of next week or the beginning of the following week. And again, we can talk much more in detail about the acquisition itself.

I think you noted in our earnings release today and it's required by those anticipated financing arrangements, the Board of Directors will act shortly to suspend the Company's dividends for an indefinite period of time. I -- and I want to make sure you hear this -- I and this management team appreciate the importance of a dividend and want to make it clear that both management and the Board remains committed to returning this Company's 38-year history as a dividend-paying stock as soon as possible.

We certainly recognize the importance to shareholders. We did not propose this step lightly. In fact, you might be surprised at just how much went into this decision. But we have acted out of our conviction regarding several things. Let me talk about them in just a moment.

The temporary suspension of the dividend will allow us to concentrate on paying down our debt in 2007, which will be one of our primary focuses. You will hear later we are in a pretty strong cash position today, much better than we have been in the past.

Another thing is the Broadspire acquisition will be accretive to our operating performance in fiscal year 2007 and provide positive free cash flow. Again, I want to just stop a moment and just reiterate that. This is extremely important, and we will be able to discuss this in more detail in our next communication call. I look forward to that.

Another item is that the acquisition of Broadspire accomplishes a really strong step for our Company in terms of improving existing performance and advancing our pursuit of being the market leader in the self-insured marketplace, an area that has been a challenge to us.

Now, let me turn to some of the other things that has taken place in the quarter in a merger and acquisition standpoint. That is the announcement of a global strategic alliance with MJM Investigations, Inc., which is a North Carolina-based company. They are the world's largest at what they do.

We sold to them the operating assets of our investigation services for $3 million in cash at closing and a note receivable for $2 million payable in two installments through 2013. Now, this transition enables us to move from a marginally-profitable operation into a worldwide partnership with a market leader that can certainly better support the ongoing needs of our clients around the globe.

But I'm going to stop again and just talk about this also presented some conflict for us in the signing of some investigative work and some of the claims we were handling. So, again, it's helping us in an area that was -- it was a fairly difficult area to manage. It being marginal, this was I think a very strong decision for us.

The impact on our quarterly results was the recognition of a pre-tax gain of $3.1 million. And on an ongoing basis under the terms of the agreement, we will receive an administrative fee for each case referred to MJM worldwide, including the acquisition we are about to make with Broadspire. So it's quite an opportunity for us, and we are pretty excited about it.

Another ongoing activity that has taken place in the third quarter is our preparation for move into the new home office facility. We expect that to be completed next spring in '07, and it's going to allow us to do several things -- one, to consolidate the people in our operations into one facility here in the Atlanta area. I think one of the things I want to say right upfront is cost neutral -- extremely important factor as we do this.

But I think you can see the benefits of having all of our people instead of three or four buildings into one. It's certainly going to enhance the communications with our people. I enjoy having town halls. I enjoy the face-to-face contact as I mentioned at the beginning of this. It would be easier face to face. It certainly is going to be easier for us to talk to our people face to face in the future by having them in one building.

It also provides an incredibly better working environment from the building that we are in today and the other two buildings we lease. We'll be providing a parking garage, cafeterias, workout facilities for our people day one.

And if one excites me more than any other is the expansion of Crawford University. I've talked about this many times. It is the key to our future. It is up and operating 100% today. We will be able to expand it and enhance it as we move into the new facility.

I might add that we already have people that are from the outside, not only Crawford people, that are paying us to do the training today. And I expect this operation to become a profit center in the future.

So I think you can see it's been a pretty busy quarter. I guess it's time to talk about the operating performance for the third quarter. I will reiterate the fact that I am pleased with Crawford's performance thus far in 2006. The quarter marks the third consecutive quarter-over-quarter improvement in operating performance. We see strength building both in the revenues and margins. And that goes on top of the continuing GCG successes we've had here in the US.

In the third quarter, the US operations overall increased revenues by 6.7% and operating earnings have more than doubled. This, as I've stated -- the performance reflects both continuing strength in GCG legal settlement and in our US claims administration business that we talked about last quarter.

Our US insurance company's service operations continues to gain strength, growing revenues by 3.6% and helping our US operating segment to more than double its operating margin -- nothing to brag about but when I can say double, that's better than what we had last year. It will double up to 3.2%, which puts us on the right path toward acceptable long-term performance. We discussed those with you before.

As most of you realize, the results of our US operations in the third quarter reflect relative absence of cat activity. There has not been a major storm, meaning most of the improvement that has come from our day-to-day core operations. I've said this before and I will say it again. We're not building this Company on whether we have cats or not. I think we can see the results of that as we speak with the improvements we're getting at our insurance operations.

We're focusing a great deal of our attention on the recovery in our domestic self-insured business, including the introduction of Crawford Integrated Services on January 1, 2006, which we've talked about. And while it's not visible in the financial performance to any degree, I'm still encouraged by the customer response to the new service model. I have been out in front of many people -- all the brokers, many of the companies -- and I get nothing but favorable comments about our model. The Crawford Claims Advantage, which was introduced at January, the same time we introduced the other operations and our self-insured at the beginning of the year -- are all paying off for us at this point in time.

Our RFP volume is remaining ahead of last year, and we have added the new business wins that are encouraging right now for our future claims volume. The legal settlement administration, which is led by Garden City Group -- now, I'll go back just a second and just talk -- remind myself that what I just talked about does not realize the Broadspire acquisition, which we'll talk about in a few minutes.

The legal settlement administration, which is led by GCG, added another excellent quarter of double-digit revenue growth despite comparisons to a record year in 2005 and succeeded in sustaining both its business results and a strong backlog of work with approximately $43 million -- still doing extremely well. And we do remain confident in Garden City's ability to deliver continued strong performance as we close out this year.

The international side of our operation business is also making solid progress. We saw continuing gains in performance as operating earnings grew nearly 27%m and the related margins in the quarter grew over the prior-year figures. Claim volume is up across all our international businesses, and we are achieving success in bringing on new client programs and expanding our penetration into existing accounts.

This is a continuing sign that the consolidation is taking place worldwide in the selection of TPAs. And I am happy to say that we are -- and everyone that I know of and I think Jeff, as you said here, everyone that you are aware of. So this is good news for us and the fact that we're seeing results of that in new wins and claim activity. We continue to expect mid-single-digit revenue growth and expanded operating margins for the year.

So, let me bring this to a close here. The pace of change at Crawford has accelerated and will stay high for the next several quarters as we integrate our self-insured operations into a single market leading organization. We will continue to refine our operating structure and maximize the changes we've made throughout the Company, which includes -- and let me just talk about a few of them -- quality.

Quality is as good as it's ever been and getting better daily. We've done so many things to affect that from audits, from the way we pay people to listening to the regulators and our clients -- very, very happy with the quality and it is known in the industry today. That had to come prior to anything else that we do.

We just concluded our third associates satisfaction survey. And I'm very happy to tell you that we've gone from -- and this may not be meaningful to everybody but it is very meaningful to me and the reflection of the attitude of the people. We've gone from a 50% response rate to a 60% response rate to an 80% response rate and every category has improved and so very, very happy with where the associates stand in the Company and the communications taking place.

Let me talk about a couple of other things now -- the technology. We're introducing RiskTech this quarter, in fact November. We will be introduced with a customer and for all of new customers effective January of next year.

We also have another system coming online shortly that is going to put us in a position to be able to put our chest out a little bit about systems in this Company with the introduction of CMS-2, which is the name of a system that we brought in from Canada. It is used in seven or eight countries around the world that we found is extremely good for us here in the US. It's going to give us efficiencies. It is Web based and something that we're testing as we speak, and we will have up and running in the first quarter of next year. So, the areas that have been a little bit of a weakness for us in the past are going to be a strength for us in '07.

The international operations -- I'm not going to steal Jeff's thunder if you guys ask him questions -- but I can tell you now it's solid and getting better each day. I am very content with what's going there. In fact, when I look at the claim activity on the international, I look at the major increases of right now on a quarterly basis 7.3% in the third quarter and 6.9% on a year-to-date basis and getting stronger.

On the last one -- again just so no one forgets it -- it's Crawford University is alive and well, again being asked by other companies -- major companies to do training for them. It is becoming what it was known for in the past, and that is the education source for the industry so pretty excited about that.

Now let me close by reiterating the fact that -- and I will use this word again -- I'm more excited about the prospects for Crawford & Company than at any point in my two years with the Company. And I hope -- and again, when you are face to face, it's a little bit easier to recognize than it is over the phone. But I feel pretty good and hopefully you get that. And what I will do now is let Bruce go over the numbers with you.

Thanks, Tom. Companywide revenues before reimbursement increased by 6.7% in the quarter to $197.1 million. Pretax income totaled $9.7 million, more than tripling the $2.9 million we reported in last year's third quarter. We generated earnings per share of 13% for the quarter as compared to $0.04 in last year's third quarter. Pretax income in the 2006 third quarter included a gain on the sale of the Company's investigative services unit of $3.1 million, which after related income taxes provided $0.04 per share in the current quarter.

Revenues from US insurance company clients totaled $52.1 million in the 2006 third quarter. That's up 3.6% from the $50.3 million reported in last year's third quarter on a 19.6% decline in claims referrals. The decline in claims in this market is primarily due to the surge in catastrophe-related claims referred in last year's third quarter from Hurricanes Katrina and Rita.

There was no such referral of claims in the 2006 quarter due to the relative lack of catastrophic storm activity. Excluding the impact of claims referred to our catastrophe services unit, claims referred in our core US insurance company market were down 2.5% in the 2006 third quarter.

Revenues generated by our catastrophe adjusters totaled $5.3 million in the 2006 third quarter as compared to $4.5 million in the third quarter of 2005. While there was a significant influx of hurricane-related claims referred in the prior year's third quarter, the revenues associated with those claims were not generated until the 2005 fourth quarter due to the claims being referred to the Company late in last year's third quarter.

Revenues from our self-insured clients declined 5% in the quarter to $35.7 million on a 6.8% decline in claims volume. This decline is due primarily to a reduction in claim referrals from our existing clients, only partially offset by net new business gains. Our contract renewal rate for self-insured clients has averaged 95% during 2006.

Legal settlement administration revenues, including both administration and inspection services, grew 29% in the quarter to $34.4 million. Our backlog of contracts awarded as of the end of the quarter remains strong at $43.3 million.

International revenues grew 5.5% in the quarter on a local currency basis and by 6.6% in US dollars to $74.9 million on a 7.3% increase in claim referrals. This revenue growth is largely due to increased claim volumes in our United Kingdom operation from 2005 and 2006 contract awards.

Our US operating margin improved by over 2 percentage points from 1.1% in the third quarter of 2005 to 3.2% in the current quarter, aided by the continued strong performance of our legal settlement administration unit and the ongoing improvement in our US property and casualty unit.

Our US operating earnings more than tripled to $3.9 million from $1.2 million in last year's third quarter. Operating earnings in our international segment also improved from $3 million or 4.3% of revenues in last year's third quarter to $3.8 million or 5.1% of revenues in the current quarter, reflecting continued strong performance in our United Kingdom operation and an improvement in our Latin American and European regions. We also benefited during the quarter from catastrophic claims activity in our Australian operation related to Cyclone Larry.

During the third quarter, we completed a global strategic alliance with MJM Investigations, Inc., a leader in insurance fraud mitigation and investigation services. As part of this transaction, Crawford sold the operating assets of our investigation services unit to MJM for $3 million in cash at closing and a note receivable of $2 million due in two installments through 2013. We recognized a pre-tax gain of $3.1 million from this transaction in the 2006 third quarter.

Our cash position at the end of the quarter totaled $68.8 million as compared to $49.4 million at the end of last year and $36.2 million at the end of last year's third quarter. Cash provided by operations totaled $31.6 million for the first nine months of 2006. That's up from $11.2 million for the comparable 2005 period.

Including the operating results anticipated from the proposed Broadspire acquisition, we are updating our previously-disclosed guidance for fiscal 2006 to the following amounts. In US operations, revenues before reimbursements between $515 million and $525 million and operating earnings between $17 million and $18 million. In international operations, revenues before reimbursements between $300 million and $305 million and operating earnings between $15 million and $16 million.

Severance and lease termination expenses in the Company's existing operations related to the pending Broadspire acquisition between $2.8 million and $3.4 million. After reflecting the gain on disposal of assets, stock option expense, net corporate interest expense and income taxes, we expect net income between $16 million and $18 million or $0.32 to $0.36 per share.

This wraps up my comments. Now, I would like to give our callers a chance to ask any questions they might have about our third-quarter release. Operator, would you please explain the procedure for handling questions to our audience?

(Operator Instructions). Eric Saxon, SunTrust Robinson Humphrey.

I'm asking questions for David Lewis who listened in but had to drop off for the Q&A session. First, I want to say congratulations on a nice upside quarter. My first question, it involves the Broadspire deal. Although you all aren't providing any information, let me see if you can answer this. What type of fundamental achievements do you believe need to be made other than paying down the debt to reinstate the dividend? And if you have an estimated timeline or time where you think this can be reinforced?

Well, certainly, several major advantages in my opinion. One, I think it's the jumpstart and shorten a period of time of turning the self-insured operation around for us. I think most people know if you can look at the results of the revenue decline over the years, we feel we have just about got it level on our own. But again, I think we're going to shorten the time period of this becoming a profitable organization by several years actually.

And, the other key item is that we have a strong desire to pay the debt down just as fast as possible and that is our goal and that's our plan. And we will talk more about it when we talk about the specifics of Broadspire itself. And I think that will in itself create some excitement.

Eric, this is Bruce. If I might add a few things there. We've talked about there being a lot of synergies associated with the Broadspire acquisition. And part of our ability to reinstate the dividend as soon as possible is the realization of those synergies in the combined organization. That's, as Tom said, something that we're going to be discussing when we have the next call subsequent to the closing of the acquisition.

But I would say that to reinstate the dividend is going to require action on two fronts. One is deleveraging the balance sheet and paying down debt. And the other is realization of the synergies that are inherent in the acquisition.

A second question -- can you quantify the expected revenue [b] stream from the MJM deal and also from another alliance that you formed in 3Q '06 with the Virginia Property Insurance Association? And if these will be significant revenue impacts going forward?

Eric, it's Jeff. I will take the MJM question. Part of the alliance is that we will receive an administration fee based on claims referred to MJM, so we haven't measured yet the Broadspire effects. But it will transfer over approximately somewhere between about $0.5 and $1 million in fees that we would receive from MJM projected in '07. And then on a global basis, we have a number of projects on the go at this moment about referring claims through their worldwide network of surveillance and fire investigators on a global basis. There will be more to cut that -- more to come on that in the future.

Yes, we have just made a deal with the Virginia Association like their fair plan, where we will handle their catastrophe and their everyday claims. It's a significant revenue generator, and I don't have the number right in front of me. Do you recall it, Jeff?

No, I haven't got that one (multiple speakers).

I can get it for you. But it's a significant account, and it's a significant win for the Company.

Can you provide us with any guidance on your revenue outlook for your legal settlement admin operations in '07? I mean can we see difficult comps, given the good growth that we've seen this year?

Yes, Eric, this is Bruce. We are currently in the process of putting together our business plan for 2007. And until such time as we have completed that process, we really don't have any guidance to give related to the 2007 activities.

Other than the guidance that we expect it to continue to do well.

Okay, got it. And a final question regarding catastrophe revenues. Can you talk about your outlook for 4Q? I know we are almost through with our first month in the fourth quarter. And also, I know there weren't any major cat impacts in the third quarter, but do we see any spillover from the '05 revenues? Is that still going on?

There's got to be some. You've got claims open on major commercial accounts in the New Orleans area, but I don't think it's significant at this point in time. And as far as the outlook goes, I don't think we're going to have the hurricane as most people thought we would. However, we have had the Houston floods. We've had the fires out West. We've had the huge snowstorm in Buffalo, and all those are generating what we classify as support services we send into an area.

So, we always said we -- and I think I've said this before -- we plan about $20 million a year. If it's $40 that's great. We really believe it will at least be $20, and we are running this year -- probably will hit about $28 to $30.

So, not unhappy with it but -- and again, I think this is something important to us to realize that we can do well without catastrophes. And you know so many people depend on a claim organization for cats to show revenue and profit and we're not doing that. We stopped that two years ago.

If they hit us, it's good. If they don't, we're still going to be okay.

However, let me add this. I do think we have built in a unit one of the finest catastrophe response organizations in the industry today. You have to see it to understand it. But we have shown it off to several companies, and they are quite excited about the information and what have you we can provide through our cat organization and the fact that we have a core group of adjusters on standby and we have a defined group that we can call in immediately.

So, we've come a long way in a couple of years on building our cat organization. So, if it happens, we'll be there. If it doesn't, we're okay.

(Operator Instructions). David Lewis, SunTrust Robinson Humphrey.

I actually was still on the line, but Eric got most of our questions. But Tom, is there any change in your outlook for a 2008 year-end consolidated margin to approach 8%?

I think the guidance I've given is that we are looking at 7.5 and 7.5 on both revenue and margins in the immediate future, and I think we should stick with that. When we get there, then we will talk about other numbers. But I think we need to stick with that at this point in time.

Can you give us any details on your credit facility as far as what kind of rate you think both on the revolver and the senior notes?

David, this is Bruce Swain. I can give you a little bit on that. We haven't closed as of yet, but I can give you an indication of where the -- where we think the rates are going to close at. For the revolving credit facility, we're looking at LIBOR plus 225 basis points. That pricing is ultimately performance based.

So as our leverage ratio improves over time, that rate will come down accordingly. On the term loan b notes, that pricing is LIBOR plus 250.

David, I was pretty happy with the team's presentation at both Standard & Poor's and Moody's. We came out I think with some pretty solid ratings when we compare it to some of our competitors. So I was reasonably pleased with what took place.

And I would tell you that our plan our modeling was done at 250. And so when you patch two together, we were close to (multiple speakers) a 2, 3, 6, something like that neighborhood. So in our modeling of the project itself, we went in at 250. So I'm pleased with that, and I'm very pleased with the team's performance and some of their rating agencies.

Just follow up on one of Eric's questions, what I guess fundamental achievements do you need to have to reinstate the dividends? There's going to be some cash flow level that you have to produce, some operating earnings level or I guess what are the covenants of that transaction?

But clearly, it's in the covenants of the agreements we've made with the banks. And I understand them. We are ready to pursue them and meet the formula ASAP. But I will let Bruce jump in and make a comment.

I think rather than go through the specific covenant calculation in this call, once we close the transaction and file the 8-Ks with the debt agreements where they're going to have a call to go over more fully the attributes of our new credit agreement and the Broadspire acquisition itself. So maybe that question is better left for a few weeks.

We're anticipating closing that transaction on October 31, and it will probably help you to have the credit agreement and the ability to review that before the call. And then, we can discuss that question more fully then.

[Manny Reiser], Wachovia Securities.

If I can ask David's previous question perhaps another way. In the press release, you actually indicated hoping to have a dividend resume as early as the fourth quarter of 2007. So, the question I'm going to ask is there a minimum time period that we have to have no dividend? Or again, is it kind of based on the reduction of debt from earnings and things of that nature?

Clearly, it's not a time frame based on it. My time frame is as soon as possible. And we feel reasonably good that we can accomplish what we say. But there's not a set time frame. It's based on earnings and debt ratios.

So it could happen earlier or later depending on how we progress things.

Could (multiple speakers), yes, yes.

In looking out at the fourth quarter this year, Tom and Bruce, right now at the end of the three quarters we've earned $0.33. And granted some of that is from non-recurring gains. But in our outlook for the rest of this year, we are indicating an area of $0.32 to $0.36.

So, what I'm asking is if you can back out the non-recurring gains and tell me what we've earned in the first three quarters, it would save me some time. And give me -- and let me know what your outlook is in the fourth quarter from an operational point of view then. Because last year, we earned $0.12.

And when I just do a quick look, I'm saying, well, the fourth quarter appears to be down. Why don't you kind of help me out on that?

Sure, this is Bruce. For year-to-date through the third quarter if you exclude the gain related to our investigative services unit, our earnings per share would be $0.29. So, the sale of the investigative services unit provided $0.04 to the quarter.

Looking at the 2005 fourth quarter related to 2006, the comparison gets a little bit difficult. Because in the 2005 fourth quarter, we had a significant amount of catastrophe-related revenues associated with Hurricanes Katrina, Rita and Wilma. And we won't have the same level of hurricanes -- we didn't have any hurricanes in 2006. There won't be any large cat activity to help us in the 2006 fourth quarter.

The other thing is our legal settlement administration unit had a record quarter in the 2005 fourth quarter. And while they still are expecting a strong year and a strong quarter by any other measure, measured against the record quarter we had in last year's fourth quarter, it's going to be down.

So, there were a few things going into that $0.12 quarter last year. I think if you back out the impact of the hurricane, then also normalized the GCG revenues, those two items contributed about $0.07 to last year's fourth quarter.

Yes, I think there's a restructuring charge in there too in the November/December time frame.

Yes, well correct. I mean we had --

We have a $2.8, maybe $3.4 million restructure charge that's going to hit us in November and December time frame. I believe our operating core operations are stronger, and they will be stronger in the fourth quarter. They may not show in the bottom line because of some other factors. But our trends in our core business are all improving.

What I'm trying to get at is an apples-to-apples comparison. So if we back out the past and Garden City will go through these periods so I prefer to keep that in. But if we back out cat, how much did cat contribute last year in the fourth quarter?

I think the increment if you look at what we're projecting cat to produce in this year's fourth quarter versus what they produced in last year's fourth quarter, the incremental profit year over year would be $0.03 in last year's fourth quarter relative to what they will produce this year.

And also in this year's fourth quarter, Tom, you had mentioned we had a snowstorm in Buffalo and things of that nature. You didn't touch on the earthquake in Hawaii. Has that produced anything for us?

Nothing just because -- basically, there's a lot of reasons why. But one of them is that deductibles out there are extremely high, very low density of population. We've got some structures, some hotels from a couple of our major carriers. But I don't think it's going to contribute a major revenue. And then, Jeff is trying to get in here, so I will let him speak to it.

The Hawaii earthquake reported about $46 million in total damage. It being both insured and uninsured. Therefore, that really is going to be in the hundreds of claims rather than thousands. It was a much smaller event than the coverage gave credibility to.

If we can move on Broadspire a bit Tom. The software systems that Broadspire uses and the software systems that we use, do you anticipate there to be an easy integration on that side? Or how do they correlate?

No, I don't expect it to be integration of any system to be easy. I don't say that in jest either. It's very difficult but I would tell you this, we'll talk more about it in a few days -- after we close, we will talk a little bit more about the specifics. But I can tell you that there's five systems involved, not just one or two. And all of them do the same thing.

And we'll talk more about that and I anticipate in 1.5 week or so that we'll be able to talk to you in detail about it. But I think there's certainly major synergies, but the execution is that it's never easy. But we're doing some things that we can share with you that are going to assure us that we get what we say we're going to get out of the synergies, which as you know people mark those down.

Ours, we went in just like we do on our guidance. Our synergies levels for this project are extremely conservative, and we did it for one reason. It's to make absolutely sure when we make this business decision that it's the right decision long-term for this Company. And I'm looking forward to sharing some of the details with you when we file the 8-K and follow that up with a phone call to the analysts.

So when we have our conference call in a few weeks, Tom, do you anticipate giving us some cash flow projections and maybe debt reduction projections for 2007?

Yes, I think we can. And I'm looking at Bruce and making sure that everybody shakes their head yes. But yes, I think we can. I guess that's why I kind of look forward to that call.

One more question -- as you look through the reconstituted Crawford, there have been certainly several changes from the selling of their headquarters, the sales leaseback, the MJM situation and Broadspire. Are there any other operations within the current crosshairs that maybe would lend themselves to an MJM type of situation? Or are we at this point basically done with those types of things?

I don't -- I don't project any major things happening from an operational standpoint. I think we've come a long way, and I think we fine-tuned the operations. We divested what we don't think is a major part of our future. And we're constantly looking and will constantly bring things to the Board, but I don't anticipate anything major.

But I would tell you that if there's something out there that we feel we can build long-term partnerships and make it basically a margin positive for us, we will certainly take it to the Board -- nothing major.

Now, for me to say that there's nothing out there, it would be not a correct statement. But we will talk about that as they transpire and we go in from the Board. But right now with what we've just done, it's a major undertaking and we need to focus on that 100%. But there could be some small things that we would talk about, if and when they come along. Nothing major, that's the key thing.

(Operator Instructions). Josh Pechter, Cacti Partners.

Bruce or Tom, maybe you could just clarify for me, you guys had an 8% operating margin at the end of '06. Does that include the building and some of the sales?

I'm not sure I know where you got that number. I think it was mentioned by another analyst that called in who tried to set me up to make a -- that's why -- he would never do that. But no, we've given guidance just out into the future at 7.5 and 7.5 over a five-year period of time and we did that a year ago.

I think we've got to get to those levels and then we go from there. I wouldn't tell you it will take us five years to get there. But at this point, I think that's as far as we should go until we (multiple speakers) --

So that was the long-term goal for 2008 or 9? Is that about right?

8.

An 8% operating margin? Because we haven't been there since '01. I was walking into it and saying if you include the building, you can get there. But, it would be tough to do in '06.

Okay, let me just ask you one other one and then I will get out of the way maybe.

I would also tell you this, Josh. I don't put the building and things that we do like that. I know it goes down to the bottom line, but we have a special line for it. I know what they are and I run -- when I talk about the future expectations of the Company, it's from our core operating results and margins. Yes, there will be special items that hit it every now and then. But they don't impact me other than the fact that the shareholders benefit from it if it is the right thing.

Right. Let me ask you one more, which is that if you look quarter over quarter -- I mean '05 to '06 for the quarter and you have a $0.09 gain and let's say $0.04 you just disclose with the building, so that leaves you with $0.05. Can you tell me of the $0.05, which came from legal and which came from insurance?

We don't -- within our reported results, we don't break our results down by those generated by legal settlement administration versus the insurance company market. We serve a lot of markets in the US within Crawford & Company but disclose our results based on the US segment and an international segment.

Okay. Can you tell me what was international and what was US of the $0.05 that is the incremental gain?

Hold on just a second.

You got another question while he's looking that up?

Well, I just want to make sure that as the legal business really cooks and you've put an extra $7 million or $8 million of revenue down that it doesn't have a 50% operating profit. And we're kind of seeing the legal take care of the insurance business.

That's not happening. Certainly, it is happening from the standpoint that they are doing very well. But, that's not the purpose of the reporting. The reporting was set up before I got here or Bruce got here, and we may change that in the future.

But at this point in time, I can tell you that we also talked about our challenge. Our challenge area was the self-insured side of the business (multiple speakers). The other sides are profitable.

You did put extra or increased revenue on the insurance business -- about $8 million. Has that had better operating margins than historical margin? Are we getting better deals?

Well, we have gotten leverage from that increased revenue and we've had some element of capacity in our US field operations in the past year to 18 months. So, the incremental revenue that we have enjoyed in the US property and casualty market, we have got a fair amount dropping to the bottom line (multiple speakers).

The insurance added actual positive net income, right, in the quarter?

Yes, that's correct.

So of the incremental year over year -- and I understand if you don't want to break it out -- but I'm just trying to understand which business was the major contributor. If you're saying they both were positive, was either one more predominant because you know the operating margins of the legal can be three times higher than the insurance?

Well, I can tell you that one's -- yes, certainly one is more positive. But it's not like 50% or 30% or anything like that, Josh.

I'm just wondering if I had taken the legal out of the business and just separated it off to the left, which I know we're not supposed to do, but would the incremental gain year over year have been equal to the $0.04 of '05 plus $0.02 in '06 or is it $0.05 in '06 without the legal?

I got it just what you said.

Tom, last year, I remember we were chatting and you said there's a bunch of RFPs on my desk. There's a bunch of them, and we are really starting to look at some new business.

That's true.

And when that business comes in, we're finally going to get the leverage of all these people which we're going to keep? We're going to keep the SG&A solid because we know it's going to come in. So, now I'm looking and saying, okay, here comes some business and here comes some business from legal.

What it appears to look like in the release is that the legal is humming. It's throwing increased operating profits down, and I'm not sure if the insurance, even though you are adding to the revenue line, is actually getting better.

I think I understand where you are going now. This is Bruce. The legal settlement administration unit does have strong operating margins. They are growing their revenue and they are --

Have been consistent.

-- and their generating operating profit has been consistent. In the US, our other two markets that we serve are the US property and casualty insurance company market and the self-insured market.

In the US insurance company market, the property and casually market, we have increased our revenues and we have also generated increased profit related to those revenues. We've talked early in the calls this year about our business in the US turning and the turn that we have seen first in the US property and casualty market. And, that has in fact occurred where we've generated significantly more incremental profit in that market than we did at this point last year.

The challenge that we have is in the US self-insured market, and we're still facing challenges in that market. And the results in that particular market are negatively impacting our operating earnings as we speak today. And that's the market that's the focus of our Broadspire acquisition and will be the focus of our activities over the next 90 days or so as we integrate that operation into our existing self-insured business and look to realize the synergies that are inherent in both those organizations when you combine them.

Bruce, I appreciate the answer. I guess in the end, when you have these kind of small businesses and they are all pushed together into one item, what you don't want to do is have one business significantly more profitable than the others. And then when that business starts comping over tough quarters, you kind of get killed as an investor because you weren't paying attention to the right line.

I know you guys don't want to break it out, and I think David Lewis has asked I don't know four quarters in a row to kind of see if you could separate it. The worry is that the profits are coming from legal and that insurance isn't profitable and it's not growing. So, you can understand why people would be asking these.

And when there aren't many things to go on in your filings on this stuff, it makes it challenging to kind of believe it's headed in the right direction for that business. But anyway, that is just a dumb kid's opinion.

No, I don't have a problem with what you're saying, Josh. But I would also tell you that when we got here, we knew where we were losing money and where we weren't growing. And we have addressed and probably focused 10 times more profitably on the insurance side of the US operations, which we've talked about consistently as being our concern, not legal side. It's been very consistent. It's growing and the margin has been consistent.

We have changed -- we had three or four operations that were not doing well when we got here. We've got one today, and I can speed up that turnaround by this acquisition. That's what it really comes down to, or I could not do it and slowly get it to where we want it from a probability standpoint.

Given it's working if on the call you make in the next 90 days about the debt, if you're willing to disclose just some numbers about the legal, it could show us that the insurance business is working by itself. And it would probably give a new level of credibility to what we know you are doing.

Well, unless the legal margins change dramatically upward and we don't anticipate that, we think it's consistent at a level that it should be, any incremental increases in profit is going to have to come out of the insurance side based on the revenue growth. And remember, they had a record revenue growth last quarter.

I feel very good about the changes that have taken place in the insurance company side. When I said about RFPs, it wasn't last year. It was first quarter I believe when I said that RFPs are being generated by the model we introduced and they have been. I also said that they would be toward the end of the year that we would get any traction out of those at all. And I don't think I would back away from that.

I think it takes a much longer period of time to turn the self-insured side from a quality standpoint than it does the insurance company side which is turned. And we wouldn't sit here at any point in time saying something is turned if it has not. I would tell you the self-insured side is very close to -- it's basically level.

And now with this project that we have just introduced recently, we think that the synergies will take away any capacities that we've talked about over a period of 18 months and cannot in my opinion -- and I've made this decision -- take capacity out when you're trying to fix quality. If we had not fixed quality, we would have a very serious problem as we sat here today.

So, I feel that it's come a long way, and the results will speak for themselves as we go forward. We will take a look, and I don't have a problem reporting separately. I will investigate that as we go forward and especially with the acquisition of Broadspire and see what we can do about separating the numbers. Because I don't mind the numbers speaking for themselves, never have.

But again, it hasn't been my focus to change that since I've been here. My focus is change the quality, the people, the accountability and I think we've done that. So, that's where we are. I appreciate the question. I understand. Next question?

At this time, there are no further questions. Mr. Crawford, do you have any closing remarks?

No, I'd just appreciate everyone being on the line again. I sometimes wish I could fly you all in here where we could sit face to face with each other. I know I probably shouldn't say that. But it would be helpful because you're talking -- again, it's a little difficult sometimes over the phone when you can't see the expressions you're getting back.

So, thank you for being here. And I look forward to talking to you first off at the close of the deal with Broadspire and again in the results of the fourth quarter. I think there will be some exciting times for us. So take care.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 6 PM today through 11:59 PM on October 30, 2006. The conference ID number for the replay is 9063122. That number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you. You may now disconnect.