Crawford & Co (CRD.A) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. I will be your conference facilitator today. At this time I would like to welcome everyone to the Crawford & Company fourth quarter 2007 earning's release conference call. All lines have been placed on mute to 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, Monday, February 4, 2008.

Some of the matters to be discussed in this conference call may include forward-looking statements that involve risk and uncertainties including statements regarding the integration of Broadspire Services Inc. and our ability to pay dividends in the future. Crawford & Company faces risks that the integration of Broadspire into the Company's operation may not be successful or may be more expensive than anticipated. The Company's actual results achieved in the future quarters could can 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 the factors which could affect the Company's financial performance please refer to the Company's Form 10-K for year ended December 31, 2006 filed with the Securities and Exchange Commission. Particularly the information under the headings business, risk factors, legal proceedings, and management's discussion and analysis of financial condition and results of operation. This presentation also includes certain non-GAAP financial results as defined under SEC rules. As required a reconciliation is provide for those measures to most directly comparable GAAP measures which is available on our website at www.crawfordandcompany.com/quarterly releases. I would now like to introduce Mr. Jeffrey Bowman, Chief Executive Officer of Crawford & Company. Mr. Bowman, you may begin your conference.

Thank you. A very warm welcome to our investors, clients, and associates this afternoon for a discussion of our fourth quarter and 2007 year annual results and expectations for 2008. I have informed that we have a significant number of listeners today. So thank you.

I am Jeffrey Bowman, President and CEO of Crawford & Company. Joining me from our global management team this afternoon are Bruce Swain our CFO and Allen Nelson our General Counsel and Chief Administrative Officer. As you all are aware, on January the 1st, Tom Crawford assumed the role of Chairman of the Board and Jesse Crawford assumed the role of Chairman of the Executive Committee of the Board of Directors. I have now been President and CEO since January 1st, which is 35 days, and I would like to update everyone on this call with the initial actions, future plans, and fundamental strategies that this management team has or are putting in place for Crawford & Company. Before I do that, I would like to acknowledge and say thank you to Tom Crawford for the positive contribution he made to Crawford in his three plus years as CEO. I personally look forward to continue working and partnering with him in his new role as Chairman of the Board.

For those of you who have not met me, my background is 25 plus years in the financial services and claims industry. My experience at Crawford & Company was development and management of the international business unit which now represents approximately 39% of our group total revenue. And recently the combination of the global property and casualty business unit. I am continually encouraged by the potential that we have in front of us which I would like to take a few minutes to discuss with you.

Globally insurance is a growth business providing an independent quality driven local, regional, or global claims service is crucial to our client's business propositions. In support of that objective, it goes without saying that we plan to drive our operations to continue to deliver quality of product, investment in training, and maintaining a very strong client relationship at all levels in the organization. Being the largest global claims administrator is important, but not as important as having the best quality in the industry, the best practices, the best processes, the best associates, and lastly, delivering a sustainable and attractive return for investors. Therefore, I see my role is to position Crawford & Company as a target driven corporation that achieves it financial goals and meets its commitments to its clients, associates, and shareholders.

Let me now discuss as several of the strategic actions currently taking place. Firstly, my international used to say first who and then walk. On January the 7th, we put the who in place by announcing a new global management team. This team has a fantastic blend of experience together with a commitment to a fresh and energetic management approach. As part of the reorganization, Crawford will benefit from a Global Chief Administrative Officer, Chief Strategy Officer, and Chief Information Officer who will bring operational cohesion to the project teams and help align our global strategies. Our new Global CIO also has the responsibility of bringing together our global information communication and technology practices that will help us share and implement improved processes and efficiencies on a global basis.

Secondly, we are implementing a communication plan to execute a common understanding of the strategy and direction of our corporation for our associates, clients, and investors. This will take shape through a program we are calling the strength of working together that will be rolled out over the ne few weeks. The theme is based on Crawford & Company's vision and mission values that we outline to our clients, associates, and investors.

Thirdly, we are expanding our account management plans to increase marketing and selling efforts across all of our business units. We will continue to expand the business propositions to our clients around the globe as we operate in Crawford, Broadspire, and the Garden City Group.

Fourthly our management team at Crawford & Company is committed to delivering on our promised technology. While the roll-out of the RiskTech product, our self insured market technology was delayed due to the acquisition of Broadspire last year, the decision to include the Broadspire legacy IT systems transfer to RiskTech was the right decision. We expect the new system to be deployed and ready for clients during the fourth quarter of 2008. In our property and casualty division, CMS-2, our property and casualty claims management system now has about 3,000 plus internal users throughout the group. In 2007, we rolled out the system to the USA and are now seeing many process improvements and positive operational efficiencies.

Lastly, turning to Crawford & Company associates, we will continue to retain, recruit, and reward staff throughout the Corporation. We are reviewing our performance based incentive programs to ensure they are designed to drive the growth in revenue quality and operational efficiencies we need. Additionally in 2008, we will implement some major improvements to our training approach on a global basis. With our recent investment in distance learning capabilities we can now offer Crawford on line and are now offering classes that are conducted partially on line prior to the onsite application process taking place.

Our Company has changed dramatically over the past few years, regaining its rightful stature in the TPA arena and as a global claims solution business. Our management team now has the opportunity to build on this program -- platform, through the programs I just discussed and through better execution deliver stronger and more consistent financial performance. That is our collective objective for 2008. Bruce will discuss the detailed financial performance of the fourth quarter, 2007 results and the year-to-date results for 2007 in a moment.

I would comment that we are now on a year -- a year on from the acquisition of Broadspire. We are pleased that in 2007 we turned the 2006 losses in the combined Broadspire/Crawford business unit to a profit. The progress made through into 2007 is right in line with our planning. An overview of the results of the four Crawford business units in 2007 showed mix performance. International had its best ever year in 2007 with record revenue and income. These trends reflect growth in accounts and a 28.3% claim volume increase over 2006. We have now had five years of revenue and income growth internationally by focusing on good management practices and real attention to client performance which will continue to be our strength in 2008.

Looking a little at the U.S. property and casualty division, the performance this year of the U.S. property and casualty has been of concern. The results in the fourth quarter were particularly disappointing. For the past several years, industry declines in overall claims frequency has been a concern and has an effect on this business unit. We saw a frequency decrease in the fourth quarter of 1.7% over all product lines which reversed a 2% increase in the third quarter. The frequency reduction in assignments has meant we were continually managing our cost to revenue ratios despite winning new contracts and many client handling nominations. Despite the challenging conditions that have existed all year we produced an operational profit of $4.7 million at a margin of 2.6% and continue to provide a good quality product to all of our clients.

We have continually stated before that while we are not building a Company based on catastrophic and storm events, it is worth noting in December 2007, we had the lowest number of catastrophe adjustors deployed since 1991. Our goal, even in a challenging overall claims environment is to restore U.S. property and casualties revenue growth in 2008.

As mentioned earlier, we completed the first phase of the integration of our Broadspire operation in 2007 and exceeded our plan. Against losses of over $21 million in 2006 we improved to operating earnings of $3.8 million in 2007. The fourth quarter operating loss while small underlines the importance of revenue growth in this business unit. We anticipate continued pressure into early 2008 from the declining run off of the existing book of business. Gross opportunities for Broadspire are evident in a large backlog of RFPs with larger clients and the anticipated continuing growth in unbundled services such as telephonic and field case management, E-triage, Physician Review, Crawford Care and Utilization Management. I should note that unbundled services represent about a third of the Broadspire business as it is today and we are poised to grow this business unit in 2008.

Our remaining business unit is legal settlement administration and despite major industry head winds, we are pleased that legal settlement administration maintained double digit profit margins. In addition to the hurdle of trying to match LSAs unprecedented record performance in 2006, the legal landscape was punctuated by growing trends to restrict the use of class action. The fourth quarter revenue decrease 28.9% from 2006 has -- management has responded throughout the year by managing cost to revenue trends. In the fourth quarter, operational income decreased slightly but operating margins improved from 12 to 15%. In 2007, we significantly expanded our Garden City Group salesforce with new associates and offices in San Francisco, Atlanta, New York City, Chicago, and Washington DC

Garden City Group enters 2008 as the market leader in legal settlement administration services. We are also encouraged by the prospects for the year as we have a significant backlog of cases that we have accumulated over the last six to 12 months. Our management team sees significant opportunities ahead in the area of bankruptcy filings in 2008. So, returning to the Group, while the operating earnings improvement from the business segment indicate a stronger performance, our consolidated group margin remains unacceptable result and below our long-term expectations. My new team is committed to substantially improving this result in 2008 through the initiatives mentioned and many others taking place.

We have therefore issued the following guidance for fiscal 2008. Consolidated revenues before reimbursement between 990 million and 1.020 billion. Consolidated operating earnings between 54 million ad 58.7 million and after reflecting stock based compensation expense, net corporate interest expense and tangible asset amortization expense and income tax consolidated net income between 19.1 and 22.1 million or $0.38 to $0.44 per share. Our 2008 theme, the strength of working together is the message that this team would leave shareholders with. We have made progress over the past several years in improving Crawford quality and restoring Crawford's industry leadership position. We are committed to being a target driven corporation that delivers quality outcomes from our clients and improved financial performance for our investors. Crawford has a very bright future. We thank you for your continued support and commitment as we enter 2008 and I look forward to your questions after Bruce has finished his financial summary. Over to your, Bruce to review the Company's overall performance for the fourth quarter.

Okay. Thanks, Jeff. Company-wide revenues before reimbursement increased by 7.4% in the 2007 fourth quarter to $245.2 million from $228.3 million in the prior year's fourth quarter. This increase is attributable to $12.4 million in incremental revenues from the acquired Broadspire Management Services Inc. business and double digit organic growth from our international operation which offset declines in revenues generated in our legal settlement administration and U.S. property and casualty segment. Our pretax income $4.1 million as compared to a pretax loss of $1.2 million we reported in last year's fourth quarter. We recognized earnings per share of $0.07 for the current quarter as compared to a net loss per share of $0.03 in last year's fourth quarter.

Fourth quarter 2007 earnings per share includes $0.01 related to the recognition of certain tax benefits during the quarter. The pretax loss in the 2006 fourth quarter included a restructuring charge and a loss on early extinguishment of debt related to the Broadspire acquisition of $3.1 million which after related income taxes was $0.04 per share. The Company's selling, general, and administrative expenses or SG&A totaled $50.8 million or 20.7% of revenues in the 2007 fourth quarter increasing $5.3 million from $45.4 million or 19.9% of revenues in the prior year quarter. The acquisition of Broadspire added $3 million of incremental SG&A cost during the current quarter. For the full year, the acquisition of Broadspire added $45.8 million of incremental SG&A costs, excluding the effect of the Broadspire acquisition, the Company's increases in SG&A costs are primarily due to higher self insurance expense in the U.S. and higher administrative cost in our international operating segment.

Turning to operations, international revenue surged 15.9% in the 2007 fourth quarter on a local currency basis and by 27.1% in U.S. dollars to a new quarterly record of $107.3 million on a 16.1% increase in claim referrals. This growth reflects increased case referrals in each of our international operating regions resulting from new business wins during 2006 and 2007 and the impact of claims generated by the U.K flooding which occurred during June and July of this year. The acquisition of Specialty Liability Services Limited in the U K. during the early part of 2006 fourth quarter contributed incremental revenues of $1.3 million in the to 2007 fourth quarter.

International operating earnings improved to a quarterly record of $9.9 million in the current quarter increasing 43% over last year's fourth quarter operating earnings of $6.9 million. This improvement reflects an increase in the operating margin from 8.2% in the 2006 fourth quarter to 9.2% in the 2007-quarter. Revenues from our Broadspire segment increased by 10% to $75 million due to incremental revenues of 12.4 million from the Broadspire acquisition completed in last year's fourth quarter. The Broadspire segment operating performance improved in the 2007 fourth quarter to a loss of $277,000 or 0.4% of revenues from an operating loss of $3.5 million or 5.2% of revenues in the 2006 fourth quarter. These results were driven by the incremental profits generated by the acquired Broadspire entity and the results of the cost reduction initiatives carried out in 2007. Legal settlement administration revenues including both administration and inspection services declined 28.9% in the 2007 fourth quarter to $22.5 million on a comparison with record revenues and operating earnings generated during 2006. Despite the sharp reduction in revenues, operating earnings totaled $3.4 million in the 2007 fourth quarter or 15.3% of revenues as compared to $3.7 million for 11.7% of revenues in the prior year period.

Legal settlement administration continues to have a backlog of projects awarded totaling approximately $45 million at December 31, 2007. Revenues from the U.S. property and casualty segment totaled $40.4 million in the 2007 fourth quarter down 8.1% from the $44 million reported in last year's fourth quarter. Revenues generated by our catastrophe adjustors totaled $1.8 million in the 2007 fourth quarter down slightly from $2.1 million in the fourth quarter of 2006. Fourth quarter 2006 revenues included $640,000 in revenues generated by the Company's subrogation services unit which was sold in February 2007. Excluding the impact of claims referred to our catastrophe services group, claim referrals in our U.S. property and casualty segment were down less than 1% in the 2007 fourth quarter.

Operating earnings in our U.S. property and casualty segment totaled a loss of $911,000 for an operating margin of 2.3% of revenues in the 2007 fourth quarter. This compares to a slight operating loss of $39,000 or 0.1% of revenues in the prior year quarter. During the to 2007 fourth quarter, the Company made a discretionary $2.5 million prepayment on its outstanding long term debt. For the full year, $12.5 million in discretionary payments have been made. Our cash and short term investment position at December 31, 2007 totaled $50.9 million as compared to $66.7 million at December 31, 2006. Cash provided by operations totaled $23.3 million for 2007 compared to $52.7 million provided by operations in the prior year. The change is primarily due to growth in unbilled revenues during 2007 and the reduction of deferred revenues associated with the completion of claims assumed in the Broadspire acquisition. This wraps up my comments, now I'd like to give our callers a chance to ask any questions they might have about our fourth quarter release. Would you mind explaining the procedures for handling questions to our audience.

(OPERATOR INSTRUCTIONS) Your first question will come from [James Curran] with New Salem Investments.

Thank you for taking the questions.

Good afternoon.

First of all I had trouble getting in on your Internet site in the conference call. I am not able to get in.

I am sorry.

You might want to check that.

Okay.

In looking at your third quarter release, I tried to do the adjustments and figure out what you were guiding for for fourth quarter I came up with $0.09 to $0.12, would that be reasonable?

Yes. At the end of the third quarter that would have been where our guidance for the fourth quarter would have been.

Taking out the $0.01 it looks like you came in at $0.06? So I guess could you describe the one or two areas that mostly attributed to the miss?

Yes. Really, there was three areas, James, that we were down on our projections on the fourth quarter. We -- the largest one was the U.S. property and casualty division which had about a $0.02 miss on the quarter for the fourth quarter just basically on the frequency decline that we saw coming in over that period. Secondly, our Broadspire frequency was slightly down as well and that was $0.01 because of the increased run off claims that were taken out and the new business that resulted in that frequency decrease. They were the main reasons that we had, there was some administrative expenses on slightly higher, insurance premiums in terms of our E&O, but they were on the administration costs.

Okay.

They were the major reasons for the decrease.

Okay. I noticed the last call you had no questions. I have a few. You can cut me off when you want to. But I am going to go ahead until I am cut off. You, I think you, I see intangible amortization of 1.5 million, for Q4 and stock based compensation of 200,000, is that, is that correct? Is that, -- what can you -- people plan on going forward for those numbers?

Yes, James, this is Bruce Swain, Chief Financial Officer. The amortization expense, $1.5 million for the quarter and about $6 million for the year relates to the amortization of customer relationships and tangible assets primarily to the Broadspire acquisition. We also had some related to the FLS acquisition in the United Kingdom. Those intangible assets are being amortized over a period of 15 years. You can expect for that noncash expense to continue for the--.

For the 14 years?

Correct. The stock option expense is, the expense related to stock options the Company had granted prior to implementation of the new stock option accounting standard a few years ago and we don't currently issue other stock options. We have performance restricted share plans in place. But these old historically granted stock options we have allocated down to the operating unit level. So they are corporate costs. That expense should decline over the next two to three years and be probably zero in the next three to four years.

Okay. You mentioned some significant IT upgrades. Are there costs baked into accomplishing those in '08, '09, and how much is that and how much cost saved do you expect to get once it is implemented?

We do have several IT initiatives going on across the, across the globe. The one that has been the largest for us is the RiskTech project in the U.S. which supports our self insured Broadspire business. We are in the midst of converting the systems that the Broadspire acquisition brought to us onto the RiskTech platform. We do have cost we expect to incur during 2008 and 2009 related primarily to internal use of capitalized software. They will be capitalized and amortized over the life of the project. The implementation costs that we will add to have that of migration and transfer costs which aren't capitalized, well, they are considered in, in our expenses and are baked into the guidance range that Jeff mentioned earlier.

Is that over the next, this this year or two years or?

It will be, well, the RiskTech project will be deployed to clients in the fourth quarter of this year and then there will be a series of transfers of current data et cetera in release 1.2 that will go through for another six months or so, but at a lower level than the cost of present stage.

So, can you give me a feel for how much that's holding back your earnings this year or next year?

When we put the RiskTech, we weren't fully implemented in the RiskTech in our Broadspire operation. We believe that we can achieve synergies related to IT and the back office processing, operations of at least 15 million to $20 million.

15 million to $20 million. Is that cost savings or revenue synergies or both?

Cost saves.

Cost saves. And you're not, you said 15 to 20.

Correct.

You are not realizing any of those right now?

We are recognizing very, very little of that right now. What, in the Broadspire acquisition, we inherited several systems with that group. We were running a system on our own and the Crawford self insured business and RiskTech is the one system that we are migrating those three platforms on to. When we accomplish that and during the calls that we had and the disclosure that we had over the acquisition of Broadspire, we indicated that those synergies and cost savings were going to be more long term, systems integrations always take a little bit longer than you think. We had those pegged for 2009 and 2010 to really get traction on them. And it is a significant amount of money. But when you go from managing and operating multiple systems down to one platform, the savings should be fairly dramatic.

And is that, excuse me, does that system, you hopefully help bring in revenue, bring in customers because of this quality?

Absolutely. It will -- the consolidation into one platform will make a significant difference not to the current basis that we provide our clients with. Because that actually will remain and improve slightly, but on the internal efficiencies that we are able gain through using one system rather than the three we have got.

Okay. The legal, I mean, the legal segment could I assume basically the past where you had big revenue was kind of legacy from the WorldCom/Enron era?

The 2005, 2006 era was and 2006 more was a record year in revenue and in earnings for the Garden City Group, and that was the combination of a number of significant class actions. We anticipated that that would be a lower number for 2007. So, that was following on from the high number of class action securities that there were.

Any confidence in saying it is bottoming out here or is there any way of knowing?

Well, the -- if you take the press on this, there is, the prospect of a significant number of class actions being filed over the forthcoming period. So, we are very optimistic about the prospects for that particular business division.

When you say forthcoming are you talking about this year or next quarter?

I think you are going to see this over a couple of years.

Okay.

As they come through the system.

Okay. Can you describe your debt to me and what the short-term, long-term, at least the bulk of your debt, what the terms are and how much it is?

Sure. We have outstanding at the end of the year, two components of debt. One is revolver borrowings that are about $23 million and their terms typically are anywhere from 30 to 90 days and they roll over. We have a long-term borrowing in the form of a term loan indicated with a group of banks of $185 million and the other component of our total fund to debt, although it's not on our balance sheet are our letter of credit obligations which go against our capacity under our revolver of about $20 million.

I guess what are the rates, what's the rate on the term loan?

The term loan is LIBOR plus 275. And the revolver is LIBOR plus 250. They both have performance-based pricing associated with them. When the Company's leverage ratio gets below 2.5 to 1, the rates under both will decline.

Is there several steps to that?

On the term loan, there's only one step. On the revolver, it continues to step down when you go to two times and one and a half times. What is your leverage ratio right now?

Our leverage ratio at the end of 2007 was 3.1 to 1 under our credit agreement we were allowed 3.5 to 1. Okay. And what is the, at least LIBOR plus 2.75 what does it step down to once you break below 2.5.

It steps down to, the spread is 2.5, 250 basis points.

Okay. Are you, I think, short-term rates and LIBOR are probably coming in a lot easier. Are you taking that into account for your guidance or?

We have taken that into account for our guidance.

Okay.

Your next question will come from [Matt Reames] with Buckhead Capital.

Good afternoon, gentlemen.

Hi, Matt.

I would like to be a little bit more specific than the first caller. What is your, I have got a bunch of questions related to just some of your guidance. You talked about amortization, what is your D&A expectations for '08?

Our appreciation and amortization expectation for '08 would be approximately $31 million.

So if $6 million is for amortization, the remaining is for depreciation?

Correct.

Okay. What are you assuming for interest expense for the year? If my math is right assuming your cash balance is probably around $11 million a year? Unless there's a bunch of other items in there than just interest costs?

No, the interest expense for 2008 we are assuming is about $17 million.

Okay. Well, the debt you just went over based on the rates, and I know you have a swap agreement too.

Right.

But it looks like your average rate is going to be somewhere between around 5.5%. What else is in that interest expense category.

The -- we have in the swap arrangement, we have got a certain amount of our debt that's fixed. So not all of the reduction in the LIBOR rate is going to be realized through lower interest expense. The LIBOR rate that we have assumed when we put the budget and projections together and the guidance was based on I think about 4.8, 4.9%. So to the extent that it has come down lower from there, there would be some marginal improvement in interest expense, conversely if it goes up it could be the other way. Typically when we set our budget for interest costs and in our guidance we look at the level of debt that we have got today, projected payments, the rate of interest that exists today, and we just run the calculation out.

Okay. Well, you said you had $185 million on your term loan; right?

Correct.

At today's LIBOR that's going to be somewhere around, it's going to be under 6%; right?

Right, but we have $150 million swapped at 5.25.

Okay. So that lowers the rate then?

Well, it increases -- it is higher than the LIBOR rate that exists today.

Okay so it is LIBOR plus.

Right.

Okay. So 175 it is LIBOR plus 5.25?

It is LIBOR plus 275 is our existing credit arrangement, within our term loan B, we have fixed $150 million of our debt at a rate of 5.25 for LIBOR.

Okay. I got you. Okay. I understand now. Thank you.

(OPERATOR INSTRUCTIONS) Your next question will come from the line of [Bruce Winter] with -- private investor.

Yes, thank you.

Hi, Bruce.

Hi. Could you please tell me your current dividend policy?

Currently--.

Sorry. First of all, Bruce from the management team, I mean, reiterate my support for a dividend and the Board's support I think as we've indicated before, we believe the suspension will be temporary as we integrate all of the actions that are taking place. At this time we are not providing a time table for the restoration of the dividend. The dividend to the reinstatement terms that we're looking at is one the full Board will obviously discuss as the earnings are produced on a quarterly basis.

Why was the previous timetable changed and when was it changed?

Sorry. I didn't, can you--?

Why and when was the previous timetable changed?

That decision was taken in the third quarter.

Under our credit agreement, Bruce, we -- our original credit agreement and our credit agreement that exists today, we have to meet a leverage ratio of 3 to 1 in order to declare and pay a dividend, and we ended the year at 3.1 to 1. So, slightly above the level that we needed to be at in order to declare and pay a dividend.

Okay. Okay. I understand now. The only other question I have is why is the international claims business so much more profitable than the U.S. claims business?

That's a really good question. The issues we are dealing with in the U.S. are very different to the issues we are dealing with on the international side. I come in from obviously the international side where we have really attacked technology, savings, and higher penetration. The -- what we are doing at this present stage is last year we deployed new technology which came in from the international group, it has been rolled out to the U.S. operation. We are changing our business distribution model at this point to effectively get more clients, wins et cetera. We have won in 2007 a large number of new assignments, new nominations, and input in technology. What we are dealing with is a frequency issue in the U.S. which is very different to what is happening overseas. That has had an effect whereby we have been adjusting on a regular basis our cost to our revenue base in the U.S..

The frequency is down in the whole of the industry at the moment. Really if you look back, take catastrophes as a situation and just storms that happen on a regular basis, there has been a significant decrease in that frequency. That has caused us to readjust our model to get back to the efficiencies that we need, the implementation of technology is also having some significant effects. That's something that the management team have been working hard on in the past 12 months but it is -- we've had different times in our -- in our evolution on the international side, but number one is that we must really push the new client wins that we have and then hopefully that they will produce the frequency of claims.

Just from a market share standpoint in the U.S., everything is trending in the right direction?

We are getting our costs absolutely under control. In the guidance you will see that we have took significant improvement in our operating earnings. We see that even with very little in the way of catastrophe or storm revenue, we will be adjusting and have adjusted our base to ensure that we are producing an adequate return.

Good. Look toward to seeing your future progress.

Thank you.

We have a follow up question from James Curran with New Salem Investments.

Yes, a couple more. On the Broadspire business, if you look sequentially through the year, the revenues have gone down from almost 85 million to $75 million and earnings except for the first quarter which I assume you are still getting some cost saves into it have gone down with it. I know you did talk about this meaning that you had some run-off but I mean that seems like a significant run-off. Was there people going away from it because of the merger or is there seasonality in the business? Can you give us more granularity there?

Yes, one piece of the Broadspire acquisition you touched on is the run off of the claims that we acquired from Broadspire. There's a certain number of claims that Broadspire had that were really the result of its creation from the old Kemper National Services that were being run off and those claims as we worked them, there's deferred revenue on the both that we've recognized. As we worked those files we closed them. That population of files represents a diminishing revenue strain for us in the future. To offset that, we have to replace those revenues with new active clients and we put new business on the books in Broadspire during 2007 but one of the things that we saw in the marketplace was any time two big entities come together, there's somewhat of a wait and see attitude that was taking place in the marketplace to make sure that we could get the integration right and that we could bring the two companies together. That put some downward pressure on our new business that we were putting on.

If you looked forward of this James, in 2007, we were awarded the TPA of the year award by the business insurance magazine. That has assisted very much in getting us past this look and see effect. We are seeing some significant RFPs in the sales cycle at this moment. The team are very much working on a number of as I say, significant business wins as well as very targeted on the actual client RFPs that we have at various levels within the organization. We have also planned in 2008 to increase our unbundled services in the organization as well. So, I mean we see some upsides coming through into the organization but there's no doubt in the industry, that works out, look and wait and see how the organization came out. I think our clients have been very pleased with the way that we have achieved our objectives and got the organization moving in one step with everybody together.

Has there been any changes in your sales force or process?

In the process, we have a fairly sophisticated RFP process which when we merged the two sales teams together we took the best people that we had. So, from that point of view, yes.

Okay. I think that's all I have. Thanks.

Thank you.

We also have a follow up question from Matt Reames with Buckhead Capital.

What are you assuming for a tax rate in '08?

We are assuming an effective rate of 35%.

35, okay. Great. How about CapEx total CapEx for the year?

Total CapEx for the year, bear with me. We are expecting about $33.5 million.

And how much of that is for the RiskTech and how much is just general kind of maintenance? Or can you break out the components of CapEx?

I do not have the amount for RiskTech in front of me. I can give you a break up between the U.S. and international. U.S. is approximately 21 million and international would be about 12.5. Within our budget, just on a global basis, on our capitalized software assumption, our overall capital expenditure number is about $15.4 million. That would be about $10.6 in the U.S.. That's not just RiskTech. That would be really any project that we have got planned for 2008 related to software development and then in our international operations the number would be $4.8 million.

Okay. Are you expecting any working capital improvements this year? I know your unbilled revenues and deferred revenues have been a drag on working capital. Do you expect any of that to reverse?

Absolutely. That's significantly coming out of our U K. and European operations where we had some significant events that took place June, July, which flow through into obviously August and September. As you are aware, the international division works on an October year-end. So we see that slushing through in the first six to nine months of the year as we work off the successive number of claims that we receive.

But do you have a target for working capital in 2008?

We do not have a target as such for working capital. What we have set a target for in our operations and in our incentive compensation planning for 2008 is a reduction in day sales outstanding of 10%. That should drive a significant amount of cash inflows to help drive better operating cash flow performance. The other part that you mentioned, the drag on the deferred revenue side really is primarily related to Broadspire, the challenge there is increasing the revenue from new client arrangements in order to provide cash inflow into that line item. So through better management of accounts receivable and in growing the top line and replacing run off clients with new active clients of Broadspire, we should be able to significantly improve our operating cash flow performance going into 2008.

Okay. Do you expect your debt levels to be down? I haven't gone through all the math with earnings, noncash charges, and CapEx but do you expect as all of those flush through that you will be able to pay down more debt? And by how much?

We think we will be able to pay down more debt. In our budget we have put through about $12.5 million of debt repayment, in a range between 10 million and 15 million is what we are looking at.

Okay. Do you expect any more asset sales? You've had quite a bit of asset sales in the last couple of years do you expect anything else there?

Not from a business point of view. The two we made, Matt, were very strategic in terms of, we did a complete review of our products and they were two product lines that to be absolutely frank we were better off partnering with two corporations and investing large sums in getting the systems and integration up to speed. We have got enough emphasis on the CMS-2 system and on the RiskTech system without taking on another project. We made some decisions around that which have proven to be right decisions at the end of the time but there are no others that are planned.

Do you continue to have a pretty healthy cash balance for next year?

We do. In our planning for -- as we have gone through the budget, planning for cash which has always been a, something we pay quite a bit of attention to, we plan to maintain between 40 million and $45 million of cash at any one point in time with the excess cash generated over those levels to pay down -- pay down our debt. Now, at the end of the year we ended at a little bit north of 50 clearly above the 40, 45. As you know, in the first quarter we typically have pretty heavy cash outflows. We wanted to end the year a little bit higher than we normally would during a typical quarter point because we know we have significant cash requirements in the first quarter.

Okay. Jeff, in your opening comments you talked about this communication plan, strength of working together, can I assume that you are going to talk about each of your various operating units, your strategies to grow the business, and ways in which you are going to continue to try to improve margins?

Yes, absolutely. I mean we are finishing the whole plan off. I mean it will be linked into the annual report, it will be linked into a specific strategic plan discussion as well. But it is both an overriding story board for the organization as well as the direction and the management style that we are putting in place with the new management team.

Okay. So we will hear more about that next quarter?

Absolutely by next quarter. We are just working out how to push that out to our clients and investors as well at the same time.

Okay.

We will be making some announcements in the next couple of weeks on that.

Okay. Well, great. We look forward to hearing those, and at this point, that's all the questions I have. Thank you for your time today.

Thanks, Matt.

And at this time we have no further questions. I would like to turn the call back over to Mr. Bowman for closing remarks.

Thank you. I would like to thank everyone for joining us this afternoon, and look forward to talking to you in the near future and on the call at the end of the first quarter in May. Thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 6:00 p.m. today through 11:59 p.m. on February 11, 2008. The conference ID number for the replay is 32434094. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you, you may now disconnect.