Crawford & Co (CRD.A) 2008 Q4 法說會逐字稿

Good afternoon. My name is Molly and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company fourth quarter 2008 earnings release conference call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawfordandcompany.com under the Investor Relations section. 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 9, 2009.

Some of the matters to be discussed in this conference call and in the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties, including statements regarding liabilities associated with our frozen defined benefit pension plan and our ability to pay dividends in the future. The Company's actual results achieved in future quarters could differ materially from results that may be implied by such forward-looking statements. The Company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the recurrence of unanticipated events. For a complete discussion regarding factors which could affect the Company's financial performance, please refer to the Company's Form 10-K for the year ended December 31, 2007 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 Conditions and the Result of Operations. This presentation also includes certain non-GAAP financial measures as defined under the 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/quarterlyreleases. I would now like to introduce Mr. Jeffrey Bowman, President and Chief Executive Officer of Crawford & Company. Mr. Bowman, you may begin your conference.

Thank you. Good afternoon. A very warm welcome to our investors, clients, and employees this afternoon for a discussion of our 2008 fourth quarter and year end results, together with our earnings guidance for 2009. I'm Jeffrey Bowman, President and CEO of Crawford & Company. Joining me from the global executive management team this afternoon are Bruce Swain, our CFO; and Allen Nelson, our General Counsel and Chief Administrative Officer. Today we will be talking briefly about our markets, followed by the highlights of fiscal 2008. Bruce will review the fourth quarter financial results and I will wrap up with a review of the segment operating performance and a discussion on the guidance and economic headwinds we face in 2009.

The greatest economic impact of the downturn is being felt in our US and UK businesses, with less initial impact in our Canadian and overseas markets. In the US, the economic downturn has placed many corporations in a challenging financial position. This results in a greater need for us to manage accounts receivable and customer creditworthiness very closely. In our Broadspire segment, a significant portion of the TPA business is tied to the Workers' Claims Administration, which is in turn tied to US employment levels. We are monitoring this closely. In our US property and casualty and international business, we have not seen an appreciable impact on claims volume or customer relationships to date. We have a very strong story to tell on how we provide quality, consistency, and value-added outcomes for our clients in managing their indemnity dollars, which are the most significant portion of the claim. We will continue to refine our services to meet the changing needs of our clients.

So let me review some of the progress made in the fourth quarter. Throughout the fall and despite the turmoil in the financial markets, we continued to work hard to execute the plans we outlined at the beginning of the year, and the management team and global employees have produced another quarter with significant positive operational results over the prior year. We have exceeded full-year guidance and produced the fourth consecutive quarter of strong results, which include double-digit revenue growth in US property and casualty and increased catastrophe-related revenue. The 2% growth in our international operations was adversely affected by currency shifts and was 11.6% before those impacts.

Operating margins improved in the international operations and US property and casualty segments for the quarter and improved across all segments over the year. We are pleased with the Company's progress this year and are happy to report that Crawford & Company posted strong fourth quarter sales with net income up 152% and significantly improved cash flow over the prior year. Throughout 2008, we exceeded our 2007 results and our earnings per share of $0.16 is equal to the best fourth quarter performance since 1999. For the full year, Crawford surpassed the $1 billion revenue mark for the first time in its history. Earnings per share of $0.62 for the year is also the highest since 1999.

We have stated before that 2008 was not just about improving earnings. It was about delivering on a strategy to improve our balance sheet and cash flow through working capital management and debt reduction. The $48 million improvement of our operating cash flow over 2007 also shows that we are making progress. We are committed to winning new accounts and, importantly, retaining those accounts we have through closer customer relationships. After Bruce provides a detailed review of the segment results, we will discuss our guidance for 2009 in detail. At this point, I expect that we will see continued progress in all of our four segments in the upcoming year, driven by modest revenue growth and improved leverage of volume gains against expenses. Insurance remains the DNA of global business and we are very optimistic about the growth opportunities for our operations.

That concludes my initial remarks. Now let me turn things over to Bruce for a detailed review of the segment operating results. And after that, I will outline some of the operational achievements and then review the guidance for 2009. Now after you, Bruce.

Thanks, Jeff. Company-wide revenues before reimbursements increased by over 7% in the 2008 fourth quarter to $262.9 million from $245.2 million in the prior year's fourth quarter. This increase is attributable to double-digit organic growth from our international operations and US property and casualty segments, which offset weakness in revenues generated in our legal settlement administration and Broadspire segments.

Our net income totaled $8.3 million as compared to net income of $3.3 million we reported in last year's fourth quarter. We recognized fully diluted earnings per share of $0.16 for the current quarter as compared to earnings per share of $0.07 in last year's fourth quarter. Fourth quarter 2008 earnings per share included $0.02 related to the recognition of a foreign tax credit related to calendar year 2007, as well as $0.02 related to the recognition of a current year R&D tax credit as a result of legislation passed by Congress during October, which reinstated the credit for 2008.

Net income in the 2008 fourth quarter included a $2.5 million nontaxable gain on the sale of a business in our Holland subsidiary, or $0.05 per share. We also incurred restructuring costs in certain of our operations, which totaled $2.2 million after related income taxes, or $0.04 per share.

The Company's selling, general and administrative expenses, or SG&A, totaled $53.5 million or 20.3% of revenues in the 2008 fourth quarter -- increasing about $2.7 million from $50.8 million in the prior year, but declining as a percentage of revenues from 20.7% in the prior year quarter. This increase in costs is primarily due to higher incentive compensation expense as a result of the Company's improved financial performance during 2008.

Let's look at the results in our international operations. During the 2008 fourth quarter, the US dollar strengthened dramatically against most of the major foreign currencies in which we operate globally, reversing the weak dollar trend we have been experiencing and benefiting from over the past few years. International revenues grew 11.6% in the 2008 fourth quarter on a local currency basis, but after reflecting the negative impact of exchange rate fluctuations by only 2.1% in US dollars, to $109.6 million. This revenue growth reflects increased case referrals in our Canadian operating region, resulting from new business wins during 2007 and 2008, and the positive impact of claims generated in 2007 from the UK flooding events, which we substantially completed during the 2008 fourth quarter.

International operating earnings improved to $10.9 million in the current quarter, up 10.3% over last year's fourth quarter operating earnings of $9.9 million. This improvement reflects an increase in the operating margin from 9.2% in the 2007 fourth quarter to 9.9% in the 2008 quarter.

Revenues from the US property and casualty segment totaled $59.8 million in the 2008 fourth quarter, growing 35.2% from the $44.2 million reported in last year's fourth quarter. Revenues generated by our catastrophe adjustors totaled approximately $11.3 million in the 2008 fourth quarter, increasing over the $1.8 million produced in the prior year period. Operating earnings in our US property and casualty segment totaled $4.8 million or an operating margin of 8% of revenues in the 2008 fourth quarter. This is compared to an operating loss of $466,000 or 1.1% of revenues in the prior quarter. This turnaround was driven primarily through technology-driven efficiencies, strong incremental margins from catastrophe-related business, and higher case volumes.

Revenues from our Broadspire segment increased slightly to $75.6 million from the $75.2 million reported in the 2007 fourth quarter. Broadspire's operating earnings in the 2008 fourth quarter totaled a loss of $1.8 million or 2.4% of revenues, increasing from an operating loss of $388,000 or 0.5% of revenues in the 2007 fourth quarter.

Legal settlement administration revenues comprised of class action and bankruptcy claims administration services declined 2.5% in the 2008 fourth quarter to $18 million. Operating earnings totaled $2.3 million in the 2008 fourth quarter or 12.9% of revenues, as compared to $2.9 million or 15.9% of revenues in the prior year period. Legal settlement administration continues to have a strong backlog of projects awarded, totaling approximately $42 million at December 31, 2008 as compared to $45 million at December 31, 2007.

Our cash position at December 31, 2008 totaled $73.1 million as compared to $50.9 million at December 31, 2007. Our investment in unbilled and billed receivables has declined by $58.6 million in US dollars during 2008 and our total debt has also declined in 2008 by $18.5 million, as we used excess cash generated from operations to pay down borrowings.

At December 31, 2008, the Company remeasured its defined benefit pension obligations, and in accordance with the applicable accounting rules recorded $116.9 million noncash charge to recognize the increase in its underfunded position. This charge was recorded in the accumulated other comprehensive loss, which is a component of shareholders investment in the accompanying condensed consolidated balance sheets. This charge had no impact on the Company's 2008 results of operations or cash flows.

Cash provided by operations totaled $71 million for 2008 compared to $23.3 million provided in the prior year. This $47.7 million improvement was primarily due to higher net income and substantially improved working capital management. In 2008, we reduced our day sales outstanding or DSO by 19 days, doubling the goal that we set at the beginning of the year. Our free cash flow stood at $36.9 million for 2008, improving substantially over 2007.

That concludes my initial remarks. Jeff, back over to you.

Thanks, Bruce. Let me add some comments and thoughts about our business progress and outlook for each of our business segments, starting with the international operations.

We continue to see strong revenue growth from contract wins that are predominantly property and casualty programs in our Canadian and UK operations. Currently many of our clients are in the process of renewing contracts with us and we are very optimistic on retention and renewal. When we look at our claims referred and compare 2007 to 2008, we see a decrease in international claims of 13.6% in the fourth quarter. This was expected, as it relates primarily to 2007 flooding in the United Kingdom. It is a positive sign for these operations that despite the claims trend, revenue and operating earnings continue to grow.

For the year, international operations represented 42% of the Company's total revenue compared to 39% in the previous year. Through good expense management in quarter four, the international business unit had an operating margin of 9.9% and a margin of 8.7% for the year.

The strengthening of the dollar in October is worth commenting on. Typically, there is not much movement in exchange rates on a quarter over quarter basis. Historically, the dollar has been gradually weakening against the currencies in which we do business over the past several years. That trend reversed abruptly in October and had a negative impact of 9.5% for the fourth quarter. The current strength of the dollar has affected our guidance and outlook for fiscal 2009, which I will discuss in a moment.

Now reviewing our US property and casualty segment -- as previously stated, our goal in 2008, even in a challenging overall claims environment, was to improve US property and casualty's revenue growth and to ensure that we manage costs to provide an acceptable operating margin. Financially, our US property and casualty operation has performed extremely well, reporting a strong top line for the quarter, double-digit operating margins for the year, and a 4% increase in total claims in quarter four. As a result of the investments we incurred in previous years in employees, training, and quality, we are delivering a market-leading product. This is a significant strategy linked with our technology implementation of CMS-2. We are benefiting financially and operationally from increased process efficiency. We have positioned the US property and casualty segment to take a bigger share of the claims market as our clients consolidate independent adjustors, and we are beginning to see significant outsourcing opportunities from clients in the volume claims business.

To assist in this direction, US property and casualty focused on completing the design and beginning implementation of a major transformation of its business model. Its three main components were announced in early December and comprised one, a substantial restructuring of field operations from 55 branch offices to 36 service centers and more than 308 locations throughout the USA, the introduction of a new performance center in Atlanta that provides effective central oversight of claims, and thirdly the development of a business processing outsourcing model, which will enable the delivery of more comprehensive end to end claims processing for our insurance carrier clients. We believe these are exciting events for our clients, Crawford & Company, and the US property and casualty segment.

There were in 2008 an increased number of cat events, and consequently we saw an increase in the US property and casualty catastrophe claims revenue to $22.9 million. Results were buoyed by the onset of several major hurricanes, together with both related and unrelated storm activity through large portions of Florida, Louisiana, Texas, Missouri, Ohio, and Pennsylvania. The key storms -- Dolly, Gustav and Ike -- have produced almost 25,000 claims. In the previous year, total catastrophe claims were 12,000. In 2008, improvements in technology and processing capabilities enabled the US cat services unit to complete the processing of the hurricane-related claims in a more efficient manner. Approximately 95% of all catastrophe claims received were completed by year end, which is a far superior result to previous storm seasons.

Now moving on to our Broadspire business unit, Broadspire's revenue increased 0.4% from the comparable quarter last year. They produced an operating loss of $1.8 million in the quarter, due primarily to higher IT expenses related to RiskTech and an increase in the other administrative support expenses. The year showed operating earnings at $3.5 million compared to $3.1 million in the prior year. One of the factors we are dealing with was a 15% decline in workers' compensation claims in the fourth quarter, which is consistent with the frequency decline of the whole workers' compensation market. The decline has been a decade-long trend and has caused the loss in revenue from our existing customer base without the loss of the customer from our book of business. We do remain confident in the long-term opportunities for Broadspire and we are continuing to manage our expenses closely and make our [starting] models responsive to the current intake of new claims.

We have also improved our inventory management programs to address the existing inventory of claims to ensure that it gives us more staffing flexibility. During 2008, Broadspire added additional focus and resources to the sales and marketing team to better sell services in the claims and medical management marketplace and developing innovative customer solutions. We have started 2008 strong, with third party administration claims service and stand-alone managed care client wins. In fact, the value of the accounts won in January 2009 exceeds the total for all of 2008. Another success was the implementation of RiskTech in November. While this is only the first phase of the systems implementation, we are now beginning to see process improvements. As the clients are transitioned on to the new system, we should start to see legacy costs removed from the organization. The new message from Broadspire is resonating with prospects and we are starting the year in a good position. Broadspire is still in a transitional phase within its core claims business and our retention rate on existing business remains high at 93%.

Now our fourth business unit, legal settlement administration -- the Garden City Group's fourth quarter revenue still continues to be affected by the timing of case flow. Overall economic issues have slowed the pace of settlements in all sectors -- consumer, antitrust, and securities. Even before the financial crisis of the past four months, we did encounter some pricing pressures from our clients and competitors. We expect this to continue as 2009 unfolds. In this environment, some clients are price-driven rather than quality-driven. Recently there has been a consolidation of providers in the marketplace, which should benefit us going forward.

While we succeeded in growing the bankruptcy business, we still chip away at our competitors. We have now moved into third place in this market and are working hard to close that gap. We are benefiting from an increase in volume that isn't being absorbed by our competitors. We are very pleased to report that the Garden City Group management during 2008 has been able to maintain very good margins. We actually increased our 2008 year operating earnings margin to 14.4% from 12.7% in 2007.

Now looking at the guidance for fiscal 2009 -- consolidated revenue before reimbursements between $960 million and $980 million. Consolidated operating earnings between $50.5 million and $55.8 million. After reflecting stock-based compensation expense, net corporate interest expense, intangible asset amortization expense, special charges and credits, and income taxes -- consolidated net income on a GAAP basis between $22 million and $25 million, or $0.41 to $0.47 per share. Our outlook for 2009 does include $15 million of catastrophic claims revenue in the USA. This is lower than actual 2008 by $8 million. Our 10-K that will be filed with the SEC next month will outline our frozen defined benefit pension plan expense and funding requirements in the US and UK in 2009. This pension expense increase is a result of the recent stock market declines and downturns and the global economy, which have negatively affected the asset values in our pensions plans as they have affected many other corporations.

To better explain our guidance, we have inserted bridges on revenue, operating earnings, and earnings per share. In respect to revenue, we show a net increase in organic revenue from 2008 to 2009 of $21.3 million. During 2008, we sold a small operation in the Netherlands, which decreased revenue by $6.6 million. However, the most significant decrease is the foreign currency impact of $93.3 million due to the recent strengthening of the US dollar. Then based on the midpoint, the revenue guidance is $970 million, and excluding the foreign exchange impact on revenue, growth for 2009 is 2.9%.

Moving on to the operating earnings bridge, we achieved $69.1 million in 2008. We have three items that materially affect our guidance. The first is positive in relation to new business and adds $8.6 million in net organic growth to operating earnings. The second, a negative, is the foreign currency impact, which is attributable to the appreciation of the US dollar. The effect to operating earnings is a decrease of $7.6 million. The third issue and the largest is the expense increase in the Company's defined benefit plans. The decrease to operating earnings in relation to the Company's UK and USA pension plans totaled $16.9 million. Just to remind you, the UK plan was closed to new members in 1998 and the US plan was frozen to members and future benefit accruals in 2002. Without the impact of the US/UK pension plan and the foreign exchange impact, the operating earnings growth is 16.4%.

Lastly, the earnings per share bridge starts at $0.62 per share. The increase is relating to operating earnings and reduction in interest costs on $0.09 and $0.05 positive respectfully. The total negative $0.32 relates to foreign currency impact, increased pension expense, and other expenses. This calculates to a midpoint guidance of $0.44 per share in the $0.41 to $0.47 guidance range. If you excluded foreign exchange and UK pension hits, the growth in the EPS figure would be $0.74, an increase of 19.4%.

Now let me finish my comments by stating that our management team will continue to build on these operational improvements as we move forward through 2009. Our priority remains twofold. One, a disciplined approach to expense management and working capital to help navigate these difficult economic times. And two, focusing on improving operational efficiency and delivering excellent results to our clients. We trust our shareholders are pleased with our progress in 2008 and we look forward to 2009 as we continue to grow and build a strong foundation for the corporation.

Thank you for your time and we look forward to your questions. Operator, can I ask you to queue the questions, please?

(operator Instructions). Your first question comes from the line of Mark Hughes with SunTrust.

Thank you very much. The new business in the Broadspire area, can you give us some sense of what that ought to mean to the top line next year? Are we looking at positive growth, low single digits -- what impact should that have?

Good afternoon, Mark, first of all. Yes, we're looking at -- we don't give segment information obviously, but the new wins are coming as a result of the restructuring of the sales organization that we did in the back end of last year. And the new clients we're bringing on board are actually ones that we've been working on for a short while and the gestation period is now taking place. And these clients are now locked in for 2008. And this is the first month of the year, and we're seeing very positive responses to the model, to the messages that the Broadspire operation have been putting out in the second half of the year. So yes, we do see the revenue improving with these new wins.

Was there some upfront cost associated with bringing those customers online that showed up in the fourth quarter?

No.

Okay, and then the catastrophe revenue, I think you've got $15 million you've assumed.

Right.

Is there some amount of that a carry-over from the assignments you've already got related to the 2008 storms that you've got visibility into?

We closed off in 2008 about 95% of the storm claims that we took in. So we have a small residue. Some of these will be the larger claims in terms of indemnity dollar value, which take a longer period to close down. But the revenue effect will not be significant on that in 2009.

Okay, and then a final question, Bruce, currency exposure, what's the mix of exposure that you've got, if you can share that?

Sure. We operate in four primary foreign currencies, and in order of significance, you've got the Great Britain pound, which is about 37% of our revenue. The Canadian dollar comprises about 27%. The Euro would be next at 13%, and the other major concentration we have would be the Australian dollar at about 7%. After that, you've got all sorts of other currencies that make up the remaining 16%, but I think if you look at those major four currencies, that gives you an idea of how we're impacted.

Okay, thank you very much.

(Operator Instructions). Your next question comes from the line of Matt Reams with Buckhead Capital.

Good afternoon, gentlemen.

Good afternoon, Matt.

How are you all today?

Very well.

I was just wondering if you could provide some additional information on '09 guidance. What are you expecting for amortization?

Amortization of our customer relationship intangible?

Yes.

That amortization runs approximately $6 million a year.

Okay.

We expect that to continue into 2009.

Okay, and will depreciation levels be similar in '09 from '08?

Yes, the overall depreciation and amortization level should be comparable in 2009 as compared to '08.

Okay. You mentioned in '09 guidance that interest expense is going to be down about $2.9 million.

Correct.

So that's just a reduction from what you had in '08 levels.

That's right.

Okay. What about tax rate?

For 2009, we're estimating our effective tax rate at 28%.

Okay. In the new credit agreement that you released the details in the 8-K, it mentions that there's -- you want to do some restructuring in international operations. I was wondering if you could explain more in detail about that? And then I think it also mentions something about new UK hold [coat] notes and also some deleveraging. I was hoping you could clarify all of that for us.

Sure. I mean we recently amended our credit facility to enable us to do a legal entity restructuring, but also to allow us to repurchase up to $25 million of our outstanding term loan B in the open market. And what the legal entity restructuring is, is we looked at all of our legal entities internationally, as well as in the United States and wanted to structure them to be more closely aligned with how we manage our operation internally and also how we report our information externally. So this reorganization isn't a management reorganization or a change in the segment results that we're going to be providing. It's to get our underlying legal entities to be more in line with those two structures. So that's going to provide us management efficiencies, administrative compliance savings, and treasury flexibility, just to name a few of the benefits. The amendment didn't change any of our underlying interest rates or spreads, debt covenants, or maturities of the facilities.

Okay. Have you already bought in the term loan debt that you outlined?

We have not as of yet.

Okay. So your interest expense assumptions for 2009 -- does that include that you'll buy in that debt sometime this year?

Our interest rate assumptions have the assumption that we'll reduce our total funded debt by approximately $10 million during 2009.

Okay.

But it does not include any -- obviously it wouldn't include any significant repurchases of the term loan B.

Okay. So this global restructuring -- are there going to be costs associated with it, or is it just purely an internal -- ?

Well, there were costs associated with it. We had fees that were paid to the lender group in order to get the amendment done, and there's also professional fees with lawyers and accountants with the process. The bank fees totaled approximately $1 million, and those are capitalized and amortized over the remaining life of the credit facility. The legal costs by and large were incurred during 2008 and are a component of the restructuring costs that we took in the fourth quarter, but there will be some expenses that flow through in the first quarter as everything is finalized and put in place. But we don't expect those to be material.

Okay. Obviously you made significant improvements in working capital. Are any of those -- is all that to be sustained? Are there additional improvements or are we likely to see some give up in 2009?

Well, Matt, on that particular issue, we are driving our worldwide operations to decrease through our DSO, our working capital accounts receivable, both billed and unbilled, by 10% in the next year. And that is -- as we've seen in '08, is significant in getting us to a working capital level that is basically what we want it to be rather than what it currently is. We shouldn't be at that level. We know we can get this down by better management of our work in progress, better management of our accounts receivable and basically insuring that our staff are motivated to do that as well. So we do see improvements still to come on that. We haven't hit the bottom yet on this one.

That's great. And I would imagine that's why you have an interest in getting some flexibility to retire some term B notes?

That's right.

Okay, great. What's your CapEx budget for '09?

For '09, we're expecting about $31 million, which is comparable with where we were in 2008.

Okay. Related to the pension expense, what was the actual expense in 2008?

In 2008, we actually had a credit in pension costs of about $2.6 million, and that's going to turn in 2009 to an expense of about $14.3 million.

Okay. And that will probably -- because of the significant underfunding, are you going to be running at that rate for a few years?

Well, it's difficult to tell. I mean there's a lot of moving parts into the termination of pension expense. Obviously the sharp downturn in the financial markets was the primary driver -- what happened in the fourth quarter. To the extent that we see a sharp recovery, our pension expense could be lower going forward. If the recovery is slower and doesn't have sharp movements up to offset some of the decline that we took in 2008, then you could see that level of expense continuing on. But that's a number that gets measured at 12/31 each year. And it's based upon investment returns that have occurred and the market value of assets as of year end, as well as discounting of the liabilities based on the interest rates that exist at year end. We'll know more about that expense as we get through the year and we see how our investment returns have performed and where the interest rates look like they are heading.

Okay, great. One last question and I'll get back in the queue. With Broadspire, what amount of expenses do you expect to take out in 2009 versus '08 due to the technology efficiencies?

Matt, it's Jeff. In the last five months of the year, we have a contract with a third party vendor for basically hardware that basically will be removed from the organization. That is about a $6 million per annum cost saving, plus then there will be legacy costs that we're able to take out with that. That's all programmed. That's been outlined in our filings before and we are on board for, at this moment, for that particular savings to start kicking in. And that is initially the first part of getting the RiskTech system onto fewer systems within the organization. So we see that starting to move out.

The other positive issue around it is we're seeing process efficiencies coming out of the implementation of RiskTech. We're able to go to our clients, start talking to them about it. One of our clients is already on the live model and we have very positive feedback from them about what the system is doing. So we're excited about this system beginning to really drive the efficiencies that we anticipated when we did the Broadspire acquisition. It's a long road and it's a very complex system, but we're well on the way to moving along it now.

Are the legacy and efficiency opportunities as big as the hardware?

I mean the legacy issues are quite significant. We put out an 8-K at the beginning that said that our savings from technology would be in the $15 million to $20 million range and that, we have no reason to shy away from at the moment.

Okay. But you haven't specified a specific target for '09 of that $15 million to $20 million?

No.

Correct.

Okay. It's just over the life of the opportunity?

That's right.

Okay.

It's once we're fully implemented.

Okay, great. Well, thanks. Good quarter. And good luck.

Thanks, Matt.

(Operator Instructions). And your next question comes from the line of Mark Hughes with SunTrust.

Thank you very much. In the US property and casualty, the 4% increase in the claims assignments, is that a good underlying run rate if we take out the cat activity?

I can give you a quick analysis of that. We've seen a significant upturn in the property claims and a decrease in casualty claims. This is in line with the market scenarios that are out there and generalities. Obviously cash catastrophe claims are up. We've got a few outliers in there. We had a vehicle contract for leased outsourcing that ceased in the prior year, which really screws with the figures a little bit. But property, we're seeing an increase in volume in our property through taking market share, new clients, and then the small increase in the weather patterns that we saw in 2008. I would expect that the range is somewhere between 0% and 5% on claims, but it is a good indicator. The total year was about 1.6% increase in total claims.

Right, and likewise, in the international business, the down 13.5%, if you corrected for the UK flood activity, is there a run rate we should think about there?

I think -- that's difficult. I think we're going to be looking at flat run rates for the next year or so. There will be some increases -- we have -- two effects came in '08. One was our Canadian operation got up to speed with a couple of large contracts they had bought into the operation. And then we had that really being diluted by the expected decrease over the prior year of the UK. And they are our most significant two operations. We've seen an increase in our Asia-Pacific claims going up, and with the tragic events happening in Australia at this moment around the bush fires, we see a small uptick in claims coming in through that over the next couple of months. It's really -- there are always ups and downs on a global basis. I think we should be looking around the flat scenario for the 2009 year unless there's some significant weather events that occur. But our book of business is growing, which is very good. And then obviously we are watching very carefully the economic situation with all of our clients.

Right. In Broadspire, the 15% decline in claims -- for you, how did that compare to the first nine months?

For the year, well, I've got the figures for the year and for the quarter. For the year, we're down 11.1%. And if I give you on workers' comp claims -- that's in totality for casualty and workers' comp claims -- we were down 9.1% for the year. But we were down 14.5% in the fourth quarter. So the fourth quarter, the employment figures obviously do have an effect on our model and we are very focused on our model reflecting from the staffing perspective the claims intake. And that's why I made reference to the inventory management because we're looking very carefully at those trends coming in and then adjusting our model appropriately.

Okay. I wonder, was the claims frequency off more than the decline in employees covered? Do you have a sense on that?

Not really. We would have to get -- it depends on the individual clients that we have within the organization. I mean we can get some work done on that, Mark, and come back to you on that.

That's all right. Presumably the employment hasn't dropped off that much. Seems like the claims frequency was down more than -- if we just think of general employment statistics.

Well, I mean you've got, what, 1.5 million people -- well, it's 2.5 million people that have come onto the unemployment. There is going to be an [knock-on] effect on workers' comp claims decreasing. I mean that's been a decade-long trend anyway in workers' comp claims reducing as the US has gone from a manufacturing base to a services base.

Thank you very much.

Okay, thanks, Mark.

Your next question comes from the line of Carter Newbold with Rutabaga Capital.

Good afternoon, guys.

How are you?

I'm well, thanks. I think you've given us most of the components of free cash flow next year, but I don't know if I've heard you yet say what you think your cash pension contribution will be for next year. Have you given that figure yet?

We haven't, but I can give it to you now. Our cash contributions will be approximately $10.5 million in 2009.

Okay. And then, Bruce, so I guess as I add that in and roll that into all the figures, I think you all -- at $70 million something of cash as of year end, are well north of the amount of cash that you've at least indicated in the past that it takes to sustain the business. So a two-part question. I guess, A, is that assumption still good, or has something changed in the core level of cash that you require? And then as I roll up on all the free cash flow opportunities plus the amount by which I think you're north of the core level of cash in the business, I get a number bigger than the amount of what I presume would be an attempt to buy back term loan B at a discount. So beyond that, could you talk about, I guess -- first off, can you confirm that any of those assumptions hold? And if so, what are your priorities for free cash flow beyond that?

I can help you with that. Our underlying assumption of the cash required to run the business has not changed. $40 million to $45 million is the cash level that we seek to hold to run the business day to day. Given the dislocation in the credit market and all of the financial uncertainty, we took the decision that we wanted to hold as much cash as we could and be as liquid as we could. And we're still in that position. In terms of where our priorities are from a free cash flow standpoint, I think that we have required contributions into our defined benefit pension plans this year, but we know we'll have contributions in the future. So to the extent that our operations generate the cash, I think we would look at excess cash first to be used to fund our defined benefit pension plans. After that, we would be looking at deleveraging our third party borrowings.

Okay. Just maybe a sensitive line of questioning, given the constituents for a call like this, but was there anything extraordinary going on in the way that you guys had invested your pension assets, either in the US or the UK, or that has required revision? Were there risk metrics that were not well tended to? Did have you any experience that was outside the balance of your actuarial expectations, or are you just reacting to what's been a very negative year on the markets?

No, it's just a very negative year on the markets. I mean our returns for the year were negative obviously, but they were in line with other negative returns that other people with a defined pension plans have experienced.

Okay, great. Thank you. Last question, I think you said there had been some consolidation in the legal settlement industry and I guess I'm -- I either have forgotten or I'm not aware of what's happened there. Can you review how much consolidation and how many sort of global scale players there are at hand?

There are three major players. The one company that was consolidated was taken up by one of those three players about five or six months ago. And effectively, there are three major players. You have Epic in the bankruptcy -- Epic, KCC are two of them. In the security class actions, you have [Rust] which is owned by (inaudible). So we're -- but we have the largest [constituency] in security class actions. We run about one-third in the bankruptcy. Those are our two main areas that we're in.

Great. Thanks, guys.

Thank you.

Your next question comes from the line of Shaumo Sadhukan with Lotus Partners.

Hi, guys. Can you talk about how much this year you feel like in 2008 the Company benefited from the claims that were coming from some of these natural disasters that happened and what you expect that part of the business to do in 2009?

Sure. I mean predominantly we're talking about the US cat division, which is -- this year had revenue of about $22 million, which was significantly up from the prior year. We handled it, as I said, in the earlier part of the presentation, about 25,000 claims. When we look at what catastrophe was and how its changed over the years is that we -- really you saw '06 and '07 as very non-catastrophe events in the United States, and then '08 picked up again with a number of events in the Texas area, I mean with Ike and Gustav and Dolly. We had prior to that years where for many years we had a minimum of $20 million in catastrophe revenue. So we're still being very conservative when we put into our projections the $15 million. But it's -- we're not here to run the organization on catastrophes. We're here to run the organization in a steady state and then effectively able to ramp up our staffing when those catastrophes do take place.

Right, and what's the latest update on the difference between the A and B shares? It's about $3 now still. And there doesn't seem to be very much economic difference between the two shares, given the effective control of the Company by insiders. So do you guys have any plans to take any actions that would equalize the value discrepancy?

Well, management of the board of directors is very aware of the price differences between the two classes of shares and obviously we monitor that situation constantly. The markets, as a whole, sets the price of the Company shares, which have expanded and contracted substantially over the past 10 years. We believe that a lot of the spread can be explained by the overall stock market volatility that we're experiencing at the moment. And the only difference between the A and B shares are the voting rights attached to the B shares. Any decision to change capital structure of the Company is a board of directors decision and we've not taken a position on that issue at this moment.

Okay, thank you.

Should we do that, obviously we would publicly announce and promptly advise.

Wonderful, thank you.

Thank you. Your next question comes from the line of Matt Reams with Buckhead Capital.

Hi, this is a broad, general question. I was wondering if you could comment on how the downturn in the economy, in the financial -- or the problems in the credit markets, have affected your competitive position in any of your business units to the extent there are some competitors that have releveraged, or are having other problems?

I mean we concentrate on Crawford, Matt, from the way we're managing our organization and dealing with our customers who are our number one importance that we are handling. I can't really comment on the competitors because we're the only publicly voted corporation in the industry. I think from our aspect we're putting investment in technology. We're continuing to train our staff. We're continuing to provide segmentation analytics to our clients to be able to validate what we're doing. And that really is from our perspective is a leading indicator on growing our business. I'm really -- I know from our perspective that we are in a position where we have more clients coming on board than we had in the prior year. From that perspective, we'll staff accordingly as necessary. The only area where we see a downturn is obviously we've seen a reduction in workers' comp claims. That's a market scenario, and we will adjust the model accordingly to deal with that. It's very difficult with not very much information to be able to comment on competitors. We see -- we know from the US self-insured market position we're probably running number three after Gallagher Bassett and Sedgwick.

Have you noticed any pickup in RFPs where you're getting hints from those submitting the RFPs that they are concerned about the service levels that they could get or that potentially there's some dislocations that are being caused by what's going on in the economy and the financial markets?

Not really, but we know our -- with the restructuring we did of our sales team last year, the number of RFPs -- I mean we have an increasing pipeline on this. Our business process outsourcing model appeals in this economic environment to be a business proposition that our clients are listening to very carefully, where there is a significant expense management in all organizations. And that is the ability we have to take a fixed cost for a client and turn it into a variable cost. And that is a business model that will continue to be predominant over the next, I think, 12 to 24 months.

Right. Well, thanks for your comments. I appreciate it.

Thank you, Matt.

There are no further questions at this time. I would now like to turn the call back over to Mr. Bowman for closing remarks.

Thank you. I would like to thank everyone this afternoon for joining us and I wish you all a great week. Thanks very much.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 6:00 PM today through 11:59 PM on February 16, 2009. The conference ID number for the replay is 82943095. The number to dial for the replay is 1-800-642-1687, or 706-645-9291. Thank you. You may now disconnect.