crawford & company 2006 annual...

Working Together

Crawford & Company 2006 Annual Report

CONTENTS

CEO Letter 01

Management Q&A 05

Working Together 07

Better than Ever 08

Offering More 12

Coast to Coast 16

Directors and Executive Management 20

Crawford Cares 22

Introduction to Financials 23

Shareholder Information IBC

by division

Revenues BeforeReimbursements

$514 | 63% Global Property & Casualty

$175 | 21% Broadspire

$131 | 16% Legal Settlement Administration

*represents three quarterly dividend payments

For the years ended December 31, 2006 2005 % Change

2006 FINANCIAL AND OPERATING HIGHLIGHTSDollars in millions, except per share amounts

Revenues Before Reimbursements $ 819.5 $ 772.0 6.2 %

Cash Dividends Per Share – Class A and B 0.18* 0.24 (25.0)%

Net Income 15.0 12.9 16.5 %

Cash Provided by Operating Activities 52.7 40.8 29.3 %

Earnings Per Share – Basic and Diluted 0.30 0.26 15.4 %

Return on Average Shareholders’ Investment 7.7 % 6.9 % 11.6 %

Fellow Shareholders:

I am pleased to report that Crawford & Company made important progress during the past year. Most visibly, our operating performance improved in terms of revenue growth, profitability, and operating earnings.

Our Company’s accomplishments in 2006 are attributable to the maturation of the many programs implemented over the past two years aimed at improving quality within our operations. Crawford’s quality levels are now as good as they’ve ever been in the Company’s history. Our high-quality results are verified by clients, regulatory organizations, and our own audits. Whether we ask our associates or our clients, Crawford quality is again perceived as a central asset of our Company and we are steadily regaining our position as the quality leader in our industry. As a result, during 2006 Crawford was able to renew key client relationships, add new clients, expand service lines, and make progress on building a unique global platform that is the foundation for sustainable long-term financial performance.

At the same time, 2006 saw Crawford expand its global platform of services, strengthen our management team, implement technology advances, and make key acquisitions which position us for continued profitable growth in 2007.

BuIldIng A glOBAl BrAndCrawford is in a position to further develop a global strategy of building a comprehensive global third-party claims solutions business by being the leader in each of its industry markets. For the first time, our structure today is built around recognizable business brands, all under the Crawford & Company banner:

• global Property & Casualty, which includes u.S. Property & Casualty • Broadspire • legal Settlement Administration, which includes The garden City group, Inc. (gCg)

In particular, the October 2006 acquisition of Broadspire, a leading third-party administrator (TPA) offering a comprehensive platform of workers’ compensation, liability, and medical management claim services, will change the face of Crawford going forward. This acquisition, the largest in Crawford history, advances our company by more than doubling the scale of our self-insured marketplace operations, adding new clients, leveraging existing infrastructure, and offering additional opportunities to support growth and improve profitability.

BuSIneSS unITS, AllIAnCeS, And ACquISITIOnSglobal Property & Casualty, which consists of our u.S. Property & Casualty and International operations segments, is the largest independent third-party provider of global property and casualty solutions in the world. Operating in 63 countries today with revenues in excess of half a billion dollars, these operations are unique in their ability to provide multinational corporations with turnkey solutions anywhere in the world.

Consolidating leadership to provide consistency in our operations was a central goal for 2006 as Crawford merged its united Kingdom (u.K.) and Continental europe, Middle east, and Africa businesses into a

THOMAS W. CrAWFOrd President and Chief executive Officer

2006 Annual report �

revenues Before reimbursements

in millions

02

$699

03

$69�

04

$734

05

$772

06

$820

2 Crawford & Company

single operation. The new operation is known as eMeA – europe, Middle east, and Africa – and will offer enhanced coordination of Crawford’s global management resources, skills, and capabilities. In Febru-ary 2007, Crawford launched a new global claims bureau in the u.K. to further strengthen our lloyd’s of london relationship as part of Crawford’s strategy to develop and manage effective business models for syndicates, brokers, and their clients on a global scale.

Across our Asia-Pacific region, our China operations are on plan and we anticipate revenue growth as new products are introduced. In addition to setting up a new regional office in Singapore, Crawford’s Australian operation merits special notice as 2006 was a very successful year in terms of gaining marketshare.

In August, Crawford formed a global strategic alliance with MJM Investigations Inc. under the agreement, Crawford transferred to MJM the operating assets of our investigative services business and MJM, already the market leader in surveillance as well as fire and forensic investigations, became Crawford’s preferred provider for those services. MJM provides global coverage to our clients throughout the world.

Also in August, Crawford acquired Specialist liability Services, ltd. (SlS), a leading specialist liability adjusting and claims handling company with more than 50 staff in eight branches strategically located throughout the u.K. SlS has a strong presence in the lloyd’s and london markets and a client list that includes a number of blue chip corporations. The acquisition of SlS brings us complementary skills and the ability to better deliver a full service offering to the u.K. market.

Turning to the self-insured market, the 2006 acquisition of Broadspire with the existing business of Crawford’s u.S. self-insured claims operations, created a segment that will become the industry’s premier provider of integrated claims and medical management services. In fact, the combined Broadspire organization is now the second-largest TPA in its market, based on 2006 annualized revenues.� We have taken significant steps to maximize synergies in the combined Broadspire segment, and we are well on our way to achieving an estimated $22.5 to $26.5 million in operating synergies in 2007.

Our legal Settlement Administration segment includes gCg and Crawford Inspection Services. gCg is now the industry leader in the administration of all types of class action settlements including securities, product liability, and many other consumer cases. It is also committed to and is growing its bankruptcy administration business. gCg has enjoyed tremendous growth beyond its initial headquarters and now has �0 offices located throughout the united States including major processing centers in dublin, Ohio, Seattle, Washington, and its primary office in Melville, new York. gCg has become a recognized expert in the administration of complex national and international settlements involving massive notice cam-paigns, multimillion-piece mailings, sophisticated call center operations, and complicated claims processing activities. All of this has been achieved solely through organic growth and through an unwavering commit-ment to innovation in technology, recruitment and development of excellent staff, and delivery of the highest-quality service to its clients.

Similarly, Crawford Inspection Services continues to fulfill its long-standing role as the leading onsite inspection and reporting service for numerous building product class action settlements. We expect Inspection Services to grow substantially in 2007 as it has targeted a variety of new markets for warranty claim inspections.

� Business Insurance. February �2, 2007

letter to the Shareholders

STrengTHened MAnAgeMenT TeAMIn early 2005, we implemented the Management Control Process to improve Crawford’s business execution. By updating policies and procedures across the organization and benchmarking against companywide associate surveys, we have seen steady progress in consistently delivering excellent services to our clients. We have not reached the end of this effort. We will continue to build accountability, communicate clearly, train, and measure our efforts. As we do, our ability to capitalize on opportunities will improve.

The management team leading these initiatives within Crawford is the best in the business and continues to develop. In April, Phyllis Austin joined the Company as senior vice president of Human resources. In October, we named Bruce Swain executive vice president and chief financial officer. The Broadspire integration and development process is being handled very capably by dennis replogle who joined Broadspire as CeO in 2003, bringing with him more than 30 years of industry experience.

TeCHnOlOgYIn April, Crawford completed the rollout of Claims Advantage, a proprietary web-based application that incorporates structured interviews into the workers’ compensation claims process. In november, we purchased e-Triage, the technology engine behind Claims Advantage. e-Triage’s web-based services apply evidence-based research to formulate a best-practices approach for medical treatment customized to the injured worker. Additionally, e-Triage includes a new template for creating individualized strategic plans of action, which quickly identify and manage the process of returning individuals back to work quickly.

We met significant milestones in the development and testing of our proprietary claims management system, RiskTech, rolling it out to a major self-insured client in november 2006. With the combination of Crawford Integrated Services (CIS) and Broadspire, we have re-evaluated the RiskTech project timeline to accelerate the addition of clients from the acquired Broadspire organization to the RiskTech platform. The imple-mentation of RiskTech remains the highest priority of our information technology group.

We are also encouraged by early results from the rollout of our CMS2 system, which was created by our Canadian associates and is now used in the Asia-Pacific region and deployed in the u.S. and Sweden. This property and casualty claims management system is fundamental to our ability to leverage technology competitively.

FInAnCIAl reSulTSWorld-wide revenues before reimbursements grew over six percent to $8�9.5 million compared to $772 million in 2005. net income for the year totaled $�5 million, or $0.30 per share, compared to $�2.9 million, or $0.26 per share, in 2005. during the 2006 third quarter, we recognized a pretax gain of $3.� million, or $0.04 per share after related income taxes, associated with the sale of our investigation services business. during the 2006 fourth quarter, we recorded a pretax charge of $3.� million, or $0.04 per share after related income taxes, for severance and lease termination expenses related to the Broadspire acquisition and costs associated with the refinancing of our existing credit facilities.

u.S. Property & Casualty revenues before reimbursements were $2�0.0 million for the year compared to $223.6 million for the same period in 2005. during 2006, operating earnings in the u.S. Property & Casualty segment improved to $4.8 million, representing an operating margin of 2.3 percent.

“ World-wide revenues before reimbursements grew over six percent to $8�9.5 million com-pared to $772 million in 2005.”

2006 Annual report 3

Letter to the Shareholders


International operations revenues before reimbursements grew 6.4 percent to a record $303.7 million in 2006. Operating earnings improved to $16.0 million, up 20 percent, reflecting an increase in operating margin to 5.3 percent.

Revenues before reimbursement in our Broadspire segment totaled $175.2 million compared to $148.7 million in 2005. Revenues related to our Broadspire acquisition totaled $33.1 million during November and Decem-ber 2006. We recorded an operating loss of $14.7 million for the combined Broadspire segment in 2006, all of which was attributable to our former CIS division, compared to an operating loss of $10.1 million in 2005. We expect to see improved margin performance in the combined Broadspire segment driven by synergies we began to realize in November, primarily through staff reductions and consolidations of existing office locations. We are managing this operation with the objective of returning it to profitability by the end of the 2007 second quarter.

For the full year, Legal Settlement Administration had both record revenues and operating earnings. Revenues reached $130.7 million for 2006 and operating earnings in this segment totaled $24.4 million. Operating margin grew from 17.8 percent in 2005 to 18.7 percent in 2006.

Our outlook for 2007 reflects anticipation of a substantial improvement in our newly combined Broadspire segment and continued steady performance in our other operating segments.

OTHER CHANGESAs announced in mid-2006, Crawford sold its current home office location, which has been the worldwide headquarters for Crawford since 1978, and leased office space nearby in north Atlanta. Joining our Atlanta-area offices under one roof will allow us to better serve our clients and provide a more efficient work environment for our associates.

When we closed on the Broadspire acquisition, the Board of Directors suspended the payment of dividends for the foreseeable future. As a shareholder myself, I appreciate the importance of the dividend and want to emphasize that both management and the Board remain committed to returning to this Company’s 38-year history as a dividend-paying stock as soon as possible.

Finally, I would like to thank our associates, shareholders, and clients for their support over the past year. I am very encouraged about the long-term prospects for Crawford & Company.

Sincerely,

�omas W. CrawfordPresident & CEO

“Joining our Atlanta-area offices under one roof will allow us to better serve our clients and provide a more efficient work environment for our associates.”

2006 Annual report 5

Tom Crawford: Our long-term goal is to be the company of choice in claims service. We will continue to mature the four segments we have today with state-of-the-art systems support. What I believe will separate Crawford from the industry is having professional staff who can provide claim solutions on a local, regional, and worldwide basis. Helping to support this objective are our strengthened training programs (Crawford university) and innovative technology.

Jeff Bowman: Technology is rapidly changing the way the global insurance market operates. dealing with volume claims requires improved technology systems and improved processes that are designed to provide a better service to clients, insuring best practices and efficient product administration. Our clients expect us to also provide solutions to high-value, complex claims. In 2007, we intend to be a significant resource in this arena through our global Technical Services segment.

dennis replogle: The biggest challenge all TPAs face today is the efficient use of technology for processing claims. We all need to capture more customized data for our clients, both on intake and outcome, so we can show them how they can reduce their losses. Today, predictive modeling tools like Claims Advantage can drive earlier return to work and claim resolution. Broadspire will leapfrog the industry from both a cost and a delivery standpoint as we integrate our technology platforms over the next �8 to 24 months.

Kevin frawley: Our agenda in legal Settlement Administration is to continue the strong growth we’ve seen over the last several years. It has been very strong, and we expect to see continued growth even in a more challenging market. The number of class action filings has declined in recent years and gCg is focused on increasing its marketshare for the administration of all types of class action settlements to ensure its continued growth. The challenges in the market also require continued investments in both people and technology. For example, we are continuing to improve our operations process which is a recognized strength for gCg. We’re also completing the integration of all our operations into a new facility in Ohio where we’ve built a scanning and imaging center, processing capability, and call center. This facility allows us to focus on business development and client services in our operations on the east and west coasts.

What are Crawford’s initiatives for 2007 and beyond?

KevIn B. FrAWleYexecutive vice President, legal Settlement Administration

dennIS r. rePlOglePresident & CeO, Broadspire

JeFFreY T. BOWMAnChief Operating Officer, global Property & Casualty

THOMAS W. CrAWFOrdPresident & CeO

Management q & A

continued


Tom Crawford: From my first day, consistency was a real concern. due to clearer policies, procedures, and training across the Company from managers down to adjusters, we have dramatically changed the direction of the Company. Today we have the best quality of service this company’s ever had. It’s institutionalized in our Company in every aspect, from compensation to training to recognition. We are hearing from clients who are delighted with the service they are receiving.

Jeff Bowman: quality is built one claim at a time. When we hear compliments from clients about our associates’ claim handling, we know we are heading in the right direction. Our clients look to us for more than claims handling, and they demand quality claims solutions through efficient operational processes.

Kevin frawley: gCg is an independent provider of administrative services to plaintiffs, defendants, and the courts and must deliver high-quality service and performance for each project it administers. This has been a hallmark of gCg’s reputation in the market it serves. It’s the same principle on the inspection services side of the business. We’ve handled over 600,000 claims in �0 years in building products class actions and are known for the quality of the training and performance we deliver. What distinguishes our offering in the marketplace is that we have a national, well-trained and supervised staff, so we can provide clients with a service they frankly can’t get internally and can’t get from an independent network of disconnected people around the country.

Tom Crawford: The self-insured market is extremely important to us. Our former Crawford Integrated Services organization did not turn around as quickly as we would have liked. The Broadspire acquisition accelerates all the opportunities we have in the self-insured market and adds new ones through cross-selling and integration. The Broadspire team brings to us a reputation for quality and strong client relationships. They have a strong medical management operation that goes a long way with our Claims Advantage program, powered by e-Triage. Putting the two operations together makes us unique in the industry.

dennis replogle: Today, Broadspire has the widest array of services and products of anybody in the industry. We have intake systems, outcome measurements, and claims management services. That’s all in-house and all over the world. For a global economy and clients, we have a leg up on the competition. Over the next six months, our job is to get our customers familiar with where we are and where we are going. My emphasis is not on being the largest TPA, but on being the best in the industry.

Jeff Bowman: The acquisition of Broadspire offers Crawford & Company the ability to provide multinational corporations a comprehensive global claims solution. As we integrate the Broadspire service delivery system into our product offerings, we will be able to offer multinational corporation risk managers a full global solution providing start-to-finish handling of claims.

Tom Crawford: There’s no question that today Crawford is well-situated from a branding standpoint. everyone understands global Property & Casualty. now, with Broadspire, we are leaders in the self-insured workers’ compensation world. The large corporations that have high deductibles know that we can be their claims department. When we say gCg, they know class action and settlement leadership. now we are positioned to communicate clearly that what we do and what our three divisions do tie together. It’s an exciting time for us.

How is quality in Crawford today?

How is the Broadspire acquisition going to affect Crawford?

Management q&A

2006 Annual Report 7

Crawford & Company:

Working TogetherWith over 700 offices in 63 countries, our associates work together to find the best solution for clients. Allow us to illustrate how we achieve the best possible outcomes for our clients.


Crawford global Property & Casualty is the largest independent third-party provider of property and casualty solutions in the world. Operating in 63 countries today with revenues over half a billion dollars, gPC is unique in its ability to provide multinational corporations with turnkey worldwide solutions. Crawford continues to expand its service delivery in european, Asian Pacific, and latin American markets. Our three global product lines, Corporate Multinational risks, global Marine and Transportation, and global Technical Services, coupled with our field office locations around the world, are set to offer exceptional service on claims of all sizes.

Working Together, Better than ever

global Property & Casualty

“ We recognize Crawford’s ability to understand our customers’ needs and execute a professional, timely, and effective claim solution.”

dAvId BOneHIll Chief Claims Manager ecclesiastical Insurance group gloucester, u.K.

“ We challenged Crawford to meet our unique handling requirements in the u.K. and u.S., and they have delivered by not only promptly handling our claims, but by offering innovative and cost-effective solutions with our insured’s best interests in mind.”

BOB FOSTer group director of Claims Brit Insurance london, u.K.

glOBAl PrOPerTY & CASuAlTY

Total Revenue (in thousands):$5�3,680

Number of Associates:5,286

Executive General Adjusters (EGA):429

Clients:5,�95

Clients in Excess of $1 Million:86

Claims Per Day:2,482

Type of Services:Property Claims ManagementCatastrophe Management ServicesCasualty Claims Management Auto Appraisals and InspectionsCentralized Claims Administration


“As a relatively new employee to Crawford & Company, I see a common thread amongst sales and management of all levels. �at thread or common denominator is the desire to create partnerships with our clients, to understand their expectations, and to gain their trust. In return, we offer personalized service as well as a wide array of products and services at high-quality standards that far outweigh the competition. Relationships and trust are what builds long-term business.”

HELEN VOUNIOZOSAssistant Vice PresidentNational Account ExecutiveCrawford & Company Phoenix, Arizona

“I have been with Crawford over 33 years and I have seen many changes: One constant is the common desire of all associates to work together to deliver the best service possible to our clients. Accomplishing this goal daily is a great source of satisfaction for all of my staff. �ey are dedicated to this goal and take personal pride in achieving it.”

MARIE CAMPBELL 2005, 2006 Circle of Excellence recipient)Branch ManagerKentucky and Southern IndianaCrawford & CompanyLexington, Kentucky

global P&C revenue (Actual 2002–2006)

in millions

02

$429

03

$429

04

$487

05

$509

06

$5�4

02

$�9�

03

$2�9

04

$255

05

$285

06

$304

International P&C revenue (Actual 2002–2006)

in millions

02

$238

03

$2�0

04

$232

05

$224

06

$2�0

u.S. P&C revenue (Actual 2002–2006)

in millions

�0 Crawford & Company

2006 was an active year for achieving objectives in global Property & Casualty.

The u.S. segment had very little catastro-phe activity in the year and we have much work to do in generating consistent revenue growth and profitability in this segment. The introduction of CMS2, a new technology platform, has improved field operating efficiencies and is expected to improve results. Our quality scores continue to improve, as verified by our clients, state regulatory organizations, and our own detailed audits.

Outside the u.S. we made a significant acquisition in the u.K. of Specialist liability Services, ltd. (SlS), a leading specialist liability adjusting and claims handling company. We also acquired a company

in Asia-Pacific region which specializes in claims handling for the construction industry and property and casualty market. Crawford International won a number of industry-recognized awards in 2006. Our u.K. operations were awarded the Technological Initiative of the Year for our delta field claims technology. Crawford u.K. has over 80 claims professionals in the field utilizing these handheld devices that improve efficiency and reduce cost to our clients.

In our Asia-Pacific region, we received an award from the east Asian Insurance Congress (eAIC) for claims handling programs we conducted throughout the year as a result of our commitment to enhanced training in the region.

Global Property & Casualty

We have branch offices located in 63 countries.

Working Together, Better than ever

global Property & Casualty

lOCATIOnS

INSURANCE DAYLONDON MARKETAWARDS

2006W I N N E R


CASUALTY CLAIMSMANAGEMENT

■ On scene – 24 hours a day,7 days a week

■ Complete claim resolutions from investigation to settlement

■ Web-based appraisal/inspection delivery backed by national network of equipment specialists and appraisers

■ Total program management/outsourcing from claim intake to resolution

■ Experts capable of handling difficult losses from products’ liability to environmental occurrences

■ Discreet, thorough in-house surveillance for suspicious claims

■ Subrogation capabilities

CENTRALIZED CLAIMSADMINISTRATION

■ Dedicated property operations

■ Contents Services unit

PROPERTY CLAIMSMANAGEMENT

■ Fast, cost-effective settlements with online file management

■ Network of certified managed repair contractors

■ Major loss response by GlobalTechnical Services – comprised of Executive General Adjusters providing expertise in their respective fields

■ Corporate Multinational Risks, global solutions for global companies

■ Global Marine and Transportation services

■ Cause and origin investigation and analysis for losses worldwide

CATASTROPHE MANAGEMENT SERVICES

■ Highly mobile, rapidly deployed workforce

■ Cost-effective means for insurers tomeet sudden spikes in workloads

■ Satellite communication capabilities for uninterrupted claims processing

■ Pre-event consultation

■ Tailored program response

■ Scalable operations

AUTO APPRAISALSAND INSPECTIONS

■ Vehicle condition inspections, damage appraisal, heavy equipment appraisal

AWARDS

Loss Adjuster of the Year awarded by the East Asian Insurance Congress (EAIC)

�e CIPS Supply Management Awards 2006 – Finalist – Most Improved Purchasing Operation – Start Up for Crawford Smartsupply

Insurance Day LondonMarket Awards 2006 –Winner – Technological Initiative of the Year for Delta Field Claims Technology

�e British Insurance Awards 2006 – Finalist –Loss Adjusting Initiative of the Year for Crawford & Company/British EnergyInitiative

Insurance Times Awards 2006 – Finalist – LossAdjuster of the Year for Crawford & Company/AIG Europe (U.K.) Ltd.CBRN (Chemical, Biological, Radiologicaland Nuclear) Initiative

CLAIMSALERT® call center named Employer of Choice by the Contact Center Employer of Choice™ organization

SERVICES


In late 2006, Crawford & Company merged the recently acquired Broadspire Management Services, Inc. with Crawford’s existing self-insured claims operations. �e resulting business is Broadspire, which offers a broad array of workers’ compensation, medical management, and integrated disability management services designed to increase employee productivity and contain costs. �e new Broadspire ranks as the second-largest company serving the market for workers’ compensation as well as auto and general liability exposures. As an independent third-party administrator, Broadspire focuses on service delivery, flexible program design, and optimal processes to drive a greater return on investment for our clients.

Broadspire

“We meet frequently and know each other’s cases and how they should be handled. �is allows us to get things done more efficiently. �ere is always someone to back us up and our patients get the help and care they need, when they need it.”

DOROTHY ILCHCase Manager Broadspire Toms River, New Jersey

Working Together, Offering MoreBROADSPIRE

Number of Associates:3,000+

2006 Return-to-Work Results for Cases Handled:Telephone Care Management: 97%Field Care Management (All Cases): 80.2%Preferred Provider Organizations (EarlyReferral to Care Management): 90.5%

Client Retention:95%

Number of Field Care Managers (FCM) (Including Medical and Vocational FCMs):426

Number of PPO Providers (Approximate):588,000

Number of Hospitals: 6,800

Type of Services:Workers’ Compensation Claims ManagementMedical Management ServicesSpecialty ServicesDisability ServicesLong Term Care Services

2006 Annual report �3

“ We have a really aggressive repetitive stress injury program, and Broadspire put together a telephonic care management program that was customized for us. Our costs appear to be going down because we’re getting to injuries early.”

KellY geOrge Workers’ Compensation Claims Administrator Chevron Corporation San ramon, California

“ The quality of Broadspire’s medical management model and flexibility for accounts our size has really helped us get our arms around early return-to-work. We’ve seen our compliance go up substantially and our workers’ compensation indemnity payments decrease.”

CHrIS OTTeSen vice President of risk Management Adecco uSA Melville, new York


With 6� offices throughout the united States, Broadspire ranks as one of the largest providers of workers’ compensation and liability claim and medical management service providers in the country. Conveniently located in metropolitan areas, Broadspire delivers consistent quality and a coordinated service approach.

The Broadspire service model applies a standardized, streamlined, and strategic process designed to shorten workers’ compensation claim duration and reduce overall claim costs, while at the same time ensuring that employees receive the medical care they need to enable a healthy return to work. By combining web-based advanced software with our strategic plans of action, Broadspire can quickly identify

and counteract issues that delay claim closure. Broadspire’s Claims Advantage, a proprietary web-based intake process, helps our claim professionals quickly gather information on claim files, identify potential complications before they develop, and recommend a course of action for each claimant.

Broadspire’s strategic outcomes team benchmarks results for clients with programs of significant scope, provides trend information, and helps identify opportunities to further enhance workers’ compensation programs.

Beyond workers’ compensation, Broadspire offers resources to manage any commercial auto or general liability claim.

Broadspire

Working Together, Offering More

We have offices located in 32 states.

Map excludes client-dedicated units.

no.2Broadspire is ranked second in 2006 revenues for claims handled for self-insured clients*

*Business Insurance. February �2, 2007

lOCATIOnS


SPeCIAlTY ServICeS

n Crawford Works

n life care planning

n Medical consulting services

n Transitional duty

n Independent medical evaluation

n Time and motion studies

n vocational rehabilitation

n dOT exams

n rehabilitative ergonomics

n disability cost analysis

n Catastrophic care management

n Functional capacities exam

n Critical incident stress management

WOrKerS’ COMPenSATIOn ClAIMS MAnAgeMenT

n Auto liability claim management

n 24-hour reporting (phone, fax, email, or Internet)

n Account management

n general liability claim management

n dedicated/designated service team

n litigation management

n risk Management Information Services (rMIS)

n Medicare Set-Aside

n Client training

n Second injury trust fund

n quality assurance monitoring

n Structured settlements

n Stewardship reporting

n Surveillance/Investigation

n Claim reserving

n Subrogation services

MedICAl MAnAgeMenT ServICeS

n Medical bill review

n Preferred provider network

n Pharmacy management

n utilization management

n Physician review services

n Senior nurse reviewer/medical advisor

n Telephonic care management

n Field care management

lOng TerM CAre ServICeS

n Crawford Care Management

dISABIlITY ServICeS

n Integrated disability management programs

n Behavioral health service

ServICeS


Working Together, Coast to CoastCrawford & Company’s legal Settlement Administration segment provides administration and inspection services for class action and other legal settlements. legal Settlement Adminis-tration has become the leading u.S. provider of third-party administrative services to class action lawsuits. Its growth has moved well beyond its initial market of financial class actions in the northeast u.S. to include operations on both coasts and a centralized data handling and processing facility in dublin, Ohio.

legal Settlement Administration

“ Our warranty department needed assistance that we could rely on for prompt and accurate inspections. Crawford Inspection Services fits that bill.”

PreSIdenT of a nationwide window & door manufacturer

“ With Crawford, we get a timely and complete report, we know what it will cost, and the results are from an unbiased source. We are very pleased. We make knowledgeable decisions regarding warranty consumer claims – and we are not making payments based on non-warrantable causes. Crawford makes it easy.”

dIreCTOr OF OPerATIOnS for a market-leading building products company

THe gArden CITY grOuP, InC. (gCg)

Number of Associates:565

CrAWFOrd InSPeCTIOn ServICeS

Number of Associates:�04

Type of Services:Class Action Services legal notice ProgramsChapter �� Claims Administration Consultation ServicesWarranty Inspection

Inspection Services:47,000 inspections in 2006 and over 600,000 since inception in �996


“Crawford Inspection Services provides a comprehensive solution for manufacturers, product recall, and class action customers who need field inspections and evaluations of installed building components such as siding, roofing, plumbing, doors, and windows. Our nationwide staff of inspectors, field supervisors, and quality assurance personnel is supported by sophisticated, custom-built data systems that allow for receiving, assigning, inspecting, reviewing, and transmitting tens of thousands of inspection assignments quickly, efficiently, and profitably.”

KIRBY KLOSSONAssistant Vice PresidentInspection Services Crawford & CompanyAtlanta, Georgia

02

$60.7

03

$77.2

04

$88.9

05

$��4.3

06

$�30.7

in millions


legal Settlement Administration consists of two major segments: The garden City group, Inc. (gCg) and Crawford Inspection Services.

For over 20 years, gCg has specialized in providing law firms and corporations with comprehensive class action settlement administration services. Among its many milestones, gCg has mailed more than �00 million notices, expedited hundreds of thousands of calls, administered over a thousand cases, processed millions of claims, distributed billions of dollars in compensation, issued millions of checks and coupons, and designed hundreds of case websites.

Crawford Inspection Services is a nationwide customized inspection service covering warranty claims, product perfor-mance surveys, contractor installation monitoring, lumber yard inspections, and returns. In just over a decade, we’ve performed over 600,000 inspections on all types of building components from product performance and warranty claims to recalls and nationwide class actions. Crawford Inspection Services is a leader in reducing the cost of field inspections, controlling warranty service costs, including the cost of repair, increasing sales force efficiency, pinpointing emerging product performance issues, and verifying proper installation.

legal Settlement Administration is represented across the country.

The Garden City GroupCrawford Inspection Services

Working Together, Coast to Coast

legal Settlement Administration

Inspection Services

revenue growth

lOCATIOnS


THe gArden CITY grOuP, InC. (gCg)

n designs and executes innovative legal notice programs

n Administers all phases of the legal settlement, from noticing through distribution

n Provides real-time information access to parties at all times

n Manages practical Chapter �� claims administrations

n executes complete document management services

n Provides, or arranges for, expert consultation services

CrAWFOrd InSPeCTIOn ServICeS

n Inspects and evaluates building products class action and warranty claims

n Provides inspection and audit services through desk reviews for claims program compliance.

n quality Assurance Center devoted solely to this unit

ServICeS


Jesse C. CrawfordChairman of the BoardPresident, Crawford Communications, Inc.

P. george BensonPresident, College of Charleston

Thomas W. CrawfordPresident and Chief executive Officer, Crawford & Company

James d. edwardsretired Partner of Arthur Andersen llP

robert T. Johnsonretired Partner of Arthur Andersen llP

J. Hicks lanierChairman of the Board and Chief executive Officer Oxford Industries, Inc.

larry l. PrinceChairman of the executive Committee genuine Parts Company

Clarence H. ridleyChairman of the Board Haverty Furniture Companies, Inc.

e. Jenner Wood, IIIChairman, President and Chief executive Officer SunTrust Bank Central group

dIreCTOrS

directors and executive Management

Thomas W. CrawfordPresident and Chief executive Officer Atlanta, georgia

Jeffrey T. BowmanChief Operating Officer, global Property & Casualty Atlanta, georgia

Allen W. nelsonexecutive vice President, general Counsel and Corporate Secretary Atlanta, georgia

W. Bruce Swainexecutive vice President and Chief Financial Officer Atlanta, georgia

Kevin B. Frawleyexecutive vice President, legal Settlement Administration Melville, new York

dennis r. reploglePresident and Chief executive Officer Broadspire Plantation, Florida

Phyllis r. AustinSenior vice President, Human resources Atlanta, georgia

robert J. CormicanSenior vice President, Compliance, quality and Training Atlanta, georgia

nicholas l. CoussouleSenior vice President, Chief Information Officer Atlanta, georgia

geoffrey J. evansvice President, Internal Audit Atlanta, georgia

Kara B. gradyvice President, Corporate Communications and Sales Support Atlanta, georgia

eXeCuTIve MAnAgeMenT

2006 Annual report 2�

glOBAl PrOPerTY & CASuAlTY SenIOr OFFICerS

glenn T. gibsonAmericas Toronto, Ontario

Ian v. Muresseurope, Middle east, & Africa london, united Kingdom

Philip g. Porteru.S. Property & Casualty Atlanta, georgia

richard J. MartinAsia Pacific Singapore

Michael F. reevesCorporate Multinational risks london, united Kingdom

Jonathan M.W. Clarkquality and Compliance london, united Kingdom

John e. Tirelglobal Marine and Transportation Atlanta, georgia

legAl SeTTleMenT AdMInISTrATIOn SenIOr OFFICerS

BrOAdSPIre SenIOr OFFICerS

John e. MullenPlantation, Florida

Wesley r. dawsonlake zurich, Illinois

neil J. lentineBerkeley Heights, new Jersey

Michael J. SherinThe garden City group, Inc. Melville, new York

david A. IsaacThe garden City group, Inc. Melville, new York

neil l. zolaThe garden City group, Inc. Melville, new York

Karen B. ShaerThe garden City group, Inc. Melville, new York


For more than six decades, Crawford & Company has played an active role in supporting the community and demonstrating its good corporate citizenship through corporate giving and by encouraging associate giving and volunteerism around the world. Corporate contributions from Crawford support efforts of non-profit organiza-tions to enhance the quality of life for communities, families, and individuals. Crawford associates devote thousands of personal hours each year to community-based programs that directly impact the lives of others.

At Crawford corporate and throughout our u.S. operations, in addition to company-sponsored support for a variety of causes, Crawford associates gave their time to support many other efforts, including a charity walk to raise funds for the Alzheimer’s Association.

In december 2003, Crawford Canada announced the launch of Crawford Cares, and selected The Women in Insurance Cancer Crusade (WICC) as charity of choice. To date, Crawford has raised over $�50,000 [Cdn] through employee fundraisers, silent auctions, barbecues, bonspiels (curling tournaments), an annual golf tournament, casual Fridays, and payroll deductions and has donated hundreds of volunteer hours for this worthwhile cause. In 2006, Crawford’s employees were inducted into WICC’s “Hall of Flame.”

In the u.K., Crawford associates gave of their time and resources to support multiple efforts, from hospice to conservation. In particular, associates supported cancer research and resources with donations of time and contributions to Marie Curie Cancer Care, the race for life, Cancer research uK, and the Breast Cancer Campaign (Wear It Pink day).

Through the year, the Company’s garden City group raised donations for the Sarcoma Foundation of America (SFA), a cancer of the connective tissue, through fleece and shirt sales, jeans day and bake sales. Associates also participated in the nationwide fundraiser lee national denim day for breast cancer research.

As an international organization, Crawford & Company believes that it is our social responsibility to support organizations that benefit society by making our world a better place to live, work, and do business.

Crawford Cares

2006AnnualReport 23

24 �Management’s�Discussion�and�Analysis�of�Financial�Condition�and�Results�of�Operations

49 �Management’s�Statement�on�Responsibility�for�Financial�Reporting

50 Management’s�Report�on�Internal�Control�over�Financial�Reporting

51 �Report�of�Independent�Registered�Public�Accounting�Firm�on�Management’s��Assessment�of�Internal�Control�over�Financial�Reporting

52 �Report�of�Independent�Registered�Public�Accounting�Firm�on�Financial�Statements

53 Consolidated�Statements�of�Income

54 �Consolidated�Balance�Sheets

56 Consolidated�Statements�of�Shareholders’�Investment�and�Comprehensive�Income�(Loss)

57 Consolidated�Statements�of�Cash�Flows

58 Notes�to�Consolidated�Financial�Statements

88 �Selected�Financial�Data

89 �Quarterly�Financial�Data�(Unaudited)�Dividend�Information�and�Common�Stock�Quotations

IBC Shareholder�Information

Crawford & Company2006FinancialReview

24 Crawford&Company

Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations

BUSINeSS�OveRvIewBasedinAtlanta,Georgia,Crawford&Companyistheworld’slargestindependentproviderofclaimsmanagementsolutionstoinsurancecompaniesandself-insuredentities,withaglobalnetworkofmorethan700locationsin63countries.Ourmajorservicelinesincludepropertyandcasualtyclaimsmanagement,integratedclaimsandmedicalmanagementforworkers’compensation,legalsettlementadministrationincludingclassactionandwarrantyinspections,andriskmanagementinformationservices.OursharesaretradedontheNewYorkStockExchangeunderthesymbolsCRDAandCRDB.

Insurancecompanies,whichrepresentthemajorsourceofourrevenues,customarilymanagetheirownclaimsadministrationfunctionbutrequirelimitedserviceswhichweprovide,primarilyfieldinvestigationandevaluationofpropertyandcasualtyinsuranceclaims.

Self-insuredentitiestypicallyrequireabroaderrangeofservicesfromus.Inadditiontofieldinvestigationandevaluationoftheirclaims,wemayalsoprovideinitiallossreportingservicesfortheirclaimants,lossmitigationservicessuchasmedicalcasemanagementandvoca-tionalrehabilitation,riskmanagementinformationservices,andadministrationofthetrustfundsestablishedtopaytheirclaims.

Wealsoperformlegalsettlementadministrationservicesrelatedtosecurities,productliability,andotherclassactionsettlementsandbankruptcies,includingidentifyingandqualifyingclassmembers,determininganddispensingsettlementpayments,andadministeringthesettlementfunds.Suchservicesaregenerallyreferredtobyusasclassactionservices.

Theclaimsmanagementservicesmarket,bothintheU.S.andinternationally,ishighlycompetitiveandcomprisedofalargenumberofcompaniesofvaryingsizeandscopeofservices.Thedemandfrominsurancecompaniesandself-insuredentitiesforservicesprovidedbyindependentclaimsservicefirmslikeusislargelydependentonindustry-wideclaimsvolumes,whichareaffectedbytheinsuranceunderwritingcycle,weather-relatedevents,generaleconomicactivity,andoverallemploymentlevelsandassociatedworkplaceinjuryrates.Accordingly,wearelimitedinourabilitytopredictcasevolumesthatmaybereferredtousinthefuture.

Wegenerallyearnourrevenuesforclaimsmanagementservicestopropertyandcasualtyinsurancecompaniesandself-insuredentities

onanindividualfee-per-claimbasis.Accordingly,thevolumeofclaimreferralstousisakeydriverofourrevenues.Whentheinsuranceunderwritingmarketissoft,insurancecompaniesaregenerallymoreaggressiveintheriskstheyunderwrite,andinsurancepremiumsandpolicydeductiblesdecline.Thisusuallyresultsinanincreaseinindustry-wideclaimreferralswhichwillincreaseclaimreferralstousprovidedwemaintainatleastourexistingshareoftheoverallclaimservicesmarket.Duringahardinsuranceunderwritingmarket,insurancecompaniesbecomeveryselectiveintheriskstheyunder-writeandinsurancepremiumsandpolicydeductiblestypicallyincrease,sometimesquitedramatically.Thisusuallyresultsinareductioninindustry-wideclaimsvolumes,whichreducesclaimsreferralstousunlesswecanoffsetthedeclineinclaimreferralswithgrowthinourshareoftheoverallclaimsservicesmarket.Ourabilitytogrowourmarketshareinsuchahighlyfragmented,competitivemarketisprimarilydependentonthedeliveryofsuperiorqualityserviceandeffective,properlyfocusedsalesefforts.

Thelegalsettlementadministrationmarketisalsohighlycompetitivebutcomprisedofasmallernumberofspecializedcompaniesservicingthesecuritiesclassaction,bankruptcy,andproductwarrantyandinspectionmarkets.Thedemandforlegalsettlementadministrationservicesisnotdirectlytiedtooraffectedbytheinsuranceunderwrit-ingcycle.Thedemandfortheseservicesislargelydependentonthevolumeofsecuritiesandproductliabilityclassactionsettlements,thevolumeofChapter11bankruptcyfilingsandtheresultingset-tlements,andgeneraleconomicconditions.Ourrevenueforlegalsettlementadministrationservicesisgenerallyprojectbasedandweearntheserevenuesasweperformindividualtasksanddelivertheoutputsasoutlinedineachproject.

ReSULtS�OF�CONSOLIDAteD�OPeRAtIONSConsolidatednetincomewas$15.0millionfor2006comparedto$12.9millionin2005and$25.2millionin2004.Consolidatednetincomein2006includedanexpenseof$1.9million,netofrelatedincometaxes,asaresultofrestructuringactivitiesundertakeninconnectionwithouracquisitionofBroadspireManagementServices,Inc.andtheassociatedrefinancingofourcreditagreements.Consolidatednetincomein2006alsoincludedagainof$1.9million,netofrelatedincometaxes,onthedisposaloftheCompany’sinvestigativeservicesbusiness.Consolidatednetincomefor2004includeda

2006AnnualReport 25

gainof$5.2million,netofrelatedincometaxes,onthesaleofanundevelopedparcelofrealestate.

Withtheexceptionofincometaxes,netcorporateinterestexpense,amortizationofacquisition-relatedintangibleassets,stockoptionexpenseandothergainsandexpenses,ourresultsofoperationsarediscussedandanalyzedbyourfouroperatingsegments:U.S.PropertyandCasualty,InternationalOperations,Broadspire,andLegalSettlementAdministration.Thediscussionandanalysisofouroperatingsegmentsfollowsthesectionsonincometaxes,netcorporateinterestexpense,amortizationofacquisition-relatedintangibleassets,stockoptionexpense,andothergainsandexpenses.

Income�taxesTaxesonincometotaled$9.1million,$7.1million,and$12.3millionfor2006,2005,and2004,respectively.Ourconsolidatedeffectivetaxrateforfinancialreportingpurposesmaychangeperiodicallyduetochangesinenactedtaxrates,fluctuationsinthemixofincomeearnedfromourvariousinternationaloperations,andourabilitytoutilizenetoperatinglosscarryforwardsincertainofourinternationalsubsidiaries.Oureffectivetaxrateforfinancialreportingpurposesin2006was37.5%.Oureffectivetaxrateforfinancialreportingpurposesin2005was35.4%.Thisrateincreasedin2006duetofluctuationsinthemixofincomeearnedfromourinternationaloperationsandourU.S.incomebeinggeneratedinhigherstatetaxjurisdictionscomparedto2005.Theeffectivetaxrateforfinancialreportingpurposesin2004was37.4%,excludingataxrefundclaimof$1.7million.InJune2004,wesettledataxcreditrefundclaimwiththeIRSandrecordedareceivableof$3.5millioncomprisedofataxrefundof$1.7millionandassociatedinterestof$1.8million.WehavecollectedthisreceivablefromtheIRSinitsentirety.

Net�Corporate�Interest�expenseNetcorporateinterestexpenseiscomprisedofinterestexpensethatweincuronourshort-andlong-termborrowings,partiallyoffsetbyinterestincomeweearnonavailablecashbalancesandshort-terminvestments.Theseamountsvarybasedoninterestrates,borrowingsoutstanding,andtheamountsofinvestedcashandshort-terminvest-ments.Corporateinterestexpensetotaled$8.1million,$5.9million,and$5.9millionfor2006,2005,and2004,respectively.Corporateinterestincometotaled$2.4million,$714,000,and$2.4millionfor2006,2005,and2004,respectively.Corporateinterestincome

increasedin2006over2005dueprimarilytohigherinvestedcashbalancesandoverallincreasesininterestratesduring2006.Alsoduring2006,wereceivedandrecognizedadditionalinterestincomeof$288,000relatedtoataxrefundclaimoriginallysettledwiththeIRSinJune2004.For2004,corporateinterestincomeincluded$1.8millionassociatedwiththetaxrefundclaimdiscussedabove.DueprimarilytotheincreasedborrowingsunderourNewCreditAgreementdatedOctober31,2006,weestimateinterestexpensein2007willincreasebyapproximately$10.0millioncomparedto2006basedoncurrentinterestrates.

Amortization�of�Acquisition-Related�Intangible�AssetsAmortizationofacquisition-relatedintangibleassetsrepresentsthenon-cashamortizationexpenseforintangibleassetsacquiredduringour2006acquisitionsofBroadspireManagementServices,Inc.,e-Triage.com,Inc.(“e-Triage”),andSpecialistLiabilityServices,Ltd.(“SLS”).Amortizationexpenseassociatedwiththeseintangibleassetstotaled$1.1millionin2006.Therewerenosuchexpensesin2005or2004.Weestimateamortizationexpensein2007associatedwiththeseintangibleassetswillincreasebyapproximately$5.5millioncomparedto2006.

Stock�Option�expenseStockoptionexpenseiscomprisedofnon-cashexpensesrelatedtostockoptionsgrantedunderourvariousstockoptionandemployeestockpurchaseplans.Stockoptionexpenseisnotallocatedtoouroperatingsegments.Mostofourstockoptionsthataresub-jecttoexpenserecognitionunderStatementofFinancialAccountingStandard(“SFAS”)No.123R,“Share-BasedPayment”(“SFAS123R”),weregrantedpriorto2005.Stock-basedcompensationexpenserelatedtoourexecutivestockbonusplan(performancesharesandrestrictedshares)isallocatedtoouroperatingsegmentsandincludedinthedeterminationofsegmentoperatingearningsorloss.Stockoptionexpenseof$1.2millionwasrecognizedduring2006undertheprovisionsofSFAS123R.WeadoptedSFAS123ReffectiveJanuary1,2006.PriortotheadoptionofSFAS123R,weaccountedforstockoptiongrantsandemployeestockpurchaseplansundertheprovisionsofAccountingPrinciplesBoardOpinionNo.25,“AccountingforStockIssuedtoEmployees”(“APB25”).Therewasnostockoptionexpensefor2005or2004recognizedinourConsolidatedStatementsofIncomeundertheprovisionsofAPB25.

26 Crawford&Company


Unallocated�Corporate�and�Shared�CostsCertainotherunallocatedcostsandcreditsareexcludedfromthedeterminationofsegmentoperatingearnings.TheseunallocatedcorporateandsharedcostsrepresentcertaincostsorcreditsrelatedtoourfrozenU.S.definedbenefitpensionplan,expensesfortheofficeoftheCEOandBoardofDirectors,relocationcostsassociatedwiththemoveofourAtlanta,Georgia,homeofficefacility,certainadjustmentstoourself-insuredliabilities,andcertainadjustmentstoourallowancesfordoubtfulaccountsreceivable.Unallocatedcorpo-rateandsharedcostswerenetcreditsof$1.6million,$2.0million,and$616,000fortheyearsendedDecember31,2006,2005,and2004,respectively.

Other�Gains�and�expensesDuringSeptember2006,wesoldtheoperatingassetsofourinvestigationsservicesbusinesstoMJMInvestigations,Inc.(“MJM”),resultinginapretaxgainof$3.1million.ThisbusinesswaspartofourU.S.PropertyandCasualtyoperatingsegment.Wealsoenteredintoalong-termagreementwithMJMtoreferourclientstoMJMforsurveillanceandinvestigativeservices.Undertheagreement,wewillreceiveanadministrationfeefromMJMforthesereferrals.Theoperatingresultsoftheinvestigationsservicesbusinessareincludedinourconsolidatedfinancialstatementsthroughthedateofsale,andduetothesignificanceoftheagreementwithMJMinrelation-shiptothedisposedbusiness,wehavenotreportedhistoricalresultsofthisdisposedbusinessasdiscontinuedoperations.Afterreflectingincometaxes,thisgainincreased2006netincomeby$1.9million.Revenuesbeforereimbursementsin2006,2005,and2004relatedtothisdisposedbusinesswereapproximately$6.5million,$9.6million,and$10.0million,respectively.

OnOctober31,2006,wecompletedtheacquisitionofBroadspireManagementServices,Inc.pursuanttoaStockPurchaseAgreementdatedAugust18,2006andenteredintoanewsecuredcreditagree-mentwithasyndicationoflenders.Asaresultofthesetransactions,werecordedapretaxchargeof$3.1millionrelatedtorestructuringactivitiesinthenewBroadspireoperatingsegment,primarilyforstaffreductionsandtheconsolidationofexistingleasedlocations,andalsoalossontheearlyretirementofourexistingcreditfacility.Afterreflectingincometaxes,theseexpensesreduced2006netincomeby$1.9million.

DuringSeptember2004,wecompletedthesaleofanundevelopedparcelofrealestate.Wereceivednetcashof$2.0millionanda$7.6millionfirstlienmortgagenotereceivable,ataneffectiveinterestrateofapproximately4%perannum,dueinitsentiretyin270days.Apretaxgainof$8.6millionwasrecognizedonthesale.Afterreflectingincometaxes,thisgainincreased2004netincomeby$5.2million.Thenotereceivablehasbeenpaidinitsentirety.

Deferred�Gain�on�Sale�of�Corporate�HeadquartersOnJune30,2006,wesoldthelandandbuildingutilizedasourcor-porateheadquartersinAtlanta,Georgia.Theseassetshadanetcarryingamountof$2.8million.Thebasesalespriceof$8.0millionwaspaidincashatclosing.Underthesalesagreement,the$8.0millionbasesalespriceissubjecttoupwardrevisiondependinguponthebuyer’sabilitytosubsequentlyredeveloptheproperty.AlsoonJune30,2006,weenteredintoa12-monthleasebackagreementforthesesamefacili-ties.Priortoterminationoftheleasebackagreement,weplantorelocateourcorporateheadquarterstoothernearbyleasedfacilities.

InaccordancewiththeprovisionsofSFAS98,“AccountingforLeases,”wedeferredrecognitionofthegainrelatedtothissale.Netoftrans-actioncosts,weexpecttorecognizeapretaxgainof$4.9millionupontheexpirationoftheleasebackagreementneartheendofthesecondquarterof2007.Thegainof$4.9millionisbasedonthebasesalespriceanddoesnotincludeanyamountforthepotentialupwardrevi-sionofthesalesprice.Shouldsuchrevisionsubsequentlyoccur,wecouldultimatelyrealizealargergain.Wecannotpredictthelikelihoodofanysubsequentpricerevisions.

Priortothesale,thisdisposalgroupofassetshadafairvaluethatexceededitsdepreciatedcost.Noadjustmenttothecarryingcostwasrequiredwhenthisdisposalgroupwasclassifiedas“heldforsale”undertheprovisionsofSFAS144,“AccountingfortheImpairmentorDisposalofLong-LivedAssets”(“SFAS144”).WedonotholdlegaltitletotheseassetsafterJune30,2006.However,theseassetsareincludedinOtherCurrentAssetsonourConsolidatedBalanceSheetathistoricalcostlessaccumulateddepreciationinaccordancewiththeprovisionsofSFAS144.Pendingrecognitionofthegaindescribedabove,the$8.0millionthatwereceivedfromthebuyeronJune30,2006iscurrentlyreportedonourConsolidatedBalanceSheetasadepositliability.

2006AnnualReport 27

SeGMeNt�OPeRAtING�ReSULtSAsaresultoftheacquisitionofBroadspireManagementServices,Inc.,wehaverealignedourinternalU.S.reportingstructureandexpandedouroperatingsegmentsfromtwotofour.Effectivewiththe2006fourthquarter,wearereportingfouroperatingsegmentscomprisedof:U.S.PropertyandCasualtywhichservestheU.S.propertyandcasualtyinsurancecompanymarket,InternationalOperationswhichservesthepropertyandcasualtyinsurancecompanymarketsoutsideoftheU.S.,Broadspirewhichservestheself-insurancemarketplaceandincludesourformerCrawfordIntegratedServicesbusinessplusthe2006acquisitionofBroadspireManagementServices,Inc.,andLegalSettlementAdministrationwhichservesthesecurities,bankruptcy,productwarrantiesandinspections,andotherlegalsettlementsmarkets.Allpriorperiodamountspresentedhereinhavebeenrestatedtoreflectournewoperatingsegmentspresentation.

Ouroperatingsegments,U.S.PropertyandCasualty,InternationalOperations,Broadspire,andLegalSettlementAdministration,representcomponentsofourbusinessforwhichseparatefinancialinformationisavailablethatisevaluatedregularlybyourchiefoperatingdecisionmakerindecidinghowtoallocateresourcesandinassessingperformance.

Segmentoperatingearnings(orloss),anon-GAAPfinancialmeasure,istheprimaryperformancemeasureusedbyourseniormanagementandchiefoperatingdecisionmakertoevaluatetheperformanceofouroperatingsegmentsandmakeresourceallocationdecisions.Operatingearningsisoursegmentmeasureofprofit(loss)usedforFASBStatementNo.131,“DisclosureaboutSegmentsofEnterprisesandRelatedInformation,”purposesasdiscussedinNote6toourconsolidatedfinancialstatementsincludedinthisAnnualReport.Webelievethismeasureisusefultoinvestorsinthatitallowsthemtoevaluateoursegmentoperatingperformanceusingthesamecriteriaourmanagementuses.Segmentoperatingearningsexcludeincometaxexpense,netcorporateinterestexpense,amortizationofacquisition-relatedintangibleassets,stockoptionexpense,certainothergainsandexpenses,andcertainunallocatedcorporateandsharedcosts.

Incometaxes,netcorporateinterestexpense,amortizationofacquisition-relatedintangibleassets,andstockoptionexpensearerecurringcomponentsofournetincome,buttheyarenotconsideredpart

ofoursegmentoperatingearningssincetheyaremanagedonacorporate-widebasis.Netcorporateinterestexpenseresultsfromcapitalstructuredecisionsmadebymanagement,amortizationexpenserelatestonon-cashamortizationexpenseofintangibleassetsresultingfrombusinesscombinations,stockoptionexpenserelatestothenon-cashcostrelatedtohistoricallygrantedstockoptionswhicharenotallocatedtoouroperatingsegments,andincometaxesarebasedonstatutoryratesineffectineachofthelocationswhereweprovideservicesandvarythroughouttheworld.Noneofthesecostsrelatesdirectlytotheperformanceofourservicesoroperatingactivities,andthereforeareexcludedfromsegmentoperatingearn-ingsinordertobetterassesstheresultsofoursegmentoperatingactivitiesonaconsistentbasis.Certainothergainsandexpensesrepresentevents(gainondisposalsofrealestate,gainondisposalofbusiness,restructuringcosts,andlossonearlyretirementofdebt)thatarenotconsideredpartofoursegmentoperatingearningssincetheyhistoricallyhavenotregularlyimpactedourperformanceandarenotexpectedtoimpactourfutureperformanceonaregularbasis.UnallocatedcorporateandsharedcostsrepresentexpensesandcreditsrelatedtocertainexecutivemanagementandBoardofDirectors’functions,certainprovisionstobaddebtallowancesorsubsequentrecoveries,suchasthoserelatedtobankruptclients,definedbenefitpensioncostsforourfrozenU.S.pensionplan,andcertainself-insurancecostsandrecoveriesthatarenotallocatedtoourindividualoperatingsegments.

Inthenormalcourseofourbusiness,wesometimespayforcertainout-of-pocketexpensesthatarereimbursedbyourclients.UnderGAAP,theseout-of-pocketexpensesandassociatedreimbursementsarereportedasrevenuesandexpensesinourConsolidatedStatementsofIncome.Insomeofthediscussionandanalysisthatfollows,wedonotbelieveitisinformativetoincludetheGAAPrequiredgrossupofourrevenuesandexpensesforthesereimbursedexpenses.TheamountsofreimbursedexpensesandrelatedrevenuesoffseteachotherinourConsolidatedStatementsofIncomewithnoimpacttoournetincome.Exceptwherenoted,revenueamountsexcludereimbursementsforout-of-pocketexpenses.Expenseamountsexcludereimbursedout-of-pocketexpenses,incometaxes,netcorporateinterestexpense,amortizationofacquisition-relatedintangibleassets,stockoptionexpense,andcertainothergainsandexpenses.

28 Crawford&Company


Ourdiscussionandanalysisofoperatingexpensesiscomprisedoftwocomponents.DirectCompensationandFringeBenefitsincludeallcompensation,payrolltaxes,andbenefitsprovidedtoouremployees,whichasaservicecompany,representsourmostsignificantandvari-ableexpense.ExpensesOtherthanDirectCompensationandFringeBenefitsincludeoutsourcedservices,officerentandoccupancycosts,otherofficeoperatingexpenses,costofrisk,amortizationanddepre-ciationexpenseotherthanamortizationofacquisition-relatedintangibleassets,andallocatedcorporateoverheadcosts.

Allocatedcorporateandsharedcosts,includingdepreciationandamortizationofcomputerhardwareandsoftware,areallocatedtoouroperatingsegmentsbasedprimarilyonusage.Theseallocatedcostsareincludedinthedeterminationofsegmentoperatingearnings.

Thisdiscussionandanalysisshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandtheaccompanyingnotes.

OperatingresultsforourU.S.PropertyandCasualty,InternationalOperations,Broadspire,andLegalSettlementAdministrationsegmentsreconciledtonetincome,wereasfollows:

(in thousands) %ChangeFromPriorYear

YearsEndedDecember31, 2006 2005 2004 2006 2005

Revenues�before�reimbursements:

U.S.PropertyandCasualty $ 209,983 $ 223,584 $ 231,285 (6.1)% (3.3)%

International 303,697 285,413 255,430 6.4 % 11.7 %

Broadspire 175,151 148,695 158,047 17.8 % (5.9) %

LegalSettlementAdministration 130,691 114,291 88,805 14.3 % 28.7 %

Total,beforereimbursements 819,522 771,983 733,567 6.2 % 5.2 %

Reimbursements 80,858 82,784 78,095 (2.3)% 6.0 %

TotalRevenues $ 900,380 $ 854,767 $ 811,662 5.3 % 5.3 %

Direct�Compensation�&�Fringe�Benefits:

U.S.PropertyandCasualty $ 135,833 $ 139,603 $ 136,127 (2.7)% 2.6 %

% of related revenues before reimbursements 64.7 % 62.5 % 58.9 %

International 212,522 199,421 175,538 6.6 % 13.6 %


Broadspire 120,908 97,503 95,379 24.0 % 2.2 %




Total $ 522,385 $ 479,344 $ 443,592 9.0 % 8.1 %

% of Revenues before reimbursements 63.8 % 62.1 % 60.5 %

Continued on page 29

2006AnnualReport 29

(in thousands) %ChangeFromPriorYear

YearsEndedDecember31, 2006 2005 2004 2006 2005

expenses�Other�than�Direct�Compensation�&�Fringe�Benefits:

U.S.PropertyandCasualty $ 69,380 $ 84,385 $ 84,499 (17.8)% (0.1) %


International 75,141 72,664 68,306 3.4 % 6.4 %


Broadspire 68,900 61,315 65,373 12.4 % (6.2) %




Total 266,582 269,527 258,205 (1.1)% 4.4 %

% of Revenues before reimbursements 32.5 % 34.9 % 35.2 %

Reimbursements 80,858 82,784 78,095 (2.3)% 6.0 %

Total $ 347,440 $ 352,311 $ 336,300 (1.4)% 4.8 %

% of Revenues 38.6 % 41.2 % 41.4 %

Operating�Segment�earnings�(Loss):

U.S.PropertyandCasualty $ 4,770 $ (404) $� 10,659 1,280.7 % (103.8) %

% of related revenues before reimbursements 2.3 % (0.2) % 4.6 %

International 16,034 13,328 11,586 20.3 % 15.0 %


Broadspire (14,657) (10,123) (2,705) 44.8 % 274.2 %

% of related revenues before reimbursements (8.4)% (6.8) % (1.7) %



Add/(deduct):

Unallocatedcorporatecreditsandsharedcosts,net 1,640 1,973 616 (16.9)% 220.3 %

Netcorporateinterestexpense (5,753) (5,145) (3,536) 11.8 % 45.5 %

Stockoptionexpense (1,220) – – 100.0 % –

Amortizationofacquisition-relatedintangibleassets (1,124) – – 100.0 % –

Othergainsandexpenses,net (27) – 8,573 100.0 % (100.0) %

� Income�taxes (9,060) (7,059) (12,251) 28.3 % (42.4) %

� Net�income $ 15,011 $� 12,881 $� 25,172 16.5 % (48.8) %

30 Crawford&Company


U.S.�PROPeRtY�AND�CASUALtYYears Ended December 31, 2006 and 2005OperatingearningsforourU.S.PropertyandCasualtysegmentincreasedfromalossof$404,000in2005toearningsof$4.8millionin2006,representinganoperatingmarginof2.3%in2006.Thisturnaroundwasprimarilyduetoanimprovementinoperatingefficiencyinthissegment’sfieldoperationsduring2006.

Revenues�before�ReimbursementsU.S.PropertyandCasualtyrevenuesareprimarilygeneratedfromthepropertyandcasualtyinsurancecompanymarket.U.S.PropertyandCasualtyrevenuesbeforereimbursementsdecreased6.1%to$210.0millionin2006comparedto$223.6millionin2005.Revenuesgeneratedbyourcatastropheadjusterstotaled$24.3millionin2006comparedto$36.4millionin2005whenwewererespondingtotheinfluxofclaimsfromhurricanesKatrina,Rita,andWilma.TherewerenomajorhurricanesthatimpactedtheU.S.in2006.Thedecreaseinrevenuesfrominsurancecompanyclientswasalsoduetoacontinuedsofteninginreferralsforhigh-frequency,low-severityclaimsduring2006.SeethefollowinganalysisofU.S.PropertyandCasualtycasesreceived.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforourU.S.PropertyandCasualtyoperationswere$11.0millionin2006,increasingfrom$10.5millionin2005.Thisincreasewasduetohigherthird-partycostsincurredduring2006aswecompletedcertainlargecommercialclaimsresultingfromhurricanesKatrina,Rita,andWilma.

Case�volume�AnalysisU.S.PropertyandCasualtyunitvolumes,measuredprincipallybycasesreceived,decreased13.2%from2005to2006.Thisdecreasewaspartiallyoffsetbya7.1%revenueincreasefromchangesinthemixofservicesprovidedandintherateschargedforthoseservices,resultinginanet6.1%decreaseinU.S.PropertyandCasualtyrevenuesbeforereimbursementsfrom2005to2006.Thedecreaseinreferralsofhigh-frequency,low-severityclaimsfromourU.S.insurancecompanyclientsincreasedouraveragerevenueperclaimin2006.

U.S.PropertyandCasualtyunitvolumesbymajorserviceline,asmeasuredbycasesreceived,for2006and2005wereasfollows:

(whole numbers) 2006 2005 Variance

Property 162,157 161,087 0.7 %

Vehicle 101,836 126,486 (19.5)%

Casualty 105,154 108,138 (2.8)%

CatastropheServices 25,385 54,674 (53.6)%

Workers’Compensation 25,423 33,394 (23.9)%

Other 39 54 (27.8)%

� total�U.S.�Property�and�Casualty�� Cases�Received 419,994 483,833 (13.2)%

During2006,catastropheservicesclaimsdecreasedsignificantlyduetothelackofhurricanesimpactingtheU.S.in2006.In2005,wereceivednearly26,000catastrophe-relatedclaimsasaresultofdamagescausedbyhurricanesKatrina,Rita,andWilma.Thedeclinesincasualtyandworkers’compensationclaimsin2006wereduetoareductioninclaimsfromourexistingclientsandreflectedacontinuingdeclineinreportedworkplaceinjuries.Thedeclineinvehicleclaimsduring2006wasduetoadeclineinreferralsofhigh-frequency,low-severityclaimsfromourinsurancecompanyclients.

Direct�Compensation�and�Fringe�BenefitsThemostsignificantexpenseinourU.S.PropertyandCasualtysegmentisthecompensationofemployees,includingrelatedpayrolltaxesandfringebenefits.U.S.PropertyandCasualtydirectcompen-sationandfringebenefitsexpenseasapercentoftherelatedrevenuesbeforereimbursementsincreasedto64.7%in2006comparedto62.5%in2005.ThisincreaseprimarilyreflectedanincreaseincapacityinourU.S.PropertyandCasualtysegmentduringthe2006fourthquarterduetoasharpdeclineinclaimsvolumeduringthatquarter.Therewasanaverageof1,985full-timeequivalentemployees(including147catastropheadjusters)in2006,comparedtoanaverageof2,025(including226catastropheadjusters)in2005.

U.S.PropertyandCasualtysalariesandwagesdecreased3.4%,to$111.4millionin2006from$115.3millionin2005.Thisdecreasewastheresultofa$7.1milliondeclineincompensationexpenseforourcatastropheadjustersduetothedeclineincatastrophe-relatedrevenues.PayrolltaxesandfringebenefitsforU.S.PropertyandCasualtytotaled$24.4millionin2006,substantiallyunchangedfrom2005costsof$24.3million.

2006AnnualReport 31

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsU.S.PropertyandCasualtyexpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedasapercentofU.S.PropertyandCasualtyrevenuesbeforereimbursementsto33.0%in2006from37.7%in2005.Thisdeclinewasprimarilyduetolowerbaddebtexpensein2006andreducedoutsourcedservicesexpenses,primarilythird-partyclaimsadjustersutilizedinhandlingcatastropheclaims.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourU.S.PropertyandCasualtysegmentwere$11.0millionin2006,increasingslightlyfrom$10.5millionin2005.Thisincreasewasduetohigherthird-partycostsincurredduring2006aswecompletedcertainlargecommercialclaimsresultingfromhurricanesKatrina,Rita,andWilma.

BROADSPIReYears Ended December 31, 2006 and 2005OurcombinedBroadspiresegmentrecordedanoperatinglossof$14.7millionin2006,allofwhichwasattributabletoourformerCrawfordIntegratedServicesbusiness,comparedtoanoperatinglossof$10.1millionin2005.WehavetakensignificantstepstoreduceoperatingexpensesinthecombinedBroadspireoperations,primarilythroughstaffreductionsandconsolidationofexistingleasedofficelocations.

Revenues�before�ReimbursementsOnOctober31,2006,wefinalizedouracquisitionofBroadspireManagementServices,Inc.Followingtheacquisition,ourexistingCrawfordIntegratedServicesbusinesswasrebrandedasBroadspire.TheresultsoftheacquiredBroadspireentityareincludedinourBroadspiresegmentoperatingresultsbeginningNovember1,2006.ForadditionalinformationonouracquisitionofBroadspireManagementServices,Inc.,seeNote7totheconsolidatedfinancialstatementsincludedinthisAnnualReport.

OurBroadspiresegmentrevenuesareprimarilyderivedfromworkers’compensationandliabilityclaimsmanagement,medicalmanagementforworkers’compensation,vocationalrehabilitation,andriskmanage-mentinformationservicesprovidedtotheself-insuredmarketplace.

Broadspiresegmentrevenuesbeforereimbursementsincreased17.8%to$175.2millionin2006comparedto$148.7millionin2005.TheacquisitionofBroadspireManagementServices,Inc.contributed$33.1millioninrevenuesin2006.Thedecreaseinnon-acquisitionrelatedrevenueswasdueprimarilytoareductioninclaimreferralsfromourexistingclients,onlypartiallyoffsetbynetnewbusinessgains.SeethefollowinganalysisofBroadspiresegmentcasesreceived.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesfortheBroadspiresegmentwere$3.6millionin2006,increasingslightlyfrom$3.4millionin2005.

Case�volume�AnalysisExcludingtheimpactoftheacquisitionon2006casesreceived,Broadspiresegmentunitvolumes,measuredprincipallybycasesreceived,decreased9.9%from2005to2006.OurfourthquarteracquisitionofBroadspireManagementServices,Inc.increasedBroadspiresegmentrevenuesby22.3%in2006.Revenuesincreasedby5.4%fromchangesinthemixofservicesprovidedbyourformerCrawfordIntegratedServicesbusinessandintherateschargedforthoseservices,resultinginatotal17.8%increaseinBroadspiresegmentrevenuesbeforereimbursementsfrom2005to2006.

Excludingtheimpactoftheacquisition,Broadspireunitvolumesbymajorserviceline,asmeasuredbycasesreceived,for2006and2005wereasfollows:



Casualty 75,726 82,149 (7.8)%

Other 22,270 22,365 (0.4)%

� total�Broadspire�Cases�Received 189,935 210,790 (9.9)%

Thedeclinesincasualtyandworkers’compensationclaimsin2006wereprimarilyduetoareductioninclaimsfromourexistingclients,onlypartiallyoffsetbynetnewbusinessgains,andreflectedacontinuingdeclineinreportedworkplaceinjuries.TheacquisitionofBroadspireManagementServices,Inc.resultedin18,789claimsbeingreferredtousinthe2006fourthquarterwhicharenotreflectedintheabovetable.

32 Crawford&Company


Direct�Compensation�and�Fringe�BenefitsOurmostsignificantexpenseisthecompensationofemployees,includingrelatedpayrolltaxesandfringebenefits.Broadspire’sdirectcompensationandfringebenefitsexpenseasapercentoftherelatedrevenuesbeforereimbursementsincreasedto69.0%in2006comparedto65.6%in2005.ThisincreaseprimarilyreflectedanincreaseincapacityinourBroadspiresegmentduetothedeclineinclaimsvolume.WehaveimplementedacostreductioninitiativeinthissegmentfollowingthecompletionoftheBroadspireManage-mentServices,Inc.acquisition.Wehavetargetedapproximately325positions,or10%to12%oftheBroadspiresegmentworkforceforconsolidation.AsofMarch9,2007,220positionshadbeencon-solidated.Weestimatethatthesecostreductionswillreduceexpensesbyapproximately$22.5to$26.5millionin2007,withnonegativeimpactonrevenuesinthissegment.Averagefull-timeequivalentemployeestotaled3,097in2006,upfrom1,448in2005.Theacqui-sitionofBroadspireManagementServices,Inc.added1,666full-timeequivalentemployeesin2006.

Broadspiresegmentsalariesandwagesincreased25.9%,to$100.5millionin2006from$79.8millionin2005.Thisincreasewasprimarilytheresultofadditionalcompensationexpenseof$17.4millionin2006associatedwiththeacquiredBroadspirebusiness.PayrolltaxesandfringebenefitsfortheBroadspireseg-menttotaled$20.4millionin2006,increasing15.3%from2005costsof$17.7million,dueprimarilytotheBroadspireManagementServices,Inc.acquisitionwhichadded$1.9millioninpayrolltaxesandfringebenefitsduringNovemberandDecember2006.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsBroadspiresegmentexpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedasapercentofrevenuesbeforereimbursementsto39.4%in2006from41.2%in2005.ThisdeclineisprimarilyduetobetteroperatingcostefficiencyintheacquiredBroadspireentityascomparedtotheformerCrawfordIntegratedServicesoperation.Aspartofthecostreductioninitiativesimplementedinthissegment,wehavebeguntocloseandconsolidateapproximately35leasedBroadspireofficesthroughouttheU.S.Theseofficeclosuresandconsolidationswillcontinuethrough2009.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourBroadspiresegmentwere$3.6millionin2006,increasingslightlyfrom$3.4millionin2005.

LeGAL�SettLeMeNt�ADMINIStRAtIONYears Ended December 31, 2006 and 2005OurLegalSettlementAdministrationsegmentreported2006operatingearningsof$24.4million,increasingfrom$20.3millionin2005withtherelatedoperatingmargingrowingfrom17.8%in2005to18.7%in2006.

Revenues�before�ReimbursementsLegalSettlementAdministrationrevenuesareprimarilyderivedfromsecurities,productliability,andotherlegalsettlements,warrantiesandinspections,andbankruptcyadministration.LegalSettlementAdministrationrevenuesbeforereimbursementsincreased14.3%to$130.7millionin2006comparedto$114.3millionin2005duetothesubstantialcompletionduring2006ofseveralmajorsecuritiesclassactionprojectswhichcommencedin2005.During2006,wewereawarded200newsettlementadministrationassign-mentscomparedto170duringtheyearendedDecember31,2005.AtDecember31,2006wehadabacklogofprojectsawardedtotalingapproximately$34.1million,comparedto$40.0millionatDecember31,2005.Ofthe$34.1millionbacklogatDecember31,2006,anestimated$31.1millionisexpectedtoberecognizedasrevenuesin2007.LegalSettlementAdministrationrevenuesareproject-basedandcanfluctuatesignificantly.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforLegalSettlementAdministrationwere$36.7millionin2006,decreasingfrom$39.0millionin2005.Thisdecreasewasprimarilyattributabletohigherout-of-pocketcostsin2005relatedtocertainsecuritiesclassactionsettlementswewereadministering.Thenatureandvolumeofworkperformedonclassactionsettle-mentstypicallyrequiresmorereimbursableout-of-pocketexpendituresinLegalSettlementAdministrationascomparedtoourotheroperatingsegments.

2006AnnualReport 33

transaction�volumeLegalSettlementAdministrationservicesaregenerallyprojectbasedandnotdenominatedbyindividualclaims.Dependinguponthenatureofprojectsbeingadministeredandtheirrespectivestagesofcompletion,thevolumeoftransactionsortasksperformedbyuscanvary,sometimessignificantly.

Direct�Compensation�and�Fringe�BenefitsLegalSettlementAdministration’sdirectcompensationexpense,includingrelatedpayrolltaxesandfringebenefits,asapercentofrevenuesbeforereimbursementsincreasedto40.6%in2006com-paredto37.4%in2005.Thisincreasewasduetohigherincentivecompensationexpensein2006relatedtotheincreaseinrevenuesandoperatingearnings.Therewasanaverageof565full-timeequiv-alentemployeesin2006,comparedtoanaverageof502in2005.

LegalSettlementAdministrationsalariesandwagesincreased24.4%,to$46.8millionin2006from$37.6millionin2005.Thisincreasewasprimarilytheresultoftheincreaseinfull-timeequivalentemployeesin2006andincreasedincentivecompensationexpenseasaresultofincreasedrevenuesandoperatingearnings.PayrolltaxesandfringebenefitsforLegalSettlementAdministrationtotaled$6.4millionin2006,increasing23.1%from2005costsof$5.2millionduetotheincreaseinsalariesandwages.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsOneofourmostsignificantexpensesinLegalSettlementAdministrationisoutsourcedservicesduetothevariable,project-basednatureofourwork.LegalSettlementAdministrationexpensesotherthanreim-bursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedasapercentofrelatedrevenuesbeforereimburse-mentsto40.7%in2006from44.8%in2005.Thisdecreasewasduetomoreprojectsin2006beingatastageofcompletion,whichrequiredmoreinternalstafftimeasopposedtooutsideresources.Typicallyintheearlytomiddlestagesofclassactionsettlementproj-ects,moreexternalresourcesarerequiredthaninthecompletionstagewhenmoreinternalresourcesareutilized.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourLegalSettlementAdministrationsegmentwere$36.7millionin2006,decreasingfrom$39.0millionin2005.Thisdecreasewasprimarilyattributabletohigherout-of-pocketcostsin2005relatedtocertainsecuritiesclassactionprojectswewereadministering.

INteRNAtIONAL�OPeRAtIONS�Years Ended December 31, 2006 and 2005OperatingearningsinourInternationalOperationssegmentimprovedto$16.0millionin2006,up20.3%fromlastyear’soperatingearningsof$13.3million.Thisimprovementreflectedanincreaseintheoperatingmarginfrom4.7%in2005to5.3%in2006.

Revenues�before�ReimbursementsSubstantiallyallInternationalOperationsrevenuesarederivedfromthepropertyandcasualtyinsurancecompanymarket.

RevenuesbeforereimbursementsfromourInternationalOperationtotaled$303.7millionin2006,a6.4%increasefromthe$285.4millionreportedin2005.Excludingacquisitions,InternationalOperationsunitvolume,measuredprincipallybycasesreceived,increased9.9%in2006comparedto2005.Ourthirdquarter2006acquisitionofSpecialistLiabilityServices,Ltd.intheUnitedKingdom(“U.K.”)increasedinternationalrevenuesby$1.5million,or0.5%in2006.Revenuesbeforereimbursementsdecreased4.9%duetochangesinthemixofservicesprovidedandintherateschargedforthoseservices.Growthinhigh-frequency,low-severityclaimsreferralsintheU.K.andContinentalEurope,MiddleEast,andAfrica(“CEMEA”)fromnewcontractsenteredintoduring2006and2005reducedtheaveragerevenueperclaimduring2006.However,thisdeclineinaveragerevenueperclaimwasoffsetbyhigherunitvolumes,resultinginanoverallrevenueincreasein2006.SeethefollowinganalysisofInternationalOperationscasesreceived.Revenuesbeforereimbursementsreflecteda0.9%increaseduring2006duetothepositiveeffectofaweakU.S.dollar,primarilyascomparedtotheBritishpoundandtheeuro.

34 Crawford&Company


Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforourInternationalOperationssegmentdecreasedto$29.6millionin2006from$29.9millionin2005.Thisdecreasewasprimarilyduetohigherout-of-pocketexpensesinthe2005firstquarteraswewerecompletinghurricane-relatedclaimsintheCaribbeanregion.ThisdecreasewaspartiallyoffsetbythepositiveeffectofaweakU.S.dollar,ascomparedprimarilytotheBritishpoundandtheeuro.

Case�volume�AnalysisExcludingtheimpactofacquisitions,InternationalOperationsunitvolumesbyregionfor2006and2005wereasfollows:


UnitedKingdom 161,285 142,313 13.3 %

Americas 148,111 125,192 18.3 %

CEMEA 112,673 119,469 (5.7)%

Asia/Pacific 64,003 55,139 16.1 %

� total�International�Cases�� Received 486,072 442,113 9.9 %

TheincreaseintheU.K.during2006wasduetoclaimsreceivedfromnewcontractsenteredintoduring2005and2006.TheincreaseintheAmericaswasprimarilyduetoanincreaseinhigh-frequency,low-severityclaimsinLatinAmericaasaresultofnewclientagree-mentsenteredintoduring2006.ThedecreaseinCEMEAwasprimarilyduetoadecreaseinweather-relatedclaimsinSwedeninthecurrentyear.TheincreaseinAsia/Pacificwasduetoanincreaseinhigh-frequency,low-severityclaimsactivityinAustraliaandSingaporecausedbyincreasedclaimfrequencyfromexistingclientsandbyCycloneLarry.

Direct�Compensation�and�Fringe�BenefitsAsapercentofrevenuesbeforereimbursements,directcompensationexpense,includingrelatedpayrolltaxesandfringebenefits,increasedslightlyto70.0%in2006from69.9%in2005.ThisincreasewasduetohigherincentivecompensationexpenserelatedtotheincreaseinInternationaloperatingearnings,primarilyintheU.K.Therewasanaverageof3,439full-timeequivalentemployeesin2006,upfrom3,238in2005.

SalariesandwagesoftheInternationalOperationssegmentpersonnelincreased5.9%to$177.0millionin2006comparedto$167.2millionin2005,decreasingasapercentofrevenuesbeforereimbursementsfrom58.6%in2005to58.3%in2006.Payrolltaxesandfringebenefitsincreased10.2%to$35.5millionin2006comparedto$32.2millionin2005,increasingasapercentofrevenuesbeforereimbursementsfrom11.3%in2005to11.7%in2006.StaffingincreasesintheU.K.tohandleclaimsreceivedfromnewcontractsenteredintoinlate2005and2006andincreaseddefinedcontribu-tionretirementplancostsgeneratedthemajorityoftheseincreases.TheincreasesinthesecostswerealsopartlytheresultofadeclineinthevalueoftheU.S.dollaragainstothermajorcurrencies,primarilytheBritishpoundandtheeuro.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsExpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedasapercentofrevenuesbeforereimbursementsfrom25.4%in2005to24.7%in2006.Thisdecreasewasprimarilyduetolowerprofessionalindemnityself-insurancecosts.

Reimbursed�expensesReimbursedexpensesforout-of-pocketcostsincludedintotalexpensesforourInternationalOperationsdecreasedto$29.6millionin2006from$29.9millionin2005.Thisdecreasewasduetohigherout-of-pocketexpensesinthe2005firstquarteraswewerecompletinghurricaneclaimsintheCaribbeanregion.ThisdecreasewaspartiallyoffsetbyadeclineinthevalueoftheU.S.dollaragainstothermajorcurrencies.

U.S.�PROPeRtY�AND�CASUALtYYears Ended December 31, 2005 and 2004

Revenues�before�ReimbursementsU.S.PropertyandCasualtyrevenuesbeforereimbursementsdecreased3.3%to$223.6millionin2005comparedto$231.3millionin2004.In2005,U.S.PropertyandCasualtyrevenuesreflecteda$6.1milliondeclineincatastrophe-relatedrevenuesfromthe2004periodwhenwewererespondingtothehurricanesthatstruckthesoutheasternUnitedStates.Revenuesgeneratedbyourcatastropheadjusterstotaled$36.4millionin2005comparedto$42.5million

2006AnnualReport 35

in2004.Thedecreaseinrevenuesfrompropertyandcasualtyinsurancecompanyclientswasalsoduetoacontinuedsofteninginreferralsforhigh-frequency,low-severityclaimsduring2005.SeethefollowinganalysisofU.S.PropertyandCasualtycasesreceived.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforourU.S.PropertyandCasualtysegmentwere$10.5millionin2005,increasingslightlyfrom$10.4millionin2004.

Case�volume�AnalysisU.S.PropertyandCasualtyunitvolumes,measuredprincipallybycasesreceived,decreased13.6%from2004to2005.Thisdecreasewaspartiallyoffsetbya10.3%revenueincreasefromchangesinthemixofservicesprovidedandintherateschargedforthoseservices,resultinginanet3.3%decreaseinU.S.PropertyandCasualtyrev-enuesbeforereimbursementsfrom2004to2005.Thedecreaseinreferralsofhigh-frequency,low-severityclaimsincreasedouraveragerevenueperclaimin2005.

U.S.PropertyandCasualtyunitvolumesbymajorserviceline,asmeasuredbycasesreceived,for2005and2004wereasfollows:


Property 161,087 164,220 (1.9)%

Vehicle 126,486 144,306 (12.3)%

Casualty 108,138 124,685 (13.3)%

CatastropheServices 54,674 89,588 (39.0)%


Other 54 246 (78.0)%

� total�U.S.�Property�and�Casualty�� Cases�Received 483,833 559,921 (13.6)%

During2004,claimshandledbyourcatastropheservicesadjustersincreasedsignificantlyduetothefourhurricanesthatstruckFloridaandothersoutheasternstates.HurricanesKatrina,Rita,andWilmadidnotgeneratethesamecatastropheservicesclaimsvolumeforusin2005.Thedeclinesincasualtyandworkers’compensationclaimsin2005wereduetoareductioninclaimsfromourexistingclientsandreflectedacontinuingdeclineinreportedworkplaceinjuries.Thedeclineinvehicleclaimsduring2005wasduetoacontinued

declineinreferralsofhigh-frequency,low-severityclaimsfromourinsurancecompanyclients,astheseclaimsareincreasinglybeinghandledtelephonicallyorthroughdirectrepairnetworksmanagedbythepropertyandcasualtyinsurancecompanies.

Direct�Compensation�and�Fringe�BenefitsOurmostsignificantexpenseinU.S.PropertyandCasualtyisthecompensationofemployees,includingrelatedpayrolltaxesandfringebenefits.U.S.PropertyandCasualtydirectcompensationexpenseasapercentoftherelatedrevenuesbeforereimbursementsincreasedto62.5%in2005comparedto58.9%in2004.ThisincreaseprimarilyreflectedanincreaseincapacityinourU.S.PropertyandCasualtysegmentduetothedeclineinclaimsvolumein2005.WehavemaintainedourexistingservicecapabilitiesinourU.S.PropertyandCasualtyfieldoperationsaswecontinuetofocusongrowingmarketshareintheinsurancecompanymarket.Therewasanaverageof2,025full-timeequivalentemployees(including226catastropheadjusters)in2005,comparedtoanaverageof1,978(including187catastropheadjusters)in2004.

U.S.PropertyandCasualtysalariesandwagesincreased3.4%,to$115.3millionin2005from$111.5millionin2004.Thisincreasewasprimarilyaresultofmerit-basedsalaryincreasesgrantedduringtheyear.PayrolltaxesandfringebenefitsforU.S.PropertyandCasualtytotaled$24.3millionin2005,decreasing1.2%from2004costsof$24.6million,dueprimarilytolowerself-insuredemployeemedicalbenefitcostsin2005.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsU.S.PropertyandCasualtyexpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsincreasedasapercentofU.S.PropertyandCasualtyrevenuesbeforereimbursementsto37.7%in2005from36.5%in2004.Thisincreasewasprimarilyduetohigherbaddebtexpensein2005.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourU.S.PropertyandCasualtysegmentwere$10.5millionin2005,increasingslightlyfrom$10.4millionin2004.

36 Crawford&Company


BROADSPIReYears Ended December 31, 2005 and 2004

Revenues�before�ReimbursementsOnOctober31,2006,wefinalizedouracquisitionofBroadspireManagementServices,Inc.Followingtheacquisition,ourexistingCrawfordIntegratedServicesbusinesswasrebrandedasBroadspire.TheresultsofBroadspireManagementServices,Inc.areincludedinourBroadspiresegmentoperatingresultsbeginningNovember1,2006.Accordingly,thediscussionofBroadspireoperatingresultsfortheyearsendedDecember31,2005and2004doesnotincludeanyoperatingresultsofBroadspireManagementServices,Inc.

Broadspiresegmentrevenuesbeforereimbursementsdecreased5.9%to$148.7millionin2005comparedto$158.0millionin2004.Thisdecreaseinrevenueswasdueprimarilytoareductioninclaimreferralsfromourexistingclients,onlypartiallyoffsetbynetnewbusinessgains.SeethefollowinganalysisofBroadspiresegmentcasesreceived.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesfortheBroadspiresegmentwere$3.4millionin2005,decreasingslightlyfrom$3.5millionin2004.

Case�volume�AnalysisBroadspireunitvolumes,measuredprincipallybycasesreceived,decreased3.4%from2004to2005.Revenuesalsodeclinedby2.5%asaresultofchangesinthemixofservicesprovidedandintherateschargedforthoseservices,resultinginatotal5.9%decreaseinBroadspiresegmentrevenuesbeforereimbursementsfrom2004to2005.

Broadspireunitvolumesbymajorserviceline,asmeasuredbycasesreceived,for2005and2004wereasfollows:



Casualty 82,149 84,425 (2.7)%

Other 22,365 21,784 (2.7)%

� total�Broadspire�Cases�Received 210,790 218,235 (3.4)%

Thedeclinesincasualtyandworkers’compensationclaimsin2005wereprimarilyduetoareductioninclaimsfromourexistingclients,onlypartiallyoffsetbynetnewbusinessgains,andreflectedacontinuingdeclineinreportedworkplaceinjuries.

Direct�Compensation�and�Fringe�BenefitsOurmostsignificantexpenseisthecompensationofemployees,includingrelatedpayrolltaxesandfringebenefits.Broadspire’sdirectcompensationexpenseasapercentoftherelatedrevenuesbeforereimbursementsincreasedto65.6%in2005comparedto60.3%in2004.ThisincreasereflectedanincreaseincapacityinourBroadspiresegmentduetothedeclineinclaimsvolume.WehavemaintainedourexistingservicecapabilitiesinourBroadspirefieldoperationsaswecontinuetofocusongrowingmarketshareinourU.S.self-insuredmarket.Averagefull-timeequivalentemployeestotaled1,448in2005,down2.3%from1,482in2004.

Broadspiresalariesandwagesincreased3.0%,to$79.8millionin2005from$77.5millionin2004.Thisincreasewasprimarilyaresultofmerit-basedsalaryincreasesgrantedduringtheyear.PayrolltaxesandfringebenefitsfortheBroadspiresegmenttotaled$17.7millionin2005,decreasing1.1%from2004costsof$17.9million,dueprimarilytolowerself-insuredemployeemedicalbenefitcostsin2005.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsBroadspireexpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedslightlyasapercentofrevenuesbeforereimbursementsto41.2%in2005from41.4%in2004.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourBroadspiresegmentwere$3.4millionin2005,decreasingslightlyfrom$3.5millionin2004.

2006AnnualReport 37

LeGAL�SettLeMeNt�ADMINIStRAtIONYears Ended December 31, 2005 and 2004

Revenues�before�ReimbursementsLegalSettlementAdministrationrevenuesbeforereimbursementsincreased28.7%to$114.3millionin2005comparedto$88.8millionin2004duetothecommencementofseveralmajorsecuritiesclassactionprojects.During2005,wewereawarded170newsettlementadministrationassignmentscomparedto159during2004.AtDecember31,2005wehadabacklogofprojectsawardedtotalingapproximately$40.0millioncomparedto$30.0millionatDecember31,2004.LegalSettlementAdministrationrevenuesareproject-basedandcanfluctuatesignificantly.

Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforLegalSettlementAdministrationwere$39.0millionin2005,increasingfrom$35.2millionin2004.Thisincreasewasprimarilyattributabletohigherout-of-pocketcostsin2005relatedtotheincreaseinLegalSettlementAdministrationrevenues.Thenatureandvolumeofworkperformedonclassactionsettlementsrequiremorereimbursableout-of-pocketexpendituresinLegalSettlementAdministrationascomparedtoourotheroperatingsegments.

transaction�volumeLegalSettlementAdministrationservicesareprojectbasedandnotdenominatedbyindividualclaims.Dependinguponthenatureofprojectsbeingadministeredandtheirrespectivestagesofcompletion,thevolumeoftransactionsortasksperformedbyuscanvary,some-timessignificantly.

Direct�Compensation�and�Fringe�BenefitsLegalSettlementAdministration’sdirectcompensationexpense,includingrelatedpayrolltaxesandfringebenefits,asapercentofrevenuesbeforereimbursementsdecreasedto37.4%in2005com-paredto41.1%in2004.Thisdecreasewasduetoahigherutilizationofexistingprojectmanagementstaffduring2005.Averagefull-timeequivalentemployeestotaled502in2005,comparedto511in2004.

LegalSettlementAdministrationsalariesandwagesincreased19.7%,to$37.6millionin2005from$31.4millionin2004.Thisincreasewasprimarilyaresultofincreasedincentivecompensationasaresult

ofincreasedrevenuesandoperatingearnings.PayrolltaxesandfringebenefitsforLegalSettlementAdministrationtotaled$5.2millionin2005,increasing2.0%from2004costsof$5.1million.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsOneofthemostsignificantexpensesinLegalSettlementAdministrationisoutsourcedservicesduetothevariable,project-basednatureofourwork.LegalSettlementAdministrationexpensesotherthanreimbursements,compensationandrelatedpayrolltaxesandfringebenefitsdecreasedslightlyasapercentofrelatedrevenuesbeforereimbursementsto44.8%in2005from45.1%in2004.

Reimbursed�expensesReimbursedout-of-pocketexpensesincludedintotalexpensesforourLegalSettlementAdministrationsegmentwere$39.0millionin2005,increasingfrom$35.2millionin2004.Thisincreasewasprimarilyattributabletohigherout-of-pocketcostsin2005relatedtotheincreaseinLegalSettlementAdministrationrevenues.

INteRNAtIONAL�OPeRAtIONSYears Ended December 31, 2005 and 2004

Revenues�before�ReimbursementsRevenuesbeforereimbursementsinourInternationalOperationssegmenttotaled$285.4millionin2005,an11.7%increasefromthe$255.4millionreportedin2004.Excludingacquisitions,Internationalunitvolume,measuredprincipallybycasesreceived,increased25.2%in2005comparedto2004.Ourthirdquarter2004acquisitionofthenetassetsofCabinetMayoussier,CabinetTricaud,andTMAinFranceincreasedInternationalrevenuesby$2.3million,or0.8%in2005.Revenuesbeforereimbursementsdecreased18.7%duetochangesinthemixofservicesprovidedandintherateschargedforthoseservices.Growthinhigh-frequency,low-severityclaimsreferralsintheU.K.andCEMEAregionsfromnewcontractsenteredintoduring2004and2005reducedtheaveragerevenueperclaimduring2005.However,thisdeclineinaveragerevenueperclaimwasoffsetbyhigherunitvolume,resultinginanoverallincreasein2005rev-enues.SeethefollowinganalysisofInternationalcasesreceived.Revenuesbeforereimbursementsreflecteda4.4%increaseduring2005duetothepositiveeffectofaweakU.S.dollar,primarilyascomparedtotheBritishpoundandtheeuro.

38 Crawford&Company


Reimbursements�Included�in�total�RevenuesReimbursementsforout-of-pocketexpensesincludedintotalrevenuesforourInternationalOperationsincreasedto$29.9millionin2005from$29.0millionin2004.Thisincreasewasmainlyduetothepos-itiveeffectofaweakU.S.dollar,primarilycomparedtotheBritishpoundandtheeuro.

Case�volume�AnalysisInternationalunitvolumes,excludingtheimpactofacquisitions,byregionfor2005and2004wereasfollows:


UnitedKingdom 142,313 110,361 29.0 %

Americas 125,192 113,701 10.1 %

CEMEA 114,719 88,802 29.2 %

Asia/Pacific 55,139 36,488 51.1 %

� total�International�Cases�Received 437,363 349,352 25.2 %

TheincreaseintheU.K.during2005wasduetoclaimsreceivedfromnewcontractsenteredintoduring2004and2005.TheincreaseintheAmericaswasprimarilyduetoflood-relatedclaimsactivityinCanadaduringthe2005thirdandfourthquarters.TheincreaseinCEMEAwasprimarilyduetoweather-relatedclaimsinSwedenreceivedfromtwonewclientsandanincreaseinclaimsreceivedintheregionfromnewcontractsenteredintoduring2004and2005.TheincreaseinAsia/Pacificwasduetoweather-relatedclaims.

Direct�Compensation�and�Fringe�BenefitsAsapercentofrevenuesbeforereimbursements,directcompensationexpense,includingrelatedpayrolltaxesandfringebenefits,increasedto69.9%in2005from68.7%in2004.ThisincreasewasduetohigherincentivecompensationexpenserelatedtotheincreaseinInternationaloperatingearnings,primarilyintheU.K.Therewasanaverageof3,238full-timeequivalentemployeesin2005,upfrom3,158in2004.

Salariesandwagesofinternationalpersonnelincreased12.7%to$167.2millionin2005comparedto$148.3millionin2004,increas-ingasapercentofrevenuesbeforereimbursementsfrom58.1%in2004to58.6%in2005.Payrolltaxesandfringebenefitsincreased18.4%to$32.2millionin2005comparedto$27.2millionin2004,increasingasapercentofrevenuesbeforereimbursementsfrom10.6%

in2004to11.3%in2005.TheincreasesinthesecostswerelargelytheresultofadeclineinthevalueoftheU.S.dollaragainstothermajorcurrencies,primarilytheBritishpoundandtheeuro,andstaffingincreasesintheU.K.tohandleclaimsreceivedfromnewcontractsenteredintoinlate2005.

expenses�Other�than�Reimbursements,��Direct�Compensation�and�Fringe�BenefitsExpensesotherthanreimbursements,directcompensationandrelatedpayrolltaxesandfringebenefitsdecreasedasapercentofrevenuesbeforereimbursementsfrom26.8%in2004to25.4%in2005.ThisdecreasewasprimarilyduetolowerbaddebtexpenseresultingfromimprovedcollectionsandalsoduetogreaterutilizationofourleasedofficespaceinresponsetotheincreaseinincomingcasesintheU.K.andCEMEA.

Reimbursed�expensesReimbursedexpensesforout-of-pocketcostsincludedintotalexpensesforourInternationalOperationsincreasedto$29.9millionin2005from$29.0millionin2004.ThisincreasewasduetoadeclineinthevalueoftheU.S.dollaragainstothermajorcurrencies.

LIQUIDItY,�CAPItAL�ReSOURCeS,��AND�FINANCIAL�CONDItIONAtDecember31,2006,ourworkingcapitalbalance(currentassetslesscurrentliabilities)wasapproximately$99.9million,adecreaseof$30.3millionfromtheworkingcapitalbalanceatDecember31,2005.Thisdeclinewasprimarilyduetoa$48.7millionincreaseincurrentdeferredrevenuesasaresultoftheBroadspireManagementServices,Inc.acquisition,partiallyoffsetbya$17.5milliondeclineinaccruedincometaxes.Cashandcashequivalentsattheendof2006totaled$61.7million,increasing$14.8millionfrom$46.8millionattheendof2005.Short-terminvestmentwas$5.0millionatDecember31,2006and2005.

Cash�Provided�by�Operating�ActivitiesCashprovidedbyoperationsincreasedby$12.0millionin2006,from$40.8millionin2005to$52.7millionin2006.Cashwasgeneratedin2006bythecollectionsofaccountsreceivablerelatedtothehurricanesthatstruckthesoutheasternU.S.latein2005andbyimprovedcollectionsinourLegalSettlementAdministrationseg-ment.Incometaxpaymentsin2006were$10.9millioncompared

2006AnnualReport 39

topaymentsof$10.6millionin2005.During2006,wemadecashcontributionsof$6.8milliontoourU.S.definedcontributionretire-mentplancomparedto$6.7millionin2005.Weplantomakecontributionsof$7.1milliontothisplanin2007.Cashof$5.4millionwasusedtofundourU.K.andNetherlandsdefinedbenefitpensionplansin2006comparedto$3.7millionin2005.WewerenotrequiredtomakeanycontributionstoourfrozenU.S.definedbenefitpensionplanduring2006or2005.During2007,weexpecttocontribute$6.9milliontoourU.K.andNetherlandsdefinedbenefitpensionplans.ThePensionProtectionActof2006legislationpassedbytheU.S.CongressandrecentregulatorychangesintheU.K.couldsignifi-cantlyincreaserequiredfuturefundingofourU.S.andU.K.definedbenefitpensionplans.

Cashprovidedbyoperationsincreased$4.9millionin2005,from$35.8millionin2004to$40.8millionin2005,despitelowernetincomein2005comparedto2004.Cashwasgeneratedin2005bythecollectionsofaccountsreceivablerelatedtothehurricanesthatstruckthesoutheasternU.S.andCaribbeanregioninlate2004andbyimprovedcollectionsinourLegalSettlementAdministrationseg-ment.Thesecollectionswerepartiallyoffsetbyhigherincometaxpaymentsin2005comparedto2004.Incometaxpaymentsin2005were$10.6millioncomparedtonetrefundsreceivedof$2.0millionin2004.During2005wemadecashcontributionsof$6.7milliontoourU.S.definedcontributionretirementplancomparedto$6.4millionin2004.Cashof$3.7millionwasusedtofundourU.K.andNetherlandsdefinedbenefitpensionplansin2005comparedto$4.1millionin2004.

Cash�Used�in�Investing�ActivitiesCashusedininvestingactivitiesincreasedby$162.0millionin2006,from$12.6millionin2005to$174.6millionin2006.CashpaymentsrelatedtotheBroadspireManagementServices,Inc.ande-TriageacquisitionsintheU.S.andSLSintheU.K.used$162.5millionincashduring2006.Therewerenomaterialacquisitionsmadeduring2005.Cashusedtoacquirepropertyandequipment,includingcapitalizedsoftware,increased$2.5millionfrom$20.3millionin2005to$22.7millionin2006.Weestimateourcapitaladditionsin2007,includingcapitalizedsoftware,willapproximate$25.0million.Alsoin2006,wereceived$8.0millionrelatedtothe2006saleofourAtlanta,Georgia,homeofficefacilityand$3.0millionfromthesaleofourinvestigationsservicesbusiness.

Cashusedininvestingactivitiesdeclinedby$4.0millionin2005,from$16.6millionin2004to$12.6millionin2005.In2005,wereceived$7.6millioninfullpaymentofanotereceivablerelatedtothe2004saleofanundevelopedparcelofland.Cashusedtoacquirepropertyandequipment,includingcapitalizedsoftware,increased$2.0millionfrom$18.2millionin2004to$20.3millionin2005.

Cash�Provided�by�(Used�in)�Financing�ActivitiesCashprovidedbyfinancingactivitieswas$135.8millionin2006,increasingfromauseofcashof$19.5millionin2005.OnOctober31,2006,inconnectionwiththeBroadspireManagementServices,Inc.acquisition,weterminatedourexistingcreditagree-mentsandreplacedthemwithanewsecuredcreditagreementthatcontainsa$210.0milliontermloananda$100.0millionrevolvingcreditfacility.FortheyearendedDecember31,2006,totalshort-termandlong-termborrowings,netofrepayments,increasedby$147.4million.Cashdividendstoshareholdersin2006approxi-mated$8.9million,decliningfrom$11.7millionin2005.Asapercentageofnetincome,cashdividendstotaled59.1%in2006,comparedto91.2%in2005.

Cashusedinfinancingactivitiesdeclinedby$2.9millionin2005,from$22.3millionin2004to$19.5millionin2005.Netdebtreductions,primarilyforshort-termborrowings,were$8.0millionin2005comparedto$11.3millionin2004.Cashdividendstoshareholdersin2005werenotsignificantlydifferentthan2004,approximating$11.7millionforeachyear.Asapercentageofnetincome,cashdividendstotaled91.2%in2005comparedto46.5%in2004.

During2006and2005,wedidnotrepurchaseanysharesofourClassAorClassBCommonStock.AsofDecember31,2006,705,863sharesremaintoberepurchasedunderthediscretionary1999sharerepurchaseprogramauthorizedbytheBoardofDirectors.WebelieveitisunlikelythatwewillrepurchasesharesunderthisprogramintheforeseeablefutureduetotheunderfundedstatusofourU.S.andU.K.definedbenefitpensionplansandduetothecovenantsandrestrictionsassociatedwithournewcreditagreementdatedOctober31,2006.

40 Crawford&Company


Contractual�ObligationsAsofDecember31,2006,theimpactthatourcontractualobligations(excludingpaymentsforshort-termborrowingsandinterest)areexpectedtohaveonourliquidityandcashflowinfutureperiodsisasfollows:

PaymentsDuebyPeriod

(in thousands) Lessthan1Year 1–3Years 3–5YearsMorethan

5Years Total

Long-termdebt,includingcurrentportions(Note5) $ 2,288 $ 4,575 $ 4,432 $ 189,500 $ 200,795

Operatingleaseobligations(Note4) 46,321 74,918 53,191 151,511 325,941

Capitalleaseobligations(Note5) 333 437 60 40 870

Outsourcedservicesobligation 2,541 – – – 2,541

total� $ 51,483 $ 79,930 $ 57,683 $ 341,051 $ 530,147

Approximately$13.3millionofoperatingleaseobligationsincludedinthetableaboveareexpectedtobefundedbysublessorsunderexistingsubleaseagreements.Theobligationforoutsourcedservicesrelatestocertaininformationtechnologyfunctionsperformedbyathird-partyproviderunderacontractthatwillexpireduringthefirstquarterof2007.

Our$100.0millionlineofcreditunderourNewCreditAgreementhadanoutstandingbalanceof$26.6millionatDecember31,2006.ThislineofcreditexpiresandispayableonOctober30,2011.

Wealsohavesubstantialfuturepaymentsofvariable-rateinterestforborrowingsoutstandingunderourNewCreditAgreement.BasedoninterestratesandborrowingsatDecember31,2006,thefollowingtableshowsestimatedfutureinterestpaymentsovertheremainingtermofthetermloanandrevolvingcreditfacilityafterconsideringtheimpactofrequiredminimumquarterlyprincipalpaymentsonthetermloanfacility.Theactualamountsofinterestthatwewillultimatelypaywilllikelydifferfromtheamountsbelowduetochangesininterestrates,andpossiblyduetoacceleratedprincipalpaymentsthatwemaymake.

InterestPaymentsbyPeriod

(in thousands) Lessthan1Year 1–3Years 3–5YearsMorethan

5Years Total

Termloan $ 15,617 $ 30,738 $ 30,078 $ 26,991 $ 103,424

Revolvingcreditfacility 2,055 4,110 3,768 – 9,933

total $ 17,672 $ 34,848 $ 33,846 $ 26,991 $ 113,357

Defined�Benefit�Pensions�Funding�and�CostFuturecashfundingofourU.S.andinternationaldefinedbenefitpensionplanswilldependlargelyonfutureinvestmentperformance,interestrates,changestomortalitytables,andregulatoryrequirements.EffectiveDecember31,2002,wefrozeourU.S.definedbenefitpen-sionplan.Theaggregatedeficitinthefundedstatusourdefinedbenefitpensionplanstotaled$93,708,000and$105,495,000attheendof2006and2005,respectively.Thedeficitdecreasein2006wasprimarilyduetoanincreaseinlong-terminterestratesusedtodiscountourdefinedbenefitpensionliabilities.For2007,weexpecttomake

contributionsofapproximately$6.9milliontoourU.K.andNetherlandsdefinedbenefitpensionplans.WearecurrentlynotrequiredtomakeanycontributionstotheU.S.definedbenefitpensionplanin2007.Netperiodicbenefitcostsforourdefinedbenefitpensionplanstotaled$8,972,000,$7,795,000and$6,705,000in2006,2005and2004,respectively.Netperiodicpensioncostsfor2007areexpectedtobeapproximately$7.4millionforourdefinedbenefitpensionplans.CashcontributionstoourU.S.definedcontributionplanofapproximately$7.1millionwillbemadeinthe2007firstquarter.

2006AnnualReport 41

OnAugust17,2006,thePensionProtectionActof2006(the“Act”)wassignedintoU.S.law.TheAct,amongothersthings,introducesnewfundingrequirementsforU.S.definedbenefitpensionplansandimpactsfinancialreportingfortheseplans.TherequirementsoftheActareeffectiveforplanyearsbeginningafterDecember31,2007.UndertheAct,allU.S.single-employerdefinedbenefitpensionplansaresubjecttoonesetoffundingrulesfordeterminingminimumrequiredcontributions,referredtointheActasthe“FundingTargetLiability.”TheActchangestheinterestratesthatmustbeusedtovalueplanliabilities,limitstheabilitytoadjustforfluctuationsinassetvalues,andallowslimiteduseofcreditbalancestoreduceotherwiserequiredminimumcontributions.Formostdefinedbenefitpensionplans,theFundingTargetLiabilityandtheaccumulatedbenefitsobligation(“ABO”)willbemateriallyequivalent.OurfrozenU.S.-definedbenefitpensionplanwasunderfundedby$79,203,000atDecember31,2006basedonanABOof$383,961,000.Basedoncurrentassumptionsusedof5.99%fortheinterestratetodiscountplanliabilitiesand8.50%fortheexpectedratesofreturnontheplan’sassets,weestimatethatwewillhavetomakethefollowingannualminimumcontributionstoourfrozenU.S.definedbenefitpensionplaninordertomeettheFundingTargetLiabilityundertheAct:

YearFundedEstimatedMinimumFundingRequirement

(in thousands)

2007 $ –

2008 11,000

2009 22,000

2010 15,000

2011 13,000

2012 11,000

2013 4,000

2014 1,000

total $77,000

Future�Dividend�PaymentsOurBoardofDirectorsmakesdividenddecisionseachquarterbasedinpartonanassessmentofcurrentandprojectedearningsandcashflows.Ourabilitytopayfuturedividendscouldbeimpactedbymanyfactorsincludingthefundingrequirementsforourdefinedbenefitpensionplans,repaymentsofoutstandingborrowings,futurelevelsofcashgeneratedbyouroperatingactivities,andrestrictionsrelatedtothecovenantscontainedinourNewCreditAgreement

datedOctober31,2006.ThecovenantsinourNewCreditAgreementlimitdividendpaymentstoshareholdersto$12.5millioninany12-monthperiodoncecertainleverageandfixedchargecoverageratiosaremet.Basedonouranticipatedfutureoperatingperformanceandtheapplicationoftheseleverageandfixedchargecoverageratios,wedonotanticipatepayingdividendstoshareholdersuntilatleastthe2008firstquarter.

Other�Matters�Concerning�Liquidity,��Capital�Resources,�and�Financial�ConditionWemaintainacommitted$100.0millionrevolvingcreditlinewithasyndicationofbanksinordertomeetseasonalworkingcapitalrequire-mentsandotherfinancingneedsthatmayarise.ThisrevolvingcreditlineexpiresonOctober30,2011.Asacomponentofthiscreditline,wemaintainaletterofcreditfacilitytosatisfycertainofourowncon-tractualobligations.Including$21.1millioncommittedundertheletterofcreditfacility,thebalanceofourunusedlineofcredittotaled$52.3millionatDecember31,2006.Ourshort-termdebtobligationstypicallypeakduringthefirstquarterandgenerallydeclineduringthebalanceoftheyear.Short-termborrowingsoutstanding,includingbankoverdraftfacilities,asofDecember31,2006totaled$27.8million,decreasingfrom$28.9millionattheendof2005.Long-termborrowingsoutstanding,includingcurrentinstallments,totaled$201.7millionasofDecember31,2006,comparedto$52.3millionatDecember31,2005.Wehavehistoricallyusedtheproceedsfromourlong-termborrowingstofinancebusinessacquisitions.

Webelieveourcurrentfinancialresources,togetherwithfundsgeneratedfromoperationsandexistingandpotentialborrowingcapabilities,willbesufficienttomaintainourcurrentoperationsforthenext12months.

Wehavenotengagedinanyhedgingactivitiestocompensatefortheeffectofexchangeratefluctuationsontheoperatingresultsofourforeignsubsidiaries.Foreigncurrencydenominateddebtservestohedgethecurrencyexposureofournetinvestmentinforeignoperations.Wehavenotengagedinanyhedgingactivitiestocompensatefortheeffectofinterestratefluctuationsonourvari-ableratelong-termandshort-termborrowings.Wearecurrentlyevaluatingoptionsavailabletoustoenterintohedgingagreementsthatmayofferussomeprotectionifinterestratesincreaseonbor-rowingsoutstandingunderournewsecuredcreditagreement(“theNewCreditAgreement”).

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Shareholders’investmentattheendof2006was$211.2million,comparedto$179.0millionattheendof2005.Thisincreasewastheresultofnetincome,commonstockissuedunderemployeeincentiveplans,adecreaseinouraccruedpensionliabilities,andnetpositiveforeigncurrencytranslations,partiallyoffsetbycashdividendspaidtoshareholders,achargetoretainedearningsrelatedtothecreationofaminorityinterestinourSouthAfricasubsidiary,andthenetimpactofadoptionoftherecognitionanddisclosureprovisionsofSFAS158,“Employers’AccountingforDefinedBenefitPensionandOtherPostretirementPlans,anamendmentofFASBStatementsNo.87,88,106and132R.”

During2006,werecordedanadjustmenttoAccumulatedOtherComprehensiveLoss,acomponentofShareholders’Investment,todecreaseouraccruedpensionliabilitiesby$11.3million,netoftax.During2005,werecordedanadjustmenttoAccumulatedOtherComprehensiveLosstoincreaseourminimumpensionliabilitiesby$17.1million,netoftax.Thesenon-cashitemsresultedprimarilyfromfluctuationsinthefairmarketvalueofourpensioninvestmentsasoftheplans’respectivemeasurementdatesandchangesinappli-cableinterestratesusedtodiscounttheplans’liabilitiesduring2006and2005.During2006,wealsocreditedAccumulatedOtherComprehensiveLossby$738,000,netoftax,fortheimpactthattheadoptionoftherecognitionanddisclosureprovisionsofSFAS158hadonourretireemedicalbenefitplan.

Contingent�PaymentsWenormallystructurebusinessacquisitionstoincludeearnoutpayments,whicharecontingentupontheacquiredentityreachingcertainrevenueandoperatingearningstargets.Theamountofthecontingentpaymentsandlengthoftheearnoutperiodvariesforeachacquisition,andtheultimatepaymentswhenmadewillvary,astheyaredependentonfutureevents.Basedon2006levelsofrevenuesandoperatingearnings,additionalpaymentsunderexistingearnoutagreementsapproximate$6.5millionthrough2010,asfollows:2007–$0;2008–$767,000;2009–$5.0million;and2010–$777,000.

Off-Balance�Sheet�ArrangementsAtDecember31,2006,wehavenotenteredintoanyoff-balancesheetarrangementsthatcouldmateriallyimpactouroperations,financialconditions,orcashflows.

CRItICAL�ACCOUNtING�POLICIeS�AND�eStIMAteS�Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsaddressesourconsolidatedfinancialstatements,whicharepreparedinaccordancewithU.S.generallyacceptedaccountingprinciples.Thepreparationofthesefinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstate-ments,andthereportedamountsofrevenuesandexpensesduringthereportingperiod.Onanongoingbasis,weevaluatetheseesti-matesandjudgmentsbaseduponhistoricalexperienceandvariousotherfactorsthatwebelievearereasonableunderthecircumstances.Theresultsoftheseevaluationsformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimatesunderdifferentassumptionsorconditions.

Webelievethefollowingcriticalaccountingpoliciesforrevenuerecognition,allowancefordoubtfulaccounts,valuationofgoodwillandotherlong-livedassets,definedbenefitpensionplans,determina-tionofoureffectivetaxrateforfinancialreportingpurposes,andself-insuredrisksrequiresignificantjudgmentsandestimatesinthepreparationoftheconsolidatedfinancialstatements.Changesintheseunderlyingestimatescouldpotentiallymateriallyaffectconsoli-datedresultsofoperations,financialpositionandcashflowsintheperiodofchange.Althoughsomevariabilityisinherentintheseesti-mates,theamountsprovidedforarebasedonthebestinformationavailabletousandwebelievetheseestimatesarereasonable.

WehavediscussedthefollowingcriticalaccountingpoliciesandestimateswiththeAuditCommitteeofourBoardofDirectors,andtheAuditCommitteehasreviewedourrelateddisclosureinthisManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperations.

Revenue�Recognition�Ourrevenuesareprimarilycomprisedofclaimsprocessingorprogramadministrationfees.Feesforprofessionalservicesarerecognizedinunbilledrevenuesatthetimesuchservicesarerenderedatestimatedcollectibleamounts.Substantiallyallunbilledrevenuesarebilledwithinoneyear.Out-of-pocketcostsincurredinadministeringa

2006AnnualReport 43

claimaretypicallypassedontoourclientsandincludedinourrevenues.Deferredrevenuesrepresenttheestimatedunearnedportionoffeesrelatedtofutureservicesundercertainfixed-feeservicearrange-ments.Deferredrevenuesarerecognizedbasedontheestimatedrateatwhichtheservicesareprovided.Theseratesareprimarilybasedonahis-toricalevaluationofactualclaimclosingratesbymajorlinesofcoverage.Additionally,recentclaimclosingratesareevaluatedtoensurethatcurrentclaimclosinghistorydoesnotindicateasignificantdeteriora-tionorimprovementinthelonger-termhistoricalclosingratesused.

Ourfixed-feeservicearrangementstypicallycallforustohandleclaimsoneitheraone-ortwo-yearbasis,orforthelifetimeoftheclaim.Incaseswherewehandleaclaimonanon-lifetimebasis,wetypicallyreceiveanadditionalfeeoneachanniversarydatethattheclaimremainsopen.Forservicearrangementswhereweprovideservicesforthelifeoftheclaim,weareonlypaidonefeeforthelifeoftheclaim,regardlessoftheultimatedurationoftheclaim.Asaresult,ourdeferredrevenuesforclaimshandledforoneortwoyearsarenotassensitivetochangesinclaimclosingratessincetherevenuesareultimatelyrecognizedinthenearfutureandadditionalfeesaregen-eratedforhandlinglong-livedclaims.Deferredrevenuesforlifetimeclaimhandlingareconsideredmoresensitivetochangesinclaimclosingratessinceweareobligatedtohandletheseclaimstotheirultimateconclusionwithnoadditionalfeesforlong-livedclaims.

Baseduponourhistoricalaverages,wecloseapproximately99%ofallcasesreferredtousunderlifetimeclaimservicearrangementswithinthefirstfiveyearsfromthedateofreferral.Also,withinthatfive-yearperiod,thepercentageofclaimsremainingopeninanyoneparticularyearhasremainedrelativelyconsistentfromperiodtoperiod.Eachquarterweevaluateourhistoricalclaimclosingratesbymajorlineofinsurancecoverageandmakeadjustmentsasnecessary.Anychangesinestimatesarerecognizedintheperiodinwhichtheyaredetermined.

TheacquisitionofBroadspireManagementServices,Inc.increasedourdeferredrevenuesby$115.8millionasofDecember31,2006.Ofthisamount,$110.8millionisassociatedwiththehandlingoflifetimeclaims.ThehistoricalclosingpatternsandaveragecaselivesassociatedwiththeBroadspireManagementServices,Inc.deferredrevenuesaresimilartoourexistingbusiness.

AsofDecember31,2006,deferredrevenuesrelatedtolifetimeclaimhandlingarrangementsapproximated$125.1million.Iftherateatwhichweclosecaseschanges,theamountofrevenuesrecognizedwithinaperiodcouldbeaffected.Inaddition,giventhecompetitiveenvironmentinwhichweoperate,wemaybeunabletoraiseourpricestooffsettheadditionalexpenseassociatedwithhandlinglonger-livedclaims.Absentanincreaseinper-claimfeesfromourclients,a1%decreaseinclaimclosingratesforlifetimeclaimswouldhaveresultedinthedeferralofadditionalrevenuesofapproximately$2.4million,or$0.03pershareafterreflectingincometaxes,fortheyearendedDecember31,2006.Ifouraverageclaimclosingratesforlifetimeclaimsincreasedby1%,wewouldhaverecognizedadditionalrevenuesofapproximately$2.1million,or$0.03pershareafterreflectingincometaxes,fortheyearendedDecember31,2006.

TheestimatefordeferredrevenuesisacriticalaccountingestimateforourBroadspiresegment.

Allowance�for�Doubtful�AccountsWemaintainallowancesfordoubtfulaccountsforestimatedlossesresultingfromtheinabilityofourclientstomakerequiredpaymentsandadjustmentsclientsmaymaketoinvoicedamounts.Lossesresultingfromtheinabilityofclientstomakerequiredpaymentsareaccountedforasbaddebtexpense,whileadjustmentstoinvoicesareaccountedforasreductionstorevenues.Theseallowancesareestablishedbyusinghistoricalwrite-offinformationtoprojectfutureexperienceandbyconsideringthecurrentcreditworthinessofourclients,anyknownspecificcollectionproblems,andourassessmentofcurrentinsuranceindustryconditions.Eachquarter,weevaluatetheadequacyoftheassumptionsusedindeterminingtheseallowancesandmakeadjustmentsasnecessary.Changesinestimatesarerecog-nizedintheperiodinwhichtheyaredetermined.Historically,ourestimateshavebeenaccurate.

AsofDecember31,2006,ourallowancefordoubtfulaccountstotaled$16.8millionorapproximately8.6%ofgrossbilledreceiv-ables.Ifthefinancialconditionofourclientsdeteriorated,resultinginaninabilitytomakerequiredpaymentstous,additionalallow-ancesmayberequired.Iftheallowancefordoubtfulaccountschangedby1%ofgrossbilledreceivables,reflectingeitheranincreaseordecreaseinexpectedfuturewrite-offs,theimpactto2006pretaxincomewouldhavebeenapproximately$2.0million,or$0.02pershareafterreflectingincometaxes.

44 Crawford&Company


valuation�of�Goodwill�and�Other�Long-Lived�AssetsWeregularlyevaluatewhethereventsandcircumstanceshaveoccurredwhichindicatethatthecarryingamountsofgoodwillandotherlong-livedassets(primarilyintangibleassetsrelatedtocustomerrelationships,technology,tradenames,propertyandequipment,deferredincometaxassets,andcapitalizedsoftware)maywarrantrevisionormaynotberecoverable.Whenfactorsindicatethatsuchassetsshouldbeevaluatedforpossibleimpairment,weperformanimpairmenttestinaccordancewithSFAS142,“GoodwillandOtherIntangibleAssets”(“SFAS142”),forgoodwillandindefinite-livedintangibleassets,SFAS109,“AccountingforIncomeTaxes”(“SFAS109”),fordeferredincometaxassets,andSFAS144,“AccountingfortheImpairmentorDisposalofLong-LivedAssets”(“SFAS144”),forotherlong-livedassets.Webelievegoodwillandotherlong-livedassetswereappropriatelyvaluedandnotimpairedatDecember31,2006.

WeperformanannualimpairmentanalysisofgoodwillinaccordancewithSFAS142wherewecomparethebookvalueofourreportingunitstotheestimatedmarketvalueofthosereportingunitsasdeter-minedbydiscountingfutureprojectedcashflows.Baseduponouranalysiscompletedinthe2006fourthquarter,whichusedadiscountrateof12%todiscountfutureprojectedcashflows,wedidnothaveanimpairmentofgoodwillin2006.Theestimatedmarketvaluesofourreportingunitsarebaseduponcertainassumptionsmadebyus.Ifthegrowthrateorweighted-averagecostofcapitalassumptionusedtocalculatethemarketvalueofourreportingunitschanged,impairmentcouldresult.Ifourweighted-averagecostofcapitalassumptionincreasedby170basispointsfrom12%to13.7%,wewouldhaveapotentialimpairmentinourinternationalreportingunit.Wewouldthenberequiredtoperformadetailedanalysistomeasuretheamountofimpairmentloss,ifany.Nopotentialimpair-mentwouldhaveexistedinourformersingleU.S.reportingunitforsimilarassumptionchanges.

SubsequenttoouracquisitionofBroadspireManagementServices,Inc.,werealignedourreportingstructureandexpandedournumberofoperatingsegmentsandreportingunits.Asaresult,wereallocatedourexistinggoodwillamountstoourrevisedreportingunitsbasedontheirrelativefairmarketvaluesasdeterminedbyadiscountedcashflowanalysis.NoimpairmentindicatorsexistedasofDecember31,2006basedonthatreallocation.

Defined�Benefit�Pension�PlansWesponsorvariousdefinedbenefitpensionplansintheU.S.,U.K.,andNetherlandsthatcoverasubstantialnumberofemployeesineachlocation.WeuseaSeptember30measurementdatetodeterminepensionexpenseunderSFAS87,“Employers’AccountingforPensions”(“SFAS87”),forourU.S.definedbenefitpensionplanandanOctober31measurementdateforourinternationaldefinedbenefitpensionplans.OurU.S.definedbenefitpensionplanwasfrozenonDecember31,2002.OurU.K.definedbenefitpensionplanshavealsobeenfrozenfornewemployees,butexistingparticipantsmaystillaccrueadditionalbenefitsbasedonsalarylevelsexistingatthefreezedate.BenefitspayableunderourU.S.andNetherlandsdefinedbenefitpensionplansaregenerallybasedoncareercompensation;however,noadditionalbenefitsaccrueonourfrozenU.S.planafterDecember31,2002.BenefitspayableundertheU.K.plansaregenerallybasedonanemployee’sfinalfrozensalary.Ourfundingpolicyistomakecashcontributionsinamountssufficienttomaintaintheplansonanactu-ariallysoundbasis,butnotinexcessofamountsdeductibleunderapplicableincometaxregulations.Planassetsareinvestedinequitysecuritiesandfixedincomeinvestments,withatargetallocationofapproximately40%to80%inequitysecuritiesand20%to60%infixedincomeinvestments.

Weusetheservicesofindependentactuariestocalculateourobligationsrelatedtoourdefinedbenefitpensionplans.Wereviewtheactuarialassumptionsonanannualbasisandselecttheassumptionstobeusedbytheactuaries.Themajorassumptionsusedinaccountingfortheplansin2006wereadiscountrateof5.99%andanexpectedreturnonplanassetsrangingfrom5.61%to9.27%.Fortheannualdiscountrateassumption,wehaveadoptedasinglediscountratewhichhasbeendeterminedbasedontheyieldforaportfolioofinvestmentgradecorporatebondswithmaturitydatesmatchedtothefuturepaymentoftheplans’benefitobligations.Theexpectedlong-termratesofreturnonplanassetsarebasedontheplans’assetmix,actualhistoricalreturnsonequitysecuritiesandfixedincomeinvestmentsheldbytheplans,andanassessmentofexpectedfuturereturns.

Theestimatedliabilitiesforourdefinedbenefitpensionplansaresensitivetochangesintheunderlyingassumptionsfortheexpectedreturnonplanassetsandthediscountrateusedtodeterminethepresentvalueofprojectedbenefitspayableundertheplans.Ifour

2006AnnualReport 45

assumptionfortheexpectedreturnonplanassetsofourU.S.andU.K.definedbenefitpensionplanschangedby0.50%,representingeitheranincreaseordecreaseinexpectedreturns,theimpactto2006pretaxincomewouldhavebeenapproximately$2.1million,or$0.03pershareafterreflectingincometaxes.Ifourassumptionforthediscountratechangedby0.25%,representingeitheranincreaseordecreaseininterestratesusedtovaluepensionplanliabilities,theimpactto2006pretaxincomewouldhavebeenapproximately$1.6million,or$0.02pershareafterreflectingincometaxes.

EffectiveDecember31,2006,weadoptedtherecognitionanddisclosureprovisionsofSFAS158.IncludedinaccumulatedothercomprehensivelossatDecember31,2006arethefollowingamountsrelatedtoourdefinedbenefitpensionplansthathavenotyetbeenrecognizedinnetperiodicbenefitcosts:unrecognizedtransitionassetsof$992,000($620,000netoftax)andnetunrecognizedactuariallossesof$117.3million($73.3millionnetoftax).Wehadnounrec-ognizedpriorservicecostsatDecember31,2006.ThetransitionassetsandnetactuariallossesincludedinaccumulatedothercomprehensivelossandexpectedtoberecognizedinnetperiodicbenefitcostduringtheyearendedDecember31,2007are$279,000($174,000netoftax)and$7.9million($4.9millionnetoftax),respectively.

ForadditionalinformationontheimpactthattheadoptionofSFAS158hadonourConsolidatedBalanceSheet,seeNote2toourconsolidatedfinancialstatementsincludedinthisAnnualReport.

OnDecember31,2008,wewillalsoadopttherequirementsofSFAS158tomeasureplans’assetsandbenefitobligationsasofthedateofouryear-endConsolidatedBalanceSheet.

Determination�of�effective�tax�Rate�Used�for�Financial�ReportingWeaccountforcertainincomeandexpenseitemsdifferentlyforfinancialreportingandincometaxpurposes.Provisionsfordeferredtaxesaremadeinrecognitionofthesetemporarydifferences.Themostsignificantdifferencesrelatetoaccruedpensionliabilities,unbilledanddeferredrevenues,self-insurance,anddepreciationandamortization.

ForfinancialreportingpurposesinaccordancewiththeliabilitymethodofaccountingforincometaxesasspecifiedinSFAS109,“AccountingforIncomeTaxes,”theprovisionforincometaxesisthe

sumofincometaxesbothcurrentlypayableanddeferred.Currentlypayableincometaxesrepresenttheliabilityrelatedtoourincometaxreturnsforthecurrentyear,whilethenetdeferredtaxexpenseorbenefitrepresentsthechangeinthebalanceofdeferredtaxassetsorliabilitiesasreportedontheConsolidatedBalanceSheets.Thechangesindeferredtaxassetsandliabilitiesaredeterminedbaseduponchangesbetweenthebasisofassetsandliabilitiesforfinancialreportingpurposesandthebasisofassetsandliabilitiesforincometaxpurposes,multipliedbytheenactedstatutorytaxratesfortheyearinwhichweestimatethesedifferenceswillreverse.

Wemustestimatethetimingofthereversaloftemporarydifferences,aswellaswhethertaxableincomeinfutureperiodswillbesufficienttofullyrecognizeanygrossdeferredtaxassets.Otherfactorswhichinfluencetheeffectivetaxrateusedforfinancialreportingpurposesincludechangesinenactedstatutorytaxrates,changesinthecompo-sitionoftaxableincomefromthecountriesinwhichweoperate,andourabilitytoutilizenetoperatinglosscarryforwardsincertainofourinternationalsubsidiaries.

Oureffectivetaxrateforfinancialreportingpurposeswas37.5%ofpretaxincomefor2006.Ifoureffectivetaxrateusedforfinancialreportingpurposeschangedby1%,wewouldhaverecognizedanincreaseordecreasetoincometaxexpenseofapproximately$241,000,orlessthana$0.01impactonearningspershare,fortheyearendedDecember31,2006.

Self-Insured�RisksWeselfinsurecertaininsurablerisksconsistingprimarilyofprofessionalliability,employeemedicalanddisability,workers’compensation,andautoliability.Insurancecoverageisobtainedforcatastrophicpropertyandcasualtyexposures,includingprofes-sionalliabilityonaclaims-madebasis,andthoserisksrequiredtobeinsuredbylaworcontract.Provisionsforclaimsincurredunderself-insuredprogramsaremadebasedonourestimatesoftheaggre-gateliabilitiesforclaimsincurred,lossesthathaveoccurredbuthavenotbeenreportedtous,andtheadversedevelopmentsonreportedlosses.Theseestimatedliabilitiesarecalculatedbasedonhistoricalclaimpaymentexperience,theexpectedlifeoftheclaims,andotherfactorsconsideredrelevanttotheclaims.Theliabilitiesforclaimsincurredunderourself-insuredworkers’compensation

46 Crawford&Company


andemployeedisabilityprogramsarediscountedattheprevailingrisk-freerateforgovernmentissuesofanappropriateduration.Allotherself-insuredliabilitiesareundiscounted.Eachquarterweeval-uatetheadequacyoftheassumptionsusedindevelopingtheseestimatedliabilitiesandmakeadjustmentsasnecessary.Changesinestimatesarerecognizedintheperiodinwhichtheyaredetermined.Historically,ourestimateshavebeenaccurate.

AsofDecember31,2006,ourestimatedliabilityforself-insuredriskstotaled$34.1million.Theestimatedliabilityismostsensitivetochangesintheultimateliabilityforaclaimand,ifapplicable,theinterestrateusedtodiscounttheliability.Webelieveourprovisionsforself-insuredlossesareadequatetocovertheultimatenetcostoflossesincurred.However,theseprovisionsareestimates,andamountsultimatelysettledmaybesignificantlygreaterorlessthantheprovi-sionsestablished.Iftheaveragediscountrateweusedtodeterminethepresentvalueofourself-insuredworkers’compensationandemployeedisabilityliabilitieshadchangedby1%,reflectingeitheranincreaseordecreaseinunderlyinginterestrates,ourestimatedliabilitiesfortheseself-insuredriskswouldhavebeenimpactedbyapproximately$422,000,resultinginanincreaseordecreaseto2006netincomeofapproximately$264,000,orlessthan$0.01pershare.

New�Accounting�Standards�AdoptedOnJanuary1,2006,weadoptedtheprovisionsofSFAS123R.TheadoptionofSFAS123Rreducedourpretaxincomein2006byapproximately$1.2million,or$0.02pershareafterreflectingincometaxes.However,theadoptionofSFAS123Rdidnothaveamaterialimpactonourfinancialposition.ForadditionalinformationanddisclosureaboutouradoptionofSFAS123R,seeNote16toourconsolidatedfinancialstatementscontainedinthisAnnualReport.

Additionalinformationrelatedtonewaccountingstandardsadoptedduring2006,2005,and2004andtonewstandardspendingadoptionisprovidedinNote1toourconsolidatedfinancialstatementscon-tainedinthisAnnualReport.

Pending�Adoption�of�New�Accounting�Standards

FIN 48FASBInterpretationNo.48,“AccountingforUncertaintyinIncomeTaxes”(“FIN48”),iseffectiveforfiscalyearsbeginningafterDecember15,2006.FIN48willbeapplicabletoallroutineandnonroutinepositionsfortaxesaccountedforunderSFAS109,“AccountingforIncomeTaxes,”bycreatingasinglemodeltoaddressuncertaintiesinincometaxpositions.FIN48clarifiestheaccountingforincometaxesbyprescribingtheminimumrecognitionthresholdataxpositionisrequiredtomeetbeforebeingrecognizedinthefinancialstatements.FIN48alsoprovidesguidanceonderecognition,measurement,classification,interestandpenalties,accountingininterimperiods,disclosureandtransition.Inaddition,FIN48removesincometaxesfromthescopeofSFAS5,“AccountingforContingencies.”Basedonourevaluationsperformedthusfar,wedonotexpecttheadoptionofFIN48willhaveasignificantimpactonourfinancialposition,resultsofoperations,orcashflows.

MARket�RISk

DerivativesWedidnotenterintoanytransactionsusingderivativefinancialinstrumentsorderivativecommodityinstrumentsduringtheyearsendedDecember31,2006,2005,or2004.

Foreign�Currency�exchangeOurinternationaloperationsexposeustoforeigncurrencyexchangeratechangesthatcanimpacttranslationsofforeign-denominatedassetsandliabilitiesintoU.S.dollarsandfutureearningsandcashflowsfromtransactionsdenominatedindifferentcurrencies.Ourrevenuesbeforereimbursementsfrominternationaloperationswere37.1%,37.0%,and34.8%oftotalrevenuesbeforereimbursementsfor2006,2005,and2004,respectively.Exceptforborrowingsinfor-eigncurrencies,wedonotpresentlyengageinanyhedgingactivitiestocompensatefortheeffectofcurrencyexchangeratefluctuationsonthenetassetsoroperatingresultsofourforeignsubsidiaries.

Wemeasureforeigncurrencyexchangeriskrelatedtoourinternationaloperationsbasedonchangesinforeigncurrencyratesusingasensi-tivityanalysis.Thesensitivityanalysismeasuresthepotentialchange

2006AnnualReport 47

inearningsbasedonahypothetical10%changeincurrencyexchangerates.ExchangeratesandcurrencypositionsasofDecember31,2006wereusedtoperformthesensitivityanalysis.Suchanalysisindicatedthatahypothetical10%changeinforeigncurrencyexchangerateswouldhaveincreasedordecreasedconsolidatedpretaxincomeduring2006byapproximately$1.4million,or$0.02pershareafterreflectingincometaxes,hadtheU.S.dollarexchangerateincreasedordecreasedrelativetothecurrenciestowhichwehadexposure.WhenexchangeratesandcurrencypositionsasofDecember31,2005wereusedtoperformthissensitivityanalysis,theanalysisindicatedthatahypothetical10%changeincurrencyexchangerateswouldhaveincreasedordecreasedconsolidatedpretaxincomein2005byapproximately$1.1million,or$0.01pershareafterreflectingincometaxes.

Interest�RatesOurtotalborrowingshaveincreasedsignificantlyasofOctober31,2006,duetothefinancedacquisitionofBroadspireManagementServices,Inc.,andthusourexposuretointerestratefluctuationshasincreasedsignificantlysincemostofourdebtcontainsvariableinterestrates.Thisexposurewillbemitigatedinthefutureifwemakesignificantpaymentstoreduceouroutstandingborrowings.

OnOctober31,2006,weterminatedourexistingcreditagreementsandreplacedthemwithaNewCreditAgreementthatcontainsa$210.0milliontermnoteanda$100.0millionrevolvingcreditfacility.Boththenewtermnoteandthenewrevolvingcreditfacilityhavevariableratesofinterest.ThenewtermnotehasaninterestrateofLIBORplus2.5%,whichwas7.86%onDecember31,2006.Thenewrevolvingcreditfacilityhasavariableinterestrateforeachcur-rencyinwhichborrowingsaredenominated.ThesevariableratesunderthenewrevolvingcreditfacilityarebasedonLIBORorotherfactorssetbythelenders.AtDecember31,2006,theweighted-averageinterestrateonthenewrevolvingcreditfacilitywas7.73%forallcurrencies.

AsofDecember31,2006,totalborrowingsofapproximately$226.6millionwereoutstandingundertheNewCreditAgreement.Basedonthesetotaloutstandingborrowings,iftheinterestratesincreasedordecreasedby1%,theannualizedimpacttoour

consolidatedpretaxincomewouldbeapproximately$2.3million,or$0.03pershareafterreflectingincometaxes.Basedontotaloutstandingvariable-rateborrowingsofapproximately$28.9millionasofDecember31,2005,a1%increaseordecreaseininterestrateswouldhaveimpacted2005consolidatedpretaxnetincomebyapproximately$289,000,orlessthan$0.01pershareafterreflectingincometaxes.WearecurrentlyevaluatingoptionsavailabletoustoenterintohedgingagreementsthatmayofferussomeprotectionfromfutureincreasesininterestratesonborrowingsoutstandingunderourNewCreditAgreement.

ChangesintheprojectedbenefitobligationsofourdefinedbenefitpensionplansarelargelydependentonchangesinprevailinginterestratesthatweusetovaluetheseobligationsunderSFAS87asoftheplans’respectivemeasurementdates.Ifourassumptionforthediscountratechangedby0.25%,representingeitheranincreaseordecreaseintherate,theprojectedbenefitobligationofourU.S.andU.K.definedbenefitpensionplanswouldhavechangedbyapproximately$19.3million.Theimpactofthischangeto2006consolidatedpretaxincomewouldhavebeenapproximately$1.6million,or$0.02pershareafterreflectingincometaxes.Theimpactofthisanalysishasnotmateriallychangedwhencomparedandappliedto2005.

Totheextentchangesininterestratesonourvariable-rateborrowingsmoveinthesamedirectionaschangesinthediscountrateusedforourdefinedbenefitpensionplans,changesinourinterestexpenseonourborrowingswillbeoffsettosomedegreebychangesinourdefinedbenefitpensioncost.Periodicpensioncostforourdefinedbenefitpensionplansisimpactedprimarilybychangesinlong-terminterestrates,whereasinterestexpenseforourvariable-rateborrowingsisimpactedmoredirectlybychangesinshort-terminterestrates.

Credit�RiskWeprocesspaymentsforclaimssettlements,primarilyonbehalfofourself-insuredclients.Theliabilityforthesettlementcostofclaimsprocessed,whichisgenerallypre-funded,remainswiththeclient.Accordingly,wedonotincursignificantcreditriskintheperformanceoftheseservices.

48 Crawford&Company


CAUtIONARY�StAteMeNt�CONCeRNING��FORwARD-LOOkING�StAteMeNtSThis annual report contains and incorporates by reference forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (the “1995 Act”).

Statements contained in this report that are not historical in nature are forward-looking statements made pursuant to the “safe harbor” provisions of the 1995 Act. These statements are included throughout this report, and in the documents incorporated by reference in this report, and relate to, among other things, projections of revenues, earnings, earnings per share, cash flows, capital expenditures, working capital or other financial items, output, expectations, or trends in revenues or expenses. These state-ments also relate to our business strategy, goals and expectations concerning our market position, future operations, margins, case volumes, profitability, contingencies, debt covenants, liquidity, and capital resources. The words “anticipate,” “believe,” “could,” “would,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “goal,” “strategy,” “predict,” “project,” “will” and similar terms and phrases identify forward-looking statements in this report and in the documents incorporated by reference in this report.

Additional written and oral forward-looking statements may be made by us from time to time in information provided to the Securities and Exchange Commission, press releases, our website, or otherwise.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations and the forward-looking statements related to our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Included

among, but not limited to, the risks and uncertainties we face are: declines in the volume of cases referred to us for many of our service lines associated with the property and casualty insurance industry, global economic conditions, interest rates, foreign currency exchange rates, regu-lations and practices of various governmental authorities, the competitive environment, the financial conditions of our clients, the performance of sublessors under certain subleases related to our leased properties, regulatory changes related to funding of defined benefit pension plans, the fact that our U.S. and U.K. defined benefit pension plans are significantly under-funded, changes in the degree to which property and casualty insurance carriers outsource their claims handling functions, changes in overall employment levels and associated workplace injury rates in the U.S., the ability to identify new revenue sources not tied to the insurance under-writing cycle, the ability to develop or acquire information technology resources to support and grow our business, the ability to attract and retain qualified personnel, renewal of existing major contracts with clients on satisfactory financial terms, general risks associated with doing business outside the U.S., our ability to comply with debt covenants, possible legis-lation or changes in market conditions that may curtail or limit growth in product liability and securities class actions, man-made disasters, and natural disasters, and our integration of Broadspire Management Services, Inc. (“Broadspire”). Therefore you should not place undue reliance on any forward-looking statements.

Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these forward-looking statements in light of new information or future events. All future written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the cautionary statements made herein.


�e management of Crawford & Company is responsible for the integrity and objectivity of the financial information in this annual report. �econsolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, using informedjudgements and estimates where appropriate.

�e Company maintains a system of internal accounting policies, procedures, and controls designed to provide reasonable, but not absolute,assurance that assets are safeguarded and transactions are executed and recorded in accordance with management’s authorization. �e internalaccounting control system is augmented by a program of internal audits and reviews by management, written policies and guidelines, and thecareful selection and training of qualified personnel. Management believes it maintains an effective system of internal accounting controls.

�e Audit Committee of the Board of Directors, comprised solely of outside directors, is responsible for monitoring the Company’s accountingand reporting practices. �e Audit Committee meets regularly with management, the internal auditors, and the independent auditors to reviewthe work of each and to assure that each performs its responsibilities. �e independent auditors, Ernst & Young LLP, were selected by the AuditCommittee of the Board of Directors and approved by shareholder vote. Both the internal auditors and Ernst & Young LLP have unrestrictedaccess to the Audit Committee allowing open discussion, without management present, on the quality of financial reporting and the adequacyof accounting, disclosure and financial reporting controls.

�omas W. Crawford W. Bruce Swain, Jr. W. Forrest BellPresident and Executive Vice President Vice President, CorporateChief Executive Officer and Chief Financial Officer Controller, and Chief

Accounting Officer

March 15, 2007

Management’s Statement on Responsibilityfor Financial Reporting


�e management of Crawford & Company is responsible for establishing and maintaining adequate internal control over financial reporting asdefined in Rules 13a-15(f ) and 15d-15(f ) under the Securities Exchange Act of 1934. �e Company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. �e Company’s internal control over financial reporting includesthose policies and procedures that:

(i) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of theCompany’s assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance withauthorizations of the Company’s management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of theCompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control – Integrated Framework. �is assessment included Company operations other than those acquired in the October 31, 2006acquisition of Broadspire Management Services, Inc. Because the operations of Broadspire Management Services, Inc. were acquired duringthe current year, management excluded these operations from its assessment as permitted by the Securities and Exchange Commission. BroadspireManagement Services, Inc. constituted approximately $343.2 million and $151.6 million of total and net assets, respectively, as of December 31,2006 and approximately $33.1 million and $1.4 million of total revenues and net income, respectively, for the year then ended. As permitted bythe Securities and Exchange Commission, management will complete and report on its assessment of internal control over financial reportingfor Broadspire Managment Services Inc. operations in the next annual management report on internal control over financial reporting.

Based on this assessment, excluding the operations discussed above, management determined that the Company maintained effective internalcontrol over financial reporting as of December 31, 2006.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been auditedby Ernst & Young LLP, an independent registered public accounting firm, as stated in their report dated March 15, 2007, which is included herein.

�omas W. Crawford W. Bruce Swain, Jr. W. Forrest BellPresident and Executive Vice President Vice President, CorporateChief Executive Officer and Chief Financial Officer Controller, and Chief

Accounting Officer

March 15, 2007

Management’s Report on Internal Controlover Financial Reporting


�e Shareholders and Board of Directors of Crawford & CompanyWe have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting,that Crawford & Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria establishedin Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).Crawford & Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinionon the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). �ose standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating man-agement’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting prin-ciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusionon the effectiveness of internal control over financial reporting did not include the internal controls of Broadspire Management Services, Inc., whichwas acquired in 2006 and is included in the 2006 consolidated financial statements of Crawford & Company and constituted approximately$343.2 million and $151.6 million of total and net assets, respectively, as of December 31, 2006 and approximately $33.1 million and $1.4 millionof total revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Crawford &Company also did not include an evaluation of the internal control over financial reporting of Broadspire Management Services, Inc.

In our opinion, management’s assessment that Crawford & Company maintained effective internal control over financial reporting as ofDecember 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Crawford & Company main-tained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets of Crawford & Company as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’investment, and cash flows for each of the three years in the period ended December 31, 2006, and our report dated March 15, 2007 expressedan unqualified opinion thereon.

Atlanta, GeorgiaMarch 15, 2007

Report of Independent Registered Public Accounting Firm


�e Shareholders and Board of Directors of Crawford & CompanyWe have audited the accompanying consolidated balance sheets of Crawford & Company as of December 31, 2006 and 2005, and the relatedconsolidated statements of income, shareholders’ investment, and cash flows for each of the three years in the period ended December 31, 2006.�ese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). �ose standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Crawford& Company at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting StandardsNo. 123R, Share-Based Payment, and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectivenessof Crawford & Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007expressed an unqualified opinion thereon.

Atlanta, GeorgiaMarch 15, 2007

Report of Independent Registered Public Accounting Firm

2006AnnualReport 53

(in thousands, except per share amounts)

FORTHEYEARSENDEDDECEMBER31, 2006 2005 2004

RevenuesfromServices: Revenuesbeforereimbursements $ 819,522 $ 771,983 $ 733,567 Reimbursements 80,858 82,784 78,095 TotalRevenues 900,380 854,767 811,662

CostsandExpenses: Costsofservicesprovided,beforereimbursements 638,174 607,951 565,863 Reimbursements 80,858 82,784 78,095 Totalcostsofservices 719,032 690,735 643,958

Selling,general,andadministrativeexpenses 151,497 138,947 135,318 Corporateinterestexpense,netofinterestincomeof$2,393,$714,

and$2,363,respectively 5,753 5,145 3,536 Restructuringcosts 1,695 – – TotalCostsandExpenses 877,977 834,827 782,812

LossonEarlyRetirementofDebt (1,401) – –GainonSaleofBusiness 3,069 – –GainonSaleofAsset – – 8,573

IncomebeforeIncomeTaxes 24,071 19,940 37,423ProvisionforIncomeTaxes 9,060 7,059 12,251NetIncome $ 15,011 $ 12,881 $ 25,172EarningsPerShare: Basic $ 0.30 $ 0.26 $ 0.52 Diluted $ 0.30 $ 0.26 $ 0.51AverageNumberofSharesUsedtoCompute: BasicEarningsPerShare 49,423 48,930 48,773 DilutedEarningsPerShare 49,576 49,347 48,996CashDividendsPerShare: ClassAandClassBCommonStock $ 0.18 $ 0.24 $ 0.24The accompanying notes are an integral part of these consolidated financial statements.

ConsolidatedStatementsofIncome

54 Crawford&Company

(in thousands)

ASOFDECEMBER31, 2006 2005

ASSETSCurrentAssets: Cashandcashequivalents $ 61,674 $ 46,848 Short-terminvestment 5,000 5,000 Accountsreceivable,lessallowancefordoubtfulaccountsof

$16,802in2006and$15,986in2005 178,447 163,087 Unbilledrevenues,atestimatedbillableamounts 117,098 109,319 Prepaidexpensesandothercurrentassets 19,924 14,964TotalCurrentAssets 382,143 339,218

PropertyandEquipment: Propertyandequipment 140,729 150,008 Lessaccumulateddepreciation (99,845) (113,071)NetPropertyandEquipment 40,884 36,937

OtherAssets: Goodwill,net 256,700 110,035 Intangibleassetsarisingfrombusinessacquisitions,net 127,869 – Capitalizedsoftwarecosts,net 36,903 33,068 Deferredincometaxasset,net 13,498 38,217 Othernoncurrentassets 34,991 16,596TotalOtherAssets 469,961 197,916

$ 892,988 $ 574,071The accompanying notes are an integral part of these consolidated financial statements.

ConsolidatedBalanceSheets

2006AnnualReport 55

(in thousands)

ASOFDECEMBER31, 2006 2005

LIABILITIESANDSHAREHOLDERS’INVESTMENTCurrentLiabilities: Short-termborrowings $ 27,795 $ 28,888 Accountspayable 42,262 38,085 Accruedcompensationandrelatedcosts 64,636 52,377 Self-insuredrisks 21,722 17,664 Accruedincometaxes 363 17,880 Otheraccruedliabilities 46,526 28,077 Deferredrevenues 68,359 19,608 Depositonsaleofcorporateheadquarters 8,000 – Currentinstallmentsoflong-termdebtandcapitalleases 2,621 6,441TotalCurrentLiabilities 282,284 209,020

NoncurrentLiabilities: Long-termdebtandcapitalleases,lesscurrentinstallments 199,044 45,810 Deferredrevenues 77,110 10,409 Self-insuredrisks 12,338 9,122 Accruedpensionliabilities 90,058 101,406 Post-retirementmedicalbenefitobligation 2,440 4,569 Othernoncurrentliabilities 14,019 10,355TotalNoncurrentLiabilities 395,009 181,671

Minorityinterestinequityofconsolidatedaffiliates 4,544 4,349

Shareholders’Investment:

ClassAcommonstock,$1.00parvalue,50,000sharesauthorized;25,741and 24,293sharesissuedandoutstandingin2006and2005 25,741 24,293

ClassBcommonstock,$1.00parvalue,50,000sharesauthorized;24,697 sharesissuedandoutstandingin2006and2005 24,697 24,697

Additionalpaid-incapital 15,468 6,311 Unearnedstock-basedcompensation – (37) Retainedearnings 207,891 202,351 Accumulatedothercomprehensiveloss (62,646) (78,584)TotalShareholders’Investment 211,151 179,031

$ 892,988 $ 574,071The accompanying notes are an integral part of these consolidated financial statements.

ConsolidatedBalanceSheets

56 Crawford&Company

CommonStock Unearned Stock-Based Compensation

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Total Shareholders’ Investment(in thousands)

ClassA Non-Voting

ClassB Voting

BalanceatDecember31,2003 $ 24,027 $ 24,697 $ – $ 5,005 $187,747 $ (68,882) $172,594Comprehensiveincome: Netincome – – – – 25,172 – 25,172 Currencytranslationadjustments,net – – – – – 10,260 10,260 Minimumpensionliabilityadjustment

(netof$1.3milliontax) – – – – – (2,218) (2,218)Totalcomprehensiveincome 33,214 Cashdividendspaid – – – – (11,706) – (11,706) Sharesissuedinconnectionwithemployeebenefitplans 130 – – 601 – – 731BalanceatDecember31,2004 24,157 24,697 – 5,606 201,213 (60,840) 194,833Comprehensiveloss: Netincome – – – – 12,881 – 12,881 Currencytranslationadjustments,net – – – – – (656) (656) Minimumpensionliabilityadjustment

(netof$7.7milliontax) – – – – – (17,088) (17,088)Totalcomprehensiveloss (4,863) Cashdividendspaid – – – – (11,743) – (11,743) Restrictedsharesissued 5 – (37) 32 – – – Taxbenefitfromexercisesofstockoptions – – – 90 – – 90 Stock-basedcompensationcosts – – – 92 – – 92 Sharesissuedinconnectionwithemployeebenefitplans 131 – – 491 – – 622BalanceatDecember31,2005 24,293 24,697 (37) 6,311 202,351 (78,584) 179,031Comprehensiveincome: Netincome – – – – 15,011 – 15,011 Currencytranslationadjustments,net – – – – – 3,857 3,857 Accruedretirementliabilitiesadjustment

(netof$2.9milliontax) – – – – – 12,178 12,178Totalcomprehensiveincome 31,046 Cashdividendspaid – – – – (8,869) – (8,869) SFAS123Radoptionreclass – – 37 (37) – – – ImpactofSFAS158adoption(netof$0.1milliontax) – – – – – (97) (97) Restrictedsharesissued 156 – – (156) – – – Stock-basedcompensationcosts – – – 3,567 – – 3,567 SaleofSouthAfricasubsidiarystock – – – – (602) – (602) Sharesissuedwithpurchaseofe-Triage 843 – – 4,320 – – 5,163 Sharesissuedinconnectionwithemployeebenefitplans 449 – – 1,463 – – 1,912BalanceatDecember31,2006 $ 25,741 $ 24,697 $ – $15,468 $207,891 $(62,646) $211,151

The accompanying notes are an integral part of these consolidated financial statements.

ConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss)

2006AnnualReport 57

(in thousands)

FORTHEYEARSENDEDDECEMBER31, 2006 2005 2004

CashFlowsfromOperatingActivities: Netincome $ 15,011 $ 12,881 $ 25,172 Reconciliationofnetincometonetcashprovidedbyoperatingactivities: Depreciationandamortizationexpense 20,545 19,183 18,177 Deferredincometaxprovision 3,063 3,926 3,758 Stock-basedcompensationcosts 3,567 92 – Loss(gain)onsalesofland,property,andequipment 267 271 (7,786) Lossonearlyextinguishmentofdebt 1,401 – – Gainonsaleofinvestigationsbusiness (3,069) – – Changesinoperatingassetsandliabilities,netofeffectsofacquisitionsanddisposition: 11,078 12,422 (30,726) Accountsreceivable,net Unbilledrevenues,net 6,144 (6,085) 3,191 Prepaidoraccruedincometaxes (2,920) (7,230) 11,246 Accountspayableandaccruedliabilities 210 6,821 9,444 Deferredrevenues (6,091) (3,105) 2,947 Accruedretirementcosts 5,064 2,725 1,647 Prepaidexpensesandother (1,553) (1,140) (1,257)Netcashprovidedbyoperatingactivities 52,717 40,761 35,813

CashFlowsfromInvestingActivities: Acquisitionsofpropertyandequipment (12,888) (13,233) (10,666) Capitalizationofsoftwarecosts (9,852) (7,040) (7,574) Proceedsfrom2004saleofundevelopedland – 7,562 2,028 Proceedsfromsaleofcorporateheadquarters 8,000 – – Proceedsfromsaleofinvestigationsbusiness 3,000 – – Paymentsforbusinessacquisitions,netofcashacquired (162,461) (121) (617) Proceedsfromsalesofpropertyandequipment 181 330 250 Otherinvestingactivity,net (586) (112) –Netcashusedininvestingactivities (174,606) (12,614) (16,579)

CashFlowsfromFinancingActivities: Dividendspaid (8,869) (11,743) (11,706) Proceedsfromemployeestock-basedcompensationplans 1,912 622 731 Increaseinshort-termborrowings 37,642 1,799 84 Paymentsonshort-termborrowings (39,259) (8,426) (10,031) Proceedsfromlong-termdebt 210,000 – – Paymentsonlong-termdebtandcapitalleases (60,946) (1,389) (1,347) Feepaidfortheearlyextinguishmentofdebt (793) – – Capitalizedloancosts (3,901) (313) (31) Netcashprovidedby(usedin)financingactivities 135,786 (19,450) (22,300)Effectsofexchangeratechangesoncashandcashequivalents 929 (420) 832Increase(Decrease)inCashandCashEquivalents 14,826 8,277 (2,234)CashandCashEquivalentsatBeginningofYear 46,848 38,571 40,805CashandCashEquivalentsatEndofYear $ 61,674 $ 46,848 $ 38,571The accompanying notes are an integral part of these consolidated financial statements.

ConsolidatedStatementsofCashFlows

NotestoConsolidatedFinancialStatements

58 Crawford&Company

1 � �MAjOR�ACCOUNtING�AND�RePORtING�POLICIeS

Nature�of�Operations�and�Industry�ConcentrationBasedinAtlanta,Georgia,Crawford&Companyistheworld’slargestindependentproviderofclaimsmanagementsolutionstoinsurancecompaniesandself-insuredentitiesbasedonannualrevenues,withaglobalnetworkofmorethan700locationsin63countries.Majorservicelinesincludepropertyandcasualtyclaimsmanagement,integratedclaimsandmedicalmanagementforworkers’compensation,legalsettlementadministrationincludingclassactionandwarrantyinspections,andriskmanagementinfor-mationservices.TheCompany’ssharesaretradedontheNewYorkStockExchangeunderthesymbolsCRDAandCRDB.

Principles�of�ConsolidationTheaccompanyingconsolidatedfinancialstatementsarepreparedinaccordancewithU.S.generallyacceptedaccountingprinciplesandincludetheaccountsoftheCompany,itsmajority-ownedsub-sidiaries,andvariableinterestentitiesinwhichtheCompanyisdeemedtobetheprimarybeneficiary.Significantintercompanytransactionsareeliminatedinconsolidation.ThefinancialstatementsoftheCompany’sinternationalsubsidiariesotherthanCanadaandtheCaribbeanareincludedintheCompany’sconsolidatedfinancialstatementsonatwo-monthdelayedbasisinordertoprovidesufficienttimeforaccumulationoftheirresults.

TheCompanyusesthepurchasemethodofaccountingforallacquisitionswheretheCompanyisrequiredtoconsolidatetheacquiredentityintotheCompany’sfinancialstatements.ResultsofoperationsofacquiredbusinessesareincludedintheCompany’sconsolidatedresultsfromtheacquisitiondate.

TheCompanyusestheprovisionsofFinancialAccountingStandardsBoard(“FASB”)InterpretationNo.46–Revised,“ConsolidationofVariableInterestEntities,anInterpretationofARBNo.51,”(“FIN46R”)andrelatedinterpretationsforidentifyingavariableinterestentity(“VIE”)anddeterminingwhentheCompanyshouldincludetheassets,liabilities,noncontrollinginterests,andresultsofoperations

ofaVIEinitsconsolidatedfinancialstatements.TheCompanyconsolidatestheliabilitiesofitsdeferredcompensationplanandtherelatedassets,whichareheldinarabbitrustandconsideredavariableinterestentityoftheCompanyunderFIN46R.AtDecember31,2006and2005,theliabilitiesunderthisdeferredcompensationplanwere$8,330,000and$8,064,000,respectively,andthefairvalueoftheassetsheldintherelatedrabbitrustwere$13,487,000and$13,436,000,respectively.TheCompanyalsoconsolidatestheresultsofTinoInsuranceSurveyors&AdjustersCo.,Ltd.(“Tino”)undertheprovi-sionsofFIN46R.TheCompanyowns24.99%oftheequitysharesofTino,whichislocatedinthePeoplesRepublicofChina.TheCompany’sownershipinterestinTinowaseffectivein2006afterChineseregula-toryapproval.TheCompany’sinvestmentinTinoandtheresultsofTino’soperationsarenotmaterialtotheCompany’sfinancialposition,resultsofoperations,orcashflows.

Prior�Year�Reclassifications�and�CorrectionsCertainprioryearamountshavebeenreclassifiedtoconformtothecurrentyearpresentation.

In2003,theCompanyacquireda$5,000,000auctionratesecurityandclassifieditascashandcashequivalentsinitsConsolidatedBalanceSheet.AtDecember31,2006,theCompanyreclassifiedthisauctionratesecurityasamarketablesecurity.Thesetypesofinvestmentsgen-erallyhavelong-termmaturitiesofupto30years,buthavecertaincharacteristicsofshort-terminvestmentsduetoaninterestratesettingmechanismandtheabilitytoliquidatethemthroughanauctionpro-cessthatoccursonintervalsofupto30days.TheCompanyclassifiesthisinvestmentasshort-term.TheCompany’sintentinholdingthissecurityistohavethecashavailableforcurrentoperations.Duetomanagement’sintent,thissecurityisclassifiedasavailableforsale.ThisreclassificationdidnotaffecttheCompany’snetincomeorresultsofoperations.Thereclassificationofthesecurityasamarket-ablesecurityaswellasanypurchasesorsalesdonotimpactnetcashprovidedbyoperatingactivities.ThereclassificationoftheCompany’sauctionratesecurityonitsDecember31,2005ConsolidatedBalanceSheetreducedcashandcashequivalentsby$5,000,000andincreasedshort-terminvestmentfromzeroto$5,000,000.

2006AnnualReport 59

TheCompanyhasreclassifiedoutstandingchecksinexcessoffundsondepositwithaparticularbankfromcashtoacurrentliability.OntheCompany’sConsolidatedBalanceSheetatDecember31,2005,reclassificationshavebeenmadetobalancesoriginallyreportedintheprioryeartoincreaseCashandCashEquivalentsby$2,407,000andincreaseOtherAccruedLiabilitiesbythesameamount.

PriortoDecember31,2006,theCompanyreportedminorityinterestsintheequityofconsolidatedaffiliateswithinAccountsPayableonitsConsolidatedBalanceSheet.OntheCompany’sConsolidatedBalanceSheet,theDecember31,2005amountreportedforAccountsPayablehasbeenreducedby$4,349,000fromthepreviouslyreportedamountsinceminorityinterestintheequityofconsolidatedaffiliatesisnowshownseparately.Asaresult,workingcapitalatDecember31,2005increased$4,349,000fromtheamountoriginallyreported.ThisreclassificationhadnoimpactontheCompany’sresultsofoperationsorcashflows.

During2002,theCompanyrecordedinAccumulatedOtherComprehensiveLossataxbenefitof$4,165,000relatedtoexercisesofstockoptions.Duringthethirdquarterof2005,theCompanyreclassifiedthis$4,165,000taxbenefitfromAccumulatedOtherComprehensiveLosstoAdditionalPaid-InCapitalwithinShare-holders’InvestmentasrequiredbyAccountingPrinciplesBoardOpinionNo.25,“AccountingforStockIssuedtoEmployees”(“APB25”).Thisreclassification,whichisacorrectionofapriorerror,hadnonetimpactontheCompany’snetincome,financialposition,shareholders’investment,orcashflows.ThisreclassificationhasbeenreflectedintheCompany’sConsolidatedBalanceSheetsandConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss)asofDecember31,2003.Relatedtothisreclassification,thefollowingrevisionshavebeenmadetotheCompany’sConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss)andtheConsolidatedBalanceSheets:

AdditionalPaid-InCapital

AccumulatedOtherComprehensiveLoss

(in thousands)AsOriginally

Reported RevisedAsOriginally

Reported Revised

Balanceat:

December31,2003 $ 840 $ 5,005 $ (64,717) $ (68,882)

December31,2004 1,441 5,606 (56,675) (60,840)

TotalAccumulatedOtherComprehensiveLossasreportedinNote1,MajorAccountingandReportingPolicies,totheCompany’sconsolidatedfinancialstatementsoriginallyissuedfortheyearendedDecember31,2004,hasbeenrevisedasfollowstoreflectthisreclassification:

(in thousands) 2004

Minimumpensionliabilities $ (107,281)

Taxbenefitonminimumpensionliabilities 39,083

Minimumpensionliabilities,netoftaxbenefit (68,198)

Cumulativetranslationadjustment 7,358

Totalaccumulatedothercomprehensiveloss $ (60,840)

Management’s�Use�of�estimatesThepreparationoffinancialstatementsinconformitywithU.S.generallyacceptedaccountingprinciplesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,disclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements,andthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.

Fair�value�of�Financial�InstrumentsThefairvalueoffinancialinstrumentsclassifiedascurrentassetsorcurrentliabilities,includingcashandcashequivalents,short-terminvestments,accountsreceivable,accountspayable,andshort-termborrowings,approximatescarryingvalueduetotheshort-termmatu-rityoftheinstruments.ThefairvalueoftheCompany’svariable-ratelong-termdebtapproximatescarryingvaluebasedontheeffectiveinterestratescomparedtocurrentmarketrates.

Cash�and�Cash�equivalentsCashandcashequivalentsconsistofcashonhandandmarketablesecuritieswithoriginalmaturitiesofthreemonthsorless.

Marketable�SecuritiesMarketablesecuritiesareclassifiedasavailable-for-salebasedonman-agement’scurrentintentionswithregardtoholdingthesesecurities.TheCompanycarriesthesesecuritiesatfairmarketvaluebasedoncurrentmarketquotesandreportsanyunrealizedgainsandlossesinshareholders’equityasacomponentofothercomprehensiveincome(loss).Gainsorlossesonsecuritiessoldarebasedonthespecific


60 Crawford&Company

identificationmethod.TheCompany’spolicyistoonlyinvestinhigh-gradebondsissuedbycorporations,governmentagencies,andmunicipalities.TheCompanyreviewsitsinvestmentportfolioasdeemednecessaryand,whereappropriate,adjustsindividualsecuri-tiesforother-than-temporaryimpairments.TheCompanyhadnomaterialunrealizedgainorlossatDecember31,2005or2006.Thesesecuritiesarenotheldforspeculativeortradingpurposes.

Accounts�Receivable�and�Allowance�for�Doubtful�AccountsTheCompanyextendscreditbasedonanevaluationofaclient’sfinancialconditionand,generally,collateralisnotrequired.Accountsreceivablearetypicallyduewithin30daysandarestatedontheConsolidatedBalanceSheetatamountsduefromclientsnetofanestimatedallowancefordoubtfulaccounts.Accountsoutstandinglongerthanthecontractualpaymenttermsareconsideredpastdue.

TheCompanymaintainsanallowancefordoubtfulaccountsforestimatedlossesresultingprimarilyfromtheinabilityofclientstomakerequiredpaymentsandforadjustmentsclientsmaymaketoinvoicedamounts.Lossesresultingfromtheinabilityofclientstomakerequiredpaymentsareaccountedforasbaddebtexpense,whileadjustmentstoinvoicesareaccountedforasreductionstorevenue.Theseallow-ancesareestablishedusinghistoricalwrite-offinformationtoprojectfutureexperienceandbyconsideringthecurrentcreditworthinessofclients,anyknownspecificcollectionproblems,andanassessmentofcurrentinsuranceindustryconditions.TheCompanywritesoffaccountsreceivablewhentheybecomeuncollectible,andanypay-mentssubsequentlyreceivedareaccountedforasrecoveries.FortheyearsendedDecember31,2006,2005,and2004,theCompany’sadjustmentstorevenuesassociatedwithclientinvoiceadjustmentstotaled$7,819,000,$8,269,000and$7,482,000,respectively.

TheCompany’sallowancefordoubtfulaccountsonbilledaccountsreceivableswas$16,802,000,$15,986,000,$21,859,000,and$20,832,000respectively,atDecember31,2006,2005,2004,and2003.ProvisionsfordoubtfulaccountsfortheyearsendedDecember31,2006,2005,and2004totaled$1,340,000,$1,389,000,and$3,864,000,respectively.Write-offsofaccountsreceivables,netofrecoveries,totaled$3,200,000,$7,138,000,and$3,094,000fortheyearsendedDecember31,2006,2005,and2004,respectively.Otheradjustments,includingchangesintheallowanceduetoforeign

currencyexchangerates,were($174,000),($124,000),and$257,000fortheyearsendedDecember31,2006,2005,and2004,respectively.During2006,theCompany’sallowancefordoubtfulaccountswasincreasedby$2,850,000whentheCompanyrecordedthefairvalueofnetassetsacquiredfromtheacquisitionofBroadspireManagementServices,Inc.

Goodwill�and�Other�Long-Lived�AssetsGoodwillrepresentstheexcessofthepurchasepriceoverthefairvalueoftheseparatelyidentifiablenetassetsacquired,includingintangibleassetsarisingfrombusinesscombinations.TheCompanyperformsimpairmenttestseachyearandregularlyevaluateswhethereventsandcircumstanceshaveoccurredwhichindicatethatthecarryingamountsofgoodwillandotherlong-livedassets(primarilyacquisition-relatedintangibleassets,propertyandequipment,deferredincometaxassets,andcapitalizedsoftware)maywarrantrevisionormaynotberecoverable.Whenfactorsindicatethatsuchassetsshouldbeevaluatedforpossibleimpairment,theCompanyperformsanimpairmenttestinaccordancewithStatementofFinancialAccountingStandards(“SFAS”)142,“GoodwillandOtherIntangibleAssets(“SFAS142”),forgoodwillandindefinite-livedintangibleassets,SFAS109,“AccountingforIncomeTaxes”(“SFAS109”),fordeferredincometaxassets,andSFAS144,“AccountingfortheImpairmentorDisposalofLong-LivedAssets”(“SFAS144”),forotherlong-livedassets.

Reportingunitsforgoodwillimpairmenttestingpurposesareidentifiedattheoperatingsegmentlevel.EffectiveOctober31,2006,theCompanyincreasedthenumberofoperatingsegmentsfromtwotofour.TheCompany’soperatingsegmentsaredeemedtobereportingunitssincethecomponentsofeachoperatingsegmenthavesimilareconomiccharacteristics.WhenchangestotheCompany’sreportingstructureimpactthecompositionoftheCompany’sreportingunits,existinggoodwillisreallocatedtotherevisedreportingunitsbasedontheirrelativefairmarketvaluesasdeterminedbyadiscountedcashflowanalysis.Ifalloftheassetsandliabilitiesofanacquiredbusinessareassignedtoaspecificreportingunit,thenthegoodwillassociatedwiththatacquisitionisassignedtothatreportingunitatacquisitionunlessanotherreportingunitisalsoexpectedtobenefitfromtheacquisition.

2006AnnualReport 61

Property�and�equipmentPropertyandequipmentarestatedatcostlessaccumulateddepreciation.Propertyandequipment,includingassetsundercapitalleases,consistedofthefollowingatDecember31,2006and2005:

(in thousands) 2006 2005

Land $ 561 $ 1,407

Buildingsandimprovements 20,687 25,260

Furnitureandfixtures 57,851 56,899

Dataprocessingequipment 55,962 61,072

Automobiles 5,668 5,370

Totalpropertyandequipment 140,729 150,008

Lessaccumulateddepreciation (99,845) (113,071)

Netpropertyandequipment $ 40,884 $ 36,937

Additionstopropertyandequipmentundercapitalleasestotaled$314,000,$253,000,and$441,000for2006,2005,and2004,respectively.Additionstopropertyandequipmentthatwerefundedbylessorstotaled$1,614,000and$2,095,000fortheyearsendedDecember31,2006and2005.

TheCompanydepreciatesthecostofpropertyandequipment,includingassetsrecordedundercapitalleases,overtheshorteroftheremainingleasetermortheestimatedusefullivesoftherelatedassets,primarilyusingthestraight-linemethod.Theestimatedusefullivesforpropertyandequipmentclassificationsareasfollows:

Classification EstimatedUsefulLives

Furnitureandfixtures 3–10 years

Dataprocessingequipment 3–5 years

Automobiles 3–4 years

Buildingsandimprovements 7–40 years

Depreciationexpenseonpropertyandequipment,includingpropertyundercapitalleasesandamortizationofleaseholdimprovements,was$12,166,000,$12,385,000,and$12,233,000fortheyearsendedDecember31,2006,2005,and2004,respectively.

Capitalized�SoftwareCapitalizedsoftwarereflectscostsrelatedtointernallydevelopedorpurchasedsoftwareusedinternallybytheCompanythathasfutureeconomicbenefits.OnlyinternalandexternalcostsincurredduringtheapplicationstageofdevelopmentarecapitalizedinaccordancewithAICPAStatementofPosition(“SOP”)98-1,“AccountingforComputerSoftwareDevelopedorObtainedforInternalUse.”Costsincurredduringthepreliminaryprojectandpostimplementationstages,includingtrainingandmaintenancecosts,areexpensedasincurred.Themajorityofthesecapitalizedsoftwarecostsconsistsofinternalpayrollcostsandexternalpaymentsforsoftwarepurchasesandrelatedservices.Thesecapitalizedcomputersoftwarecostsareamortizedoverperiodsrangingfromthreetotenyears,dependingontheestimatedlifeofeachsoftwareapplication.Atleastannually,theCompanyevaluatescapitalizedsoftwareforimpairmentinaccor-dancewithSFAS144.Amortizationexpenseforcapitalizedsoftwarewas$7,255,000,$6,798,000and$5,944,000fortheyearsended2006,2005,and2004,respectively.

Self-Insured�RisksTheCompanyself-insurescertaininsurablerisksconsistingprimarilyofprofessionalliability,employeemedicalanddisability,workers’compensation,andautoliability.Insurancecoverageisobtainedforcatastrophicpropertyandcasualtyexposures,includingprofessionalliabilityonaclaims-madebasis,andthoserisksrequiredtobeinsuredbylaworcontract.Provisionsforclaimsundertheself-insuredpro-gramsaremadebasedontheCompany’sestimatesoftheaggregateliabilitiesforclaimsincurred,lossesthathaveoccurredbuthavenotbeenreportedtotheCompany,andforadversedevelopmentsonreportedlosses.Theestimatedliabilitiesarecalculatedbasedonhis-toricalclaimspaymentexperience,theexpectedlivesoftheclaims,andotherfactorsconsideredrelevantbymanagement.TheliabilitiesforclaimsincurredundertheCompany’sself-insuredworkers’com-pensationandemployeedisabilityprogramsarediscountedattheprevailingrisk-freerateforgovernmentissuesofanappropriateduration.Allotherself-insuredliabilitiesareundiscounted.AtDecember31,2006and2005,accruedself-insuredriskstotaled$34,060,000and$26,786,000,respectively,includingcurrentliabilitiesof$21,722,000and$17,664,000,respectively.


62 Crawford&Company

Defined�Benefit�Pension�and�Postretirement�PlansTheCompanyusesSFAS87,“Employers’AccountingforPensions”(“SFAS87”),andrelatedguidancetorecognizecomponentsofnetperiodicbenefitcostsforitsdefinedbenefitpensionplans.Theprin-cipalobjectiveofSFAS87istomeasurenetperiodicbenefitcostassociatedwithdefinedbenefitpensionplansandtorecognizethatcostovertheemployees’serviceperiods.TheCompany’sU.S.definedbenefitpensionplanwasfrozenasofDecember31,2002.TheCompanyusesSFAS106,“Employers’AccountingforPostretirementBenefitsOtherThanPensions”(“SFAS106”),andrelatedinterpreta-tionstorecognizecomponentsofnetperiodicbenefitcostsforitsfrozenretireemedicalbenefitsplan.Thebenefitsearnedandcostsrecognizedovertheemployees’serviceperiodsforthedefinedbenefitpensionplansandretireemedicalbenefitplanarecomputedbyindependentactuariesusingtheplans’benefitformulas.

EffectiveDecember31,2006,theCompanyadoptedtherecognitionanddisclosureprovisionsofSFAS158,“Employers’AccountingforDefinedBenefitPensionandOtherPostretirementPlans,anamend-mentofFASBStatementsNo.87,88,103,and132R”(“SFAS158”).SFAS158requirestherecognitionofaliabilityintheCompany’sconsolidatedbalancesheetforitsunderfundeddefinedbenefitpensionplansanditsunfundedretireemedicalbenefitsplan.TheunderfundedstatusoftheCompany’sdefinedbenefitpensionplansisthedifferencebetweenthefairvalueofplanassetsandthepro-jectedbenefitobligationateachmeasurementdate.TheunfundedstatusoftheCompany’sfrozenretireemedicalbenefitplanisequaltotheaccumulatedpostretirementbenefitobligationateachmea-surementdate.SFAS158requirestheCompanytorecognizeasacomponentofaccumulatedothercomprehensiveincome(loss),netofincometaxes,amountsaccumulatedatDecember31,2006duetodelayedrecognitionofactuarialgainsandlossesandtransitionassets.Amountsrecognizedinaccumulatedothercomprehensiveincome(loss)willbeadjustedinthefutureastheyaresubsequentlyrecog-nizedascomponentsofnetperiodicbenefitcostpursuanttotherecognitionandamortizationprovisionsofSFAS87andSFAS106.InaccordancewiththetransitionprovisionsofSFAS158,onDecember31,2008theCompanywillalsoadopttherequirementsofSFAS158tomeasureplans’assetsandbenefitobligationsasofthedateoftheCompany’syear-endConsolidatedBalanceSheet.

ExternaltrustsaremaintainedtoholdassetsoftheCompany’sdefinedbenefitpensionplans.TheCompany’sfundingpolicyistomakecashcontributionsinamountssufficienttomaintaintheplansonanactuariallysoundbasis,butnotinexcessofamountsdeductibleunderapplicableincometaxregulations.

Revenue�RecognitionTheCompany’srevenuesareprimarilycomprisedofclaimsprocessingorprogramadministrationfees.BoththeU.S.PropertyandCasualtysegmentandtheInternationalOperationssegmentearnrevenuesbyprovidingfieldinvestigationandevaluationofpropertyandcasualtyclaimsforinsurancecompanies.Broadspireprimarilyservesself-insuredclientsandearnsrevenuesbyprovidinginitiallossreportingservicesfortheirclaimants,lossmitigationservicessuchasmedicalcasemanagementandvocationalrehabilitation,administrationoftrustfundsestablishedtopayclaims,andriskmanagementinformationservices.TheLegalSettlementAdministrationsegmentearnsrevenuesbyprovidinglegalsettlementadministrationservicesrelatedtosettle-mentsofsecuritiescases,productliabilitycases,bankruptcynoticinganddistribution,andotherlegalsettlements,byidentifyingandqualifyingclassmembers,determininganddispensingsettlementpayments,andadministeringthesettlementfunds.Certainout-of-pocketcostsincurredbytheCompanyinadministeringclaimsarereimbursedbyclientsandincludedintotalrevenuesasreimbursements.

Feesforprofessionalservicesarerecognizedinunbilledrevenuesatthetimesuchservicesarerenderedatestimatedcollectibleamounts.Substantiallyallunbilledrevenuesarebilledwithinoneyear.

Deferredrevenuesrepresenttheestimatedunearnedportionoffeesderivedfromcertainfixed-rateclaimserviceagreements.TheCompany’sfixed-feeservicearrangementstypicallycallfortheCompanytohandleclaimsoneitheraone-ortwo-yearbasis,orforthelifetimeoftheclaim.Incaseswheretheclaimishandledonanon-lifetimebasis,anadditionalfeeistypicallyreceivedoneachanniversarydatethattheclaimremainsopen.ForservicearrangementswheretheCompanyprovidesservicesforthelifeoftheclaim,theCompanyonlyreceivesonefeeforthelifeoftheclaim,regardlessoftheultimatedurationoftheclaim.Deferredrevenuesarerecognizedbasedontheestimatedrateatwhichtheservicesareprovided.Theseratesareprimarilybasedonanhistoricalevaluationofactualclaimclosingratesbymajorlineofcoverage.

2006AnnualReport 63

Income�taxes�TheCompanyaccountsforcertainincomeandexpenseitemsdifferentlyforfinancialreportingandincometaxpurposes.Provisionsfordeferredtaxesaremadeinrecognitionofthesetemporarydifferences.Themostsignificantdifferencesrelatetominimumpensionliabilities,unbilledanddeferredrevenues,self-insurance,anddepreciationandamortization.

Forfinancialreportingpurposes,inaccordancewiththeliabilitymethodofaccountingforincometaxesasspecifiedinSFAS109,theprovisionforincometaxesisthesumofincometaxesbothcur-rentlypayableandpayableonadeferredbasis.Currentlypayableincometaxesrepresenttheliabilityrelatedtotheincometaxreturnsforthecurrentyear,whilethenetdeferredtaxexpenseorbenefitrepresentsthechangeinthebalanceofdeferredtaxassetsorliabilitiesasreportedontheConsolidatedBalanceSheets.Thechangesindeferredtaxassetsandliabilitiesaredeterminedbaseduponchangesinthedifferencesbetweenthebasisofassetsandliabilitiesforfinan-cialreportingpurposesandthebasisofassetsandliabilitiesforincometaxpurposes,measuredbytheenactedstatutorytaxratesineffectfortheyearinwhichtheCompanyestimatesthesedifferenceswillreverse.

TheCompanymustestimatethetimingofthereversaloftemporarydifferences,aswellaswhethertaxableincomeinfutureperiodswillbesufficienttofullyrecognizeanygrossdeferredtaxassets.Otherfactorswhichinfluencetheeffectivetaxrateusedforfinancialreport-ingpurposesincludechangesinenactedstatutorytaxrates,changesinthecompositionoftaxableincomefromthecountriesinwhichtheCompanyoperates,andtheabilityoftheCompanytoutilizenetoperatinglosscarryforwardsincertainofitsinternationalsubsidiaries.

earnings�Per�ShareBasicearningspershare(“EPS”)arecomputedbasedontheweighted-averagenumberoftotalcommonsharesoutstandingduringtherespectiveperiods.Unvestedgrantsofrestrictedstock,eventhoughlegallyoutstanding,arenotincludedintheweighted-averagenumberofcommonsharesforpurposesofcomputingbasicEPS.DilutedEPSarecomputedunderthe“treasurystock”methodbasedontheweighted-averagenumberoftotalcommonsharesoutstanding

(excludingunvestedsharesofrestrictedstockissued),plusthedilutiveeffectof:outstandingstockoptions,estimatedsharesissuableunderemployeestockpurchaseplans,andnonvestedsharesundertheexec-utivestockbonusplanthatvestbasedonserviceconditionsoronperformanceconditionsthathavebeenachieved.

BelowisthecalculationofbasicanddilutedEPSfortheyearsendedDecember31,2006,2005,and2004:

(in thousands, except earnings per share) 2006 2005 2004

Netincomeavailabletocommonshareholders $ 15,011 $ 12,881 $ 25,172

Weighted-averagecommonsharesoutstanding 49,484 48,930 48,773

Less:Weighted-averageunvestedcommonsharesoutstanding (61) – –

Weighted-averagecommonsharesusedtocomputebasicearningspershare 49,423 48,930 48,773

Dilutiveeffectsofstock-basedcompensationplans 153 417 223

Weighted-averagecommonsharesusedtocomputedilutedearningspershare

49,576

49,347

48,996

Basicearningspershare $ 0.30 $ 0.26 $ 0.52

Dilutedearningspershare $ 0.30 $ 0.26 $ 0.51

Certainstockoptionsareantidilutive.Additionaloptionstopurchase2,860,055sharesoftheCompany’sClassAcommonstockatexercisepricesrangingfrom$6.00to$19.13persharewereoutstandingatDecember31,2006butwerenotincludedinthecomputationofdilutedEPSbecausetheoptions’exercisepricesweregreaterthantheaveragemarketpriceofthecommonshares.Additionaloptionstopurchase531,000sharesoftheCompany’sClassAcommonstockatexercisepricesof$5.08and$5.60wereoutstandingatDecember31,2006,butwerenotincludedinthecomputationofdilutedEPSbecausetheoptions’exerciseprices,whenaddedtotheaverageunearnedcompensationcosts,weregreaterthantheaveragemarketpriceofthecommonshares.


64 Crawford&Company

Foreign�CurrencyRealizednetgains(losses)fromforeigncurrencytransactionstotaled$(76,000),$369,000,and$405,000fortheyearsendedDecember31,2006,2005,and2004respectively.

ForoperationsoutsidetheU.S.thatpreparefinancialstatementsincurrenciesotherthantheU.S.dollar,resultsfromoperationsandcashflowsaretranslatedintoU.S.dollarsataverageexchangeratesduringtheperiod,andassetsandliabilitiesaretranslatedatend-of-periodexchangerates.TheresultingtranslationadjustmentsareincludedinComprehensiveIncome(Loss)intheConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss),andtheaccumulatedtranslationadjustmentisreportedasacomponentofAccumulatedOtherComprehensiveLossintheConsolidatedBalanceSheets.

Comprehensive�Income�(Loss)Comprehensiveincome(loss)fortheCompanyconsistsofthetotalofnetincome,foreigncurrencytranslations,andaccruedpensionandretireemedicalliabilityadjustments.TheCompanyreportscomprehensiveincome(loss)intheConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss).EndingaccumulatedbalancesforeachiteminAccumulatedOtherComprehensiveLossincludedintheCompany’sConsolidatedBalanceSheetandConsolidatedStatementsofShareholders’InvestmentandComprehensiveIncome(Loss)wereasfollows:

(in thousands) 2006 2005 2004

Accruedretirementliabilities $(117,128 $ (132,021) $ (107,281)

Nettaxbenefitonaccrued retirementliabilities 43,923 46,735 39,083

Accruedretirementliabilities,netoftaxbenefit (73,205) (85,286) (68,198)

Cumulativetranslationadjustment 10,559 6,702 7,358

Totalaccumulatedothercomprehensiveloss $ (62,646 $ (78,584) $ (60,840)

Stock-Based�CompensationPriortoJanuary1,2006,theCompanyaccountedforitsstock-basedcompensationplansundertherecognitionandmeasurementprovisionsofAPB25andrelatedinterpretationsaspermittedbytheoriginalSFAS123,“AccountingforStock-BasedCompensation”(“SFAS123”).UnderAPB25,nostock-basedcompensationexpensewasrecognizedintheCompany’sConsolidatedStatementsofIncomeforstockoptionsandemployeestockpurchaseplans.TheCompany’sexecu-tivestockbonusplan,adoptedin2005,wassubjecttoexpenserecognitionunderAPB25,andthuscompensationexpensewasrecognizedforthatplanintheCompany’sConsolidatedStatementofIncomeforallreportingperiodsin2005.

EffectiveJanuary1,2006,theCompanyadoptedthefairvaluerecognitionprovisionsofSFAS123R,“Share-basedPayment,”usingthemodified-prospective-transitionmethod.Underthattransitionmethod,compensationcostrecognizedin2006includes:(a)compen-sationcostforallshare-basedpaymentsgrantedpriorto,butnotyetvestedasofJanuary1,2006,basedonthegrant-datefairvalueestimatedinaccordancewiththeoriginalprovisionsofSFAS123,and(b)compen-sationcostforallshare-basedpaymentsgrantedsubsequenttoJanuary1,2006,basedonthegrant-datefairvalueestimatedinaccordancewiththeprovisionsofSFAS123R.Underthemodified-prospective-transitionmethod,resultsforpriorperiodshavenotbeenrestated.

Advertising�CostsAdvertisingcostsareexpensedintheperiodinwhichthecostsareincurred.Advertisingexpenseswere$3,218,000,$2,657,000,and$3,153,000,respectively,fortheyearsendedDecember31,2006,2005,and2004.

Adoption�of�New�Accounting�Standards

SFAS 123REffectiveJanuary1,2006,theCompanyadoptedthefairvaluerecognitionprovisionsofSFAS123Rusingthemodified-prospective-transitionmethod.Accordingly,resultsforpriorperiodshavenotbeenrestated.

(117,128)

(62,646)

2006AnnualReport 65

AsaresultofadoptingSFAS123RonJanuary1,2006,theCompany’sincomebeforeincometaxesandnetincomefortheyearendedDecember31,2006were$1,220,000and$1,077,000lower,respectively,thanifithadcontinuedtoaccountforshare-basedcompensationunderAPB25.BasicanddilutedEPSfortheyearendedDecember31,2006were$0.02lowerthaniftheCompanyhadcontinuedtoaccountforshare-basedcompensationunderAPB25.

PriortotheadoptionofSFAS123R,theCompanypresentedalltaxbenefitsofdeductionsresultingfromstock-basedcompensationasoperatingcashflowsintheConsolidatedStatementsofCashFlows.SFAS123Rrequiresthecashflowsrelatedtoanytaxbenefitsresultingfromtaxdeductionsinexcessofthecompensationcostrec-ognizedforstock-basedawards(excesstaxbenefits)tobeclassifiedasfinancingcashflows.DuringtheyearendedDecember31,2006,theCompanyhadnosuchexcesstaxbenefits.During2005,theCompany’sexcesstaxdeductionsrelatedtostock-basedawardswere$90,000.

ThefollowingtableillustratestheeffectonnetincomeandearningspershareiftheCompanyhadappliedthefairvaluerecognitionprovisionsoftheoriginalSFAS123tostock-basedcompensationplansinallperiodspresentedpriortotheadoptionofSFAS123R.Forthepurposesofthisproformadisclosure,thevalueoftheoptionsisestimatedusingaBlack-Scholesoption-pricingformulaandamortizedtoexpenseoverthevestingperiodsofthestock-basedawards:

(in thousands, except per share data) 2005 2004

Netincomeasreported $ 12,881 $ 25,172

Add:Stock-basedemployeecompensationincludedinreportednetincome,netoftax 60 –

Less:Stock-basedcompensationexpenseusingthefairvaluemethod,netoftax (1,480) (946)

Proformanetincome $ 11,461 $ 24,226

Netincomepershare–basic:

Asreported $ 0.26 $ 0.52

Proforma $ 0.23 $ 0.50

Netincomepershare–diluted:

Asreported $ 0.26 $ 0.51

Proforma $ 0.23 $ 0.49

SFAS 154TheCompanyadoptedSFAS154,“AccountingChangesandErrorCorrections”(“SFAS154”),onJanuary1,2006.SFAS154providesguidanceontheaccountingforandreportingofaccountingchangesanderrorcorrections.SFAS154requiresretrospectiveapplicationforreportingachangeinaccountingprincipleintheabsenceofexplicittransitionrequirementsspecifictothenewlyadoptedaccountingprinciple.SFAS154alsostatesthatacorrectionofanerrorinpreviouslyissuedfinancialstatementsisnotanaccountingchange.However,thereportingofanerrorcorrectionunderSFAS154involvesadjust-mentstopreviouslyissuedfinancialstatementssimilartothosegenerallyapplicabletoreportinganaccountingchangeretrospectively.

SFAS 158InSeptember2006,theFASBissuedSFAS158.SFAS158requiresplansponsorsofdefinedbenefitpensionandotherpostretirementbenefitplans(collectively,“postretirementbenefitplans”)torecog-nizethefundedstatusoftheirpostretirementbenefitplansinthebalancesheet,measurethefairvalueofplanassetsandbenefitobli-gationsasofthedateofthebalancesheet,andprovideadditionaldisclosures.OnDecember31,2006,theCompanyadoptedtherecognitionanddisclosureprovisionsofSFAS158.TheeffectofadoptingSFAS158ontheCompany’sConsolidatedBalanceSheethasbeenincludedintheaccompanyingconsolidatedfinancialstatements.SFAS158didnothaveaneffectontheCompany’sConsolidatedStatementofIncome.TherequirementsofSFAS158tomeasurethefairvalueofplanassetsandbenefitobligationsasofthemostrecentbalancesheetdatearenoteffectiveuntilthefirstfiscalyearendingafterDecember15,2008(yearendedDecember31,2008fortheCompany).Accordingly,in2006theCompanycontinuedtouseSeptember30asthemeasurementdateforitsU.S.definedbenefitpensionplananditsU.S.retireemedicalbenefitplan,andOctober31asthemeasurementdateforitsU.K.andNetherlandsdefinedbenefitpensionplans.SeeNote2forfurtherdiscussionoftheeffectofadoptingSFAS158ontheCompany’sConsolidatedBalanceSheet.


66 Crawford&Company

Pending�Adoption�of�New�Accounting�Standards

FIN 48InJune2006,theFASBissuedInterpretationNo.48,“AccountingforUncertaintyinIncomeTaxes,aninterpretationofSFAS109,AccountingforIncomeTaxes”(“FIN48”),tocreateasinglemodeltoaddressaccountingforuncertaintyintaxpositions.FIN48clarifiestheaccountingforincometaxesbyprescribingaminimumrecogni-tionthresholdthatataxpositionmustmeetbeforebeingrecognizedinthefinancialstatements.FIN48alsoprovidesguidanceonderecog-nition,measurement,classification,interestandpenalties,accountingininterimperiods,disclosure,andtransition.FIN48iseffectiveforyearsbeginningafterDecember15,2006.TheCompanywilladoptFIN48asofJanuary1,2007,asrequired.ThecumulativeeffectofadoptingFIN48willberecordedinretainedearningsandotheraccountsasapplicable.TheCompanydoesnotexpectthattheadoptionofFIN48willhaveasignificantimpactontheCompany’sfinancialposition,resultsofoperations,orcashflows.

SFAS 157 InSeptember2006,theFASBissuedSFASNo.157,“FairValueMeasurements”(“SFAS157”).SFAS157definesfairvalue,establishesaframeworkformeasuringfairvalueingenerallyacceptedaccountingprinciples,andexpandsdisclosuresaboutfairvaluemeasurements.SFAS157appliestootheraccountingpronouncementsthatrequireorpermitfairvaluemeasurements.SFAS157iseffectiveforfinancialstatementsissuedforyearsbeginningafterNovember15,2007,andinterimperiodswithinthoseyears.TheCompanydoesnotexpecttheadoptionofSFAS157tohaveamaterialimpactonitsconsolidatedfinancialposition,resultsofoperations,orcashflows.

2 � �RetIReMeNt�PLANS�

TheCompanyanditssubsidiariessponsorvariousdefinedcontributionanddefinedbenefitpensionplanscoveringsubstantiallyallemployees.EffectiveDecember31,2002,theCompanyelectedtofreezeitsU.S.definedbenefitpensionplan.TheCompany’sU.K.definedbenefitpensionplanshavealsobeenfrozenfornewemployees,butexistingparticipantsmaystillaccrueadditionalbenefitsbasedonsalaryamountsineffectatthetimetheplanwasfrozen.EmployercontributionsundertheCompany’sdefinedcontributionplansaredeterminedannuallybasedonemployeecontributions,apercentageofeach

coveredemployee’scompensation,andyearsofservice.Thecostofdefinedcontributionplanstotaled$19,420,000,$15,197,000,and$15,356,000in2006,2005,and2004,respectively.

BenefitspayableundertheCompany’sU.S.andNetherlandsdefinedbenefitpensionplansaregenerallybasedoncareercompensation;however,noadditionalbenefitsaccrueonthefrozenU.S.planafterDecember31,2002.BenefitspayableundertheU.K.plansaregen-erallybasedonanemployee’sfinalfrozensalary.TheU.S.planhasaSeptember30measurementdate,andtheinternationalplans(U.K.andNetherlands)haveanOctober31fiscalyearendmeasurementdate.DuetoSFAS158,themeasurementdatein2007fortheU.S.planwillbeDecember31,2007.TheCompany’sfundingpolicyistomakecashcontributionsinamountssufficienttomaintaintheplansonanactuariallysoundbasis,butnotinexcessofdeductibleamountsper-mittedunderapplicableincometaxregulations.TheCompanyisnotrequiredtomakeanycontributiontoitsfrozenU.S.definedbenefitpensionplanduring2007.ThePensionProtectionActof2006willlikelyimpacttheCompany’scontributionstoitsfrozenU.S.definedbenefitpensionplaninyearsafter2007.CashcontributionstotheCompany’sinternationaldefinedbenefitplansareexpectedtototal$6,881,000during2007.

Adoption of SFAS 158OnDecember31,2006,theCompanyadoptedtherecognitionanddisclosureprovisionsofSFAS158.SFAS158requirestheCompanytorecognizethefundedstatusofitsdefinedbenefitpensionplansandretireemedicalbenefitplanintheCompany’sDecember31,2006ConsolidatedBalanceSheet,withacorrespondingadjustmenttoaccumulatedothercomprehensiveincome(loss),netofincometax.Theadjustmenttoaccumulatedothercomprehensiveincome(loss)atadoptionrepresentsthenetunrecognizedactuariallossesandunrecognizedtransitionassets,allofwhichwerepreviouslynettedagainsttheplans’fundedstatusintheCompany’sConsolidatedBalanceSheetpursuanttotheprovisionsofSFAS87andSFAS106.Theseamountswillbesubsequentlyrecognizedasnetperiodicben-efitcost.TheCompanyhadnounrecognizedpriorservicecostsatDecember31,2006.Actuarialgainsandlossesthatariseinsubse-quentperiodsthatarenotrecognizedasnetperiodicbenefitcostinthosesameperiodswillberecognizedasacomponentofothercom-prehensiveincome(loss).Thoseamountswillbesubsequentlyrecognizedasacomponentofnetperiodicbenefitcostonthesame

2006AnnualReport 67

basisastheamountsrecognizedinaccumulatedothercomprehensiveincome(loss)upontheadoptionofSFAS158.InaccordancewiththetransitionprovisionsofSFAS158,atDecember31,2008theCompanywillalsoadopttherequirementsofSFAS158tomeasureplans’assetsandbenefitobligationsasofthedateoftheCompany’syear-endConsolidatedBalanceSheet.

TheincrementaleffectsofadoptingtherecognitionanddisclosureprovisionsofSFAS158ontheCompany’sConsolidatedBalanceSheetatDecember31,2006arepresentedinthefollowingtable.TheadoptionofSFAS158hadnoeffectontheCompany’sConsolidatedStatementofIncomefortheyearendedDecember31,2006,orforanypriorperiodpresented,anditwillnotaffecttheCompany’soperatingresultsinthefuture.HadtheCompanynotbeenrequiredtoadoptSFAS158atDecember31,2006,itwouldhavecontinuedtorecognizeanadditionalminimumliabilitypur-suanttotheprovisionsofSFAS87andSFAS106.Theeffectofrecognizingtheadditionalminimumliabilityisincludedinthetablebelowinthecolumnlabeled“PriortoAdoptingSFAS158.”

TheamountsshowninthefollowingtablefordeferredincometaxassetandaccumulatedothercomprehensivelossonlyrepresenttheportionsforeachontheCompany’sConsolidatedBalanceSheetthatarerelatedtopostretirementbenefitplansimpactedbySFAS158.

AtDecember31,2006

(in thousands)

PriortoAdoptingSFAS158

EffectofAdoptingSFAS158

AsReportedatDecember

31,2006

Intangibleasset(pension) $ 992 $ (992) $ –

Accruedpensionliabilities 93,365 343 93,708

Accruedretireemedicalliability 3,882 (1,179) 2,703

Deferredincometaxasset,net 43,864 59 43,923

Accumulatedothercomprehensiveloss (73,108) (97) (73,205)

AtDecember31,2006,accruedpensionliabilitiesof$3,412,000arereportedinothernoncurrentliabilitiesand$238,000isreportedasacurrentliabilityinaccruedcompensationandrelatedcostsontheCompany’sConsolidatedBalanceSheet.AlsoatDecember31,2006,$263,000oftheaccruedretireemedicalobligationisreportedasacurrentliabilityinaccruedcompensationandrelatedcostsontheCompany’sConsolidatedBalanceSheet.

Includedinaccumulatedothercomprehensiveincome(loss)atDecember31,2006arethefollowingamountsthathavenotyetbeenrecognizedinnetperiodicbenefitcostsfortheCompany’sdefinedbenefitpensionandretireemedicalplans:unrecognizedtransitionassetsof$992,000($620,000netoftax)andnetunrecognizedactuariallossesof$116,136,000($72,585,000netoftax).Thetransitionassetsandnetactuariallossesincludedinaccumulatedothercomprehensiveincome(loss)andexpectedtoberecognizedinnetperiodicbenefitcostduringtheyearendedDecember31,2007are$279,000($174,000netoftax)and$7,909,000($4,943,000netoftax),respectively.

Thereconciliationofthebeginningandendingbalancesoftheprojectedbenefitobligationsandthefairvalueofplansassetsasoftheplans’mostrecentmeasurementdatesisasfollows:


Funded�Status

Projected�Benefit�Obligations:

Beginningofmeasurementperiod $ 563,664 $ 510,774

Servicecost 2,689 2,430

Interestcost 32,536 31,193

Employeecontributions 640 672

Actuarialloss 1,151 45,755

Benefitspaid (26,523) (23,047)

Foreigncurrencyeffects 11,436 (4,113)

Endofmeasurementperiod 585,593 563,664

Fair�value�of�Plans’�Assets:�

Beginningofmeasurementperiod 458,169 433,437

Actualreturnonplans’assets 43,859 47,017

Employercontributions 5,374 3,688

Employeecontributions 640 672

Benefitspaid (26,523) (23,047)

Foreigncurrencyeffects 10,366 (3,598)

Endofmeasurementperiod 491,885 458,169

Funded�Status� $ (93,708) $ (105,495)

Accumulated�Benefit�Obligations� $ 584,847 $ 563,033

UnderfundedstatusrecognizedintheConsolidatedBalanceSheetsatDecember31,2006consistsof:


68 Crawford&Company

(in thousands)

Long-termaccruedpensionliability–U.S.Plan $ 79,203

Long-termaccruedpensionliability–InternationalPlans 10,855

Pensionobligationsincludedinothernoncurrentliabilities 3,412

Pensionobligationsincludedinaccruedcompensation 238

Accumulatedothercomprehensiveloss (118,307)

NoplanassetsareexpectedtobereturnedtotheCompanyduringtheyearendingDecember31,2007.

NetperiodicbenefitcostrelatedtotheU.S.andinternationaldefinedbenefitpensionplansin2006,2005,and2004includedthefollowingcomponents:

(in thousands) 2006 2005 2004

Servicecost $ 2,689 $ 2,430 $ 1,719

Interestcost 32,536 31,193 29,940

Expectedreturnonassets (36,256) (33,438) (31,980)

Netamortization 279 346 –

Recognizednetactuarialloss 9,724 7,264 7,026

Netperiodicbenefitcost $ 8,972 $ 7,795 $ 6,705

TheCompanyreviewstheactuarialassumptionsofitsdefinedbenefitpensionplansonanannualbasisasofeachplan’srespectivemeasure-mentdate.Majorassumptionsusedinaccountingfortheplanswere:

2006 2005

Discountrate 5.99% 5.79%

Expectedreturnsonplans’assets 5.61%–9.27% 7.40%–8.50%

Theexpectedlong-termratesofreturnonplanassetswerebasedontheplans’assetmix,historicalreturnsonequitysecuritiesandfixedincomeinvestments,andanassessmentofexpectedfuturereturns.Planassetsareinvestedinequitysecuritiesandfixedincomeinvest-ments,withatargetallocationofapproximately40%to80%inequitysecuritiesand20%to60%infixedincomeinvestments.The

plans’assetallocationsattherespectivemeasurementdates,byassetcategoryfortheCompany’sU.S.andinternationaldefinedbenefitpensionplans,wereasfollows:

2006 2005

Equitysecurities � 74.7� % 72.4 %

Fixedincomeinvestments � 24.3� % 26.9 %

Cash � 1.0� % 0.7 %

Totalassetallocation � 100.0� % 100.0 %

PlanassetsatSeptember30,2006and2005includedsharesoftheCompany’sClassAandClassBcommonstockwithafairvalueof$4,018,000and$4,851,000,respectively.

Overthenexttenyears,thefollowingbenefitpaymentsareexpectedtobepaidfromtheCompany’sU.S.andinternationaldefinedbenefitpensionplans:

ExpectedBenefitPaymentsYear (in thousands)

2007 $ 23,984

2008 25,332

2009 26,719

2010 28,162

2011 29,643

2012–2016 173,981

CertainU.S.retireesandafixednumberofU.S.long-termemployeesareentitledtoreceivepost-retirementmedicalbenefitsundertheCompany’svariousmedicalbenefitplans.Theunfundedpost-retirementmedicalbenefitaccumulatedobligationwas$2,703,000and$2,844,000atDecember31,2006and2005,respectively.Theseamountsarenetofanunrecognizedactuarialgainof$1,179,000and$1,725,000,respectively,relatedtotheMedicarePrescriptionDrug,ImprovementandModernizationActof2003.Thisunrecognizedgainisbeingamortizedovertheremaininglifeexpectanciesoftheplanparticipants,andfortheyearsendedDecember31,2006,2005,and2004,such

2006AnnualReport 69

amortizationreducedannualbenefitcostsby$576,000,$698,000,and$96,000,respectively.Forthisplan,theCompanyrecognizedanetbenefitcreditof$434,000and$497,000fortheyearsendedDecember31,2006and2005,respectively,andanetbenefitcostof$145,000fortheyearendedDecember31,2004.BenefitpaymentsarefundedbyparticipantcontributionsandbycontributionsfromtheCompany.BenefitpaymentsmadeintheyearsendedDecember31,2006,2005,and2004were$934,000,$1,275,000,and$1,521,000,respectively,ofwhich$253,000,$478,000and$677,000,respectively,werefundedbyCompanycontributionstotheplan.Overthenexttenyears,theCompanywillmakeestimatedcontributionsof$2,015,000topayitsportionoftheestimatedbenefitpaymentsnotfundedbyestimatedparticipantcontributions.

3 � INCOMe�tAxeS�

Incomebeforeprovisionforincometaxesconsistedofthefollowing:

(in thousands) 2006 2005 2004

U.S. $ 10,222 $ 8,310 $ 27,779

Foreign 13,849 11,630 9,644

Incomebeforetaxes $ 24,071 $ 19,940 $ 37,423

Theprovision(benefit)forincometaxesconsistedofthefollowing:

(in thousands) 2006 2005 2004

Current:

U.S.federalandstate $ (95) $ (1,350) $ 5,775

Foreign 6,092 4,483 2,718

Deferred:

U.S.federalandstate 3,290 3,147 3,149

Foreign (227) 779 609

Provisionforincometaxes $ 9,060 $ 7,059 $ 12,251

ThecomponentsofdeferredincometaxexpensefortheyearsendedDecember31,2006,2005,and2004areasfollows:

(in thousands) 2006 2005 2004

Accruedcompensation $ 1,599 $ (481) $ (371)

Accruedpensioncosts (1,210) 3,282 (6,790)

Self-insuredrisks (274) 827 (223)

Deferredrevenues 3,700 42 3,320

Otherpost-retirementbenefits 315 402 138

Netoperatinglosscarryforwards (154) 501 1,934

Allowancesforaccountsreceivable 415 2,432 1,956

Unbilledrevenues (790) (1,511) (237)

Depreciationandamortization 1,691 2,003 1,713

Installmentsale – (2,528) 2,528

Other (2,229) (1,043) (210)

Totaldeferredincometaxexpense $ 3,063 $ 3,926 $ 3,758

Netcashpayments(refunds)forincometaxeswere$10,902,000in2006,$10,561,000in2005,and$(1,989,000)in2004.

Theprovisionforincometaxesisreconciledtothefederalstatutoryrateof35%asfollows:

(in thousands) 2006 2005 2004

Federalincometaxesatstatutoryrate $ 8,425 $ 6,979 $ 13,098

Stateincometaxes,netoffederalbenefit 626 324 791

Foreigntaxes 828 807 (572)

Researchcreditsettlement – – (1,745)

Netoperatinglossutilization (532) (455) –

Creditsandother (287) (596) 679

Provisionforincometaxes $ 9,060 $ 7,059 $ 12,251

TheCompanydoesnotprovideforadditionalU.S.andforeignincometaxesonundistributedearningsofforeignsubsidiariesbecausetheyareconsideredtobeindefinitelyreinvested.AtDecember31,2006,suchundistributedearningstotaled$83,362,000.Determinationofthedeferredincometaxliabilityontheseunremittedearningsisnotpracticablesincesuchliability,ifany,isdependentoncircumstancesexistingwhenremittanceoccurs.


70 Crawford&Company

DeferredincometaxesconsistedofthefollowingatDecember31,2006and2005:


Accruedcompensation $ 7,703 $ 6,484

Accruedpensionliabilities 43,923 46,735

Self-insuredrisks 12,914 10,469

Deferredrevenues 39,477 5,728

Otherpost-retirementbenefits 1,357 1,672

Netoperatinglosscarryforwards 9,083 8,401

Other 3,667 1,851

Grossdeferredtaxassets 118,124 81,340

Accountsreceivableallowance 6,178 6,965

Prepaidpensioncost 7,067 8,605

Unbilledrevenues 19,999 20,789

Depreciationandamortization 63,053 13,067

Other 529 598

Grossdeferredtaxliabilities 96,826 50,024

Netdeferredtaxassetsbeforevaluationallowance 21,298 31,316

Less:valuationallowance (8,163) (7,635)

Netdeferredtaxasset $ 13,135 $ 23,681

AmountsrecognizedintheConsolidatedBalanceSheetsconsistof:

Currentdeferredtaxassetsincludedinaccruedincometaxes $ 26,343 $ 13,816

Currentdeferredtaxliabilitiesincludedinaccruedincometaxes (26,706) (28,352)

Long-termdeferredtaxassetsincludedindeferredincometaxassets 76,551 51,284

Long-termdeferredtaxliabilitiesincludedindeferredincometaxassets (63,053) (13,067)

Netdeferredtaxassets $ 13,135 $ 23,681

AtDecember31,2006,theCompanyhasadeferredtaxassetrelatedtonetoperatinglosscarryforwardsof$9,083,000.Anestimated$5,570,000ofthedeferredtaxassetwillnotexpire,and$3,153,000willexpireoverthenext20yearsifnotutilizedbytheCompany.Avaluationallowanceisprovidedwhenitismorelikelythannotthatsomeportionorallofadeferredtaxassetwillnotberealized.AtDecember31,2006,theCompanyhasan$8,163,000valuationallowancerelatedtocertainnetoperatinglosscarryforwardsgenerated

initsinternationaloperations.Theremainingnetoperatinglossdeferredtaxassetof$920,000isexpectedtobefullyutilizedbytheCompanybeforeitsexpirationin2010.

4 � COMMItMeNtS�UNDeR�OPeRAtING�LeASeS

TheCompanyanditssubsidiariesleasecertainofficespace,computerequipment,andautomobilesunderoperatingleases.Forofficeleasesthatcontainscheduledrentincreasesorrentconcessions,theCompanyrecognizesmonthlyrentexpensebasedonacalculatedaveragemonthlyrentamountthatconsiderstherentincreasesandrentconcessionsoverthelifeoftheleaseterm.Leaseholdimprovementsofacapitalnaturethataremadetoleasedofficespaceunderoperatingleasesareamor-tizedovertheshorterofthetermoftheleaseortheestimatedusefullifeoftheimprovement.LicenseandmaintenancecostsrelatedtotheleasedvehiclesarepaidbytheCompany.Rentalexpenses,netofamor-tizationofanyincentivesprovidedbylessors,foroperatingleasesconsistedofthefollowing:

(in thousands) 2006 2005 2004

Officespace $ 33,627 $ 28,775 $ 30,071

Automobiles 8,411 7,764 7,884

Computersandequipment 689 305 284

Totaloperatingleases $ 42,727 $ 36,844 $ 38,239

EffectiveAugust1,2006,theCompanyenteredintoanoperatingleaseagreementfortheleaseofapproximately160,000squarefeetofofficespaceinAtlanta,GeorgiatobeusedastheCompany’sfuturecorporateheadquarters.Thisleasehasatermof11yearswithtotalminimummonthlyleasepaymentsof$41,788,000overthelifeofthelease.Additionally,theCompanywillberesponsibleforcertainpropertyoperatingexpenses.Leaseholdimprovementstotaling$4,921,000willbeprovidedbythelessor.TheCompanyexpectstooccupythisofficespacebyJune30,2007afterthecompletionofleaseholdimprovements.Duringtheleaseholdimprovementcon-structionperiodbetweenAugust1,2006andtheoccupancydateinmid2007,rentexpensewillbechargedtooperatingexpensesasrequiredbyFASBStaffPosition13-1,“AccountingforRentalCostsIncurredduringaConstructionPeriod.”

2006AnnualReport 71

AtDecember31,2006,futureminimumpaymentsundernon-cancelableoperatingleaseswithtermsofmorethan12months,includingthenewleasefortheCompany’scorporateheadquarterspreviouslydescribed,areasfollows:2007–$46,321,000;2008–$40,648,000;2009–$34,270,000;2010–$29,023,000;2011–$24,168,000;andthereafter–$151,511,000.

AspartoftheCompany’sacquisitionofBroadspireManagementServices,Inc.onOctober31,2006(seeNote7),theCompanyassumedasignificantlong-termleaseforofficebuildingsinPlantation,Florida,theheadquartersforBroadspire.PriortotheCompany’sacquisitionofBroadspire,Broadspireenteredintoalong-termsubleaseagreementforoneoftheleasedofficebuildings.TheCompany’sleaseobligationonthisofficebuildingextendsuntilDecember2021,andtheassociatedminimumleasepaymentsareincludedintheminimumleaseobligationsoftheCompanynotedinthepreviousparagraph.

UnderthesubleasearrangementbetweenBroadspireandthesublessor,thesublessorisobligatedtopaytheCompanyminimumsubleasepaymentsasfollows:

YearFundedDecember31, (in thousands)

2007 $ 1,750

2008 1,776

2009 1,803

2010 1,830

Thereafterthrough2014 6,138

Totalminimumsubleasepaymentstobereceived $ 13,297

WhenthecurrentsubleaseagreementexpiresinMarch2014,thesublessorhastheoptiontorenewthesubleaseagreementthroughDecember2021.ShouldthesublessorelecttorenewthesubleaseagreementthroughDecember2021,additionalsubleasepaymentsfromthesublessortotheCompanywouldbe$14,277,000overtherenewalperiod.

5 � teRM�LOANS�AND�RevOLvING�CReDIt�FACILItY

New�Credit�AgreementOnOctober31,2006,theCompanyenteredintoanewsecuredcreditagreement(the“NewCreditAgreement”)withasyndicationoflenders.TheNewCreditAgreementprovidesforamaximumavailablebor-rowingcapacityof$310,000,000,comprisedof(i)atermloanfacilityintheprincipalamountof$210,000,000and(ii)arevolvingcreditfacilityintheprincipalamountof$100,000,000withaswinglinesubfacility,aletterofcreditsubfacility,andaforeigncurrencysublimit.ThetermloanfacilityhasaninterestrateofLIBORplus2.50%,whichwas7.86%asofDecember31,2006.TherevolvingcreditfacilityhasvariableinterestratesbasedonLIBORandotherfactorssetbythelenders.AtDecember31,2006,theweighted-averagerateontherevolvingcreditfacilitywas7.73%.

Thenewtermloanrequiresminimumprincipalrepaymentsof$525,000attheendofeachcalendarquarterbeginningDecember31,2006andcontinuingforthesubsequent27quarterswithafinalballoonpaymentdueonOctober30,2013.OutstandingborrowingsundertherevolvingcreditfacilityaredueinfullonOctober30,2011.Interestispayablequarterly.Additionally,beginningMarch31,2008,theCompanymayberequiredtomakeadditionalannualdebtrepaymentsiftheCompanygeneratesexcesscashflowsandmeetscertainleverageratiosasdefinedintheNewCreditAgreement.DuringDecember2006,theCompanymadea$10,000,000paymentonthe$210,000,000newtermloan.

EachofthedirectandindirectdomesticsubsidiariesoftheCompanyguaranteestheobligationsoftheCompanyundertheNewCreditAgreement.TheCompany’sobligationsundertheNewCreditAgreementandthesubsidiaryguarantors’obligationsaresecuredbyapledgeofalloftheirrespectivepersonalpropertyandmortgagesovercertainoftheirownedandleasedproperties.


72 Crawford&Company

TheNewCreditAgreementcontainscustomaryrepresentations,warrantiesandcovenants,includingcovenantslimitingliens,indebt-edness,guaranties,mergersandconsolidations,substantialassetsales,investments,loans,salesandleasebacks,dividendsanddistributions,andotherfundamentalchanges.Inaddition,theNewCreditAgreementrequirestheCompanytomeetcertainfinancialtests.

UndertheNewCreditAgreement,theCompanyanditsconsolidatedsubsidiariesmustmaintainamaximumleverageratiodefinedastheratioofconsolidateddebttoearningsbeforeinterestexpense,incometaxes,depreciation,amortization,stock-basedcompensationexpense,andcertainothercharges(“EBITDA”)ofnomorethan(i)4.25to1.00throughthethirdquarterof2007,(ii)3.00to1.00fromandincludingthefourthquarterof2007throughthethirdquarterof2008,and(iii)2.50to1.00fromandafterthefourthquarterof2008.

UndertheNewCreditAgreement,thefixedchargecoverageratio,definedastheratioofEBITDAtototalfixedchargesconsistingofscheduledprincipalandinterestpaymentsandrestrictedpaymentsasdefinedintheNewCreditAgreement,oftheCompanyanditsconsolidatedsubsidiariesmustnotexceed(i)1.25to1.00throughtheendof2006,(ii)1.35to1.00forthefirstthreequartersof2007,and(iii)1.50to1.00fromandafterthefourthquarterof2007.

TheNewCreditAgreementalsoprovidesfortheCompanyanditsconsolidatedsubsidiariestomaintainanetworthofatleastthesumof(i)$150,000,000plus(ii)50%ofthecumulativenetincomeoftheCompanyanditsconsolidatedsubsidiariesafterthethirdquarterof2006plus(iii)anynetproceedsfromanyunderwrittenpublicofferingofanycapitalstockoftheCompany.

ThecovenantsintheNewCreditAgreementalsoplacecertainrestrictionsontheCompany’sabilitytopaydividendstoshare-holders,includinga$12,500,000limitondividendpaymentsinany12-monthperiod.

IntheeventofadefaultbytheCompanyundertheNewCreditAgreement,thelendersmayterminatethecommitmentsundertheagreementanddeclaretheamountsoutstanding,includingallaccruedinterestandunpaidfees,payableimmediately.Foreventsofdefaultrelatingtoinsolvency,bankruptcyorreceivership,thecommitmentsareautomaticallyterminatedandtheamountsoutstandingbecomepayableimmediately.

TheCompanyiscurrentlyincompliancewiththesedebtcovenants.IftheCompanydoesnotmeetthecovenantrequirementsinthefuture,itwouldbeindefaultundertheseagreements.Insuchanevent,theCompanywouldneedtoobtainawaiverofthedefaultorrepaytheoutstandingindebtednessundertheagreements.IftheCompanycouldnotobtainawaiveronsatisfactoryterms,itcouldberequiredtorenegotiatethisindebtedness.Anysuchrenegotiationscouldresultinlessfavorableterms,includinghigherinterestratesandacceleratedpayments.BasedupontheCompany’sprojectedoperatingresultsfor2007,itexpectstoremainincompliancewiththefinancialcovenantscontainedintheNewCreditAgreementthroughout2007.However,therecanbenoassurancethattheCompany’sactualfinancialresultswillmatchitsplannedresultsorthatitwillnotviolatethecovenants.

AtDecember31,2006,atotalof$226,585,000wasoutstandingundertheNewCreditAgreement,ofwhich$76,520,000wasusedtorepayandterminateexistingdebtasdiscussedbelow.Inaddition,commit-mentsunderlettersofcredittotaling$21,087,000wereoutstandingatDecember31,2006underthelettersofcreditsubfacilityoftheNewCreditAgreement.TheseletterofcreditcommitmentswerefortheCompany’sownobligations.Including$21,087,000committedundertheletterofcreditfacility,theunusedbalanceoftherevolvingcreditfacilitytotaled$52,328,000atDecember31,2006.

Short-termborrowings,includingbankoverdraftfacilities,totaled$27,795,000and$28,888,000atDecember31,2006and2005,respectively.

2006AnnualReport 73

Long-termdebtconsistedofthefollowingatDecember31,2006and2005:


Termloanfacility,7.86%currentvariablerate,principalof$525andinterestpayablequarterlywithballoonpaymentdueOctober2013 $ 200,000 $ –

$50millionseniordebt,replacedonOctober31,2006 – 50,000

Othertermloanspayabletobanks:

Principalandinterestat4.76%,payable bi-annuallythroughDecember2010 417 506

Principalandinterestat7.50%,payable monthlythroughApril2009 378 475

Principalandinterestat4.55%,paid during2006 – 271

Principalandinterestat4.75%,paid during2006 – 129

Capitalleaseobligations 870 870

Totallong-termdebtandcapitalleases 201,665 52,251

Less:currentinstallments (2,621) (6,441)

Totallong-termdebtandcapitalleases,lesscurrentinstallments $ 199,044 $ 45,810

TheCompany’scapitalleasesareprimarilycomprisedofleasedautomobileswithtermsrangingfrom24to60months.

Scheduledprincipalrepaymentsoflong-termdebt,includingcapitalleases,asofDecember31,2006areasfollows:

PaymentsDuebyPeriod

(in thousands)Lessthan

1Year 1–3Years 3–5YearsMorethan

5Years Total

Long-termdebt,includingcurrentportions $ 2,288 $ 4,575 $ 4,432 $ 189,500 $ 200,795

Capitalleaseobligations 333 437 60 40 870

Total $ 2,621 $ 5,012 $ 4,492 $ 189,540 $ 201,665

InterestexpenseontheCompany’sshort-termandlong-termborrowingswas$8,146,000,$5,859,000,and$5,899,000fortheyearsendedDecember31,2006,2005,and2004,respectively.InterestpaidontheCompany’sshort-termandlong-termborrowingswas$6,327,000,$5,901,000,and$5,892,000fortheyearsendedDecember31,2006,2005,and2004,respectively.


74 Crawford&Company

Repayment�and�termination�of�existing�Credit�AgreementsSimultaneouslywithenteringintotheNewCreditAgreementdiscussedabove,theCompanyterminateditsFirstAmendedandRestatedCreditAgreementdatedSeptember30,2005,asamended,referredtoasthe“$70millionrevolvingcreditline.”Inconnectionwiththistermination,theCompanyrepaidallamountsoutstandingonOctober31,2006underthepriorrevolvingcreditline,including$26,520,000inout-standingindebtednessplusrelatedfeesandexpensesof$22,000.

SimultaneouslywithenteringintotheNewCreditAgreementdiscussedabove,theCompanyalsoterminatedandrepaiditsNotePurchaseAgreementdatedSeptember30,2003,asamended,referredtoasthe“$50milliontermnotepayable.”Inconnectionwiththistermination,theCompanyrepaidalloutstandingindebtednessandaccruedinterestonOctober31,2006undertheNotePurchaseAgreementtotaling$50,143,000.

Asaresultoftheearlyterminationsofthedebtagreementsdescribedabove,theCompanyrealizedalossontheearlyextinguishmentof$1,401,000.Thisamountincludedunamortizedloancostsof$608,000and$793,000ofearlyterminationfeeschargedbythelenders.

6 � SeGMeNt�AND�GeOGRAPHIC�INFORMAtION

AsaresultoftheacquisitionofBroadspireManagementServices,Inc.(seeNote7),theCompanyrealigneditsinternalreportingstructureandexpandeditsnumberofreportablesegmentsfromtwotofour.Thesereportablesegmentsareorganizedbaseduponthenatureofservicesand/orgeographicareasserved.TheCompany’sfourreportableoperatingsegmentsinclude:U.S.PropertyandCasualtywhichservestheU.S.propertyandcasualtyinsurancecompanymarket,InternationalOperationswhichservesthepropertyandcasualtyinsurancecompanymarketsoutsideoftheU.S.,BroadspirewhichservestheU.S.self-insurancemarketplace,andLegalSettlementAdministrationwhichservesthesecuritiesandotherlegalsettlementmarkets,productwar-rantiesandinspections,andbankruptcymarkets.TheCompany’sreportablesegmentsrepresentcomponentsofthebusinessforwhichseparatefinancialinformationisavailablethatisevaluatedregularlybythechiefoperatingdecisionmakerindecidinghowtoallocateresourcesandinassessingperformance.Intersegmentsalesarerecordedatcostandarenotmaterial.TheCompanymeasuressegmentprofitbasedonoperatingearnings,anon-GAAPfinancialmeasuredefinedasearningsbeforenetcorporateinterestexpense,incometaxes,amorti-zationofacquisition-relatedintangibleassets,stockoptionexpense,andotherexpensesandgains.Historicalinformationhasbeenrevisedtoconformtothecurrentpresentationofourrealignedreportablesegments.

FinancialinformationasofandfortheyearsendedDecember31,2006,2005,and2004coveringtheCompany’sreportablesegmentsisasfollows:

(in thousands)U.S.PropertyandCasualty

InternationalOperations Broadspire

LegalSettlement

Administration

Total

2006Revenues�before�reimbursements $ 209,983 $ 303,697 $ 175,151 $ 130,691 $ 819,522Operating�earnings�(loss) 4,770 16,034 (14,657) 24,408 30,555Depreciation�and�amortization 623 6,878 2,253 2,328 12,082Assets 65,408 286,785 354,188 86,683 793,0642005Revenuesbeforereimbursements $ 223,584 $ 285,413 $ 148,695 $ 114,291 $ 771,983Operatingearnings(loss) (404) 13,328 (10,123) 20,311 23,112Depreciationandamortization 897 7,191 1,658 1,594 11,340Assets 84,204 252,220 39,252 82,473 458,1492004Revenuesbeforereimbursements $ 231,285 $ 255,430 $ 158,047 $ 88,805 $ 733,567Operatingearnings(loss) 10,659 11,586 (2,705) 12,230 31,770Depreciationandamortization 1,211 6,489 2,047 1,318 10,975

2006AnnualReport 75

Additionaldepreciationandamortizationexpenseforcertaincorporateassets,suchascomputersoftwareandhardware,isincludedintheexpensesthatareallocatedtoourreportablesegments.

CapitalexpendituresfortheyearsendedDecember31,2006and2005areshowninthefollowingtable.OtherthanLegalSettlementAdministration,capitalexpendituresmadeintheU.S.arenotalwayssegregatedamongU.S.PropertyandCasualty,Broadspire,orcorpo-rateandsharedfunctions.

(in thousands)

U.S.Property&Casualty,

Broadspire,andCorporate

InternationalOperations

LegalSettlement

Administration

Total

2006 $12,060 $ 5,949 $ 4,731 $22,7402005 9,923 6,906 3,444 20,273

ThetotaloftheCompany’sreportablesegments’revenuesreconciledtototalconsolidatedrevenuesfortheyearsendedDecember31,2006,2005,and2004isasfollows:

(in thousands) 2006 2005 2004

Segments’revenuesbeforereimbursements $ 819,522 $ 771,983 $ 733,567

Reimbursements 80,858 82,784 78,095

Totalconsolidatedrevenues $ 900,380 $ 854,767 $ 811,662

ThetotaloftheCompany’sreportablesegments’operatingearningsreconciledtoconsolidatedincomebeforeincometaxesfortheyearsendedDecember31,2006,2005,and2004isasfollows:

(in thousands) 2006 2005 2004

Operatingearningsofallsegments $ 30,555 $ 23,112 $ 31,770Unallocatedcorporate/sharedcosts

andcredits,net 1,640 1,973 616Amortizationofacquisition-related

intangibleassets (1,124) - -

Netcorporateinterestexpense (5,753) (5,145) (3,536)

Stockoptionsexpense (1,220) - -

Othergainsandexpenses,net (27) - 8,573

Incomebeforeincometaxes $ 24,071 $ 19,940 $ 37,423

ThetotaloftheCompany’sreportablesegments’assetsreconciledtoconsolidatedtotalassetsoftheCompanyatDecember31,2006and2005ispresentedinthefollowingtable.Allforeign-denominatedcashandcashequivalentsarereportedwithintheInternationalOperationssegment,whileallU.S.cash,cashequivalents,andshort-terminvestmentsarereportedascorporateassetsinthefollowingtable.


Assetsofreportablesegments $ 793,064 $ 458,149

Corporateassets:

Cash,cashequivalents,and short-terminvestments 38,928 27,207

Unallocatedallowancesonreceivables (4,775) (4,766)

Propertyandequipment 5,292 8,608

Capitalizedsoftwarecosts,net 22,162 19,056

Assetsofdeferredcompensationplan 13,487 13,436

Homeofficeassetsheldforsale 2,842 –

Capitalizedloancosts 3,798 737

Deferredtaxasset 13,498 38,217

Prepaidassetsandother 4,692 13,427

Totalcorporateassets 99,924 115,922

Totalassets $ 892,988 $ 574,071

TheCompany’smostsignificantinternationaloperationsareintheU.K.andCanada,aspresentedinthefollowingtable:

(in thousands) U.K. Canada Other Total

2006

Revenues�before�reimbursements $ 113,064 $ 73,642 $ 116,991 $303,697

Long-lived�assets 64,968 29,285 18,660 112,913

2005

Revenuesbeforereimbursements $ 101,529 $ 68,489 $ 115,395 $ 285,413

Long-livedassets 57,919 28,427 18,049 104,395

2004

Revenuesbeforereimbursements $ 82,392 $ 64,339 $ 108,699 $ 255,430

Long-livedassets 53,477 27,209 23,919 104,605

Substantiallyallinternationalrevenueswerederivedfromtheinsurancecompanymarket.


76 Crawford&Company

7 � �DISPOSItION�AND�ACQUISItIONS��OF�BUSINeSSeS

DispositionOnSeptember29,2006,theCompanysoldtheoperatingassetsofitsU.S.investigationservicesbusiness(the“disposedbusiness”)toMJMInvestigations,Inc.(“MJM”)for$3,000,000incashatclosingandanoninterest-bearingnotereceivableof$2,000,000.TheCompanyrecognizedapre-taxgainof$3,069,000onthetransaction.The$2,000,000notereceivableisdueasfollows:$1,000,000onorbeforeSeptember29,2010and$1,000,000onorbeforeSeptember29,2013.Thenetbookvalueofthedisposalgroupofassetsassociatedwiththistransactiontotaled$473,000.Inaddition,goodwillof$526,000wasderecognizedfromthebalancesheetoftheCompany’sU.S.PropertyandCasualtyreportingunit.Sincethenotereceivabledoesnotbearinterest,theCompanydiscountedthenotereceivableandreducedthegainonthesaletransactionby$692,000to$3,069,000.Interestincomewillberecognizedoverthelifeofthenotereceivableusingtheeffectiveinterestmethod.AlsoonSeptember29,2006,theCompanyenteredintoalong-termagreementwithMJMtorefercertainoftheCompany’sclientstoMJMforsurveillanceandinvestigativeservices.Undertheagreement,theCompanywillreceiveanadministrativefeefromMJMforthesereferrals.ThefinancialresultsoftheinvestigationsservicesbusinessareincludedintheCompany’sconsolidatedfinancialstatementsthroughthedateofsale,andduetothesignificanceoftheagreementwithMJMinrelationshiptothedisposedbusiness,theCompanyhasnotreportedthedisposedbusinessasdiscontinuedoperationsinitsconsolidatedfinancialstatements.RevenuesbeforereimbursementsfortheyearsendedDecember31,2006,2005,and2004relatedtothisbusinesswere$6,502,000,$9,576,000,and$9,977,000,respectively.

Acquisition�of�Specialist�Liability�Services�Ltd.OnAugust16,2006,theCompany’sU.K.subsidiaryacquiredalloftheoutstandingstockofSpecialistLiabilityServicesLtd.(“SLS”).Thepurchasepricepaidatacquisitionwas$7,965,000,less$1,099,000cashacquired.TheresultsofSLS’soperationshavebeenincludedintheCompany’sconsolidatedfinancialstatementssincethatdate.SLSisaspecialistliabilityadjustingandclaimshandlingcompanywith

operationsintheU.K.Thenetassetsacquiredincludedamortizableintangibleassetsof$1,409,000,indefinite-lifeintangibleassetsof$2,487,000,andgoodwillof$2,929,000.TheCompanyengagedindependentvaluationexpertstoassignfairvaluestomaterialassetsacquiredandliabilitiesassumedintheSLSacquisition.DependingonSLS’sperformanceagainstfutureearningstargetsoverthenextthreeyears,additionalpaymentsofupto$4,704,000maybemadetothesellersofSLS.

Acquisition�of�e-triage.com,�Inc.OnOctober30,2006,theCompanypurchasedalloftheoutstandingstockofe-Triage.com,Inc.(“e-Triage”).Theresultsofe-Triage’soper-ationshavebeenincludedintheCompany’sconsolidatedfinancialstatementssincethatdate.Thepurchasepricewascomposedof$3,500,000cashpaidatclosingand842,815restrictedsharesoftheCompany’sClassAcommonstockvaluedat$5,163,000.Thesesharesofstockhaverestrictionsonthesellers’abilitytosell,convey,orassigntheshares.Theserestrictionslapseoverthe18-monthperiodsubsequenttoOctober30,2006.Theprimaryassetsofe-Triageareaproprietarydatabaseandasoftwareapplicationusedinthemanage-mentofdisabilityclaims.TheCompanyplanstointegratetheseassetsintoitsexistingoperationsaswellasselllicensingagreementsfortheseproductstothirdparties.Thepurchasepriceallocationofe-Triagehasnotbeenfinalizedandissubjecttothecompletionofavaluation.Thisvaluationshouldbecompletedduringthesecondquarterof2007.

Acquisition�of�Broadspire�Management�Services,�Inc.OnOctober31,2006,theCompanycompletedtheacquisitionofBroadspirepursuanttoaStockPurchaseAgreementdatedAugust18,2006(the“StockPurchaseAgreement”).PursuanttotheStockPurchaseAgreement,theCompanypurchasedalloftheoutstandingcapitalstockofBroadspirefromPlatinumEquity,LLC(“Platinum”).Asaresultoftheacquisition,Broadspirebecameawholly-ownedsubsidiaryoftheCompany.Broadspireisathird-partyadministratorofferingacomprehensiveintegratedplatformofworkers’compensa-tionandliabilityclaimsmanagementandmedicalmanagementservices.TheCompanybeganrecordingtheoperatingactivitiesofBroadspireinitsconsolidatedfinancialstatementsforperiodsafterOctober31,2006.TheacquisitionofBroadspirecontributed$33,100,000inrevenuesin2006.

2006AnnualReport 77

ThepurchasepricepaidatacquisitiontothesellerforBroadspirewas$150,000,000,less$577,000cashacquired.Inaddition,theCompanypaid$2,570,000indirectacquisition-relatedcosts.Thenetaggregatepurchasepriceof$151,993,000wasborrowedundertheCompany’sNewCreditAgreementdescribedinNote5.

Thefollowingtablesummarizesthepreliminaryestimatedfairvaluesoftheassetsacquiredandliabilitiesassumedatthedateofacquisition.Theestimatedfairvaluesarepreliminarybecausethepurchasepriceissubjecttoaworkingcapitaladjustment.Inaddition,theCompanyhasnotcompleteditsassessmentofBroadspireemployeestobetermi-nated.Asaresult,additionalseverancepaymentsmaybemadeasthisassessmentisfinalized.TheCompanyexpectstocompletethisassessmentwithinoneyearfromthedateofacquisition.

(in thousands)AtOctober31,

2006

Assets

Currentassets,includingcashacquiredof$577 $ 35,547

Propertyandequipment,net 4,621

Computersoftware 1,554

Goodwill 139,295

Intangibleassets 117,300

Othernoncurrentassets 15,112

Totalassetsacquired 313,429

Liabilities

Currentliabilities,includingdeferredrevenueobligations 90,434

Deferredrevenueobligations–noncurrent 70,062

Deferredtaxliability,net 348

Otherliabilities 15

total�liabilities�assumed 160,859

Net�assets�acquired $ 152,570

Theamountsassignedtogoodwillandtheintangibleassetsarenotcurrentlydeductibleforincometaxpurposes.

ThefollowingtablereflectsthecondensedproformaresultsofoperationsfortheyearendedDecember31,2006asthoughthebusinesscom-binationwithBroadspirehadbeencompletedatthebeginningof

2006,andcondensedproformaresultsofoperationsfortheyearendedDecember31,2005asthoughthebusinesscombinationwithBroadspirehadbeencompletedatthebeginningof2005.

YearEnded

(in thousands, except earnings per share)

December31,2006

December31,2005

(unaudited)

Proformarevenue $1,078,956 $ 1,096,743

Proformanetincome $ 15,983 $ 18,727

Proformabasicanddilutedearningspershare $ 0.32 $ 0.38

Theproformaamountsdisclosedabove:

1)reflectamortizationexpenseforfinite-livedintangibleassetsresultingfromtheCompany’sacquisitionofBroadspire,reducedbyBroadspire’shistoricalamortizationexpenseforfinite-livedintangibleassetsrelatedtopriorbusinessacquisitionsmadebyBroadspire,

2)removecompensationexpenseforBroadspireemployeeswhowereterminatedsubsequenttotheCrawfordacquisition,

3)removenetexpenseforaBroadspireaircraftleasethatwasusedexclusivelybyPlatinumforbusinessnotrelatedtoBroadspire,

4)removechargesfromPlatinumthatarenotexpectedtooccurinthefuture,

5)removePlatinumchargesforservicesthatcouldhavebeenhistoricallyprovidedbytheCompanyatnoincrementalcosttothecombinedcompany,

6)includeinterestexpenseontheadditionaldebtof$152,570,000usedbytheCompanytopurchaseBroadspire,includingacquisition-relatedcosts,and

7)includeimputedfederalincometaxforBroadspireandincometaxbenefitassociatedwithadditionalinterestexpensefromincrementaldebtincurredbytheCompanytofundtheacquisitionofBroadspire.PriortotheacquisitionbytheCompany,BroadspireoperatedasaSubchapterScorporationforfederalincometaxpurposes.


78 Crawford&Company

InconnectionwiththeacquisitionofBroadspire,theCompanyrecordedaliabilityof$1,824,000forseverancepaymentstoBroadspireemployeesterminatedasaresultoftheacquisitionand$432,000tocoverthecostofBroadspireofficeleasesthathavebeenorwillbeterminated.ThisliabilitywasrecordedinaccordancewithEITFIssue95-3,“RecognitionofLiabilitiesinConnectionwithaPurchaseBusinessCombination,”withacorrespondingincreaseingoodwill.

Acquisitions�in�Prior�YearsDuring2004,theCompanyacquiredthenetassetsofFrance-basedlossadjustingfirmsCabinetMayoussier,CabinetTricaud,andTMA(“Mayoussier”)foraninitialpurchasepriceof$1,414,000,includingdeferredconsiderationof$828,000.ThisacquisitionwasmadetostrengthentheCompany’spositionintheFrenchlossadjustingmarket.AdditionalcontingentpaymentsmaybeearnedbythesellerbasedontheCompany’soperatingperformanceinFrancethroughOctober2009.

During2002,theCompanyrecordedtheacquisitionoftheoperationsofRobertson&CompanyGroup(“Robertson”)inAustralia,aclaimsadjustingcompany,foranaggregateinitialpurchasepriceof$10,194,000incash,excludingcashacquired.ThisacquisitionwasmadeinordertoexpandtheCompany’spresenceintheAustralianmarket.ThepurchasepriceofRobertsonwasreducedby$542,000in2003duetorefundsreceivedfromtheAustraliangovernmentforGoods&ServicesTaxesassociatedwiththeacquisition.ThepurchasepriceofRobertsonmaybefurtherincreasedbasedonfutureearningsthroughOctober31,2008.

8 � �GOODwILL�AND�INtANGIBLe�ASSetS�ARISING�FROM�ACQUISItIONS

Priortothefourthquarterof2006,theCompany’soperatingsegmentsandreportingunitsforgoodwillpurposesweretheformerU.S.OperationsandInternationalOperationsoperatingsegmentsandreportingunits.AsaresultoftheacquisitionofBroadspireManagementServices,Inc.andtherelatedrestructuringwithintheCompany’sfor-merU.S.Operationssegment,theCompanyrealigneditsinternalreportingstructureandexpandeditsnumberofoperatingsegmentsfromtwotofour.TheCompany’sexistingInternationalOperationssegmentwasnotimpacted.However,theformerU.S.Operationssegmentwasrealignedintothreeseparateoperatingsegments:U.S.PropertyandCasualty,whichservestheU.S.propertyandcasualtyinsurancecompanymarket,Broadspire,whichservestheU.S.self-insurancemarketplace,andLegalSettlementAdministration,whichservesthesecuritiesandotherlegalsettlementmarkets,productwarrantiesandinspections,andbankruptcymarkets.TheBroadspiresegmentincludestheOctober31,2006acquisitionofBroadspireManagementServices,Inc.

TheCompany’sfouroperatingsegmentsalsobecametheCompany’sreportingunitsforgoodwillpurposes.Asaresult,goodwillintheformerU.S.OperationsreportingunitwasreallocatedtoU.S.PropertyandCasualty,LegalSettlementAdministration,andBroadspirebasedontherelativefairvaluesofeachofthosenewreportingunits.Thisallo-cationwasbasedonfairvaluesofthosethreereportingunitspriortotheacquisitionofBroadspireManagementServices,Inc.,whichbecamepartoftheBroadspireoperatingsegmentandreportingunitatacqui-sition.ThefollowingtabledetailsthereallocationofgoodwillintheformerU.S.Operationssegmentandreportingunit:

2006AnnualReport 79

Former�U.S.�Operations:

(in thousands)

GoodwillbalanceatDecember31,2005 $ 28,372

GoodwillderecognizedfromInvestigations Servicesdisposition (526)

Goodwillbalanceattimeofreallocation $ 27,846

Reallocation:

ToLegalSettlementAdministration $ 20,049

ToU.S.PropertyandCasualty 6,405

ToBroadspire 1,392

Goodwillbalanceafterreallocation $ 27,846

Thefollowingtable,restatedtoreflecttheCompany’snewoperatingsegmentsandreportingunits,showsthechangesinthecarryingamountofgoodwillfortheyearsendedDecember31,2006and2005:

(in thousands)

U.S.Property&

CasualtyBroadspire

LegalSettlement

Administration

InternationalOperations Total

BalanceatDecember31,2004 $ 6,810 $ 1,392 $ 20,049 $ 81,159 $ 109,410Acquiredgoodwill 121 – – – 121Foreigncurrencyeffects – – – 504 504BalanceatDecember31,2005 6,931 1,392 20,049 81,663 10,035Acquiredgoodwill – 143,310 – 2,830 146,140Goodwillindisposition (526) – – – (526)Adjustments – 226 – – 226Foreigncurrencyeffects – – – 825 825BalanceatDecember31,2006 $ 6,405 $ 144,928 $ 20,049 $ 85,318 $ 256,700

Thegoodwillrecognized,fairvaluesofassetsacquired,liabilitiesassumed,andthenetcashpaidandstockissuedforacquisitionsdetailed2006,2005,and2004wereasfollows:

(in thousands) 2006 2005 2004

Goodwillacquiredintheyear:

Broadspiresegment $ 143,310 $ – $ –

U.S.Property&Casualtysegment – 121 492

InternationalOperationssegment 2,830 – 1,704

Totalgoodwillacquiredintheyear 146,140 121 2,196

Intangibleassetsacquiredintheyear:

Broadspiresegment 125,097 – –

InternationalOperationssegment 3,896 – –

Totalintangibleassetsacquired intheyear 128,993 – –

Fairvaluesoftangibleassetsacquired 58,992 – 1,164

Fairvalueofliabilitiesassumed 166,501 – 2,743

Fairvalueofcommonstockissued 5,163 – –

Cashpaid,netofcashacquired $ 162,461 $ 121 $ 617


80 Crawford&Company

Adjustmentsrepresentnoncashchangestothefairvaluesofassetsacquiredorliabilitiesassumedthataremadewithinoneyearoftheacquisitiondateofanacquiredbusiness.

IntangibleassetsacquiredduringtheyearendedDecember31,2006wereasfollows:

(in thousands)Customer

RelationshipsTechnology-

Based Trademarks

Intangibleassetssubjecttoamortization:

Broadspireacquisition $ 88,200 $ –

SLSacquisition 1,409 –

e-Triageacquisition – 6,497

Totalsubjecttoamortization 89,609 6,497

Amortizationexpensefor2006 (1,016) (108)

Netcarryingvalueat December31,2006 $ 88,593 $ 6,389

Weighted-average amortizationperiod 14.9years 10.0years

Intangibleassetsnotsubjecttoamortization:

Broadspireacquisition $ 29,100

SLSacquisition 2,487

e-Triageacquisition 1,300

Totalnotsubjecttoamortization $ 32,887

Theweighted-averageamortizationperiodforallintangibleassetssubjecttoamortizationis14.6years.Intangibleassetssubjecttoamortizationareamortizedonastraight-linebasisoverlivesrangingfrom10to15years.ForintangibleassetsatDecember31,2006subjecttoamortization,estimatedaggregateamortizationexpenseis$6,671,000foreachofthenextfiveyears.

9 � GAIN�ON�SALe�OF�UNDeveLOPeD�LAND

DuringSeptember2004,theCompanycompletedthesaleofanundevelopedparcelofrealestatetoalimitedliabilitycompanywholly-ownedandcontrolledbyapersonwho,atthetimeofthesale,wasamemberoftheCompany’sBoardofDirectors.Thepurchasepricewas$9,650,000.Thispurchasepricerepresentedapremiumover

anindependentappraisedvalueoftheproperty.TheCompanyreceivedcash,netoftransactionexpenses,of$2,028,000anda$7,562,000firstlienmortgagenotereceivable,ataneffectiveinterestrateofapproximately4%perannum,dueinitsentiretyin270days.ThenotereceivablewaspaidinitsentiretyinJune2005.Apretaxgainof$8,573,000wasrecognizedin2004onthesale.Thisgain,netofrelatedincometaxexpense,increasedearningspershareby$0.11during2004.

10 � �DePOSIt�ON�SALe�OF�tHe�COMPANY’S�CORPORAte�HeADQUARteRS�AND��DeFeRReD�GAIN

OnJune30,2006,theCompanysoldthelandandbuildingutilizedasitscorporateheadquartersinAtlanta,Georgia.Theseassetshadanetcarryingamountof$2,842,000.Thebasesalespriceof$8,000,000waspaidincashatclosing.Underthesalesagreement,the$8,000,000basesalespriceissubjecttoupwardrevisiondependinguponthebuyer’sabilitytosubsequentlyredeveloptheproperty.AlsoonJune30,2006,theCompanyenteredintoa12-monthleasebackagreementforthesesamefacilities,withamonthlybaserentof$67,000.Priortotermina-tionoftheleasebackagreement,theCompanyplanstorelocateitscorporateheadquarterstoothernearbyleasedfacilities.

UnderSFAS98,“AccountingforLeases,”theCompanydeferredrecognitionofthegainrelatedtothissaleduetoitsleasebackofthefacility.Netoftransactioncosts,apre-taxgainof$4,864,000willberecognizedbytheCompanyupontheexpirationorterminationoftheleasebackagreement,expectedtobeonorbeforeJune30,2007.Thegainof$4,864,000isbasedonthebasesalespriceanddoesnotincludeanyamountforthepotentialupwardrevisionofthesalesprice.Shouldsuchrevisionsubsequentlyoccur,theCompanycouldultimatelyrealizealargergain.TheCompanycannotpredictthelikelihoodofanysubsequentpricerevisions.

Priortothesale,thisdisposalgroupofassetshadafairvaluethatexceededitsdepreciatedcost.Noadjustmenttothecarryingcostwasrequiredwhenthisdisposalgroupwasclassifiedas“heldforsale”undertheprovisionsofSFAS144.TheCompanydoesnotholdlegaltitletotheseassetsafterJune30,2006.However,theseassetsareincludedinOtherCurrentAssetsontheCompany’sConsolidated

2006AnnualReport 81

BalanceSheetathistoricalcostlessaccumulateddepreciationinaccordancewiththeprovisionsofSFAS144.Pendingrecognitionofthegaindescribedabove,the$8,000,000receivedbytheCompanyonJune30,2006isreportedontheCompany’sConsolidatedBalanceSheetasadepositliability.

11 � ReStRUCtURING�ACtIvItIeS�AND�CHARGeS

InconnectionwithitsacquisitionandintegrationofBroadspireManagementServices,Inc.,theCompanydevelopedandimple-mentedaplantorestructurecertainofitsoperationswithinitsBroadspireoperatingsegment.ThisrestructuringinvolvedemployeesandfacilitiesassociatedwithitsexistingCrawfordIntegratedServicesbusinessandtheacquiredBroadspireentity.Asaresult,theCompanyrecordedapre-taxrestructuringchargeof$1,697,000or$0.02pershareafterreflectingincometaxes,duringthefourthquarterof2006relatedtoemployeeseverancepaymentsaswellascostsrelatedtoplannedclosuresofcertainexistingleasedbranchofficefacilities.Anadditional$1,824,000inemployeeseverancepaymentstoemployeesoftheacquiredBroadspireentityand$432,000relatedtotheplannedterminationofacquiredleaseobligationsfromtheacquiredBroadspireentitywererecordedingoodwill.TheCompanyexpectsthisrestructuringprocesstocontinueuntillate2007.

12 � �SOUtH�AFRICA�BLACk�eCONOMIC��eMPOweRMeNt�AGReeMeNt�

ThegovernmentofSouthAfricahasadoptedpoliciestoincreaseblackownershipofSouthAfricanbusinesses,includingforeign-ownedbusinesseslocatedinSouthAfrica.ThisinitiativeiscalledBlackEconomicEmpowerment.TheCompany’sSouthAfricasubsid-iary,Crawford&CompanySouthAfrica(“CrawfordSA”),enteredintoaBlackEconomicEmpowermentagreement(“BEEagreement”)withablack-ownedentityinSouthAfrica(the“BEEentity”).AspartofthisBEEagreement,CrawfordSAissued54,792votingsharesofitssubsidiarystocktotheBEEentityforparvalueof54,792SouthAfricanrand(approximatelyU.S.$9,000).The54,792sharesrepresenta25.1%ownershipinterestinCrawfordSA.

Priortothistransaction,CrawfordSAwasawholly-ownedsubsidiaryoftheCompany.ThiscapitaltransactionatthesubsidiarylevelchangedtheCompany’sownershipinterestinCrawfordSAbycreat-inga25.1%minorityinterestinthesubsidiary.ToreflecttheCompany’schangeinitsownershipinterestofCrawfordSAandtoreflectthecreationoftheminorityinterest,$602,000waschargedtotheCompany’sRetainedEarningsandcreditedtoMinorityInterestontheCompany’sConsolidatedBalanceSheet.Thisamountrepresented25.1%ofthecarryingvalueoftheCompany’sinvestmentinitsSouthAfricasubsidiary.

13 � CLIeNt�FUNDS�

TheCompanymaintainsfundsintrusttoadministerclaimsforcertainclients.ThesefundsarenotavailablefortheCompany’sgeneraloperatingactivitiesand,assuch,havenotbeenrecordedintheaccompanyingConsolidatedBalanceSheets.Theamountofthesefundstotaled$896,889,000and$206,554,000atDecember31,2006and2005,respectively.Theincreasein2006wasduetotheacquisitionofBroadspireManagementServices,Inc.andtheCompany’sLegalSettlementAdministrationServicessegment,wherethetiming,type,andsizeofprojectscanimpacttheseclientfundbalances.

14 � CONtINGeNCIeS�

TheCompanynormallystructuresitsacquisitionstoincludeearnoutpaymentswhicharecontingentupontheacquiredentityreachingcer-taintargetsforrevenuesandoperatingearnings.Theamountofthecontingentpaymentsandlengthoftheearnoutperiodvaryforeachacquisition,andtheultimatepaymentswhenmadewillvary,astheyaredependentonfutureevents.Basedon2006levelsofrevenuesandoperatingearnings,additionalpaymentsunderexistingearnoutagree-mentsapproximate$6,548,000through2010,asfollows:2007–$0;2008–$767,000;2009–$5,004,000;and2010–$777,000.

Aspartofthe$100,000,000revolvingcreditagreement,theCompanymaintainsaletterofcreditfacilitytosatisfycertainofitsowncon-tractualrequirements.AtDecember31,2006,theaggregateamountcommittedunderthefacilitywas$21,087,000.


82 Crawford&Company

Inthenormalcourseoftheclaimsmanagementservicesbusiness,theCompanyisnamedasadefendantinsuitsbyinsuredsorclaim-antscontestingdecisionsbytheCompanyoritsclientswithrespecttothesettlementofclaims.Additionally,clientsoftheCompanyhavebroughtactionsforindemnificationonthebasisofallegedneg-ligenceonthepartoftheCompany,itsagentsoritsemployeesinrenderingservicetoclients.ThemajorityoftheseclaimsareofthetypecoveredbyinsurancemaintainedbytheCompany,howevertheCompanyisself-insuredforthedeductiblesunderitsvariousinsur-ancecoverages.BasedoninformationavailabletotheCompany,adequateliabilitieshavebeenrecordedforsuchself-insuredrisks.

AsdisclosedinNote7,onOctober31,2006theCompanycompleteditsacquisitionofBroadspirefromPlatinum.BroadspireandPlatinumareengagedinarbitrationandotherlegalproceedingsoverdisputeswiththeformerownersofcertainentitiesacquiredbyBroadspirepriortotheCompany’sOctober31,2006acquisitionofBroadspire.IntheStockPurchaseAgreement,PlatinumhasfullresponsibilitytoresolveallofthesemattersandisobligatedtofullyindemnifyBroadspireandtheCompanyforallmonetarypaymentsthatBroadspiremayberequiredtopayasaresultofunfavorableoutcomesrelatedtothesepre-existingarbitrationsandlegalproceedings.PlatinumhasalsoagreedtoindemnifytheCompanyforanypurchasepriceadjustmentmechanism,earnout,orsimilarprovisioninanyofBroadspire’spre-viouspurchaseandsaleagreements.IntheeventofanunfavorableoutcomeinwhichPlatinumdoesnotindemnifytheCompanyunderthetermsoftheStockPurchaseAgreement,theCompanymayberesponsibleforfundingtheseunfavorableoutcomes.Atthistime,theCompany’smanagementanditslegalcounseldonotbelievetheCompanywillberesponsiblefortheultimatefundingofanyofthesematters,andaccordinglytheCompanyhasnotrecognizedanylosscontingenciesforthesemattersinitsconsolidatedfinancialstatements.

In2003,BroadspireacquiredNATLSCO,Inc.fromawholly-ownedsubsidiaryofLumbermanMutualCasualtyCompany(“LMC”)asaresultofdowngradesofLMC’sfinancialstrengthratingbyratingagencies.Broadspireassumedobligationstoserviceandadministerapopulationofclaimsoutstandingatthe2003acquisitiondate.LiquiditytosupportthesecasualtyclaimsoperationsfortheforeseeablefuturewasprovidedbycashinfusedbyLMCatthe2003acquisitiondate,

andareceivableheldintrust,whichhasandwillcontinuetobedistributedtoBroadspireinaccordancewithatrustagreementthroughAugust2012.Broadspirereceivedtotaldistributionsof$1,514,000fromthistrustduringNovemberandDecember2006.TheCompanybelievesthatthefundsthathavebeenandwillbereceivedfromLMCandthetrustaresufficienttoatleastcovertheactualcoststhatBroadspirewillincuroverthenextseveralyearstoserviceandadministerthispopulationofclaimsthroughclosure.Broadspire’srevenuesfromLMCtotaled$2,055,000forNovemberandDecember2006.AccountsreceivablefromLMCincludedinAccountsReceivableintheCompany’sConsolidatedBalanceSheetwere$1,911,000atDecember31,2006.StatutorysurplusreflectedinLMC’sauditedfinancialstatementsasofDecember31,2006and2005was$173,593,000and$168,313,000,respectively.

15 � COMMON�StOCk

TheCompanyhastwoclassesofcommonstockoutstanding,ClassACommonStockandClassBCommonStock.Thesetwoclassesofstockhaveessentiallyidenticalrights,exceptthatsharesofClassACommonStockgenerallydonothaveanyvotingrights.UndertheCompany’sArticlesofIncorporation,theBoardofDirectorsmaypayhigher(butnotlower)cashdividendsonthenon-votingClassACommonStockthanonthevotingClassBCommonStock.AsdescribedinNote16,certainClassACommonStocksharesareissuedwithrestrictionsunderexecutivecompensationplans.

AsdisclosedinNote5,theCompany’sNewCreditAgreementcontainsrestrictionsondividendsanddistributions.

InApril1999,theCompany’sBoardofDirectorsauthorizedadiscretionarysharerepurchaseprogramofanaggregateof3,000,000sharesofClassAandClassBCommonStockthroughopenmarketpurchases.ThroughDecember31,2006,theCompanyhasreacquired2,150,876sharesofitsClassACommonStockand143,261sharesofitsClassBCommonStockatanaveragecostof$10.99and$12.21pershare,respectively.Noshareswererepurchasedin2006,2005,or2004.

2006AnnualReport 83

16 � StOCk-BASeD�COMPeNSAtION

AsdisclosedinNote1,effectiveJanuary1,2006,theCompanyadoptedSFAS123RandtherelatedFASBStaffPositionsusingthemodified-prospective-transitionmethod.

AtDecember31,2006,theCompanyhasthreetypesofstock-basedcompensationplanssubjecttoSFAS123R:stockoptionplans,anexecutivestockbonusplan(performancesharesandrestrictedshares),andemployeestockpurchaseplans.UnderSFAS123R,thefairvalueofanequityawardisestimatedonthegrantdatewithoutregardtoserviceorperformanceconditions.Thefairvalueisrecognizedascompensationexpenseovertherequisiteserviceperiodforallawardsthatvest.Estimatesaremadeforthenumberofawardsthatwillvest,andsubsequentadjustmentsaremadetoreflectactualvesting.Compensationcostisnotrecognizedforawardsthatdonotvestbecauseserviceorperformanceconditionsarenotsatisfied.Compensationcostrecognizedatanydateequalsatleasttheportionofthegrant-datevalueofanawardthatisvestedatthatdate.ForawardsgrantedpriortoJanuary1,2006thatwerenotpreviouslysubjecttoexpenserecognitionunderAPB25,compensationexpenseunderSFAS123RisrecognizedonlyfortheportionsoftheseawardsthatwereunvestedattheadoptionofSFAS123R.ExpensefortheseawardsisrecognizedratablybeginningJanuary1,2006overtheremainingvestingperiodofeachaward.

Thepre-taxcompensationexpenserecognizedforallplanswas$3,567,000fortheyearendedDecember31,2006.Fortheyearended2005,pre-taxcompensationexpenserecognizedunderAPB25was$92,000.Therewasnoexpenserecognizedin2004.

ThetotalincometaxbenefitrecognizedintheConsolidatedStatementsofIncomeforstock-basedcompensationarrangementswas$1,023,000and$33,000foryearsendingDecember31,2006and2005,respectively.Nobenefitwasrecognizedin2004.SomeoftheCompany’sstock-basedcompensationawardsaregrantedunderplanswhicharedesignednottobetaxableascompensationtotherecipientbasedontaxlawsof

theUnitedStatesortheapplicablecountry.Accordingly,theCompanydoesnotrecognizetaxbenefitsonallofitsstock-basedcompensationexpenserecognizedforfinancialreportingpurposes.During2005,theCompanyhad$90,000ofexcesstaxdeductionsrelatedtoexercisesoftaxablestockoptionawards.This$90,000taxbenefitwascreditedtoadditionalpaid-incapitalwithinshareholders’investment.

Stock Option PlansTheCompanyhasstockoptionplansforkeyemployeesanddirectorsthatprovidefornonqualifiedandincentivestockoptiongrants.AllstockoptionsareforsharesoftheCompany’sClassAcommonstock.OptionawardsaregrantedwithanexercisepriceequaltothemarketpriceoftheCompany’sstockatthedateofgrant.TheCompany’sstockoptionplansareapprovedbyshareholders,althoughtheCompany’sBoardofDirectorsisauthorizedtomakespecificgrantsofstockoptions.Underthekeyemployeestockoptionplan,incen-tiveandnonqualifiedoptionsforupto6,250,000sharesmaybegranted.Employeestockoptionstypicallyaresubjecttogradedvest-ingoverfiveyears(20%eachyear)andhaveatypicallifeof10years.UnderSFAS123R,compensationcostforstockoptionsisrecog-nizedonastraight-linebasisovertherequisiteserviceperiodfortheentireaward.ForawardsgrantedpriortotheadoptionofSFAS123R,compensationexpenseisrecognizedonlyfortheportionoftheawardthatwasunvestedattheadoptionofSFAS123RonJanuary1,2006.FortheyearendedDecember31,2006,compensationexpenseof$795,000wasrecognizedforthekeyemployeestockoptionplan.Noexpensewasrecognizedduring2005and2004.

Underthedirectors’plan,boardmembersaregrantedoptionsuponinitialelectiontotheBoardanduponannualre-electiontotheBoard.Optionsforupto450,000sharesmaybegrantedunderthedirectors’plan.Directors’optionsarefullyvestedatgrantdateandhaveatypicallifeoftenyears.FortheyearendedDecember31,2006,compensationexpenseof$46,000wasrecognizedfordirectors’optionsunderSFAS123R.Noexpensewasrecognizedduring2005and2004.


84 Crawford&Company

AsummaryofoptionactivityasofDecember31,2006,andchangesduringyear2006,2005,and2004,ispresentedbelow:

Shares(in thousands)

Weighted-AverageExercisePrice

Weighted-AverageRemaining

ContractualTerm

AggregateIntrinsicValue(in thousands)

OutstandingatJanuary1,2004 5,320 $ 11 4.9years $ 1,385 Granted 1,597 6 Exercised (36) 3 Forfeitedorexpired (1,658) 11OutstandingatDecember31,2004 5,223 10 5.5years 2,260 Granted 109 7 Exercised (35) 5 Forfeitedorexpired (702) 12OutstandingatDecember31,2005 4,595 9 5.1years $ 773� Granted 49 6� exercised (12) 5� Forfeited�or�expired (959) 11Outstanding�at�December�31,�2006 3,673 9 4.7years $ 805vested�at�December�31,�2006 2,645 10 4.1years $ 458exercisable�at�December�31,�2006 2,645 10 4.1years $ 458

Theweighted-averagegrant-datefairvalueofstockoptionsgrantedduringtheyearsendedDecember31,2006,2005,and2004was$1.83,$2.15,and$1.51,respectively.ThetotalintrinsicvalueofstockoptionsexercisedduringtheyearsendedDecember31,2006,2005,and2004was$17,000,$88,000,and$94,000,respectively.ThetotalfairvalueofstockoptionsvestingduringtheyearsendedDecember31,2006,2005,and2004was$1,269,000,$1,906,000,and$2,617,000,respectively.

AtDecember31,2006,therewas$1,100,000ofunrecognizedcompensationcostrelatedtononvestedstockoptionsunderthekeyemployeestockoptionplan.Thiscostisexpectedtoberecognizedoveraweighted-averageperiodof1.5years.Thedirectors’stockoptionplanhasnounrecognizedcompensationcostsincedirectors’optionsarevestedwhengrantedandthegrant-datefairvaluesarefullyexpensedongrantdateundertheprovisionsofSFAS123R.

ThefairvalueofeachoptionisestimatedonthedateofgrantusingtheBlack-Scholes-Mertonoption-pricingformula,withthefollowingweighted-averageassumptions:

YearsEnded

December31,2006

December31,2005

December31,2004

Expecteddividendyield 3.4% 4.2% 3.2%

Expectedvolatility 37% 37% 36%

Risk-freeinterestrate 5.1% 4.1% 3.8%

Expectedtermofoptions 7years 7years 7years

TheexpecteddividendyieldisbasedontheCompany’shistoricaldividendyield.TheexpectedvolatilityofthepriceoftheCompany’sClassAcommonstockisbasedonhistoricalrealizedvolatility.Therisk-freeinterestrateistheimpliedyieldavailableonU.S.Treasuryzero-couponissueswithtermsequaltotheexpectedtermusedinthepricingformula.Theexpectedtermoftheoptiontakesintoaccountboththecontractualtermoftheoptionandtheeffectsofexpectedexercisebehavior.

65

119

1010

$$

YearsEnded

2006AnnualReport 85

Executive Stock Bonus PlanUndertheCompany’sexecutivestockbonusplan,theCompanyisauthorizedtoissueupto4,000,000sharesoftheCompany’sClassAcommonstock.Theplanhastwocomponents:theperformancesharecomponentandtherestrictedsharecomponent.

Undertheperformancesharecomponent,keyemployeesoftheCompanyareeligibletoearnsharesofstockupontheachievementofcertainindividualandcorporateobjectives.Sharegrantsaredeter-minedatthediscretionoftheCompany’sBoardofDirectorsandaresubjecttogradedvestingoverperiodstypicallyrangingfromthreetofiveyears.Sharesarenotissueduntilthevestingrequirementshavelapsed.Dividendsarenotpaidoraccruedonunvestedshares.Thegrant-datefairvalueofaperformancesharegrantisbasedonthemar-ketvalueoftheCompany’sClassAcommonstockonthedateofgrant,reducedforthepresentvalueofestimateddividendsnotreceivedontheunvestedsharesduringthevestingperiod.Iftheawardcontainsaperformancecondition,compensationexpenseforeachvestingtrancheintheawardisrecognizedratablyfromtheserviceinceptiondatetothevestingdateforeachtranche.Otherwise,compensationexpenseisrecognizedonastraight-linebasisovertherequisiteserviceperiod.

During2005,atotalof130,300performanceshareswasgranted.Inearly2006,itwasdeterminedthat69,850ofthoseshareswereearnedbasedonachievementof2005performancegoals,and13,970ofthoseearnedsharesvestedatthattime.AtDecember31,2006,anaddi-tional12,990sharesvested.Theremainingunvested2005performancesharesthatwereearnedwillvestratablyat20%peryear,subjectonlytoserviceconditions.

In2006,anadditional1,061,350performancesharesweregranted,subjecttotheachievementofestablishedperformancegoals.Someoftheseperformancegoalspertainonlyto2006,whilecertainper-formancegoalsextendthrough2010.Someoftheseawardsalsocontainserviceconditionsthatmustbesatisfied.Basedonthemostrecentachievementrates,theCompanyestimatesthat969,000oftheseperformanceshareswillbeearned.During2006,compensationexpensewasrecognizedfortheseperformancesharesbasedontheestimatedachievementratesfortheperformancegoalsandontherelatedvestingschedules.

AsummaryofthestatusoftheCompany’snonvestedperformancesharesasofDecember31,2006,andchangesin2006and2005,ispresentedbelow:

Shares

Weighted-AverageGrant-Date

FairValue

NonvestedatJanuary1,2005 – –

Granted 130,300 $ 6.38

Vested – –

Forfeited (2,400) 6.38

NonvestedatDecember31,2005 127,900 6.38

� Granted 1,061,350 5.18

� vested (26,960) 6.38

� Forfeited�or�unearned (74,270) 6.13

Nonvested�at�December�31,�2006 1,088,020 $ 5.22

Thetotalfairvalueofthe26,960performancesharesvestedatDecember31,2006was$172,000.AtDecember31,2005,noperformanceshareswerevested.

CompensationexpenserecognizedunderSFAS123RandAPB25forallperformancesharestotaled$1,663,000and$91,000fortheyearsendedDecember31,2006and2005,respectively.Therewasnoexpenserecognizedin2004.Compensationcostfortheseawardsisnetofestimatedoractualawardforfeitures.AsofDecember31,2006,therewasanestimated$3,801,000ofunearnedcompensationcostforallnonvestedperformanceshares;thiscostisexpectedtoberecognizedthrough2010.OfthisunearnedcompensationcostatDecember31,2006,$121,000isrelatedtounvested2005perfor-mancesharesinwhichtheperformancegoalachievementrateshavebeendeterminedbuttheremainingservicevestingrequirementshavenotbeenmet.Estimatedunearnedcompensationcostof$3,680,000isrelatedtoperformancegrantsthatvestbasedontheachievementoffutureperformancegoalsthrough2010.Thisestimatedunearnedcompensationcostof$3,680,000isbasedoninterimassessmentsofexpectedfinalachievementratesfortherelatedperformancegoals.Theactualachievementratesfortheseperformancegoals,andtherelatedfinalcompensationcost,couldbemateriallydifferentthantheestimatesatDecember31,2006.


86 Crawford&Company

Undertherestrictedsharecomponent,theBoardofDirectorsmayelecttoissuerestrictedsharesofstockinlieuof,orinadditionto,cashbonuspaymentstocertainkeyemployees.Employeesreceivingtheseshareshaverestrictionsontheabilitytoselltheshares.Suchrestrictionslapseratablyovervestingperiodsrangingfromseveralmonthstofiveyears.Forgrantsofrestrictedshares,vestedandunvestedsharesissuedareeligibletoreceivenonforfeitabledividendsifdividendsaredeclaredbytheCompany’sBoardofDirectors.Thegrant-datefairvalueofarestrictedsharegrantisbasedonthemarketvalueofthestockonthedateofgrant.Compensationcostisrecognizedonastraight-linebasisovertherequisiteserviceperiodsincetheseawardsonlyhaveserviceconditionsoncegranted.

AsummaryofthestatusoftheCompany’snonvestedrestrictedsharesasofDecember31,2006,andchangesduring2006and2005,ispresentedbelow:

Shares

Weighted-AverageGrant-Date

FairValue

NonvestedatJanuary1,2005 – –

Granted 5,000 $ 7.64

Vested – –

Forfeited – –

NonvestedatDecember31,2005 5,000 7.64

� Granted 156,000 6.06

� vested (11,000) 6.03

� Forfeited – –

Nonvested�at�December�31,�2006 150,000 $ 6.11

CompensationexpenserecognizedforallrestrictedsharesfortheyearsendedDecember31,2006and2005was$683,000and$1,000,respectively.Therewasnoexpensein2004.TherewerenorestrictedsharesgrantedoroutstandingasofDecember31,2004.

AsofDecember31,2006,therewas$298,000oftotalunearnedcompensationcostrelatedtononvestedrestrictedshares,whichisexpectedtoberecognizedoveraweighted-averageperiodof4.1years.OnJanuary1,2007,100,000ofthenonvestedsharesatDecember31,2006willfullyvest.FortheyearendedDecember31,2006,pre-taxcompensationcostof$615,000wasrecognizedforthese100,000restrictedsharesvestingonJanuary1,2007.

Employee Stock Purchase PlansAtDecember31,2006,theCompanyhastwoemployeestockpurchaseplans:theU.S.PlanandtheU.K.Plan.TheU.S.PlanisalsoavailabletoeligibleemployeesinCanada,PuertoRico,andtheU.S.VirginIslands.BothplansarecompensatoryunderSFAS123R;neitherwerecompensatoryunderAPB25.

ForboththeU.S.andU.K.plans,therequisiteserviceperiodistheperiodoftimeoverwhichtheemployeescontributetotheplansthroughpayrollwithholdings.Forpurposesofrecognizingcompen-sationexpense,estimatesaremadeforthetotalwithholdingsexpectedovertheentirewithholdingperiod.Themarketpriceofashareofstockatthebeginningofthewithholdingperiodisthenusedtoestimatethetotalnumberofsharesthatwillbepurchasedusingthetotalestimatedwithholdings.Compensationcostisrecognizedratablyoverthewithholdingperiod.

UndertheU.S.Plan,theCompanyisauthorizedtoissueupto1,500,000sharesofitsClassAcommonstocktoeligibleemployees.Participatingemployeescanelecteachyeartohaveupto$21,000oftheirannualearningswithheldtopurchasesharesattheendoftheone-yearwithholdingperiodwhichstartsJuly1andendsJune30.Thepurchasepriceofthestockis85%ofthelesseroftheclosingpriceforashareofstockonthefirstdayorthelastdayofthewith-holdingperiod.Participatingemployeesmayceasepayrollwithholdingsduringthewithholdingperiodand/orrequestarefundofallamountswithheldbeforeanysharesarepurchased.

2006AnnualReport 87

SincetheU.S.Planinvolvesalook-backoption,theestimateofthefairvaluefortheshareoptionisseparatedintotwocomponents.Thefirstcomponentiscalculatedas15%(theemployeediscount)ofanonvestedshareoftheCompany’sClassAcommonstock.ThesecondcomponentinvolvesusingtheBlack-Scholes-Mertonoption-pricingformulatovalueaone-yearoptionon85%ofashareoftheCompany’sClassAcommonstock.Thisvalueisadjustedtoreflecttheeffectofanyestimateddividendsthattheemployeeswillnotreceiveduringthelifeoftheshareoption.

DuringtheyearendedDecember31,2006,atotalof99,776sharesoftheCompany’sClassAcommonstockwereissuedtotheCompany’semployeesunderthe2005–2006withholdingperiodwhichstartedJuly1,2005andendedJune30,2006.AtDecember31,2006,anestimated127,399shareswillbepurchasedundertheU.S.Planattheendofthecurrentwithholdingperiod(whichstartedJuly1,2006andendsJune30,2007)foradiscountedpurchasepriceof$5.72pershare.DuringtheyearendedDecember31,2006,compensationexpenseof$278,000wasrecognized.Therewasnoexpenserecog-nizedin2005and2004.AtDecember31,2006,therewasestimatedunearnedcompensationcostof$158,000toberecognizedthroughtheendofthecurrentwithholdingperiodwhichendsJune30,2007.

UndertheU.K.Plan,theCompanyisauthorizedtoissueupto1,000,000sharesofitsClassAcommonstock.UndertheU.K.Plan,eligibleemployeescanelecttohaveupto£250withheldfrompayrolleachmonthtopurchasesharesattheendofathree-yearwithholdingperiod.Thepurchasepriceofashareofstockis85%ofthemarket

priceatthebeginningofthewithholdingperiod.Participatingemployeesmayceasepayrollwithholdingsand/orrequestarefundofallamountswithheldbeforeanysharesarepurchased.

UndertheU.K.Plan,thefairvalueofashareoptionisequalto15%(theemployeediscount)ofthemarketpriceofashareoftheCompany’sClassAcommonstockatthebeginningofthewithholdingperiod.Noadjustmentismadetoreflecttheeffectofanyestimateddividendsthattheemployeeswillnotreceiveduringthelifeoftheshareoptionsinceemployeesarecreditedwithinterestbyathirdpartyontheirwithholdingsduringthewithholdingperiod.Forpurposesofestimatingfairvalue,thisinterest-payingfeatureisdeemedtobemateriallyequivalenttoanyforegonedividendsontheunderlyingsharesofstock.

AtDecember31,2006,anestimated169,351sharesintotalwillbepurchasedundertheU.K.Planattheendofthewithholdingperiods.TheseestimatesaresubjecttochangebasedonfluctuationsinthevalueoftheBritishpoundagainsttheU.S.dollar.ThediscountedpurchasepriceforashareoftheCompany’sClassAcommonstockundertheU.K.Planrangesfrom$5.36to$5.97.FortheyearendedDecember31,2006,compensationcostof$148,000wasrecognizedfortheU.K.Plan.Nocostswererecognizedin2005and2004.AtDecember31,2006,therewasanestimated$219,000oftotalunrec-ognizedcompensationcostrelatedtotheU.K.Plan,whichisexpectedtoberecognizedthroughMarch2009.

DuringtheyearendedDecember31,2006,atotalof324,232sharesofClassAcommonstockwereissuedundertheU.K.Plan.

88 Crawford&Company

(in thousands except per share amounts)

FORTHEYEARSENDEDDECEMBER31, 2006(2) 2005 2004 2003 2002

RevenuesbeforeReimbursements $ 819,522 $ 771,983 $ 733,567 $ 690,933 $ 699,390 Reimbursements 80,858 82,784 78,095 77,077 58,228TotalRevenues 900,380 854,767 811,662 768,010 757,618CostofServices 719,032 690,735 643,958 607,439 590,639U.S.PropertyandCasualtyOperatingEarnings(Loss)(1) 4,770 (404) 10,659 5,858 14,026InternationalOperatingEarnings(1) 16,034 13,328 11,586 6,751 7,986BroadspireOperating(Loss)Earnings(1) (14,657) (10,123) (2,705) 6,474 14,043LegalSettlementAdministrationOperatingEarnings(1) 24,408 20,311 12,230 7,138 1,341 UnallocatedCorporateandSharedCosts 1,640 1,973 616 3,819 (149) NetCorporateInterestExpense (5,753) (5,145) (3,536) (5,414) (4,706) StockOptionExpense (1,220) – – – – AmortizationofAcquisition-RelatedIntangibles (1,124) – – – – OtherGains(Expenses) (27) – 8,573 (8,000) 6,000 IncomeTaxes (9,060) (7,059) (12,251) (8,964) (14,029)NetIncome 15,011 12,881 25,172 7,662 24,512EarningsPerShare: Basic 0.30 0.26 0.52 0.16 0.50 Diluted 0.30 0.26 0.51 0.16 0.50CurrentAssets 382,143 339,218 344,707 306,095 276,188TotalAssets 892,988 574,071 571,260 520,671 478,939CurrentLiabilities 282,284 209,020 209,164 185,841 147,725Long-TermDebt,LessCurrentInstallments 199,044 45,810 51,389 50,664 49,976TotalDebt 229,460 81,139 90,176 96,777 81,488Shareholders’Investment 211,151 179,031 194,833 172,594 159,431TotalCapital 440,611 260,170 285,009 269,371 240,919CurrentRatio 1.4:1 1.6:1 1.6:1 1.6:1 1.9:1TotalDebt-to-TotalCapital 52.1% 31.2% 31.6% 35.9% 33.8%ReturnonAverageShareholders’Investment 7.7% 6.9% 13.7% 4.6% 14.1%CashFlowsfromOperatingActivities 52,717 40,761 35,813 36,470 50,850CashFlowsfromInvestingActivities (174,606) (12,614) (16,579) (28,721) (33,371)CashFlowsfromFinancingActivities 135,786 (19,450) (22,300) (4,377) (11,099)Shareholders’EquityPerShare 4.19 3.65 3.99 3.54 3.28CashDividendsPerShare: ClassAandClassBCommonStock 0.18 0.24 0.24 0.24 0.32Weighted-AverageSharesOutstanding: Basic 49,423 48,930 48,773 48,668 48,580 Diluted 49,576 49,347 48,996 48,776 48,664(1) This is a non-GAAP financial measure representing earnings (loss) before net corporate interest expense, stock option expense, amortization of acquisition-related intangible assets,

other gains and expense, and income taxes.

(2) On October 31, 2006, the Company acquired Broadspire Management Services, Inc. See Note 7 to the consolidated financial statements.

SelectedFinancialData

2006AnnualReport 89

QuarterlyFinancialData(Unaudited)DividendInformationandCommonStockQuotations


2006 First Second Third Fourth(4) FullYear

Revenuesfromservices: Revenuesbeforereimbursements $ 201,606 $� 192,603� $� 197,057 $� 228,256� $� 819,522� Reimbursements 20,066 17,164� 25,276 18,352� 80,858Totalrevenues: 221,672 � 209,767 � 222,333 � 246,608� � 900,380CostofServices 176,542 165,647 180,845 195,998 719,032Pretaxincome(loss) 9,053 6,573 9,671 (1,226) 24,071U.S.PropertyandCasualtyoperating

earnings(loss)(1) 3,550 945 1,634 (1,359) 4,770Internationaloperatingearnings(1) 1,686 3,213 3,825 7,310 16,034Broadspireoperating(loss)(1) (3,445) (3,250) (5,279) (2,683) (14,657)LegalSettlementAdministrationoperating

earnings(1) 7,390 6,696 6,345 3,977 24,408 Unallocatedcorporateandsharedcosts,net �1,136� �(86) �1,164� �(574) �1,640� Netcorporateinterestexpense (998) (594) (839) (3,322) (5,753) Stockoptionexpense (266) (351) (248) (355) (1,220) Amortizationofacquistion-related

intangibles – – – (1,124) (1,124) Othergains(expenses) – – 3,069 (3,096) (27) Incometaxes (3,205) (2,360) (3,423) (72) (9,060)Netincome(loss) 5,848 4,213 6,248 (1,298) 15,011Earnings(loss)pershare–basicanddiluted(2) 0.12 0.09 0.13 (0.03) 0.30Cashdividendspershare: ClassAandClassBCommonStock 0.06 0.06 0.06 – 0.18Commonstockquotations:(3)

ClassA–High 6.50 6.61 7.25 6.19 7.25 ClassA–Low 5.60 5.41 5.75 5.21 5.21 ClassB–High 6.48 7.18 8.07 7.68 8.07 ClassB–Low 5.50 5.39 6.35 6.24 5.39

Continued on page 90.

90 Crawford&Company


2005 First Second Third Fourth FullYear

Revenuesfromservices: Revenuesbeforereimbursements $ 184,334 $ 186,002 $ 184,720 $ 216,927 $ 771,983 Reimbursements 15,309 20,779 21,500 25,196 82,784Totalrevenues: 199,643 206,781 206,220 242,123 854,767Costofservices 160,228 168,114 167,784 194,609 690,735Pretaxincome 3,654 4,151 2,921 9,214 19,940U.S.PropertyandCasualtyoperating

earnings(loss)(1) (2,602) 733 (243) 1,708 (404)Internationaloperatingearnings(1) 3,345 3,696 3,019 3,268 13,328Broadspireoperating(loss)(1) (1,187) (2,011) (3,615) (3,310) (10,123)LegalSettlementAdministration

operatingearnings(1) 2,428 4,856 4,177 8,850 20,311 Unallocatedcorporateandsharedcosts,net 3,197 (1,768) 917 (373) 1,973 Netcorporateinterestexpense (1,527) (1,355) (1,334) (929) (5,145) Incometaxes (1,293) (1,470) (1,034) (3,262) (7,059)Netincome 2,361 2,681 1,887 5,952 12,881Earningspershare–basicanddiluted 0.05 0.05 0.04 0.12 0.26Cashdividendspershare: ClassAandClassBCommonStock 0.06 0.06 0.06 0.06 0.24Commonstockquotations:(3)

ClassA–High 7.26 7.58 7.90 7.80 7.90 ClassA–Low 6.70 6.55 6.06 5.50 5.50 ClassB–High 7.45 7.82 8.39 8.15 8.39 ClassB–Low 6.85 6.78 6.03 5.53 5.53(1) This is a non-GAAP financial measure representing earnings (loss) before net corporate interest expense, stock option expense, amortization of acquisition-related intangible assets,

other gains and expense, and income taxes.

(2) Due to the method used in calculating per share data as prescribed by SFAS 128, “Earnings Per Share,” the quarterly per share data may not total to the full year per share data.

(3) The quotations listed in this table set forth the high and low closing prices per share of Crawford & Company Class A Common Stock and Class B Common Stock as reported on the New York Stock Exchange.

(4) On October 31, 2006, the Company acquired Broadspire Management Services, Inc. See Note 7 to the consolidated financial statements.

The approximate number of record holders of the Company’s stock as of December 31, 2006: Class A – 2,223 and Class B – 663.

QuarterlyFinancialData(Unaudited)DividendInformationandCommonStockQuotations

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Corporate Headquarters5620 Glenridge Drive, N.E.Atlanta, Georgia 30342404.256.0830

InquiriesIndividuals seeking financial data should contact: Investor RelationsW. Bruce Swain, Chief Financial Officer404.256.0830

Form 10-KA copy of the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission is available without charge upon request to:Corporate SecretaryCrawford & Company5620 Glenridge Drive, N.E.Atlanta, Georgia 30342404.847.4551

Annual Meeting�e Annual Meeting of shareholders will be held at 2:00 p.m. on May 3, 2007, at the corporate headquarters ofCrawford & Company5620 Glenridge Drive, N.E.Atlanta, Georgia 30342

Transfer AgentComputershare Investor Services, LLCP.O. Box 43078Providence, Rhode Island 02940-30781.800.568.3476

Trading InformationCrawford & Company lists its common shares on the New York Stock Exchange under the symbols CRDA and CRDB.

Internet Addresswww.crawfordandcompany.com

Shareholder Information

�is total shareholders’ return model assumes reinvested dividends and is based on a $100 investment on December 31, 2001. We caution you not to draw any conclusions from the data in this performance graph, as past results do not necessarily indicate future performance.

CertificationsIn 2006, Crawford & Company’s chief executive officer (CEO) provided to the New York Stock Exchange the annual CEO certification regarding Crawford’s compliance with the New York Stock Exchange’s corporate governance listing standards. In addition, Crawford’s CEO and chief financial officer filed with the U.S. Securities and Exchange Commission all required certifications regarding the quality of Crawford’s public disclosures in its fiscal 2006 reports.

Comparison of Cumulative Five-Year Total Return�e following line graph compares the cumulative return on the Company’s Class BCommon Stock against the cumulative total return on (i) the Standard & Poor’s Composite 500 Stock Index and (ii) the Standard & Poor’s Insurance – Property & Casualty Index for the five-year period commencing January 1, 2002 and ended December 31, 2006.

Years Ending December 31,

Company/Index (in dollars) 2001 2002 2003 2004 2005 2006

Crawford & Company (Class B) $ 100.00 $ 44.45 $ 65.55 $ 72.75 $ 7.78 $ 75.32S&P 500 Index 100.00 77.90 100.25 111.15 116.61 135.03S&P Property-Casualty Insurance Index 100.00 88.98 112.48 124.20 142.97 161.38

S&P Property & Casualty Insurance Index

S&P 500 Index

CRAWFORD & COMPANY CLASS B

Crawford & Company

5620 Glenridge Drive, N.E.

Atlanta, GA 30342

www.crawfordandcompany.com

An equal opportunity employer

crawford & company 2006 annual...

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