Rtw (NASDAQ:RTWI)
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RTW, Inc. (Nasdaq:RTWI), a leading provider of products and services to
manage insured and self-insured workers’
compensation programs, today reported a net loss of $151,000, or $0.03
per diluted share, for the fourth quarter ended December 31, 2006,
compared to net income of $2.1 million, or $0.37 per diluted share for
the fourth quarter of 2005.
Premiums earned in the fourth quarter totaled $9.9 million, down 13.2
percent from $11.4 million for the same period in 2005. Premiums in
force at year-end totaled $47.5 million compared to $52.9 million on
December 31, 2005. Service revenue was $1.2 million in the fourth
quarter of 2006 compared to $1.5 million for the fourth quarter of 2005.
“We have made very good progress in
transitioning RTW from being a pure mono-line insurance company to
becoming a service organization,” said Jeff
Murphy, RTW’s President and CEO. “We
built infrastructure and added capacity to prepare us for 2007 growth in
both service and insurance revenue. We expected that service revenue
would grow quickly in the short-term and offset anticipated declines in
premiums earned. In the fourth quarter of 2006, however, service revenue
growth did not offset the decline in premiums earned and resulted in
revenues that were not sufficient to cover our existing operating costs.
We expect this will quickly reverse and that we will be profitable in
2007.”
Premiums earned and premiums in force declined as the company continued
to focus on writing business that meets its underwriting profit
expectations.
“We continue to see challenges in writing
business at the right price and will be conservative in writing
insurance business until we see strengthening in insurance rates,”
said Murphy. “We are doing two things in 2007
to reverse the decline in premiums. First, we are improving our
marketing capability and are seeing increased submission flow, higher
retention rates and more new business in 2007. Secondly, we are
continuing to grow our small account book.”
Premiums continued to decline in the Minnesota Assigned Risk Plan (“ARP”)
and as a result, service revenue from the ARP decreased 33% in the
fourth quarter of 2005. Excluding the ARP, service revenues grew 9% over
the same period in 2005.
“Revenue for some customers that we expected
to provide services to in the fourth quarter of 2006 was delayed and
instead rolled over into 2007,” said Murphy. “We
see the following positive developments in our service business:”
Despite the ARP decrease in the second half of 2006, service revenue
grew 35.1 percent in 2006 over 2005 and non-ARP service revenue grew
over 110 percent;
We are providing services to customers in over 30 states and our
newest customers include two transportation corporations in the
Fortune 500 list; and
We expect double-digit year-over-year growth in service revenue in
2007; however, there may be some fluctuations in quarter-to-quarter
comparisons.
We are committed to growing our service business and remain excited
about the opportunities this business presents and about the future
prospects of this organization.”
“Our book value per share was $9.90 at
December 31, 2006, above the current market price of our common stock,”
Murphy said. “We are committed to increasing
shareholder value over the long-term by doing the right things today
with our business.”
Full Year Results and Option Expense
Impact
Premiums earned decreased 13.8 percent to $42.6 million for the year
ended December 31, 2006 compared to $49.4 million for the same period in
2005.
Net income for the year ended December 31, 2006 totaled $3.3 million or
$0.60 per diluted share versus $6.0 million or $1.06 per share for the
comparable period in 2005. The 2006 fourth quarter and full year results
include after-tax charges totaling $68,000 and $355,000, or $0.01 and
$0.06 per diluted share, respectively, attributable to FAS 123R,
"Share-Based Payment," an accounting pronouncement requiring the
expensing of stock-based compensation.
Further Operating Results Detail
Total revenue decreased to $12.5 million for the quarter ended December
31, 2006 compared to $14.1 million for the same period in 2005, and
decreased to $53.9 million for the year ended December 31, 2006, down
from $59.0 million in 2005. For the quarter ended December 31, 2006,
total revenue included investment income of $1.4 million compared to
$1.2 million for the same period in 2005. For the year ended December
31, 2006, total revenue included investment income totaling $5.3 million
compared to investment income of $4.6 million and realized investment
gains of $580,000 in 2005.
We benefited from improving our claim management capabilities and
closing old claims in both 2006 and 2005. In 2006, we realized a $1.6
million pre-tax decrease in claim and claim settlement expenses for the
year, recorded in the first two quarters of the year. In 2005, we
realized a $3.6 million pre-tax decrease in claim and claim settlement
expenses for the fourth quarter and $5.1 million for the year. These
results reflect our focus and commitment to continually improve our
ability to affect outcomes for open claims from prior accident years.
General and administrative expenses include $76,000 and $383,000 for the
three months and year ended December 31, 2006, respectively, related to
stock-based compensation. No similar compensation expense was recorded
in 2005.
Income tax expense in the fourth quarter of 2006 includes adjustments
for changes in estimates from prior periods that have affected the
quarter-to-quarter and year-to-year comparison of income tax expense.
Conference Call Information
RTW will host a conference call on Thursday, March 1, 2007, at 10:00
a.m. CDT. To access the conference call, participants should dial
1-800-218-0713. A replay of the conference call will be available from
March 1, 2007 through March 3, 2007 by calling 1-800-405-2236 or
1-303-590-3000 and entering the Passcode 11084280#. Forward looking and
material information may be discussed during the conference call.
The live audio broadcast of RTW's quarterly conference call will be
available online through a link at the company's website at http://www.rtwi.com/investors/investors_main.htm.
The online replay will be available for approximately ninety days.
About RTW, Inc.
RTW, Inc., based in Minneapolis, Minnesota, provides disability and
absence management services, primarily directed at workers’
compensation to: (i) employers insured through our wholly-owned
insurance subsidiaries, American Compensation Insurance Company (ACIC)
and Bloomington Compensation Insurance Company (BCIC); (ii) self-insured
employers on a fee-for-service basis; (iii) state assigned risk plans on
a percent of premium basis; (iv) other insurance companies; and (v)
agents and employers on a consulting basis, charging hourly fees. The
company developed two proprietary systems to manage disability and
absence: (i) ID15®,
designed to quickly identify those injured employees who are likely to
become inappropriately dependent on disability system benefits,
including workers’ compensation; and (ii) RTW
Solution®, designed
to lower employers’ disability costs and
improve productivity by returning injured employees to work as soon as
safely possible. The company supports these proprietary management
systems with state-of-the-art technology and talented people dedicated
to its vision of transforming people from absent or idle to present and
productive. ACIC writes workers’ compensation
insurance for employers primarily in Minnesota, Colorado and Michigan,
but is growing in new markets including Florida, Texas, Kansas,
Connecticut, North Carolina and Iowa. BCIC offers workers’
compensation insurance to selected employers in Minnesota and Colorado.
In addition, through its Absentia®
division, RTW has expanded and provides non-insurance products and
service offerings nationally. The company’s
services are effective across many industries. RTW, Inc. is traded on
the Nasdaq National Market under the symbol RTWI. For more information
on RTW, Inc., please visit www.rtwi.com.
Safe Harbor Statement
Some of the statements made in this News Release, as well as statements
made by us in periodic press releases and oral statements made by us to
analysts and shareholders in the course of presentations about RTW,
constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. The following important factors, among
others, have affected and in the future could affect our actual results
and could cause our actual financial performance to differ materially
from that expressed in any forward-looking statement: (i) ACIC’s
and BCIC’s ability to retain renewing
policies and write new business with a B++ (Very Good, Secure) rating
from A.M. Best; (ii) our ability to continue to extend our workers’
compensation and absence management services to self-insured employers
and other alternative markets and to operate profitably in providing
these services; (iii) our ability to expand our insurance solutions to
new markets and write small accounts and select association business
through ACIC and BCIC; (iv) our ability to maintain profitability and
attract sufficient insurance opportunity in our traditional niche
business during a soft insurance market cycle as other insurance
carriers decrease prices; (v) our ability to maintain or increase rates
on insured products in the markets in which we remain or alternatively
non-renew or turn away improperly priced business; (vi) the ability of
our reinsurers to honor their obligations to us; (vii) our ability to
accurately predict claim development; (viii) our ability to provide
ID15, RTW Solution and other proprietary products and services to
customers successfully; (ix) our ability to manage both our existing
claims and new claims in an efficient and effective manner; (x) our
experience with claims frequency and severity; (xi) medical inflation;
(xii) competition and the regulatory environment in which we operate;
(xiii) general economic and business conditions; (xiv) our ability to
obtain and retain reinsurance at a reasonable cost; (xv) changes in
workers’ compensation regulation by states,
including changes in mandated benefits or insurance company regulation;
(xvi) interest rate changes; and (xvii) other factors as noted in our
filings with the Securities and Exchange Commission. This discussion of
uncertainties is by no means exhaustive but is designed to highlight
important factors that may affect our future performance.
RTW, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Audited, in 000's, except share and per share data)
For the three monthsended Dec. 31,
For the yearended Dec. 31,
2006
2005
2006
2005
REVENUES:
Gross premiums earned
$12,237
$13,879
$51,367
$59,872
Premiums ceded to excess of loss treaties
(2,347)
(2,481)
(8,761)
(10,452)
Premiums earned
9,890
11,398
42,606
49,420
Investment income
1,360
1,244
5,325
4,613
Net realized investment gains
-
-
-
580
Service revenue
1,230
1,497
5,941
4,398
Total revenues
12,480
14,139
53,872
59,011
EXPENSES:
Claim and claim settlement expenses
7,623
4,826
30,134
30,807
Policy acquisition costs
1,309
1,201
5,160
5,456
General and administrative expenses
3,544
3,884
13,356
12,669
Total expenses
12,476
9,911
48,650
48,932
Income before income taxes
4
4,228
5,222
10,079
Income tax expense
155
2,121
1,934
4,081
Net (loss) income
$(151)
$2,107
$3,288
$5,998
Net (loss) income per share:
Basic
$(0.03)
$0.39
$0.62
$1.11
Diluted
$(0.03)
$0.37
$0.60
$1.06
RTW, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's)
December 31,
December 31,
2006
2005
ASSETS
Available-for-sale investments, at market value
$111,089
$107,250
Cash and cash equivalents
13,898
21,914
Premiums receivable
2,367
3,382
Reinsurance recoverable:
On unpaid claim and claim settlement expenses
77,168
83,318
On paid claim and claim settlement expenses
767
751
Other assets
13,150
11,856
Total assets
$218,439
$228,471
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid claim and claim settlement expenses
$152,327
$160,141
Unearned premiums
7,432
8,341
Accrued expenses and other liabilities
7,325
9,411
Total liabilities
167,084
177,893
Shareholders' equity
51,355
50,578
Total liabilities and shareholders' equity
$218,439
$228,471