RTW, Inc. (Nasdaq:RTWI), a leading provider of products and
services to manage insured and self-insured workers� compensation,
disability and absence programs, today reported net income of $1.0
million, or $0.17 per diluted share for the third quarter ended
September 30, 2006 compared to net income of $1.5 million, or $0.27
per diluted share for the third quarter of 2005. Premiums earned in
the third quarter totaled $10.8 million, down 14.3 percent from
$12.7 million for the same period in 2005. Premiums in force at
quarter end totaled $48.9 million compared to $52.9 million on
December 31, 2005 and $55.9 million at September 30, 2005. Service
revenue was flat at $1.4 million in the third quarter of 2006
compared to the third quarter of 2005. �We continue to see downward
pressure in insurance pricing,� said Jeff Murphy, RTW�s President
and CEO. �Competitors continue to price insurance policies below
what we believe are profitable rates, chasing growth and cash flow.
The decline in premiums earned and premiums in force was the result
of our decision to forgo business that did not meet our
underwriting profit expectations. We will continue to be
conservative in writing insurance business until we see
strengthening in insurance rates. �Our service revenue for the
quarter also suffered from this soft insurance market as insurers
aggressively targeted companies in the Minnesota Assigned Risk Plan
(�ARP�), writing this business at rates lower than the ARP. The
decreased premiums in the ARP resulted in a 31% decrease in our
revenue from that customer compared to the same period in 2005.
Excluding the ARP revenue, service revenues grew 89% over the same
period in 2005. Our commitment to grow service revenue remains
strong and I am excited about the future. We recently added a
number of Absentia service customers, including two Fortune 150
companies. These relationships will begin to contribute to revenue
in the fourth quarter of 2006. �Our operating teams continue to
manage open claims effectively. We are positioning the company for
the future, building infrastructure with a view to grow both
service and insurance business. We are committed to increasing
shareholder value over the long term by doing the right things
today with our business.� Nine Month Results and Option Expense
Impact Net income for the nine months ended September 30, 2006
totaled $3.4 million or $0.62 per diluted share versus $3.9 million
or $0.69 per share for the comparable period in 2005. The 2006
third quarter and nine month earnings include after-tax charges
totaling $68,000 and $288,000, or $0.01 and $0.05 per diluted
share, respectively, attributable to FAS 123R, "Share-Based
Payment," an accounting pronouncement requiring the expensing of
stock-based compensation. Premiums earned decreased 13.9 percent to
$32.7 million for the nine months ended September 30, 2006 compared
to $38.0 million for the same period in 2005. Further Operating
Results Detail Total revenue decreased to $13.6 million for the
quarter ended September 30, 2006 compared to $15.2 million for the
same period in 2005, and to $41.4 million for the nine months ended
September 30, 2006, down from $44.9 million for the same period in
2005. For the quarter ended September 30, 2006, total revenue
included investment income of $1.3 million compared to $1.2 million
for the same period in 2005. For the nine months ended September
30, 2006, total revenue included investment income of $4.0 million
compared to investment income of $3.4 million and realized
investment gains of $580,000 for the same period in 2005. General
and administrative expenses include $76,000 and $308,000 for the
three and nine months ended September 30, 2006, respectively,
related to stock-based compensation. Increase in Share Repurchase
Program RTW resumed its share repurchase program in April 2006.
During the third quarter of 2006, RTW repurchased 50,000 shares of
common stock under the repurchase program for a total purchase
price of $522,000. Common shares repurchased under the $5.0 million
repurchase program since 1998 total 540,000 at a total purchase
price of $4.3 million. On October 25, 2006, the Board of Directors
authorized a $1.0 million increase in the program to $6.0 million.
The company believes the current share price does not accurately
reflect the true value of the company and will continue purchasing
shares under the program. Fourth Quarter 2006 Outlook and Guidance
The company expects to continue to sacrifice historical niche,
top-line insurance revenue in the fourth quarter to maintain
acceptable levels of profitability in its insurance operations.
This decrease will be partially offset by writing small accounts
and new niche business under two new programs announced earlier
this year. Premiums earned in the third quarter of 2006 were 14.3
percent under the third quarter of 2005. We expect to see a similar
trend in the fourth quarter of 2006. The company expects that ARP
premiums will continue to decrease slightly for the remainder of
the year resulting in downward pressure on service revenue;
however, we expect revenue from non-ARP customers to grow 60% to
70% over the fourth quarter of 2005, more than off-setting the
decrease from the ARP. The company expects a low to mid single
digit increase in overall service revenue in the fourth quarter of
2006 compared to the fourth quarter of 2005. Conference Call
Information RTW will host a conference call on Thursday, October
26, 2006, at 10:00 a.m. CDT. To access the conference call,
participants should dial 1-800-240-6709. A replay of the conference
call will be available from October 26, 2006 through October 28,
2006 by calling 1-800-405-2236 or 1-303-590-3000 and entering the
Passcode 11065078#. 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 and
Bloomington Compensation Insurance Company; (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) The 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 and Iowa. BCIC offers
workers� compensation insurance to selected employers in Minnesota.
In addition, through its AbsentiaSM 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; (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, The 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
INCOME (Unaudited, in 000's, except share and pershare data) � For
the three months endedSept. 30, For the nine months endedSept. 30,
2006� 2005� 2006� 2005� REVENUES: Gross premiums earned $12,949�
$15,261� $39,130� $45,993� Premiums ceded to excess of loss
treaties (2,112) (2,609) (6,414) (7,971) Premiums earned 10,837�
12,652� 32,716� 38,022� Investment income 1,336� 1,207� 3,965�
3,369� Net realized investment gains -� -� -� 580� Service revenue
1,391� 1,366� 4,711� 2,901� Total revenues 13,564� 15,225� 41,392�
44,872� EXPENSES: Claim and claim settlement expenses 8,029� 8,563�
22,511� 25,981� Policy acquisition costs 1,291� 1,288� 3,851�
4,255� General and administrative expenses 2,825� 3,093� 9,812�
8,785� Total expenses 12,145� 12,944� 36,174� 39,021� Income before
income taxes 1,419� 2,281� 5,218� 5,851� Income tax expense 468�
760� 1,779� 1,960� Net income $951� $1,521� $3,439� $3,891� Net
income per share: Basic $0.18� $0.28� $0.64� $0.72� Diluted $0.17�
$0.27� $0.62� $0.69� Weighted average shares outstanding: Basic
5,277,000� 5,419,000� 5,357,000� 5,388,000� Diluted 5,459,000�
5,673,000� 5,544,000� 5,652,000� RTW, Inc. CONDENSED CONSOLIDATED
BALANCE SHEETS (In 000's) � September 30, December 31, 2006� 2005�
(Unaudited) (Audited) � ASSETS � Available-for-sale investments, at
market value $113,348� $107,250� Cash and cash equivalents 13,183�
21,914� Premiums receivable 2,595� 3,382� Reinsurance recoverable:
On unpaid claim and claim settlement expenses 80,237� 83,318� On
paid claim and claim settlement expenses 667� 751� Other assets
14,093� 11,856� Total assets $224,123� $228,471� � LIABILITIES AND
SHAREHOLDERS' EQUITY � Unpaid claim and claim settlement expenses
$155,955� $160,141� Unearned premiums 9,081� 8,341� Accrued
expenses and other liabilities 6,975� 9,411� Total liabilities
172,011� 177,893� Shareholders' equity 52,112� 50,578� Total
liabilities and shareholders' equity $224,123� $228,471� RTW, Inc.
(Nasdaq:RTWI), a leading provider of products and services to
manage insured and self-insured workers' compensation, disability
and absence programs, today reported net income of $1.0 million, or
$0.17 per diluted share for the third quarter ended September 30,
2006 compared to net income of $1.5 million, or $0.27 per diluted
share for the third quarter of 2005. Premiums earned in the third
quarter totaled $10.8 million, down 14.3 percent from $12.7 million
for the same period in 2005. Premiums in force at quarter end
totaled $48.9 million compared to $52.9 million on December 31,
2005 and $55.9 million at September 30, 2005. Service revenue was
flat at $1.4 million in the third quarter of 2006 compared to the
third quarter of 2005. "We continue to see downward pressure in
insurance pricing," said Jeff Murphy, RTW's President and CEO.
"Competitors continue to price insurance policies below what we
believe are profitable rates, chasing growth and cash flow. The
decline in premiums earned and premiums in force was the result of
our decision to forgo business that did not meet our underwriting
profit expectations. We will continue to be conservative in writing
insurance business until we see strengthening in insurance rates.
"Our service revenue for the quarter also suffered from this soft
insurance market as insurers aggressively targeted companies in the
Minnesota Assigned Risk Plan ("ARP"), writing this business at
rates lower than the ARP. The decreased premiums in the ARP
resulted in a 31% decrease in our revenue from that customer
compared to the same period in 2005. Excluding the ARP revenue,
service revenues grew 89% over the same period in 2005. Our
commitment to grow service revenue remains strong and I am excited
about the future. We recently added a number of Absentia service
customers, including two Fortune 150 companies. These relationships
will begin to contribute to revenue in the fourth quarter of 2006.
"Our operating teams continue to manage open claims effectively. We
are positioning the company for the future, building infrastructure
with a view to grow both service and insurance business. We are
committed to increasing shareholder value over the long term by
doing the right things today with our business." Nine Month Results
and Option Expense Impact Net income for the nine months ended
September 30, 2006 totaled $3.4 million or $0.62 per diluted share
versus $3.9 million or $0.69 per share for the comparable period in
2005. The 2006 third quarter and nine month earnings include
after-tax charges totaling $68,000 and $288,000, or $0.01 and $0.05
per diluted share, respectively, attributable to FAS 123R,
"Share-Based Payment," an accounting pronouncement requiring the
expensing of stock-based compensation. Premiums earned decreased
13.9 percent to $32.7 million for the nine months ended September
30, 2006 compared to $38.0 million for the same period in 2005.
Further Operating Results Detail Total revenue decreased to $13.6
million for the quarter ended September 30, 2006 compared to $15.2
million for the same period in 2005, and to $41.4 million for the
nine months ended September 30, 2006, down from $44.9 million for
the same period in 2005. For the quarter ended September 30, 2006,
total revenue included investment income of $1.3 million compared
to $1.2 million for the same period in 2005. For the nine months
ended September 30, 2006, total revenue included investment income
of $4.0 million compared to investment income of $3.4 million and
realized investment gains of $580,000 for the same period in 2005.
General and administrative expenses include $76,000 and $308,000
for the three and nine months ended September 30, 2006,
respectively, related to stock-based compensation. Increase in
Share Repurchase Program RTW resumed its share repurchase program
in April 2006. During the third quarter of 2006, RTW repurchased
50,000 shares of common stock under the repurchase program for a
total purchase price of $522,000. Common shares repurchased under
the $5.0 million repurchase program since 1998 total 540,000 at a
total purchase price of $4.3 million. On October 25, 2006, the
Board of Directors authorized a $1.0 million increase in the
program to $6.0 million. The company believes the current share
price does not accurately reflect the true value of the company and
will continue purchasing shares under the program. Fourth Quarter
2006 Outlook and Guidance -- The company expects to continue to
sacrifice historical niche, top-line insurance revenue in the
fourth quarter to maintain acceptable levels of profitability in
its insurance operations. This decrease will be partially offset by
writing small accounts and new niche business under two new
programs announced earlier this year. Premiums earned in the third
quarter of 2006 were 14.3 percent under the third quarter of 2005.
We expect to see a similar trend in the fourth quarter of 2006. --
The company expects that ARP premiums will continue to decrease
slightly for the remainder of the year resulting in downward
pressure on service revenue; however, we expect revenue from
non-ARP customers to grow 60% to 70% over the fourth quarter of
2005, more than off-setting the decrease from the ARP. The company
expects a low to mid single digit increase in overall service
revenue in the fourth quarter of 2006 compared to the fourth
quarter of 2005. Conference Call Information RTW will host a
conference call on Thursday, October 26, 2006, at 10:00 a.m. CDT.
To access the conference call, participants should dial
1-800-240-6709. A replay of the conference call will be available
from October 26, 2006 through October 28, 2006 by calling
1-800-405-2236 or 1-303-590-3000 and entering the Passcode
11065078#. 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 and
Bloomington Compensation Insurance Company; (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) The 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 and Iowa. BCIC offers
workers' compensation insurance to selected employers in Minnesota.
In addition, through its Absentia(SM) 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; (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, The 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. -0- *T RTW, Inc. CONSOLIDATED
STATEMENTS OF INCOME (Unaudited, in 000's, except share and
pershare data) For the three months ended For the nine months ended
Sept. 30, Sept. 30, --------------------------
------------------------- 2006 2005 2006 2005 -------------
------------ ------------ ------------ REVENUES: Gross premiums
earned $12,949 $15,261 $39,130 $45,993 Premiums ceded to excess of
loss treaties (2,112) (2,609) (6,414) (7,971) -------------
------------ ------------ ------------ Premiums earned 10,837
12,652 32,716 38,022 Investment income 1,336 1,207 3,965 3,369 Net
realized investment gains - - - 580 Service revenue 1,391 1,366
4,711 2,901 ------------- ------------ ------------ ------------
Total revenues 13,564 15,225 41,392 44,872 EXPENSES: Claim and
claim settlement expenses 8,029 8,563 22,511 25,981 Policy
acquisition costs 1,291 1,288 3,851 4,255 General and
administrative expenses 2,825 3,093 9,812 8,785 -------------
------------ ------------ ------------ Total expenses 12,145 12,944
36,174 39,021 ------------- ------------ ------------ ------------
Income before income taxes 1,419 2,281 5,218 5,851 Income tax
expense 468 760 1,779 1,960 ------------- ------------ ------------
------------ Net income $951 $1,521 $3,439 $3,891 =============
============ ============ ============ Net income per share: Basic
$0.18 $0.28 $0.64 $0.72 ============= ============ ============
============ Diluted $0.17 $0.27 $0.62 $0.69 =============
============ ============ ============ Weighted average shares
outstanding: Basic 5,277,000 5,419,000 5,357,000 5,388,000
============= ============ ============ ============ Diluted
5,459,000 5,673,000 5,544,000 5,652,000 ============= ============
============ ============ *T -0- *T RTW, Inc. CONDENSED
CONSOLIDATED BALANCE SHEETS (In 000's) September 30, December 31,
2006 2005 ------------- ------------ (Unaudited) (Audited) ASSETS
Available-for-sale investments, at market value $113,348 $107,250
Cash and cash equivalents 13,183 21,914 Premiums receivable 2,595
3,382 Reinsurance recoverable: On unpaid claim and claim settlement
expenses 80,237 83,318 On paid claim and claim settlement expenses
667 751 Other assets 14,093 11,856 ------------- ------------ Total
assets $224,123 $228,471 ============= ============ LIABILITIES AND
SHAREHOLDERS' EQUITY Unpaid claim and claim settlement expenses
$155,955 $160,141 Unearned premiums 9,081 8,341 Accrued expenses
and other liabilities 6,975 9,411 ------------- ------------ Total
liabilities 172,011 177,893 Shareholders' equity 52,112 50,578
------------- ------------ Total liabilities and shareholders'
equity $224,123 $228,471 ============= ============ *T
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