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�
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