RTW, Inc. Reports Second Quarter Financial Results; Eighteenth Consecutive Profitable Quarter.MINNEAPOLIS Minneapolis (mĭn'ēăp`əlĭs), city (1990 pop. 368,383), seat of Hennepin co., E Minn., at the head of navigation on the Mississippi River, at St. Anthony Falls; inc. 1856. -- RTW (Release/Released To Web) A version of software that is ready to be sent, or has been sent, to a Web server for downloading by the public. See RTM. , Inc. (Nasdaq:RTWI RTWI Return to Work Initiative ), a leading provider of products and services to manage insured and self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. , disability and absence programs, today reported net income of $1.4 million, or $0.26 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share for the second quarter ended June June: see month. 30, 2006 compared to net income of $1.3 million, or $0.23 per diluted share for the second quarter of 2005. Premiums earned in the second quarter totaled $11.0 million, down 10.9 percent from $12.4 million for the same period in 2005. Premiums in force at quarter end totaled $51.7 million compared to $52.9 million on December 31, 2005 and $58.5 million at June 30, 2005. The decline in premiums earned and premiums in force was the result of RTW's decision to forgo business that did not meet its underwriting profit Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. expectations. "This was another excellent quarter for us in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite the ongoing pressure in insurance pricing," said Jeff Murphy, RTW's President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Competitors are pricing insurance policies well below what we believe are profitable rates and we are acting appropriately, writing only when we can get the right price. We are focused where we believe we can achieve significant growth and profit, writing service business through our Absentia(SM) service division." Service revenue grew 86.4 percent to $1.8 million in the second quarter of 2006 versus $940,000 in the second quarter of 2005, reflecting RTW's commitment to grow its service business, which provides significant opportunity while diversifying RTW's operations. "We grew service revenue as planned during the quarter and further built our sales channel, focusing on larger customers who have a much longer sales cycle," Murphy said. "We continue to manage open claims effectively and further reduced our liability for claim and claim settlement expenses during the quarter. We are positioning the company for the future and further demonstrated our commitment to maintain a strong bottom line and to increase shareholder value with our results during the quarter." Six Month Results and Option Expense Impact Net income for the six months ended June 30, 2006 totaled $2.5 million or $0.45 per diluted share versus $2.4 million or $0.42 per share for the comparable period in 2005. The 2006 second quarter and six month earnings include after-tax charges totaling $28,000 and $220,000, or $0.01 and $0.04 per diluted share, respectively, attributable to FAS 123R, "Share-Based Payment," a new accounting pronouncement requiring the expensing of stock-based compensation. Excluding the FAS 123R expense, the company grew diluted income per share 17.4 percent in the second quarter and 16.7 percent year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. compared to similar periods in 2005. Premiums earned decreased 13.8 percent to $21.9 million for the six months ended June 30, 2006 compared to $25.4 million for the same period in 2005. Second quarter operating highlights include: --Movement to diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. operations. The company's Absentia division has grown to more than $7.3 million in annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. service revenue at June 30, 2006. Further, growth in services stemming from the company's ID15(R) and The RTW Solution(R) proprietary technologies enable it to expand its corporate footprint The amount of geographic space covered by an object. A computer footprint is the desk or floor surface it occupies. A satellite's footprint is the earth area covered by its downlink. See form factor. 1. ; and --Improvement in managing and closing claims. In the second quarter of 2006, RTW reduced unpaid claim and claim settlement expenses by $750,000, bringing the total for the six months to $1.6 million. RTW also recorded corresponding pre-tax decreases to claim and claim settlement expenses reflecting the improvement. This compares to $500,000 and $1.0 million reductions recorded for the same periods in 2005. Further Operating Results Detail Total revenue decreased to $14.1 million for the quarter ended June 30, 2006 compared to $14.9 million for the same period in 2005, and to $27.8 million for the six months ended June 30, 2006, down from $29.6 million for the same period in 2005. For the quarter ended June 30, 2006, total revenue included investment income of $1.3 million compared to $1.1 million and realized investment gains of $445,000 for the same period in 2005. For the six months ended June 30, 2006, total revenue included investment income of $2.6 million compared to investment income of $2.2 million and realized investment gains of $580,000 for the same period in 2005. General and administrative expenses increased with the growth in service revenue. General and administrative expenses also include $34,000 and $232,000 for the three and six months ended June 30, 2006, respectively, related to the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. expense for stock-based compensation. Other Events The company resumed its share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program in April 2006. During 2006, RTW has repurchased 96,000 shares of common stock under the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. program for a total purchase price of $1.0 million. Common shares repurchased to date under the program since 1998 total 491,000 at a total purchase price of $3.8 million. The company expects to repurchase shares during the remainder of the year. The company also announced on May 18, 2006 that A.M. Best Co. (Best), Oldwick, New Jersey Oldwick is an unincorporated area within Tewksbury Township in Hunterdon County, New Jersey, United States. The area is served as United States Postal Service ZIP Code 08858. As of the United States 2000 Census, the population for ZIP Code Tabulation Area 08858 was 177. , upgraded the financial strength rating of American Compensation Insurance Company (ACIC ACIC Arkansas Crime Information Center ACIC Aeronautical Chart and Information Center (military aviation support organization) ACIC Association of California Insurance Companies (Sacramento, CA) ) to B++ (Very Good) from B+ (Very Good). Best also assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. an initial financial strength rating of B++ (Very Good) to Bloomington Compensation Insurance Company (BCIC BCIC Breast Cancer Information Clearinghouse BCIC Border Crossing Identification Card (I-586) ), a wholly-owned subsidiary of ACIC. In addition, Best added a "positive outlook" to both ratings. Third Quarter 2006 Outlook and Guidance --The company expects to sacrifice historical niche, top line insurance revenue in the third 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 second quarter of 2006 were 10.9 percent under the second quarter of 2005. We expect to see a similar trend in the third quarter of 2006. --The company expects that third quarter 2006 service revenue will increase 37 to 44 percent over the third quarter of 2005. Conference Call Information RTW will host a conference call on Thursday, July 27, 2006, at 9:00 a.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT . To access the conference call, participants should dial 1-800-240-6709. A replay of the conference call will be available from July 27, 2006 through July 29, 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 “Minneapolis” redirects here. For other uses, see Minneapolis (disambiguation). Minneapolis (pronounced IPA: /ˌmɪniˈæpəlɪs/) is the largest city in the U.S. , 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 fee-for-ser·vice adj. Charging a fee for each service performed. basis; (iii) state assigned risk plans An insurance plan created and imposed by state statute under which persons who normally would be denied insurance coverage as bad risks are permitted to purchase insurance from a pool of insurers who must offer coverage to such individuals. on a percent of premium basis; (iv) other insurance companies; and (v) agents and employers on a consulting basis, charging hourly fees hourly fees see fees. . The company developed two proprietary systems to manage disability and absence: (i) ID15, designed to quickly identify those injured in·jure tr.v. in·jured, in·jur·ing, in·jures 1. To cause physical harm to; hurt. 2. To cause damage to; impair. 3. 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 Michigan (mĭsh`ĭgən), upper midwestern state of the United States. It consists of two peninsulas thrusting into the Great Lakes and has borders with Ohio and Indiana (S), Wisconsin (W), and the Canadian province of Ontario (N,E). , but is growing in new markets including Florida and Iowa. BCIC offers workers' compensation insurance to selected employers in Minnesota. In addition, through its Absentia(SM) division, RTW expanded 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 Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 or increase rates on insured products in the markets in which we remain or alternatively non-renew or turn away improperly im·prop·er adj. 1. Not suited to circumstances or needs; unsuitable: improper shoes for a hike; improper medical treatment. 2. priced business; (v) the ability of our reinsurers to honor As a verb, to accept a bill of exchange, or to pay a note, check, or accepted bill, at maturity. To pay or to accept and pay, or, where a credit so engages, to purchase or discount a draft complying with the terms of the draft. their obligations to us; (vi) our ability to accurately predict claim development; (vii) our ability to provide ID15, The RTW Solution and other proprietary products and services to customers successfully; (viii) our ability to manage both our existing claims and new claims in an efficient and effective manner; (ix) our experience with claims frequency and severity; (x) medical inflation; (xi) competition and the regulatory environment in which we operate; (xii) general economic and business conditions; (xiii) our ability to obtain and retain reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. at a reasonable cost; (xiv) changes in workers' compensation regulation by states, including changes in mandated benefits mandated benefit Managed care A benefit that a health plan is required by law to provide Examples In vitro fertilization, defined days of inpatient mental health or substance abuse treatment, special-condition treatments. See Benefit, ERISA. or insurance company regulation; (xv) interest rate changes; and (xvi) 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 per share data)
For the three months For the six months
ended June 30, ended June 30,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUES:
Gross premiums earned $13,193 $15,002 $26,181 $30,732
Premiums ceded to excess
of loss treaties (2,150) (2,612) (4,302) (5,362)
---------- ---------- ---------- ----------
Premiums earned 11,043 12,390 21,879 25,370
Investment income 1,324 1,108 2,629 2,162
Net realized investment
gains - 445 - 580
Service revenue 1,752 940 3,320 1,535
---------- ---------- ---------- ----------
Total revenues 14,119 14,883 27,828 29,647
EXPENSES:
Claim and claim
settlement expenses 7,323 8,518 14,482 17,418
Policy acquisition costs 1,298 1,542 2,560 2,967
General and
administrative expenses 3,333 2,817 6,987 5,692
---------- ---------- ---------- ----------
Total expenses 11,954 12,877 24,029 26,077
---------- ---------- ---------- ----------
Income before income
taxes 2,165 2,006 3,799 3,570
Income tax expense 731 685 1,311 1,200
---------- ---------- ---------- ----------
Net income $1,434 $1,321 $2,488 $2,370
========== ========== ========== ==========
Net income per share:
Basic $0.27 $0.24 $0.46 $0.44
========== ========== ========== ==========
Diluted $0.26 $0.23 $0.45 $0.42
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 5,346,000 5,397,000 5,397,000 5,372,000
========== ========== ========== ==========
Diluted 5,536,000 5,655,000 5,582,000 5,641,000
========== ========== ========== ==========
RTW, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's)
June 30, December 31,
2006 2005
----------- ------------
(Unaudited) (Audited)
ASSETS
Available-for-sale investments, at market
value $104,058 $107,250
Cash and cash equivalents 21,384 21,914
Premiums receivable 2,391 3,382
Reinsurance recoverable:
On unpaid claim and claim settlement
expenses 81,641 83,318
On paid claim and claim settlement expenses 859 751
Other assets 13,863 11,856
----------- ------------
Total assets $224,196 $228,471
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid claim and claim settlement expenses $156,925 $160,141
Unearned premiums 8,330 8,341
Accrued expenses and other liabilities 8,552 9,411
----------- ------------
Total liabilities 173,807 177,893
Shareholders' equity 50,389 50,578
----------- ------------
Total liabilities and shareholders' equity $224,196 $228,471
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