UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 0-25508
RTW, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1440870
------------------------------------------------ -----------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
8500 NORMANDALE LAKE BOULEVARD, SUITE 1400
BLOOMINGTON, MN 55437
(Address of principal executive offices and zip code)
(612)-893-0403
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At April 30, 1999, approximately 12,312,000 shares of Common Stock were
outstanding.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibits 22
2
PART I--FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (UNAUDITED)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
3
RTW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(In thousands, except share data)
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
ASSETS
Investments at fair value, amortized cost of $117,910 and $123,924 $ 119,733 $ 126,631
Cash and cash equivalents 1,997 700
Accrued investment income 1,677 1,761
Premiums receivable, less allowance of $506 and $417 9,243 6,554
Reinsurance recoverables:
On unpaid claim and claim settlement expenses 24,476 19,414
On paid claim and claim settlement expenses 1,138 867
Deferred policy acquisition costs 1,843 1,501
Furniture and equipment, net 4,468 4,565
Other assets 8,945 8,952
------------- -------------
Total assets $ 173,520 $ 170,945
------------- -------------
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LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid claim and claim settlement expenses $ 97,558 $ 97,269
Unearned premiums 16,011 13,027
Accrued expenses and other liabilities 2,951 5,570
Notes payable 2,471 2,461
------------- -------------
Total liabilities 118,991 118,327
Shareholders' equity:
Common Stock, no par value; authorized 25,000,000 shares; issued and
outstanding 12,285,000 shares at March 31, 1999 and
11,935,000 shares at December 31, 1998 30,703 29,451
Retained earnings 22,641 21,408
Accumulated other comprehensive income 1,185 1,759
------------- -------------
Total shareholders' equity 54,529 52,618
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Total liabilities and shareholders' equity $ 173,520 $ 170,945
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See notes to consolidated financial statements.
4
RTW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1999
(Unaudited; in thousands, except share and per share data)
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1999 1998
------------- --------------
REVENUES:
Gross premiums earned $ 21,314 $ 21,333
Premiums ceded (4,160) 1,211
------------- --------------
Premiums earned 17,154 22,544
Investment income 1,686 2,037
Net realized investment gains 37 3
------------- --------------
Total revenues 18,877 24,584
EXPENSES:
Claim and claim settlement expenses 10,804 19,273
Policy acquisition costs 3,486 3,280
General and administrative expenses 2,987 3,647
------------- --------------
Total expenses 17,277 26,200
------------- --------------
Income (loss) from operations 1,600 (1,616)
Interest expense 69 139
------------- --------------
Income (loss) before income taxes 1,531 (1,755)
Income tax expense (benefit) 298 (638)
------------- --------------
Net income (loss) $ 1,233 $ (1,117)
------------- --------------
------------- --------------
Income (loss) per share:
Basic income (loss) per share $ 0.10 $ (0.09)
------------- --------------
------------- --------------
Diluted income (loss) per share $ 0.10 $ (0.09)
------------- --------------
------------- --------------
Weighted average shares outstanding:
Basic shares outstanding 12,232,000 11,868,000
------------- --------------
------------- --------------
Diluted shares outstanding 12,336,000 11,868,000
------------- --------------
------------- --------------
See notes to consolidated financial statements.
5
RTW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited, in thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 1,233 $ (1,117)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Realized investment gains (37) (3)
Depreciation and amortization 317 316
Deferred income taxes (174) (842)
Changes in assets and liabilities:
Amounts due from reinsurers (5,333) 353
Unpaid claim and claim settlement expenses 289 6,107
Unearned premiums, net of premiums receivable 295 2,150
Other, net (2,359) (785)
------------- -------------
Net cash provided by (used in) operating activities (5,769) 6,179
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 500 1,000
Proceeds from sales of available-for-sale securities 7,619 356
Purchases of available-for-sale securities (2,095) -
Purchases of furniture and equipment (210) (259)
------------- -------------
Net cash provided by investing activities 5,814 1,097
Cash flows from financing activities:
Proceeds from stock options exercised 1,252 258
Proceeds from sales of common stock - 30
------------- -------------
Net cash provided by financing activities 1,252 288
------------- -------------
Net increase in cash and cash equivalents 1,297 7,564
Cash and cash equivalents at beginning of year 700 5,798
------------- -------------
Cash and cash equivalents at end of period $ 1,997 $ 13,362
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest $ 59 $ 117
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------------- -------------
Income taxes $ (443) $ 7
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See notes to consolidated financial statements.
6
RTW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements included in the RTW, Inc. 1998 Report
on Form 10-K filed with the Securities and Exchange Commission, except that the
consolidated financial statements were prepared in conformity with the
instructions to Form 10-Q for interim financial information and, accordingly, do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial information included herein, other than the consolidated balance sheet
at December 31, 1998, has been prepared by us without audit by independent
certified public accountants. We derived the consolidated balance sheet at
December 31, 1998 from the audited consolidated financial statements for the
year ended December 31, 1998, but this report does not include all the
disclosures contained therein.
The information furnished includes all adjustments and accruals, consisting only
of normal, recurring accrual adjustments, which are, in our opinion, necessary
for a fair statement of results for the interim period. The results of
operations for any interim period are not necessarily indicative of results for
the full year. The unaudited interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the 1998 Annual Report.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
THE COMPANY--RTW, Inc. (RTW) and its wholly owned insurance subsidiary,
American Compensation Insurance Company (ACIC), provide disability management
services to employers. Collectively, "we," "our" and "us" will refer to these
entities in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
We developed a proprietary management system, the RTW
SOLUTION-Registered Trademark-, designed to lower employers' workers'
compensation costs and return injured employees to work as soon as possible.
We combine our management system with insurance products underwritten by our
insurance subsidiary to offer services to customers. We currently provide
workers' compensation management services solely to employers insured through
our insurance subsidiary or through fronted insurance arrangements. We
currently operate in Minnesota, Wisconsin, South Dakota, Colorado, Missouri,
Illinois, Kansas, Michigan, Indiana, Massachusetts, Connecticut, Rhode Island
and New Hampshire.
FINANCIAL SUMMARY
This financial summary presents our discussion and analysis of the consolidated
results of operations and financial condition of RTW, Inc. This review should be
read in conjunction with our consolidated financial statements and notes thereto
at March 31, 1999 and December 31, 1998 and the three month periods ended March
31, 1999 and 1998.
The following table provides an overview of our key operating results (000's):
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
Gross premiums earned $ 21,314 $ 21,333
Total revenues 18,877 24,584
Claim and claim settlement expenses 10,804 19,273
Net income (loss) 1,233 (1,117)
RTW reported gross premiums earned of $21.3 million in the first quarter of
1999 compared to $21.3 million reported for the first quarter of 1998.
Total revenues for the three months ended March 31, 1999 were $17.2 million
compared to $22.5 million for the same period in 1998. Total revenues in 1999
were reduced by $3.2 million of premiums ceded under reinsurance agreements
entered into during the fourth quarter of 1998. No comparative premiums were
ceded during the first quarter of 1998. Additionally, total revenues for the
three month period ended March 31, 1998 include a $2.3 million refund received
from the Minnesota Workers' Compensation Reinsurance Association (WCRA). No
comparable refund was received in the first quarter of 1999. After excluding the
effects of reinsurance and refunds, adjusted total revenues for the first
quarter of 1999 were $20.4 million compared to $20.3 million for the first
quarter of 1998.
We reported net income of $1.2 million in the first quarter of 1999
compared to a reported net loss of $1.1 million in the first quarter of 1998 due
primarily to the following factors:
- In the first quarter of 1999, we recorded an estimate of ceded
paid and unpaid claim and claim settlement expenses under our
$25,000 to $300,000 excess of loss reinsurance agreements totaling
$5.2 million resulting in a corresponding reduction in claim and
claim settlement expenses. No such ceding estimate was recorded in
the first quarter of 1998 as the agreement was not effective until
July 1999.
- In the first quarter of 1998, we increased our estimate of the
pre-1998 liability for unpaid claim and claim settlement expenses
by $3.0 million as a result of unfavorable claims experience.
8
- We have aggressively targeted $8.0 million of our business for
non-renewal or re-underwriting at more favorable rates during 1999
as the profitability of that business does not meet our
underwriting profit margin standards. We were successful in
dealing with approximately 35.0% or $2.8 million of the targeted
amount in the first quarter of 1999 resulting in non-renewal or
renewal at higher rates for those policies. The remaining $5.2
million in business will be reviewed at policy expiration through
the remainder of 1999 for renewal or re-underwriting;
- Pricing pressure continues to affect premiums in force and
decrease profit margins, especially in Minnesota. The pricing
pressure is the result of (i) increased competition in our markets
and (ii) continued price declines due to legislative benefit
changes in recent years; and
- Inflation continues to affect medical and wage costs.
While we expect to continue to operate in a difficult pricing environment
for the remainder of 1999, we are working to improve profitability in all of our
offices by continuing to aggressively manage expenses, refining our sales and
distribution channels and improving our underwriting, including reviewing policy
profitability at renewal and removing unprofitable accounts.
In the following pages, we take a look at the operating results for the
three month periods ended March 31, 1999 and 1998 for items in our Consolidated
Statement of Operations and also explain key balance sheet accounts in greater
detail.
RESULTS OF OPERATIONS
TOTAL REVENUES: Our total revenues include gross premiums earned, premiums
ceded, investment income and realized investment gains.
The following tables summarize the components of revenues and premiums in force
(000's):
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
Gross premiums earned $ 21,314 $ 21,333
Premiums (ceded) recovered (4,160) 1,211
----------- -----------
Premiums earned 17,154 22,544
Investment income 1,686 2,037
Realized investment gains 37 3
----------- -----------
Total revenues $ 18,877 $ 24,584
----------- -----------
----------- -----------
1999 1998
----------- -----------
Premiums in force, by state office location, at quarter-end:
Minnesota $ 33,500 $ 41,200
Colorado 11,100 12,500
Missouri 15,500 15,600
Michigan 10,900 6,200
Massachusetts 10,900 3,400
----------- -----------
Total premiums in force March 31: $ 81,900 $ 78,900
----------- -----------
----------- -----------
GROSS PREMIUMS EARNED: Premiums on workers' compensation insurance policies are
our largest source of revenue. Premiums earned are the gross premiums earned by
us on in force workers' compensation policies, net of the effects of ceded
premiums under reinsurance agreements.
The premium we charge a policyholder is a function of their payroll, industry
and prior workers' compensation claims experience. In underwriting a policy, we
receive policyholder payroll estimates for the ensuing year. We record premiums
written on an installment basis matching billing to the policyholder and earn
premiums on a daily basis over the life of each insurance policy based on the
payroll estimate. We record the excess of premiums billed over premiums earned
for each policy as unearned premiums on our balance sheet. When a policy
expires, we audit
9
employer payrolls for the policy period and adjust the estimated payroll to
its actual value. The result is a "final audit" adjustment recorded to
premiums earned when the adjustment becomes known.
Our premiums in force grew 3.8% to $81.9 million at March 31, 1999 from
$78.9 million at March 31, 1998 due primarily to $ 12.2 million in growth in our
Michigan and Massachusetts markets offset by a $9.2 million decrease in premiums
in force in our other markets including Minnesota which decreased $7.7 million
and Colorado which decreased $1.4 million. We have aggressively targeted
$8.0 million of our business for non-renewal or re-underwriting at more
favorable rates during 1999 as the profitability of that business does not
meet our underwriting profit margin standards. We were successful in dealing
with approximately $2.8 million of the targeted amount in the first quarter
of 1999.
Our gross premiums earned were $21.3 million in the first quarter of 1999
and $21.3 million in the first quarter of 1998. Gross premiums earned was
effected by the 3.8% increase in premiums in force offset by a decrease in final
audit premiums recognized to $1.0 million in the first quarter of 1999 compared
to $1.5 million in final audit premiums recognized in the first quarter of 1998.
Final audit premiums recognized during the period include billed final audit
premiums plus (or minus) the change in estimate for premiums on unexpired and
expired unaudited policies.
Underlying these increases in gross premiums earned is another trend. The
premium rate that we charge policyholders per payroll dollar has declined for
several years. This is the result, in part, of the following:
- Many state legislatures where we provide coverage have reduced
benefits that injured employees are paid, resulting in lower loss
costs of workers' compensation insurance and decreased
corresponding premiums paid by the policyholder;
- As the loss cost structure of workers' compensation has declined,
more insurance companies have entered or re-entered the workers'
compensation insurance market, resulting in increased competition;
and
- We continue to experience reduced pricing on renewal policies due,
in part, to our success in lowering our policyholders' loss
experience which then improves their claims history, lowering the
premium that they have to pay for insurance. The improvement that
we do for our customers also has the effect of making them more
desirable to our competition, thus increasing price competition on
these accounts.
PREMIUMS CEDED: Reinsurance agreements allow us to share certain risks with
other insurance companies. The primary purpose of ceded reinsurance is to
protect us from potential losses in excess of the level we are willing to
accept. Our primary ceded reinsurance is excess of loss coverage that limits our
per incident exposure. We expect the companies to which we have ceded
reinsurance to honor their obligations. In the event that these companies are
unable to honor their obligations to us, we will be required to pay these
obligations ourselves. We are not aware of any developments with respect to any
of our reinsurers that would prevent them from honoring any of their obligations
to us.
Under our excess of loss reinsurance policies, we pay reinsurers to limit
our per incident exposure and record this cost to premiums ceded as a reduction
to gross premiums earned. In Minnesota, we are required to purchase excess of
loss coverage for our Minnesota policies from the Minnesota Workers'
Compensation Reinsurance Association (WCRA). Our selected retention levels in
Minnesota are $290,000 in 1999 and $280,000 in 1998. In other states, we
decreased our per incident exposure to $300,000 in 1999 from $500,000 in 1998
and prior years. We purchased this coverage from various reinsurers in 1998 and
limited the coverage to one insurer in 1999. Additionally, for claims occurring
after June 30, 1998, we further limited our per incident exposure by purchasing
excess of loss coverage for losses from $25,000 to the WCRA selected retention
level in Minnesota and from $25,000 to $300,000 in other states from a single
reinsurer. This agreement was finalized after its effective date and activity
occurring from July 1, 1998 through October 1, 1998 was recorded on a
retrospective basis resulting in the deferral of a gain totaling $2.0 million at
December 31, 1998. Activity occurring on or after October 1, 1998 is recorded
prospectively. The deferred gain will be amortized into income in future years
using the effective interest rate inherent in the amounts paid to the reinsurer
and the estimated timing and amounts of recoveries from the reinsurer. We
amortized $185,000 of the deferred gain into operations as a reduction of claim
and claim settlement expenses in the first quarter of 1999.
10
The following table summarizes the components of premiums ceded (000's):
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
Premiums (ceded to) recovered from:
WCRA $ (682) $ (786)
Non-Minnesota excess of loss policies (3,478) (250)
Refund from the WCRA on prior years' activity -- 2,247
----------- -----------
Premiums (ceded) recovered $ (4,160) $ 1,211
----------- -----------
----------- -----------
Premiums ceded to reinsurers were a cost of $4.2 million in the first
quarter of 1999 compared to a benefit of $1.2 million in the first quarter of
1998. This increased cost resulted from (i) premiums ceded under our new excess
of loss reinsurance coverage for losses over $25,000; (ii) increased effective
excess of loss premium rates in Minnesota in 1999 from 1998 due to premium price
changes within that state, (iii) increased excess of loss costs resulting from
increased premiums earned in non-Minnesota states, and (iv) the recognition of a
refund of $2.3 million from the WCRA in the first quarter of 1998. No comparable
refund was received in 1999.
PREMIUMS EARNED OUTLOOK: The outlook for gross premiums earned and
premiums ceded for the remainder of 1999 includes the following factors:
- We expect that the remaining $5.2 million of aggressively targeted
business for non-renewal or re-underwriting during 1999 will put
downward pressure on our premiums in force in our Minnesota,
Colorado and Missouri markets, however, we expect continued growth
in premiums in force in our Michigan and Massachusetts markets, as
well as new business in our Minnesota, Colorado and Missouri
markets will lead to moderate growth in gross premiums earned for
the remainder of the year;
- We expect continued downward pressure on the amount we charge for
our products and services; and
- We expect that premiums ceded for the remainder of 1999 will
remain consistent with the results attained for the three months
ended March 31, 1999. Premiums ceded may decrease slightly in
future quarters of 1999 as a percent of gross premiums earned as
the non-Minnesota markets, where we pay smaller reinsurance
premiums, continue to grow relative to Minnesota. Premiums ceded
(after adjusting for the WCRA refund) will continue to run much
higher in 1999 when compared to 1998 as the new lower level excess
of loss policy will be in force during all of 1999 compared to
only being in place during the last six months of 1998.
INVESTMENT INCOME AND REALIZED INVESTMENT GAINS: Our investment income includes
earnings on our investment portfolio. Our realized investment gains include
gains from sales of available-for-sale securities and are displayed separately
on our Consolidated Statement of Operations. We currently invest entirely in
U.S. domiciled investment grade taxable and tax-exempt fixed maturity
investments and classify our investments as available-for-sale. We intend to
hold our available-for-sale investments to maturity, but may sell before
maturity in response to changes in interest rates, changes in prepayment risk
and changes in funding sources or terms, or to address liquidity needs. Our
primary investment objective is to maintain a diversified, high-quality,
fixed-investment portfolio structured to maximize our after-tax investment
income without taking inappropriate credit risk. For further discussion of
investments, see the "Investments" section of this Management's Discussion and
Analysis.
Investment income decreased to $1.7 million in the first quarter of 1999
from $2.0 million in the first quarter of 1998. Investment income decreased due
to the growth of tax-exempt municipal securities included in our portfolio which
earn lower pre-tax rates than taxable securities but are comparable on a tax
adjusted basis even as we increased funds available for investment. We did not
own tax-exempt securities in the first quarter of 1998 and only began purchasing
tax-exempts in the second quarter of 1998. Funds available for investment
increased to $119.7 million at March 31, 1999, from $111.0 million at March 31,
1998, due to increased net cash provided by operating activities, resulting
primarily from (i) the difference in timing between the receipt of premiums, the
payment of premiums ceded under our reinsurance agreements, the payment of claim
and claim settlement expenses and the recovery of paid claim and claim
settlement expenses under our reinsurance programs and (ii) net cash provided by
investment income. Pre-tax investment yields increased to 6.7% for the three
months ended March 31, 1999 from 6.4% for the three months ended March 31, 1998
due to purchasing tax-exempt municipal securities, which have
11
lower yields on a pre-tax basis. The investment yields realized in future
periods will be affected by yields attained on new investments.
Realized investment gains increased slightly to $37,000 in the first
quarter of 1999 from $3,000 in the first quarter of 1998. No losses were
realized in the first quarters of 1999 or 1998.
INVESTMENT INCOME AND REALIZED INVESTMENT GAINS OUTLOOK: Barring significant
changes in interest rates or operational cash flows, we expect that the yield
from our investment portfolio for the remainder of 1999 will be affected by the
following:
- Increased funds will become available for investment due to increased
net cash provided by operating and investment activities. The increase,
however, will decrease from levels attained in prior years due to ceded
premiums on excess of loss policies for losses in excess of $25,000;
- Our recognition of realized gains and losses will depend on the
repositioning of the portfolio, if any, that occurs in 1999 as we
continue to diversify our portfolio from U.S. government
securities to other taxable and tax-exempt fixed maturity
securities; and
- We will continue to include fixed maturity tax-exempt securities
in our investment portfolio to increase after-tax yields. Fixed
maturity, tax-exempt securities may have the effect of reducing
investment income recognized and decrease pre-tax investment
yields but are expected to contribute more to after-tax net income
as a result of the favorable treatment tax-exempt municipal income
receives for federal income tax purposes.
TOTAL EXPENSES: Our expenses include claim and claim settlement expenses, policy
acquisition costs, general and administrative expenses, interest expense and
income taxes.
CLAIM AND CLAIM SETTLEMENT EXPENSES: Claim expenses refer to amounts that we
paid or expect to pay to claimants for events that have occurred. The costs of
investigating, resolving and processing these claims are referred to as claim
settlement expenses. We record these expenses, net of amounts recoverable under
reinsurance contracts, to claim and claim settlement expenses in the
Consolidated Statements of Operations.
Claim and claim settlement expenses are our largest expense and result in
our largest liability. We establish reserves that reflect our estimates of the
total claim and claim settlement expenses we will ultimately have to pay under
our workers' compensation insurance policies. These include claims that have
been reported but not settled and claims that have been incurred but not yet
reported to us. For further discussion of reserve determination, see the "Unpaid
Claim and Claim Settlement Expenses" section of this Management's Discussion and
Analysis.
Claim and claim settlement expenses decreased to $10.8 million in the first
quarter of 1999 from $19.3 million in the first quarter of 1998. As a percent of
premiums earned, claim and claim settlement expenses decreased to 63.0% for the
first quarter of 1999 from 85.5% for the first quarter of 1998. These changes
are due to the following:
- In the first quarter of 1999, we recorded a current year estimate
of ceded paid and unpaid claim and claim settlement expenses under
our $25,000 to $300,000 excess of loss reinsurance agreements
totaling $5.2 million resulting in a corresponding reduction in
claim and claim settlement expenses. No such ceding adjustment was
made in the first quarter of 1998.
- In the first quarter of 1998, we increased our estimate of the
pre-1998 liability for unpaid claim and claim settlement expenses
by $3.0 million as a result of unfavorable claims experience for
those periods.
After excluding the estimate of claim and claim settlement
expenses ceded to reinsurers in the first quarter of 1999 and
excluding the effects of the $3.0 million increase recorded in the
first quarter of 1998, based on gross of reinsurance amounts,
claim and claim settlement expenses decreased slightly to 75.2% of
gross premiums earned in the first quarter of 1999 from 76.3% in
the first quarter of 1998.
- We have aggressively targeted $8.0 million of our business for
non-renewal or re-underwriting at more favorable rates during 1999
as the profitability of that business does not meet our
underwriting profit margin standards. We were successful in
dealing with $2.8 million of the targeted amount in the first
quarter of 1999 enabling us to show slight improvement in our loss
ratios.
12
- Reduced premiums due to legislative changes in estimated loss
costs, increased competition and improving customer loss
experience, have continued to place upward pressure on claim and
claim settlement expenses as a percentage of premiums earned; and
- Claim costs continued to receive continued upward pressure in
accident year 1999 as compared to accident year 1998 due to
increasing medical and indemnity costs resulting from inflationary
changes. This has been offset somewhat by the effects of provider
agreements that we negotiated during 1998.
CLAIM AND CLAIM SETTLEMENT EXPENSE OUTLOOK: We expect that claim and claim
settlement expenses will be affected by the following factors:
- Continued favorable effects of ceding paid and unpaid claim and
claim settlement expenses under our $25,000 to $300,000 excess of
loss reinsurance agreements resulting in a reduction of claim and
claim settlement expenses;
- Claim costs will continue to be affected by (i) increases in
medical and indemnity costs resulting from inflationary changes,
(ii) severity experienced in future periods in our policy holder
base, (iii) changes resulting from increases in operating
efficiency and effectiveness realized through enhancements to our
internal processes and procedures, including changes to our
proprietary computer systems, and (iv) legislative changes in
estimated loss costs;
- Continued pricing pressure due to legislative changes in estimated
loss costs, increased competition and improving customer loss
experience may result in reduced premiums, ultimately increasing
claim and claim settlement expense as a percent of premium earned;
and
- Continued application of our claims management technology and
methods to all open claims at March 31, 1999, may benefit future
periods. The ultimate result of the above factors, combined with
the change in premium rates, on claim and claim settlement
expenses as a percent of premiums earned for the remainder of 1999
is unknown at this time.
POLICY ACQUISITION COSTS. Policy acquisition costs are costs directly related to
writing an insurance policy and consist of commissions, state premium taxes,
underwriting personnel costs and expenses, sales and marketing costs and other
underwriting expenses, offset by ceding commissions received from our
reinsurers. Ceding commissions are amounts that reinsurers pay to us for placing
reinsurance with them. Ceding commissions represent adjustments based on actual
claim and claim settlement expenses related to premiums ceded in prior years.
Under reinsurance agreements, our ceding commission is adjusted to the extent
that actual claim and claim settlement expenses vary from levels specified in
the agreement.
The following table summarizes policy acquisition costs (000's):
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- ----------
Commission expense $ 1,757 $ 1,691
Premium tax expense 422 456
Other policy acquisition costs 1,307 1,133
----------- -----------
Direct policy acquisition costs $ 3,486 $ 3,280
----------- -----------
----------- -----------
Policy acquisition costs increased to $3.5 million in the first quarter of
1999 from $3.3 million in the first quarter of 1998. As a percent of gross
premiums earned, policy acquisition costs increased to 16.4% in the first
quarter of 1999 from 15.4% in the first quarter of 1998. These changes reflect
the following:
- Commission expense was 8.2% of gross premiums earned in the first
quarter of 1999 compared to 7.9% in the first quarter of 1998.
Historically, as we entered new markets, we introduced higher
commission rates to attract business from established agents.
These rates have continued into current policy periods and will
have a greater effect on the commission expense percent as the
non-Minnesota states continue to grow relative to Minnesota. In
all of our markets, we believe the commission rates we pay are
marketplace competitive;
- Premium tax expense remained consistent at 2.0% of gross premiums
earned for the first quarters of 1999 and 1998; and
13
- Other policy acquisition costs increased to 6.1% of gross premiums
earned in the first quarter of 1999 from 5.3% in the first quarter
of 1998, due to increased personnel and overhead costs associated
with improving our underwriting function and increased personnel
costs necessary for the growth in premiums in force.
POLICY ACQUISITION COST OUTLOOK: We expect that policy acquisition costs as a
percent of gross premiums earned will stabilize or remain relatively constant as
a percent of gross premiums earned during the remainder of 1999 due to the
following:
- We expect commission expense as a percent of gross premiums earned
to increase slightly during the remainder of 1999 as the
non-Minnesota states continue to grow in size relative to
Minnesota;
- We expect premium tax expense as a percent of gross premiums earned
to remain consistent with the first three months of 1999; and
- We expect that other policy acquisition costs will be consistent
with the first quarter of 1999 as a percent of gross premiums
earned as we continue to improve our underwriting skills, increase
premiums in force and generate additional revenues to cover the
relatively fixed policy acquisition costs. We also expect that
these costs will be offset on a limited basis from increases in
operating efficiency and effectiveness during the remainder of
1999 realized through enhancements to our internal processes and
procedures, including changes to our proprietary computer systems.
GENERAL AND ADMINISTRATIVE EXPENSES: Our general and administrative expenses
include personnel costs, office rent, certain state administrative assessments
based on premiums and other costs and expenses not specific to claim and claim
settlement expenses or policy acquisition costs.
General and administrative expenses decreased to $3.0 million in the first
quarter of 1999 from $3.6 million in the first quarter of 1998. As a percent of
gross premiums earned, general and administrative expenses decreased to 14.0% in
the first quarter of 1999 from 17.1% in the first quarter of 1998. General and
administrative expenses continue to be managed aggressively and reduced where
appropriate. We also did not accrue in the first quarter of 1999 for any 1999
assessment from the Minnesota Insurance Guarantee Association (MIGA), an
organization formed to fund Minnesota claims for insolvent insurance companies,
while we accrued $249,000 in the first quarter of 1998. MIGA did not assess its
members in 1998 or 1997 for workers' compensation claim liabilities arising from
current or prior insolvencies and we do not anticipate any assessment in 1999
payable in 2000.
GENERAL AND ADMINISTRATIVE EXPENSES OUTLOOK: We expect that general and
administrative expenses will be affected by the following:
- We will continue to aggressively manage all general and
administrative expenses for the remainder of 1999;
- We have no plans to open additional state offices in 1999 and
expect that growth in premiums in force in Michigan and
Massachusetts will result in additional revenues to cover the
fixed costs in those states; and
- We expect to realize operational efficiency during 1999 through
enhancements to our internal processes and procedures, including
changes to our internal proprietary computer systems.
INTEREST EXPENSE: We incur interest charges on our Senior Notes. The remaining
Senior Notes outstanding mature in December 1999.
We are paying interest at 9.50% during 1999 and paid interest at rates ranging
from 9.25% to 9.50% during 1998 on the outstanding balance on our Senior Notes.
Interest expense decreased to $69,000 in the first quarter of 1999 from
$139,000 in the first quarter of 1998 due to principal payments on the Senior
Notes in December 1998.
INTEREST EXPENSE OUTLOOK: Interest expense for the remainder of 1999 is expected
to be consistent with the results attained for the three months ended March 31,
1999. Total interest expense on the Senior Notes is expected to decrease to
$266,000 in 1999 from $546,000 in 1998 as a result of principal payments of $2.5
million made in December 1998.
INCOME TAXES: We incur federal income taxes on our combined service organization
(RTW) operations and insurance (ACIC) operations. We incur state income taxes on
the results of our service organization's operations
14
and incur premium taxes in lieu of state income taxes for substantially all
of our insurance operations. In certain instances, we may incur state income
taxes on our insurance operations. Additionally, certain provisions of the
Internal Revenue Code adversely affect our taxable income by accelerating
recognition of revenues, deferring recognition of expenses ultimately
accelerating the payment of income taxes. Adjustments to book income
generating current tax liabilities include limitations on the deductibility
of unpaid claim and claim settlement expenses, limitations on the
deductibility of unearned premium reserves and limitations on deductions for
bad debt reserves. Additionally, we benefit from the non-taxable portion of
our tax-exempt municipal securities.
Income tax expense was $298,000 for the first quarter of 1999 compared to
an income tax benefit of $638,000 for the first quarter of 1998. As a percent of
income (loss) before income taxes, the income tax expense (benefit) was 19.5%
for first quarter of 1999 versus (36.4%) for the first quarter of 1998. The
income tax expense (benefit) percent in 1999 has been affected by (i) decreased
taxable net income from the service organization (RTW) which is subject to both
federal and state income taxes, and (ii) the introduction of tax-exempt
municipal income beginning in the second quarter of 1998.
INCOME TAX OUTLOOK: Income tax expense (benefit) will vary based on (i) the
income from operations we recognize for the remainder of 1999, and will (ii)
decrease as a percent of income before taxes relative to the statutory effective
rate as we purchase additional tax-exempt municipal fixed investments for our
investment portfolio. The ultimate change is unknown at this time.
INVESTMENTS
Our portfolio included taxable and tax-exempt fixed maturity securities at March
31, 1999 as follows:
GROSS UNREALIZED
MARKET -------------------------
COST VALUE GAIN (LOSS)
U.S. government securities $ 8,921 $ 9,217 299 $ (3)
Corporate securities 20,944 21,163 331 (112)
Mortgage- and asset-backed securities 22,802 22,961 276 (117)
Municipal bonds, tax-exempt 65,243 66,392 1,169 (20)
----------- ----------- ----------- -----------
Totals $ 117,910 $ 119,733 $ 2,075 $ (252)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
After several years of purchasing solely U.S. government securities, we engaged
an investment manager in 1997 to diversify our portfolio to other taxable fixed
maturity investments and to maximize our after-tax investment income without
taking inappropriate credit risk. During the second quarter of 1998, we
transferred our portfolio to a new investment manager and further diversified
our portfolio by purchasing investment grade tax-exempt fixed maturity
investments. We manage our fixed maturity portfolio conservatively, investing
only in investment grade (BBB or better rating from Standard and Poor's)
securities of U.S. domiciled issuers. We do not invest in derivative securities.
Funds provided by our operating cash flows and investment cash flows have
provided growth in our investment portfolio. Operating cash flows consist of the
excess of premiums collected over claim and claim settlement expenses and
reinsurance premiums as well as other operating expenses paid. Investment cash
flows consist of income on existing investments and proceeds from sales and
maturities of investments. Our investment portfolio grew 7.6% or $8.5 million to
$119.7 million at March 31, 1999, from $111.2 million at March 31, 1998, as a
result of these factors.
We record investments on our balance sheet at fair value, with the
corresponding appreciation or depreciation from amortized cost recorded in
shareholders' equity, net of taxes in accumulated other comprehensive income.
Because value is based on the relationship between the portfolio's stated yields
and prevailing market yields at any given time, interest rate fluctuations can
have a swift and significant impact on the carrying value of these securities.
As a result of classifying our securities as available-for-sale, and thus
carried at fair value, we expect to encounter larger adjustments in
shareholders' equity as market interest rates and other factors change.
UNPAID CLAIM AND CLAIM SETTLEMENT EXPENSES
Our unpaid claim and claim settlement expenses represent established,
undiscounted reserves for the estimated total unpaid cost of claim and claim
settlement expenses, which cover events that occurred through March 31, 1999.
These reserves reflect our estimates of the total costs of claims that were
reported, but not yet paid, and the cost of
15
claims incurred but not yet reported (IBNR). For reported claims, we
establish reserves on a "case" basis. For IBNR claims, we estimate reserves
using established actuarial methods. Both our case and IBNR reserve estimates
reflect such variables as past claims experience, current claim trends and
prevailing social, economic and legal environments. Due to commencing
operations in 1992, we have limited historical data to estimate our reserves
for unpaid claim and claim settlement expenses and accordingly supplement our
experience with external industry data, as adjusted, to reflect anticipated
differences between our results and the industry. We reduce the unpaid claim
and claim settlement expenses for estimated amounts of subrogation.
Based on information currently available, we believe our reserves for
unpaid claim and claim settlement expenses are adequate to cover the ultimate
costs of claim and claim settlement expenses. The ultimate cost of claim and
claim settlement expenses may differ from the established reserves,
particularly when claims may not be settled for many years. Reserves for
unpaid claim and claim settlement expenses and assumptions used in their
development are continually reviewed. We record adjustments to prior
estimates of unpaid claim and claim settlement expenses to operations in the
year in which the adjustments are made.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to our ability to generate sufficient cash flows to meet the
short- and long-term cash requirements of our operations. Capital resources
represent those funds deployed or available to be deployed to support our
business operations.
Our primary sources of cash from operations are premiums collected and
investment income. Our investment portfolio is also a source of liquidity,
through the sale of readily marketable fixed maturity investments, as well as
longer-term investments that have appreciated in value. Our primary cash
requirements consist of payments for (i) reinsurance, (ii) claim and claim
settlement expenses, (iii) policy acquisition costs, (iv) general and
administrative expenses, (v) capital expenditures, (vi) income taxes, and
(vii) debt service or principal repayment on our outstanding Senior Notes. We
have historically generated positive net cash from operations due, in part,
to timing differences between the receipt of premiums and the payment of
claim and claim settlement expenses. As we lowered our reinsurance retention
levels to $25,000 in mid-1998, we decreased our current period cash flows as
a result of "pre-funding" quarterly premiums under that agreement. We expect
this reduction in quarterly cash flow will continue until reimbursements for
loss payments to claimants under these contracts equal disbursements for
premium payments. Cash generated is either invested in short-term cash and
cash equivalents or longer term available-for-sale securities pending future
payments for such expenses as indemnity, medical benefits and other operating
expenses. Cash and cash equivalents consist of U.S. government securities
acquired under repurchase agreements, tax-exempt municipal securities and
corporate securities all with maturities of 90 days or less, with the
remaining balances in cash and a money market fund that invests primarily in
short-term government securities.
Cash used by operating activities for the three months ended March 31, 1999
was $5.8 million. This is primarily a result of an increase of $5.3 million in
amounts due from reinsurers, a decrease of $2.6 million in accrued liabilities
offset by our net income of $1.2 million, an increase of $289,000 in unpaid
claim and claim settlement expenses which are non-cash accruals for future
claims, an increase of $295,000 in unearned premiums, net of premiums receivable
and depreciation and amortization of $317,000. Net cash provided by investing
activities was $5.8 million, primarily the result of $7.6 million in proceeds
from sales of available-for-sale securities and maturities of $500,000 of
available-for-sale investments offset by $2.1 million in purchases of
available-for-sale securities. Net cash provided by financing activities was
$1.3 million due to proceeds from the exercise of stock options.
Our need for additional capital is primarily the result of regulations
which require certain ratios of capital to premiums written. In the future, we
expect that our need for additional capital will be primarily related to the
growth of our insurance subsidiary and the need to maintain appropriate capital
to premium ratios as defined by state regulatory bodies. As an alternative to
raising additional capital, we believe we could secure quota-share or other
additional reinsurance which would have the effect of reducing the ratio of
premiums to capital and could be used to satisfy state regulatory requirements.
State insurance regulations limit distributions, including dividends, from
our insurance subsidiary to us. The maximum amount of dividends that can be paid
by ACIC to us in any year is equal to the greater of: (i) 10% of ACIC's
statutory surplus as of the end of the previous fiscal year, or (ii) the
statutory net gain from operations (not including realized capital gains) of
ACIC in its most recent fiscal year. Based on this limitation, the maximum
16
dividend that ACIC could pay to us in 1998, without regulatory approval, is
approximately $4.2 million. ACIC has never paid a dividend to us.
On September 15, 1998, our Board of Directors approved a share repurchase
program authorizing us to repurchase, from time to time, up to $4,000,000 of
RTW, Inc. common stock. We will repurchase the shares on the open market or
through private transactions depending upon market conditions and availability.
Through December 31, 1998 we had repurchased 19,500 shares for approximately
$87,000. The repurchased shares will be used for employee stock option and
purchase plans and other corporate purposes.
We believe that cash flow generated by our operations and our cash and
investment balances will be sufficient to fund continuing operations, principal
repayments, stock repurchases and debt service on our outstanding Senior Notes,
including principal repayments of $2.5 million due in December 1999, and capital
expenditures for the next 12 months.
INTEREST RATE RISK
Our fixed maturity investments and notes payable are subject to interest rate
risk. Increases and decreases in prevailing interest rates generally translate
into decreases and increases in the fair value of these instruments. Also, fair
values of interest rate sensitive instruments may be affected by the credit
worthiness of the issuer, prepayment options, relative values of alternative
instruments, the liquidity of the instrument and other general market
conditions. We regularly evaluate interest rate risk in order to evaluate the
appropriateness of our investments.
An increase of 100 basis points in prevailing interest rates would reduce
the fair value of our interest rate sensitive instruments by approximately
$6.1 million.
The effect of interest rate risk on potential near-term fair value was
determined based on commonly used models. The models project the impact of
interest rate changes on factors such as duration, prepayments, put options and
call options. Fair value was determined based on the net present value of cash
flows or duration estimates, using a representative set of likely future
interest rate scenarios.
IMPACT OF THE YEAR 2000 ON COMPUTER APPLICATIONS
The year 2000 is a critical year for computer applications. Historically, many
computer programs were written using two digits rather than four to define the
appropriate year. As a result, many computer programs that have date sensitive
fields may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing disruption
of operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in other critical business activities.
Year 2000 readiness includes addressing information technology systems
(computer equipment, computer software, network hardware and software, etc.),
non-information technology systems (systems which include embedded technology
such as micro-controllers including telephone systems) and issues relating to
third parties with whom we have a material relationship (customers and vendors).
INFORMATION TECHNOLOGY SYSTEMS: Our insurance subsidiary operations began
in 1992. After using third party software and services for several years, we
developed our own internal computer systems to manage our claims and related
claim settlement expenses (1996) and administer our policy information (1995).
These computer systems are year 2000 compliant. Additionally, during the second
quarter of 1998 we implemented third-party provided general ledger and accounts
payable software, which is year 2000 compliant. Also, we are in the process of
internally developing a billing and cash receipt system to be completed in the
second quarter of 1999, which will be year 2000 compliant. These system
replacements and software developments are occurring as a part of our ongoing
operations and are not specifically occurring as a result of the year 2000
issue. We anticipate that our critical computer hardware and software systems
will be fully year 2000 compliant in early 1999 and non-critical hardware and
software systems will be compliant during the second quarter of 1999. The cost
of any hardware and software changes required to comply with the year 2000,
other than those contemplated as routine upgrades in our operations, are not
expected to have a material adverse effect on our results of operations.
NON-INFORMATION TECHNOLOGY SYSTEMS: We have reviewed our operationally
critical non-information technology systems (non-IT systems) which may have
embedded technology that is reliant on the year 2000. We have developed a formal
plan to address any non-IT system year 2000 issues. We expect that our non-IT
systems
17
will be fully year 2000 compliant by the end of the second quarter of 1999.
We are currently unable to determine the ultimate costs relating to
non-information technology systems.
THIRD PARTY READINESS: We have taken steps to ensure that our significant
customers and vendors are year 2000 compliant through surveys and further
information requests. We have received preliminary information from our critical
vendors and anticipate follow-up based on information received through mid-1999
until we are comfortable that our vendors are year 2000 compliant.
We are reviewing and updating our year 2000 business contingency plan that
will address any year 2000 risks we identify. We expect completion of this plan
during the second quarter of 1999.
NAIC RISK-BASED CAPITAL STANDARDS
The National Association of Insurance Commissioners (NAIC) has risk-based
capital standards to determine the capital requirements of a property and
casualty insurance carrier based upon the risks inherent in its operations.
These standards require the computation of a risk-based capital amount which is
then compared to a carrier's actual total adjusted capital. The computation
involves applying factors to various financial data to address four primary
risks: asset risk, insurance underwriting risk, credit risk and off-balance
sheet risk. These standards provide for regulatory intervention when the percent
of total adjusted capital to authorized control level risk-based capital is
below certain levels. Based upon the risk-based capital standards, our percent
of total adjusted capital is substantially in excess of authorized control level
risk-based capital.
REGULATION
Our insurance subsidiary is subject to substantial regulation by governmental
agencies in the states in which we operate, and will be subject to such
regulation in any state in which we provide workers' compensation products and
services in the future. State regulatory agencies have broad administrative
power with respect to all aspects of our business, including premium rates,
benefit levels, policy forms, dividend payments, capital adequacy and the amount
and type of investments. These regulations are primarily intended to protect
covered employees and policyholders rather than the insurance company. Both the
legislation covering insurance companies and the regulations adopted by state
agencies are subject to change. At March 31, 1999, our insurance subsidiary was
licensed to do business in Minnesota, South Dakota, Wisconsin, Colorado,
Missouri, Illinois, Kansas, Michigan, Indiana, Massachusetts, Connecticut, Rhode
Island, Pennsylvania, Tennessee, Maryland, Arkansas, Iowa and Florida.
In March 1998, the National Association of Insurance Commissioners adopted
the Codification of Statutory Accounting Principles (Codification). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Minnesota will require adoption of Codification for preparing
statutory financial statements. We have not quantified the effect Codification
may have on our statutory financial statements.
FORWARD LOOKING STATEMENTS
Information included in this Form 10-Q which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology constitutes forward-looking information. The following
important factors, among others, in some cases 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) our ability to manage both our existing claims and our new claims in an
effective manner, (ii) competition from traditional workers' compensation
insurance carriers, (iii) our ability to further penetrate our existing
markets, (iv) changes in workers' compensation regulation by states,
including changes in mandated benefits or insurance company regulation,
(v) our ability to retain our existing customers at favorable beneficial
premium rates when their policies renew (vi) our ability to successfully
introduce new products and services, and (vii) our ability to ensure that our
operations are not adversely affected by year 2000 compliance including our
dependence on outside vendors and customers and their ability to become year
2000 compliant. This discussion of uncertainties is by no means exhaustive
but is designed to highlight important factors that may impact our future
performance.
18
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to Disclosures about Market Risk is contained in the
Section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Interest Rate Risk" under Item 2 of this Report of
Form 10-Q and is incorporated herein by reference.
19
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) LISTING OF EXHIBITS
Exhibit 11--STATEMENT REGARDING COMPUTATION OF BASIC AND
DILUTED NET INCOME PER SHARE
Exhibit 27--FINANCIAL STATEMENT SCHEDULE
(b) LISTING OF REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RTW, INC.
Dated: May 12, 1999 By: /s/ Carl B. Lehmann
--------------------------------------------------------
Carl B. Lehmann
President, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: May 12, 1999 By: /s/ Tim C. Chan
--------------------------------------------------------
Tim C. Chan
Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------------------------ ----
11 Statement Regarding Computation of Basic and Diluted Net Income
Per Share 23
27 Financial Statement Schedule 24
22