-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PkEi5/GQghCc7gYWerkJNgc5/JvhH5XNZ4C+V0qenEX0oAtMninbC+Tft+iQoXBu Upk9pM5y2n3YC5zD7/NMkQ== 0001169232-03-006667.txt : 20031114 0001169232-03-006667.hdr.sgml : 20031114 20031114121847 ACCESSION NUMBER: 0001169232-03-006667 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031030 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART W P & CO LTD CENTRAL INDEX KEY: 0000750443 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 980201080 STATE OF INCORPORATION: X0 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16245 FILM NUMBER: 031001963 BUSINESS ADDRESS: STREET 1: TRINITY HALL 43 CEDAR AVE PO BOX 2905 STREET 2: HAMILTON HM LX CITY: BERMUDA STATE: X0 ZIP: 10022 BUSINESS PHONE: 4412958585 MAIL ADDRESS: STREET 1: C/O W P STEWART & CO INC STREET 2: 527 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: STEWART W P & CO INC DATE OF NAME CHANGE: 19980320 6-K 1 d57464_6-k.txt FORM 6-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of November, 2003 W.P. STEWART & CO., LTD. (Translation of Registrant's Name Into English) Trinity Hall 43 Cedar Avenue P.O. Box HM 2905 Hamilton, HM LX Bermuda (Address of Principal Executive Offices) (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F |X| Form 40-F |_| (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes |_| No |X| (If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______.) W.P. STEWART & CO., LTD. Form 6-K: Table of Contents 1. Unaudited Condensed Consolidated Financial Statements of W.P. Stewart & Co., Ltd. as of September 30, 2003 and for the nine months ended September 30, 2003 and 2002 2. Interim Financial Report 3. Exhibit - Press release dated October 30, 2003 Forward-Looking Statements Certain statements in this Report on Form 6-K are forward-looking statements, including, without limitation, statements concerning our assumptions, expectations, beliefs, intentions, plans or strategies regarding the future. Such forward-looking statements are based on beliefs of our management as well as on estimates and assumptions made by and information currently available to our management. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk factors set forth in the Annual Report on Form 20-F of W.P. Stewart & Co., Ltd. as well as the following: o general economic and business conditions; o a challenge to our U.S. tax status; o industry capacity and trends; o competition; o the loss of major clients; o changes in demand for our services; o changes in business strategy or development plans and the ability to implement such strategies and plans; o changes in the laws and/or regulatory circumstances in the United States, Bermuda, Europe or other jurisdictions; o the adverse effect from a decline or volatility in the securities market in general or our products' performance; o quality of management and the ability to attract and retain qualified personnel; o actions taken or omitted to be taken by third parties including our shareholders, clients, competitors and legislative, regulatory, judicial and governmental authorities; and o availability, terms and deployment of capital. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those anticipated, believed, estimated, expected, intended or planned. We do not intend to review or revise any particular forward-looking statements made in this Report on Form 6-K in light of future events. You are cautioned not to put undue reliance on any forward-looking statements. 1 W.P. Stewart & Co., Ltd. Condensed Consolidated Statements of Financial Condition
September 30, December 31, 2003 2002 ------------- ------------- (unaudited) Assets: Cash and cash equivalents $ 35,300,336 $ 34,426,192 Fees receivable 2,309,966 2,634,631 Receivable from broker-dealer 372,063 866,462 Investments in unconsolidated affiliates (net of accumulated amortization of $226,523 and $164,744 at September 30, 2003 and December 31, 2002, respectively) 3,909,247 3,983,259 Receivables from affiliates, net 964,424 684,810 Investments, available for sale [primarily municipal securities] (cost $9,467,944 and $8,892,529 at September 30, 2003 and December 31, 2002, respectively) 9,258,861 8,769,788 Investment in aircraft (net of accumulated depreciation of $16,941,322 and $15,437,634 at September 30, 2003 and December 31, 2002, respectively) 5,510,153 7,013,841 Goodwill 5,631,797 5,631,797 Intangible assets (net of accumulated amortization of $12,299,975 and $8,590,080 at September 30, 2003 and and December 31, 2002, respectively) 70,384,556 60,669,624 Furniture, equipment and leasehold improvements (net of accumulated depreciation and amortization of $4,058,103 and $3,401,457 at September 30, 2003 and December 31, 2002, respectively) 3,462,905 4,089,795 Interest receivable on shareholders' notes 211,660 297,006 Income taxes receivable 2,376,708 3,214,280 Other assets 3,557,499 2,697,322 ------------- ------------- $ 143,250,175 $ 134,978,807 ============= ============= Liabilities and Shareholders' Equity: Liabilities: Loans payable $ 17,078,054 $ 17,511,376 Employee compensation and benefits payable 1,046,731 1,016,970 Fees payable 1,020,743 1,103,030 Professional fees payable 3,474,570 2,606,981 Accrued expenses and other liabilities 4,178,917 4,510,103 ------------- ------------- 26,799,015 26,748,460 ------------- ------------- Minority Interest 228,432 165,132 ------------- ------------- Shareholders' Equity: Common shares, $0.001 par value (125,000,000 shares authorized, 46,011,524 and 46,179,822 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively) 46,012 46,180 Additional paid-in-capital 79,918,187 78,673,127 Contingently returnable shares (162,800 and 975,766 shares at September 30, 2003 and December 31, 2002, respectively) (3,623,928) (14,263,158) Accumulated other comprehensive income 145,229 34,576 Retained earnings 48,746,304 57,129,989 ------------- ------------- 125,231,804 121,620,714 Less: notes receivable for common shares (9,009,076) (13,555,499) ------------- ------------- 116,222,728 108,065,215 ------------- ------------- $ 143,250,175 $ 134,978,807 ============= =============
The accompanying notes are an integral part of these condensed financial statements. 2 W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statement of Operations
For the Three Months Ended September 30, For the Nine Months Ended September 30, 2003 2002 2003 2002 ----------- ----------- ------------ ------------ Revenue: Fees $24,327,761 $25,616,124 $ 69,997,646 $ 82,979,085 Commissions 4,613,917 8,096,957 17,525,818 22,501,051 Interest and other 710,096 805,928 1,950,376 2,777,962 ----------- ----------- ------------ ------------ 29,651,774 34,519,009 89,473,840 108,258,098 ----------- ----------- ------------ ------------ Expenses: Employee compensation and benefits 5,224,556 5,990,458 17,568,872 19,334,052 Fees paid out 1,517,274 1,685,749 4,518,523 5,729,493 Commissions, clearance and trading 1,064,392 1,676,277 3,744,450 4,638,936 Research and administration 3,513,126 3,925,803 10,782,706 10,809,754 Marketing 1,070,342 1,603,747 3,411,582 3,955,713 Depreciation and amortization 2,007,883 2,055,380 5,932,015 5,984,908 Other operating 1,811,782 1,823,251 6,872,276 6,369,804 ----------- ----------- ------------ ------------ 16,209,355 18,760,665 52,830,424 56,822,660 ----------- ----------- ------------ ------------ Income before taxes 13,442,419 15,758,344 36,643,416 51,435,438 Provision for taxes 1,487,104 1,768,428 3,795,830 5,336,137 ----------- ----------- ------------ ------------ Net income $11,955,315 $13,989,916 $ 32,847,586 $ 46,099,301 =========== =========== ============ ============ Earnings per share: Basic earnings per share $ 0.27 $ 0.32 $ 0.74 $ 1.05 =========== =========== ============ ============ Diluted earnings per share $ 0.26 $ 0.31 $ 0.73 $ 0.99 =========== =========== ============ ============
The accompanying notes are an integral part of these condensed financial statements. 3 W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity For the Nine Months Ended September 30, 2003 and 2002
Common Shares Additional Contingently ---------------------- Paid-In Returnable Shares Amount Capital Shares ---------- --------- ------------- ------------ Balance @ December 31, 2002 46,179,822 $ 46,180 $ 78,673,127 $(14,263,158) Issuance of common shares, @ $0.001 par value Cash 39,822 40 828,258 Notes receivable Contingently returnable shares, no longer subject to repurchase 2,919,052 10,261,580 Repurchase and cancellation of common shares, @ $0.001 par value (83,812) (84) (1,158,260) Cancellation of common shares, @ $0.001 par value (124,308) (124) (1,634,871) 377,650 Non-cash compensation 290,881 Net income Dividends Other comprehensive income Proceeds from notes receivable for common shares ---------- --------- ------------- ------------ Balance @ September 30, 2003 46,011,524 $ 46,012 $ 79,918,187 $ (3,623,928) ========== ========= ============= ============ Balance at December 31, 2001 47,831,864 $ 47,832 $ 105,472,859 $(24,902,377) Issuance of common shares, @ $0.001 par value Acquisitions Cash 36,333 36 642,331 Notes receivable 42,333 42 787,849 Contingently returnable shares, no longer subject to repurchase 8,587,499 10,639,219 Repurchase and cancellation of common shares, @ $0.001 par value (1,595,233) (1,595) (35,180,627) Cancellation of common shares, @ $0.001 par value (64,189) (64) (855,097) Non-cash compensation 312,827 Net income Dividends Other comprehensive income Proceeds from notes receivable for common shares ---------- --------- ------------- ------------ Balance at September 30, 2002 46,251,108 $ 46,251 $ 79,767,641 $(14,263,158) ========== ========= ============= ============ Accumulated Other Comprehensive Retained Notes Income Earnings Receivable Total ----------- ----------- ------------ ------------- Balance @ December 31, 2002 $ 34,576 $57,129,989 $(13,555,499) $ 108,065,215 Issuance of common shares, @ $0.001 par value Cash 828,298 Notes receivable -- Contingently returnable shares, no longer subject to repurchase 13,180,632 Repurchase and cancellation of common shares, @ $0.001 par value (1,158,344) Cancellation of common shares, @ $0.001 par value 1,257,345 -- Non-cash compensation 290,881 Net income 32,847,586 32,847,586 Dividends (41,231,271) (41,231,271) Other comprehensive income 110,653 110,653 Proceeds from notes receivable for common shares 3,289,078 3,289,078 ----------- ----------- ------------ ------------- Balance @ September 30, 2003 $ 145,229 $48,746,304 $ (9,009,076) $ 116,222,728 =========== =========== ============ ============= Balance at December 31, 2001 $ (471,369) $57,007,661 $(23,114,617) $ 114,039,989 Issuance of common shares, @ $0.001 par value Acquisitions -- Cash 642,367 Notes receivable (787,891) -- Contingently returnable shares, no longer subject to repurchase 19,226,718 Repurchase and cancellation of common shares, @ $0.001 par value (35,182,222) Cancellation of common shares, @ $0.001 par value 855,161 -- Non-cash compensation 312,827 Net income 46,099,301 46,099,301 Dividends (41,745,677) (41,745,677) Other comprehensive income 293,270 293,270 Proceeds from notes receivable for common shares 5,639,932 5,639,932 ----------- ----------- ------------ ------------- Balance at September 30, 2002 $ (178,099) $61,361,285 $(17,407,415) $ 109,326,505 =========== =========== ============ =============
The accompanying notes are an integral part of these condensed financial statements. 4 W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2003 and 2002
2003 2002 ------------ ------------ Cash flows from operating activities: Net income $ 32,847,586 $ 46,099,301 Adjustments to reconcile net income to net cash provided by operating activities: (Gain)/loss on sale of available for sale securities (219,790) 8,522 Amortization of bond premium 234,453 22,432 Depreciation and amortization 5,932,015 5,984,908 Equity in income of unconsolidated affiliates 12,233 (86,454) Non-cash compensation 290,881 312,827 Minority interest 63,300 97,320 Changes in operating assets and liabilities: Fees receivable 324,665 (1,765,236) Receivable from broker-dealer 494,399 (351,273) Receivables from affiliates, net (279,614) (136,693) Income taxes receivable 837,572 976,178 Other assets (860,177) (276,275) Employee compensation and benefits payable 29,761 (229,599) Fees payable (82,287) 563,970 Income taxes payable -- (1,078,713) Professional fees payable 867,589 (517,491) Accrued expenses and other liabilities (331,186) 660,082 ------------ ------------ Net cash provided by operating activities 40,161,400 50,283,806 ------------ ------------ Cash flows (used for) investing activities: Proceeds from sale of available for sale securities 3,919,308 991,478 Purchase of available for sale securities (4,477,133) (8,880,128) Cash dividends paid on shares subject to repurchase (244,200) (975,870) Purchase of furniture, equipment and leasehold improvements (29,757) (326,428) ------------ ------------ Net cash (used for) investing activities (831,782) (9,190,948) ------------ ------------ Cash flows (used for) financing activities: Payments on loans payable (433,322) (436,409) Proceeds from issuance of common shares 828,298 642,367 Repurchase of common shares (1,158,344) (35,182,222) Proceeds from notes receivable for common shares 3,289,078 5,639,932 Interest receivable on shareholders' notes 85,346 (63,973) Dividends to shareholders (41,231,271) (41,754,203) ------------ ------------ Net cash (used for) financing activities (38,620,215) (71,154,508) Effect of exchange rate changes in cash 164,741 282,507 ------------ ------------ Net increase in cash and cash equivalents 874,144 (29,779,143) Cash and cash equivalents, beginning of period 34,426,192 62,302,344 ------------ ------------ Cash and cash equivalents, end of period $ 35,300,336 $ 32,523,201 ============ ============ Supplemental disclosures of cash flows information Cash paid during the period for: Income taxes $ 3,027,874 $ 5,649,811 ============ ============ Interest $ 781,127 $ 927,765 ============ ============
Supplemental Schedule of Non-Cash Investing and Financing Activities: In 2003, 20% of the shares originally issued in connection with our acquisitions of NS Money Management (Bermuda) Limited, First Long Island Investors, Inc. and TPRS Services N.V. ceased to be subject to repurchase, and were recorded with a fair value of $2,333,644, $3,868,800 and $6,978,188, respectively. Additionally, in accordance with the provisions of the acquisition agreements, the Company reacquired 35,000 shares which were recorded with a value of $377,650 representing the initial issue price of the shares (see Note 2). In addition, as discussed in Note 2, in 2002, 20% of the shares originally issued in connection with our acquisitions of NS Money Management (Bermuda) Limited, First Long Island Investors, Inc. and TPRS Services N.V. ceased to be subject to repurchase, and were recorded with a fair value of $4,238,882, $5,659,200 and $9,328,636, respectively. The Company issued common shares for notes receivable for the nine months ended September 30, 2002 in the amount of $787,891, and cancelled outstanding notes of $1,257,345 and $855,161 for the nine months ended September 30, 2003 and 2002, respectively. The accompanying notes are an integral part of these condensed financial statements. 5 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying financial statements of W.P. Stewart & Co., Ltd., a Bermuda exempt company incorporated on August 16, 1996 and a registered investment adviser under the United States of America ("U.S.") Investment Advisers Act of 1940, as amended, ("WPS & Co., Ltd." and, together with its subsidiaries, the "Company") are presented on a condensed consolidated basis. These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 20-F of the Company for the year ended December 31, 2002. The condensed consolidated financial information as of and for the year ended December 31, 2002 has been derived from audited consolidated financial statements not included herein. Certain reclassifications have been made to prior-year amounts to conform to the current-year presentation. All material intercompany transactions and balances have been eliminated. The unaudited condensed financial statements include all adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results in the interim periods presented. Interim period operating results for the nine months ended September 30, 2003 are not necessarily indicative of results that may be expected for the entire year or any other period. NOTE 2: BACKGROUND AND ORGANIZATION For the nine months ended September 30, 2003 and 2002, the consolidated Company consisted of several worldwide affiliated entities under common control, which provide investment advisory and related services including securities brokerage. Business Acquisitions In 1999 the Company acquired 50% of TPRS Services N.V. ("TPRS") and 100% of NS Money Management (Bermuda) Limited ("NSMM") and First Long Island Investors, Inc. ("FLII"). On December 29, 2000, the Company acquired the remaining 50% of TPRS. The repurchase provisions of the acquisition agreements specify that 80% of the Company's common shares issued in connection therewith can be repurchased ("contingently returnable shares") at par value by the Company up to a maximum of 20% per year as of January 1, 2000, 2001, 2002 and 2003, except in the case of the December 29, 2000 TPRS acquisition where the reference dates are July 1, 2001, 2002, 2003 and 2004, if assets under management which were part of the acquisitions decrease below defined reference amounts at the specified dates and are not replaced. The recorded purchase price for each acquisition is determined by the sum of: 1. the number of shares issued on acquisition not subject to repurchase multiplied by the fair value of each of those shares at acquisition date; 2. the number of shares that cease to be subject to repurchase at each anniversary date multiplied by the fair value of each of those shares at that date; and 3. the cumulative cash dividends paid on shares subject to repurchase. 6 The shares issued in connection with the TPRS, NSMM and FLII acquisitions were initially reported in shareholders' equity (within share capital and as a contra-equity account captioned "contingently returnable shares") at their issuance prices as of the dates the acquisitions were consummated. On the dates on which the contingently returnable shares cease to be subject to repurchase, the contra-equity account is relieved and any difference between the initial issue price and the then current fair value of the shares is charged or credited to additional paid-in capital. Cash dividends on shares no longer subject to repurchase are recorded as a reduction of shareholders' equity. On January 1, 2003, in accordance with the 1999 TPRS, NSMM and FLII acquisition agreements, repurchase provisions on 20% of the initial number of shares issued and recorded as contingently returnable shares lapsed. Accordingly, the shareholders' equity account "contingently returnable shares" was relieved of $6,637,652 and additional paid-in-capital was credited with $3,278,840, being the excess of the shares' fair value over their initial issue price. The respective purchase price allocations were increased accordingly. Additionally, in accordance with the provisions of the acquisition agreements, the Company reacquired 35,000 shares. Accordingly, the shareholders' equity account contingently returnable shares, was relieved of $377,650, which represents the initial issue price of the shares. On July 1, 2003, in accordance with the 2000 TPRS acquisition agreement, repurchase provisions on 20% of the initial number of shares issued and recorded as contingently returnable shares lapsed. Accordingly, the shareholders' equity account "contingently returnable shares" was reduced by $3,623,928 and additional paid-in-capital was reduced by $359,788, being the excess of the shares' fair value over their initial issue price. The respective purchase price allocations were increased accordingly. The following table shows information for each acquisition as of and for the nine months ended September 30, 2003.
Cash Dividends Paid on Aggregate Shares Not Contingently Contingently Purchase Intangible Number of Subject to Returnable Returnable Price Amortization Acquisition Shares Repurchase Shares Shares Allocation for the Period =========== =========== ========== =========== ============ ========== ============== TPRS 1,966,000 1,803,200 162,800 $ 244,200 $39,220,848 $ 1,686,750 NSMM 863,831 863,831 -- -- 17,042,406 715,379 FLII 1,200,000 1,200,000 -- -- 23,703,088 1,152,209 --------- --------- ------- ----------- ----------- ----------- 4,029,831 3,867,031 162,800 $ 244,200 $79,966,342 $ 3,554,338 ========= ========= ======= =========== =========== ===========
The following table shows information for each acquisition as of and for the year ended December 31, 2002.
Cash Dividends Paid on Aggregate Shares Not Contingently Contingently Purchase Intangible Number of Subject to Returnable Returnable Price Amortization Acquisition Shares Repurchase Shares Shares Allocation for the Period =========== =========== ========== =========== ============ ========== ============== TPRS 1,966,000 1,410,000 556,000 $ 764,881 $31,998,460 $ 1,815,314 NSMM 898,831 719,065 179,766 215,719 14,708,762 807,986 FLII 1,200,000 960,000 240,000 288,000 19,834,288 1,294,479 --------- --------- ------- ----------- ----------- ----------- 4,064,831 3,089,065 975,766 $ 1,268,600 $66,541,510 $ 3,917,779 ========= ========= ======= =========== =========== ===========
7 NOTE 3: EARNINGS PER SHARE
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Basic Earnings Per Share: Net income $ 11,955,315 $ 13,989,916 $ 32,847,586 $ 46,099,301 ============ ============ ============ ============ Weighted average basic shares outstanding 44,482,893 43,457,488 44,202,387 43,716,022 ------------ ------------ ------------ ------------ Net income per share $ 0.27 $ 0.32 $ 0.74 $ 1.05 ============ ============ ============ ============ Diluted Earnings Per Share: Net income $ 11,955,315 $ 13,989,916 $ 32,847,586 $ 46,099,301 ============ ============ ============ ============ Weighted average basic shares outstanding 44,482,893 43,457,488 44,202,387 43,716,022 Add: Unvested shares, contingently returnable shares and unvested options 850,326 1,992,433 930,614 2,665,823 ------------ ------------ ------------ ------------ Weighted average diluted shares outstanding 45,333,219 45,449,921 45,133,001 46,381,845 ------------ ------------ ------------ ------------ Net income per share $ 0.26 $ 0.31 $ 0.73 $ 0.99 ============ ============ ============ ============
Basic earnings per share is computed by dividing the net income applicable to common shares outstanding by the weighted average number of shares outstanding, excluding unvested shares issued to employees of the Company or its affiliates, contingently returnable shares and unvested employee options. Diluted earnings per share is computed using the same method as basic earnings per share, but also reflects the impact of unvested shares issued to employees of the Company or its affiliates, contingently returnable shares and the dilutive effect of unvested options issued to employees of the Company or its affiliates using the treasury stock method. During the nine months ended September 30, 2003, the Company repurchased and cancelled an aggregate of 83,812 common shares for an aggregate purchase price of $1,158,344. On September 30, 2003 and 2002, respectively, 46,011,524 and 46,251,108 shares were issued and outstanding. The shareholders of record are entitled to full voting rights and dividends on these shares; 1,363,370 and 2,269,955 of these shares were unvested and held by the Company's or affiliates' employees on September 30, 2003 and 2002, respectively. 8 NOTE 4: COMPREHENSIVE INCOME The following table details the components of comprehensive income as described in Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------- ----------------------------------- 2003 2002 2003 2002 -------------- -------------- -------------- -------------- Net income $ 11,955,315 $ 13,989,916 $ 32,847,586 $ 46,099,301 Other comprehensive income, net of tax Reclassification adjustment for realized gains on available for sale securities included in interest and other -- 133,284 Unrealized gains/(losses) on available for sale securities (52,255) (91,199) (54,088) (122,521) Foreign currency translation adjustment 34,320 125,143 164,741 282,507 -------------- -------------- -------------- -------------- Comprehensive income $ 11,937,380 14,023,860 $ 32,958,239 $ 46,392,571 ============== ============== ============== ==============
NOTE 5: RELATED PARTY TRANSACTIONS Research and administrative expenses include travel expenses of approximately $1,677,096 and $1,695,361 for the nine months ended September 30, 2003 and 2002, respectively, which were paid to Shamrock Aviation, Inc. ("Shamrock"), a company owned by principal shareholders of the Company. The Company has entered into an agreement pursuant to which an entity affiliated with Shamrock has agreed to provide operational and maintenance services at cost for the Challenger aircraft owned by the Company. These costs, reflected in research and administration expenses, include $2,047,293 and $2,093,420 for the nine months ended September 30, 2003 and 2002, respectively. In February 1999, the Company entered into an agreement with Shamrock in which Shamrock agreed to delay the sale of an aircraft owned by Shamrock so that such aircraft would continue to be available for use in the Company's business. At that time, Shamrock agreed to release WPSI from any and all obligations of approximately $37 million, to participate in the purchase of an additional aircraft, delivery of which was scheduled for 2002. In return, the Company had agreed to indemnify Shamrock for any loss in value of the aircraft Shamrock had agreed not to sell from the time the agreement was made until the aircraft was sold or replaced. The value of that aircraft as of the date of Shamrock's agreement with the Company was estimated to be $27 million. In May 2002, in exchange for a payment of $100,000, Shamrock released the Company from this indemnity agreement. 9 A portion of the office space located in New York includes space occupied by Stewart family interests. W.P. Stewart & Co., Inc. ("WPSI") is reimbursed on a monthly basis for rent and other costs associated with the space, which approximated $123,719 and $116,149 for the nine months ended September 30, 2003 and 2002, respectively. These amounts are based upon the actual space utilized in each of those periods. W.P. Stewart Fund Management Limited ("WPS Dublin") serves as the investment manager to an Irish fund solely advised by WPS Investissements S.A., a Swiss investment management firm, principally owned by a beneficial owner of a minority interest in the Company. The Company has no ownership interest in either the Irish fund or WPS Investissements S.A. WPS Dublin collects and remits to WPS Investissements S.A. all of the advisory fees in respect of such fund. Such fees amounted to $20,830 and $24,633 for the nine months ended September 30, 2003 and 2002, respectively. In addition, the Company pays WPS Investissements S.A. solicitation fees in respect of certain accounts and an amount calculated on the basis of a portion of the brokerage commissions paid by such fund and certain accounts, as directed by those clients. Such payments amounted to $7,193 and $15,127 for the nine months ended September 30, 2003 and 2002, respectively. The Company pays Bowen Asia Limited ("Bowen"), an unconsolidated affiliate of the Company, the principal owners of which are an executive officer and a beneficial owner of a minority interest in the Company, fees for solicitation, sub-advisory, and research services. Such costs approximated $631,447 and $549,454 for the nine months ended September 30, 2003 and 2002, respectively. The Company receives solicitation fees from Bowen Capital Management ("BCM"), a subsidiary of Bowen, for client referrals to BCM. Total solicitation fees received from BCM for the nine months ended September 30, 2003 and 2002 were $6,183 and $13,284, respectively. The Company pays Carl Spangler Kapitalanlageges. m.b.H., which is controlled by Bankhaus Carl Spangler & Co. AG, the Chief Executive Officer of which is one of the Company's directors, fees for solicitation services. These fees amounted to $839,045 and $328,177 for the nine months ended September 30, 2003 and 2002, respectively. The Company pays Appleby, Spurling & Kempe and A.S. & K. Services Ltd., a partner of which in June 2002 became a director of the Company, fees for various legal, corporate administrative and secretarial services. Such fees for services amounted to $44,261 for the nine months ended September 30, 2003. Certain directors of the Company serve as directors of funds from which the Company receives investment advisory fees, fund management fees, subscription fees and commissions. Such fees and commissions were $4,298,062 and $4,361,548 for the nine months ended September 30, 2003 and 2002, respectively. The Company owns a 40% interest in Kirk Management Ltd., a real estate joint venture incorporated in Bermuda. The remaining 60% interest is owned by The Bank of Bermuda, of which one of the Company's directors is the Chief Executive Officer. Kirk Management Ltd. also owns and leases to the Company its Hamilton, Bermuda headquarters. Included in research and administration expenses is rent expense of $135,000 for each of the nine-month periods ended September 30, 2003 and 2002, respectively. Included in receivables from affiliates, net, at September 30, 2003 and 2002 is a subordinated loan of $212,526 and accrued interest on such loan in the amount of $34,132 due from Kirk Management Ltd. The loan has no fixed repayment date. 10 Included in investments available for sale at September 30, 2003 and 2002 are amounts of $735,070 and $882,312, respectively, which were investments in various funds managed by WPS Dublin, a wholly-owned subsidiary of the Company. Included in research and administration expenses for the nine months ended September 30, 2003 and 2002 is rent expense in the amounts of $109,607 and $96,649, respectively, which is paid to a company owned by the former principals of W.P. Stewart Asset Management (Europe) N.V., one of whom is an executive officer of the Company. Included in other operating expenses for the nine months ended September 30, 2003 are contributions in the amount of $100,000 paid to the W.P. Stewart & Co. Foundation, Inc. (the "Foundation"), a private charitable foundation. NOTE 6: LONG-TERM DEBT On July 10, 2003, WPS Aviation entered into a 10-year amortizing loan agreement with General Electric Capital Corporation ("GECC") to continue to finance its obligations under the Challenger Purchase Agreement. The purpose of this new agreement was solely to consolidate all prior obligations to GECC and to reduce the fixed interest rates under the previous obligations. This new loan was for the principal sum of $17,278,264 at a floating per annum simple interest rate, as defined in the loan agreement as the contract rate, to be paid in 120 monthly installments and a final installment of $8,608,913 plus any outstanding interest. The contract rate of interest is equal to the sum of (i) two and 25/100 percent (2.25%) per annum plus (ii) a variable per annum interest rate equal to the rate listed for one month commercial paper (non-financial). The first monthly periodic installment was due and paid on August 10, 2003 with installments due and payable on the same day of each succeeding month. The loan is collateralized by the Challenger aircraft. The loan agreement requires the Company to maintain certain financial ratios and a minimum level of $15 million of tangible net worth (as defined in the loan agreement). Interest expense on long-term debt totaled $696,756 and $927,765 for the nine months ended September 30, 2003 and 2002, respectively. NOTE 7: COMMITMENTS AND CONTINGENCIES At September 30, 2003, the Company was contingently liable on three irrevocable standby letters of credit. One letter of credit is in the amount of $1,000,000 in favor of Wachovia Corporate Services Inc. ("Wachovia") and collateralizes amounts received from the Company's clients that Wachovia wires daily to the Company's account at The Bank of Bermuda. The second letter of credit is in the amount of $200,000, in favor of WPSI's landlord. The third letter of credit is in the amount of $699,033 in favor of W.P. Stewart & Co. (Europe) Ltd.'s landlord. The latter amount is guaranteed by the Company, and is collateralized by a fixed deposit cash account in the same amount, which will remain intact over the term of the lease and is reflected in other assets at September 30, 2003 and 2002. W.P. Stewart Securities Limited ("WPSSL") conducts business with a clearing broker on behalf of its customers subject to a clearing agreement. WPSSL earns commissions as an introducing broker for the transactions of its customers, which are normally settled on a delivery-against-settlement basis. Under the clearing agreement, WPSSL has agreed to indemnify the clearing broker for non-performance by any customers introduced by WPSSL. As the right to charge WPSSL has no maximum amount, and applies to all trades executed through the clearing broker, WPSSL believes there is no maximum amount assignable 11 to this right. At September 30, 2003, WPSSL has recorded no liability with respect to this right. WPSSL is subject to credit risk to the extent that the clearing broker may be unable to repay amounts owed. NOTE 8: NOTES RECEIVABLE FOR COMMON SHARES Pursuant to employee purchase agreements for common shares, in the event a purchaser is not in the employment of, or does not serve as a director of, the Company or any of its affiliates, the purchaser shall transfer to the Company all rights to the shares that have not vested at the time of such termination. The remaining balance of the outstanding notes receivable related to the unvested shares shall be abated. Pursuant to the terms of the purchase agreements, during the nine months ended September 30, 2003, 89,308 unvested common shares of former employees were repurchased and their installment notes totaling $1,257,345 were abated. Future minimum payments, expected to be received, on notes receivable for common shares as of September 30, 2003 are as follows: 2003 (3 months) $ 750,342 2004 2,615,368 2005 2,167,051 2006 1,480,641 2007 971,490 Thereafter (through 2010) 1,024,184 ------------ $ 9,009,076 ============ Interest income on all such notes was $638,215 and $1,391,868 for the nine months ended September 30, 2003 and 2002, respectively. NOTE 9: EMPLOYEE EQUITY INCENTIVE PLAN The W.P. Stewart & Co., Ltd. 2001 Employee Equity Incentive Plan, as amended (the "Plan") provides for awards of common shares of the Company, to be granted to eligible employees of the Company and its affiliates in the form of restricted common shares and/or options. The exercise price of the options is equal to the market value of the Company's shares on the date of the grant. All awards vest and are exercisable in equal annual amounts on each of the first seven anniversaries of the grant dates. The dilutive effect of these options is included in the weighted average diluted shares outstanding in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". On May 12, 2003, the Board of Directors approved an amendment to the Plan that (i) increased the total number of common shares available for awards under the Plan from 2,500,000 to a total of 3,000,000, inclusive of awards previously granted, and (ii) increased the duration of the period during which vested options may be exercised from one year to two years with respect to any option grants made in the future. During the three months ended September 30, 2003, pursuant to the terms of the Plan, 34,964 vested options granted in 2001 were exercised for an aggregate amount of $727,251 and 34,284 unexercised options granted in 2001 were forfeited by former employees of the Company. During the three months ended June 30, 2003, pursuant to the terms of the Plan, 4,858 vested options granted in 2001 were exercised for an aggregate amount of $101,046 and 10,114 unexercised options granted in 2001 were forfeited by former employees of the Company. 12 During the three months ended March 31, 2003, pursuant to the terms of the Plan, 105,447 unexercised options granted in 2001 and 2,500 unexercised options granted in 2002, were forfeited by former employees of the Company. NOTE 10: SHARE OPTIONS On January 1, 2003, the Company began to account for share-based employee compensation in accordance with the fair-value method prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS No. 148"), using the prospective adoption method. Under this method of adoption, compensation expense will be recognized based on the fair value of the share options granted in 2003 and future years over the related vesting periods. The amount of share-based compensation to be recognized under SFAS No. 123 for the year ended December 31, 2003 and beyond is not currently determinable, because the number and value of share options to be granted to employees in the future is not yet known. There were no share options granted during the nine months ended September 30, 2003. Share options granted for all periods prior to December 31, 2002 were accounted for, and will continue to be accounted for, under the intrinsic value-based method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and related interpretations. Therefore, no compensation expense was recognized for those share options that had no intrinsic value on the date of grant. Had compensation cost for the Company's options been determined based on fair value at the grant dates for all awards under the Plan consistent with the method of SFAS No. 123, the Company's net income and diluted net income per share for the periods ended September 30, 2003 and 2002, would have been the following pro forma amounts:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- -------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net income, as reported $ 11,955,315 $ 13,989,916 $ 32,847,586 $ 46,099,301 Pro forma net income $ 11,753,624 $ 13,154,676 $ 31,930,062 $ 44,434,070 Earnings Per Share, as reported: Basic $ 0.27 $ 0.32 $ 0.74 $ 1.05 Diluted $ 0.26 $ 0.31 $ 0.73 $ 0.99 Pro forma Earnings Per Share: Basic $ 0.26 $ 0.30 $ 0.72 $ 1.02 Diluted $ 0.26 $ 0.29 $ 0.71 $ 0.96
13 NOTE 11: INCOME TAXES Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any Bermuda taxes on their income or capital gains. The Company and its Bermuda subsidiaries will be exempt from such forms of taxation in Bermuda until at least March 2016. Income from the Company's operations in the United States and from U.S. subsidiaries of the Company is subject to income taxes imposed by U.S. authorities. In addition, the Company's non-U.S. subsidiaries are subject to income taxes imposed by the jurisdictions in which those subsidiaries conduct business. The provision for income taxes detailed below represents the Company's estimate of taxes on income applicable to all jurisdictions and is calculated at rates equal to the statutory income tax rate in each jurisdiction. The income tax provision, all current, for the periods ended September 30, 2003 and 2002 is as follows:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ US: Federal $ 912,613 $ 1,354,485 $ 2,545,395 $ 3,996,661 State and local 568,846 410,067 1,239,099 1,327,966 ------------ ------------ ------------ ------------ 1,481,459 1,764,552 3,784,494 5,324,627 Other: 5,645 3,876 11,336 11,510 ------------ ------------ ------------ ------------ $ 1,487,104 $ 1,768,428 $ 3,795,830 $ 5,336,137 ============ ============ ============ ============
NOTE 12: PENSION BENEFITS Total employer contributions amounted to $1,188,176 and $959,125 for the nine months ended September 30, 2003 and 2002, respectively. Participants are immediately vested in their account balances. NOTE 13: GEOGRAPHIC AREA DATA The Company's primary business is the provision of investment advisory services to clients located throughout the world, in primarily two geographic areas, as follows:
Fee Revenue ----------- Three months ended September 30, Nine months ended September 30, -------------------------------- -------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- U.S. $ 18,300,542 $ 19,322,118 $ 52,668,264 $ 62,402,942 Non-U.S 6,027,219 6,294,006 17,329,382 20,576,143 ------------- ------------- ------------- ------------- Total $ 24,327,761 $ 25,616,124 $ 69,997,646 $ 82,979,085 ============= ============= ============= =============
14 NOTE 14: SUBSEQUENT EVENTS On October 3, 2003, the Company declared a dividend of $0.30 per share to shareholders of record as of October 17, 2003, payable on October 31, 2003 in the aggregate amount of $13,804,964. During the month of October 2003, 4,807 and 215 vested employee share options granted in 2001 and 2002, respectively, were exercised for an aggregate amount of $103,550. 15 INTERIM FINANCIAL REPORT Overview W.P. Stewart & Co., Ltd., together with its subsidiaries, is a research-focused investment counselor that manages assets for high net-worth individuals and institutions located throughout the world. Our principal source of revenues is investment advisory fees and, accordingly, fluctuations in financial markets and client contributions and withdrawals have a direct effect on revenues and net income. Significant components of our expenses are variable in nature and may offset fluctuations in revenue. Advisory fees are computed quarterly based on account market values and fee rates pursuant to investment advisory contracts with clients. Our policy is to bill clients quarterly, in advance. Commission revenues earned on our brokerage activities, substantially all of which relate to client accounts, vary directly with account trading activity and new account generation. Transaction costs are reviewed quarterly and are competitive. Interest and other revenue primarily consists of interest earned on notes receivable for employee purchases of common shares, interest earned on our cash management activities and equity income relating to our investments in unconsolidated affiliates. We provide competitive rewards to our employees through our compensation and benefits policies, together with our employee equity ownership practices. Employee compensation and benefits are our largest operating expense, the most significant component of which is compensation paid to our research analysts/portfolio managers. Compensation for all employees varies with operating profit. At the beginning of each year, each employee is allocated a participation in our compensation pool. Compensation paid depends upon our actual operating profit, as adjusted for amortization of intangibles and retirement benefits ("adjusted operating profit"). We review from time to time the percentage of operating profit made available for the compensation pool. Under our variable compensation program, which heavily weights compensation against profit performance, compensation expense currently may vary between 20.7% and 24.5% of adjusted operating profit. Compensation expense for the year ended December 31, 2002 was approximately 24% of adjusted operating profit. It is currently anticipated that compensation expense for the year ending December 31, 2003 will be approximately 24%. Fees paid out are paid to select banks, investment firms and individuals in at least 10 countries, with whom we have formal marketing arrangements that make up our network of symbiotic marketers. We consider the banks, investment firms and individuals who gather assets for us to be symbiotic marketers of our services because of the mutual benefits that flow from the relationship - they are able to offer premier equity investment management services to their clients and we are able to extend the reach of our asset-gathering efforts. These fees are based on the market value of referred accounts and vary based on new account generation and fluctuations in the market value of referred accounts. Commissions, clearance and trading expenses include fees incurred related to brokerage activities. These transaction-related costs vary directly with trading activity. Research and administration expenses include research, travel and entertainment, communications, information technology systems support and occupancy. Marketing expenses represent costs associated with our internal marketing initiatives and client servicing activities, and include client seminars and marketing related travel and operational expenses. 16 Other operating expenses include professional fees consisting of auditing, tax, legal and consulting fees, charitable contributions and other administration expenses. All of our employees are given the opportunity to become shareholders during their first year of employment with us. As a result, virtually all of our employees are shareholders of W.P. Stewart & Co., Ltd. and all participate in the results of our operations. Operating Results Three Months Ended September 30, 2003 as Compared to Three Months Ended September 30, 2002 Assets Under Management Assets under management were slightly more than $8.0 billion at September 30, 2003, relatively unchanged from approximately $8.0 billion at June 30, 2003. Assets under management were approximately $7.3 billion at September 30, 2002, a decrease of approximately $1.0 billion or 12.1%, from approximately $8.3 billion at June 30, 2002. The following table sets forth the total net flows of assets under management for the three months ended September 30, 2003 and 2002, which include changes in net flows of existing accounts and net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts). The table excludes total capital appreciation or depreciation in assets under management with the exception of the amounts attributable to withdrawals and closed accounts. Net Flows of Assets Under Management (in millions) Three Months Ended September 30, ======================= 2003 2002 ======== ======== Existing Accounts: Contributions $ 256 $ 246 Withdrawals (274) (233) -------- -------- Net Flows of Existing Accounts (18) 13 -------- -------- Publicly Available Funds: Contributions 51 130 Withdrawals (32) (93) Direct Accounts Opened 70 51 Direct Accounts Closed (55) (88) -------- -------- Net New Flows 34 0 -------- -------- Net Flows of Assets Under Management $ 16 $ 13 ======== ======== 17 Revenues Revenues were $29.7 million for the third quarter of 2003, a decrease of $4.9 million or 14.1% from $34.5 million earned for the third quarter of 2002. The changes were due to a $1.3 million or 5.0% decrease in fee revenue, a $3.5 million or 43.0% decrease in commission revenue and a $0.1 million or 11.9% decrease in interest and other revenues. The average gross fee earned from client accounts was 1.21% for the quarter ended September 30, 2003 as compared to 1.23% for the quarter ended September 30, 2002. The decrease was due to a slight change in client account mix due to larger accounts subject to our fee break. The decrease in commission revenue was primarily due to lower levels of trading volume during the third quarter of 2003 as compared with the higher levels of trading volume experienced in the third quarter of 2002. Interest and other revenues decreased $0.1 million primarily due to lower equity income from our unconsolidated affiliates, lower cash balances during the third quarter of 2003 reflecting our share repurchases in 2002, lower interest earned on our cash balances due to prevailing market rates and lower interest earned on shareholders' loans. Expenses Expenses, excluding income taxes, decreased approximately $2.6 million, or 13.6%, to $16.2 million for the third quarter of 2003, from $18.8 million in the same period of the prior year. The decrease was due to changes in operating expenses, including a decrease in variable expenses of $0.2 million in fees paid out, which are directly related to assets under management of referred accounts, a decrease in commissions, clearance and trading of $0.6 million, which vary with account activity, and a decrease in employee compensation and benefits of $0.8 million due to a decrease in adjusted operating profit. Additionally, research and administration expenses decreased $0.4 million and marketing expenses decreased $0.5 million, all due to slightly lower costs for the quarter. Our income tax expense decreased $0.3 million, to $1.5 million, for the third quarter of 2003, from $1.8 million in the same period of the prior year. The effective tax rate was approximately 11% of income before taxes for both periods. Net Income Net income for the quarter ended September 30, 2003 decreased $2.0 million, or 14.5%, to $12.0 million, from $14.0 million in the third quarter of the prior year as a result of the items described above. Nine Months Ended September 30, 2003 as Compared to Nine Months Ended September 30, 2002 Assets Under Management Assets under management were approximately $8.0 billion at September 30, 2003, an increase of approximately $0.3 billion or 3.9% from approximately $7.7 billion at December 31, 2002. Assets under management were approximately $7.3 billion at September 30, 2002, a decrease of approximately $1.9 billion or 20.7%, from approximately $9.2 billion at December 31, 2001. The following table sets forth the total net flows of assets under management for the nine months ended September 30, 2003 and 2002, which include changes in net flows of existing accounts and net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts). The table excludes total capital appreciation or depreciation in assets under management with the exception of the amounts attributable to withdrawals and closed accounts. 18 Net Flows of Assets Under Management (in millions) Nine Months Ended September 30, ======================== 2003 2002 ======== ======== Existing Accounts: Contributions $ 659 $ 686 Withdrawals (664) (671) -------- -------- Net Flows of Existing Accounts (5) 15 -------- -------- Publicly Available Funds: Contributions 139 331 Withdrawals (113) (196) Direct Accounts Opened 241 213 Direct Accounts Closed (411) (390) -------- -------- Net New Flows (144) (42) -------- -------- Net Flows of Assets Under Management $ (149) $ (27) ======== ======== Revenues Revenues were $89.5 million for the nine months ended September 30, 2003 a decrease of $18.8 million or 17.4% from $108.3 million earned for the nine months ended September 30, 2002. The changes were due to a $13.0 million or 15.6% decrease in fee revenue, a $5.0 million or 22.1% decrease in commission revenue and a $0.8 million or 29.8% decrease in interest and other revenues. The average gross fee earned from client accounts was 1.22% for the nine months ended September 30, 2003 as compared to 1.23% for the nine months ended September 30, 2002. The decrease was due to a slight change in client account mix due to larger accounts subject to our fee break. The decrease in commission revenue was primarily due to lower levels of trading volume during the nine months ended September 30, 2003 as compared with the higher levels of trading volume experienced in the nine months ended September 30, 2002. Interest and other revenues decreased $0.8 million primarily due to lower equity income from our unconsolidated affiliates, lower cash balances during the nine months ended September 30, 2003 reflecting our share repurchases in 2002, lower interest earned on our cash balances due to prevailing market rates and lower interest earned on shareholders' loans. Expenses Expenses, excluding income taxes, decreased approximately $4.0 million, or 7.0%, to $52.8 million for the nine months ended September 30, 2003, from $56.8 million in the same period of the prior year. The decrease was due to changes in operating expenses, including a decrease in variable expenses of $1.2 million in fees paid out, which are directly related to assets under management of referred accounts, a decrease of $0.9 million in commissions, clearance and trading costs, which vary with account activity, a decrease of $1.8 million in employee compensation and benefits due to a decrease in adjusted operating profits and a decrease in marketing of $0.5 million. This was partially offset by an increase of $0.5 million in other operating expenses primarily due to higher costs of various operating expenses and an increase in professional fees. Our income tax expense decreased $1.5 million, to $3.8 million, for the nine months ended September 30, 2003, from $5.3 million in the same period of the prior year. The effective tax rate was approximately 10.4% of income before taxes for both periods. 19 Net Income Net income for the nine months ended September 30, 2003 decreased $13.3 million, or 28.8%, to $32.8 million, from $46.1 million in the same period of the prior year as a result of the items described above. Inflation Our assets are largely liquid in nature and, therefore, not significantly affected by inflation. However, the rate of inflation may affect our expenses, such as information technology and occupancy costs, which may not be readily recoverable in the pricing of the services that we provide. To the extent inflation results in rising interest rates and has other negative effects upon the securities markets, it may adversely affect our financial position and results of operations. Contractual Obligations and Contingent Commitments W.P. Stewart & Co., Ltd. has contractual obligations to make future payments under long-term debt and non-cancelable lease agreements and has contingent commitments as disclosed in the notes to the condensed consolidated financial statements. The following tables set forth these contractual obligations and contingent commitments as of September 30, 2003: Contractual Obligations (in millions)
Remaining 2003 2004-2005 2006-2007 2008-Thereafter Total ============== ========= ========= =============== ===== Long-Term Debt(1) $0.2 $1.5 $1.7 $13.8 $17.2 Minimum Rental Commitments $0.6 $5.5 $5.2 $ 6.7 $18.0
(1) See Note 6 to the condensed consolidated financial statements for additional information. Contingent Commitments (in millions)
Amount of Commitment Expiration Per Period ========================================== 2003 2004-2005 2006-2007 2008-Thereafter Total ==== ========= ========= =============== ===== Commitments under letters of credit(2) -- $1.2 -- $0.7 $1.9
(2) See Note 7 to the condensed consolidated financial statements for additional information. Liquidity and Capital Resources Our financial condition is highly liquid with principal assets including cash and cash equivalents, investments available for sale and receivables from clients. Cash equivalents are primarily short-term, highly liquid investments with an original maturity of three months or less at the date of purchase. Liabilities include operating payables and accrued compensation. Our investment advisory activities do not require us to maintain significant capital balances. However, the activities of W.P. Stewart Securities Limited, our Bermuda-based broker-dealer, and the sub-advisory activities of W.P. Stewart & Co. (Europe), Ltd., our London-based research affiliate, require us to maintain certain minimum levels of capital. We continually monitor and evaluate the adequacy of the capital maintained for those brokerage and sub-advisory activities. W.P. Stewart Securities Limited and W.P. Stewart & Co. (Europe), Ltd. have consistently maintained net capital in excess of the regulatory requirements prescribed by the U.S. Securities and Exchange Commission and the U.K. Financial Services Authority (and the former 20 Investment Management Regulatory Organisation Limited), respectively, as well as by other regulatory authorities. Historically, we have met our liquidity requirements with cash generated from our operations. In 1998, WPS Aviation, a limited liability company wholly owned by us acquired, by assignment, the rights and obligations of Shamrock Aviation, Inc., a company controlled by certain shareholders of W.P. Stewart & Co., Ltd., under a purchase agreement to buy a Challenger aircraft for $22.5 million. The aircraft was placed in service on April 8, 1999. GECC financed the aircraft with 10-year, amortizing loans. During 1999, we paid $22.5 million under the purchase agreement, of which General Electric Capital Corporation provided $19.6 million under the loans. A company under common control with Shamrock Aviation, Inc., controlled by certain shareholders of W.P. Stewart & Co., Ltd., operates the Challenger aircraft for us. We are charged actual cost of operations for such operating services. We believe that ownership of this aircraft enables us to efficiently manage the heavy travel schedules of our investment and research professionals, at rates more favorable to us than would be charged by an unaffiliated charterer. On July 10, 2003, WPS Aviation entered into a 10-year amortizing loan agreement with GECC to continue to finance its obligations under the Challenger Purchase Agreement. The purpose of this new agreement was solely to consolidate all prior obligations to GECC and to reduce the fixed interest rates under the previous obligations. We anticipate that our cash flow from operations will be sufficient to meet our debt and other obligations as they come due as well as our anticipated capital requirements. EXHIBITS See press release attached hereto dated October 30, 2003 regarding the Company's financial results for the third quarter of 2003. 21 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. W.P. STEWART & CO., LTD. Date: November 14, 2003 By: /s/ Rocco Macri --------------------------------- Name: Rocco Macri Title: Deputy Managing Director - Chief Financial Officer 22 EX-99.1 3 d57464_ex99-1.txt PRESS RELEASE Exhibit 99.1 Contact: Fred M. Ryan W.P. STEWART & CO., LTD. REPORTS NET INCOME FOR THIRD QUARTER AND FIRST NINE MONTHS OF 2003 OF $12.0 MILLION AND $32.8 MILLION Diluted earnings per share of $0.26 and $0.73 for the third quarter and first nine months, respectively 30 October 2003 Hamilton, Bermuda W.P. Stewart & Co., Ltd. today reported net income of $12.0 million, or $0.26 per share (diluted) and $0.27 per share (basic), for the third quarter ended 30 September 2003. This compares with net income in the third quarter of the prior year of $14.0 million, or $0.31 per share (diluted) and $0.32 per share (basic). Third Quarter 2003 Highlights For the third quarter of 2003 there were 45,333,219 common shares outstanding on a weighted average diluted basis compared to 45,449,921 common shares outstanding for the third quarter of 2002 on the same weighted average diluted basis. Net income for the quarter ended 30 September 2003 of $12.0 million, adjusted for $1.8 million, representing the add-back of non-cash expenses of depreciation, amortization and other non-cash charges on a tax-effected basis ("cash earnings"), was $13.8 million, or $0.30 per share (diluted). In the same quarter of the prior year, cash earnings were $15.9 million (net income of $14.0 million adjusted for the add-back of $1.9 million representing non-cash expenses of depreciation, amortization and other non-cash charges on a tax-effected basis), or $0.35 per share (diluted). -1- Assets under management at quarter-end were slightly more than $8 billion, relatively unchanged from the end of the prior quarter and an increase of 9.6% from $7.3 billion reported at 30 September 2002. Nine Months Results For the nine months ended 30 September 2003, net income was down 28.8% to $32.8 million, compared to the same nine-month period of 2002, or $0.73 per share (diluted) and $0.74 per share (basic), on revenues of $89.5 million. Net income for the nine months ended 30 September 2002 was $46.1 million, or $0.99 per share (diluted) and $1.05 per share (basic), on revenues of $108.3 million. Cash earnings for the nine months ended 30 September 2003 were $38.4 million (net income of $32.8 million adjusted for $5.6 million, representing the add-back of non-cash expenses of depreciation, amortization and other non-cash charges on a tax-effected basis), or $0.85 per share (diluted). In the same period of the prior year, cash earnings were $51.7 million (net income of $46.1 million adjusted for the add-back of $5.6 million representing non-cash expenses of depreciation, amortization and other non-cash charges on a tax-effected basis), or $1.12 per share (diluted). For the nine months ended 30 September 2003, there were 45,133,001 common shares outstanding on a weighted average diluted basis compared to 46,381,845 common shares outstanding for the same period in 2002 on the same weighted average diluted basis. Performance -2- Performance in the W.P. Stewart & Co., Ltd. U.S. Equity Composite (the "Composite") for the third quarter of 2003 was +0.5% pre-fee and +0.2% post-fee. For the nine months ended 30 September 2003, performance in the Composite was +8.9% pre-fee and +8.0% post-fee. This compares favorably with performance in the W.P. Stewart Composite for the nine months ended 30 September 2002 of -18.7% pre-fee and -19.6% post-fee. W.P. Stewart's five-year performance record in the Composite for the period ended 30 September 2003 averaged +3.0% pre-fee (+1.8% post-fee), compounded annually, compared to an average of 1.0% for the S&P 500 in the same period. Assets Under Management Assets under management (AUM) at quarter-end were slightly more than $8 billion, compared with approximately $7.3 billion for the quarter ended 30 September 2002 and approximately $8 billion for the quarter ended 30 June 2003. Total net flows of AUM for the quarter ended 30 September 2003 were +$16 million, compared with +$13 million in the comparable quarter of 2002 and -$76 million in the second quarter of 2003. Total net flows of AUM for the nine months ended 30 September 2003 and 2002 were - -$149 million and -$27million, respectively. In the third quarter of 2003, net cash flows from existing accounts were approximately -$18 million compared with inflows of approximately +$13 million in the third quarter of 2002. Net cash flows from existing accounts for the nine months -3- ended 30 September 2003 were -$5 million compared to net flows of +$15 million in the nine months ended 30 September 2002. Net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts) were approximately +$34 million for the quarter. Net new flows were approximately flat for the same quarter of the prior year. Net new flows were approximately -$144 million and approximately -$42 million for the nine months ended 30 September 2003 and 2002, respectively. Look Through Earning Power W.P. Stewart & Co., Ltd. concentrates its investments in large, generally less cyclical, growing businesses. Throughout most of the Company's 28-year history, the growth in earning power behind clients' portfolios has ranged from approximately 11% to 22%, annually. Currently, portfolio earnings growth remains solidly positive and the Company's research analysts expect portfolio earnings growth to be within the historical range over the next few years. Revenues and Profitability Revenues were $29.7 million for the quarter ended 30 September 2003, down 14.1% from $34.5 million for the same quarter in 2002. Revenues for the nine months ended 30 September 2003 and 2002 were $89.5 million and $108.3 million, respectively. -4- The average gross management fee was 1.21% for the quarter ended 30 September 2003 and 1.22% for the nine months ended 30 September 2003, compared to 1.23% and 1.23% for the comparable periods of the prior year. Total operating expenses decreased 13.6% to $16.2 million for the third quarter 2003, from $18.8 million in the same quarter of the prior year. Total operating expenses were $52.8 million and $56.8 million for the nine months ended 30 September 2003 and 2002, respectively. Employee compensation fell to within our target range of 22-24% for the third quarter but remained above the target range for the nine months. Adjustments have been made which lead us to believe that for the entire year compensation will be approximately 24% of adjusted operating profit. Pre-tax income, at $13.4 million, was 45.3% of gross revenues for the quarter ended 30 September 2003 compared to $15.8 million or 45.7% of gross revenues in the comparable quarter of the prior year. Pre-tax income was $36.6 million (41.0% of gross revenues) for the nine months ended 30 September 2003, and $51.4 million (47.5% of gross revenues) for the nine months ended 30 September 2002. The Company's provision for taxes for the quarter ended 30 September 2003 was $1.5 million versus $1.8 million in the comparable quarter of the prior year, and was $3.8 million versus $5.3 million for the nine months ended 30 September 2003 and 2002, respectively. The effective tax rate for the third quarter of 2003 was approximately 11.1% and 10.4% for the nine months ended 30 September 2003. -5- Other Events The Company paid a dividend of $0.30 per common share on 31 July 2003 and will pay a dividend of $0.30 per common share on 31 October 2003 to shareholders of record as of 17 October 2003. Conference Call In conjunction with this third quarter 2003 earnings release, W.P. Stewart & Co., Ltd. will host a conference call on Thursday, 30 October 2003. The conference will commence promptly at 9:15 a.m. (EST) and conclude at 10:00 a.m. (EST). Those who are interested in participating in the teleconference should dial 1-800-867-2186 (within the United States) +785-832-1508 (outside the United States). The conference ID is "W.P. Stewart". To listen to the live broadcast of the conference over the Internet, simply access the following: http://www.firstcallevents.com/service/ajwz389668876gf12.html The teleconference will be available for replay from Thursday, 30 October 2003 at 12:00 noon (EST) through 5 p.m. (EST) Monday, 3 November 2003. To access the replay, please dial 1-888-567-0678 (within the United States) or + 402-530-0420 (outside the United States). The webcast will be accessible for replay on the Company's website through Thursday, 6 November 2003. W.P. Stewart & Co., Ltd. is an asset management company that has provided research-intensive equity management services to clients throughout the world since -6- 1975. The Company is headquartered in Hamilton, Bermuda and has additional operations or affiliates in the United States, Europe and Asia. The Company's shares are listed for trading on the New York Stock Exchange (symbol:WPL) and on the Bermuda Stock Exchange (symbol:WPS). For more information, please visit the Company's website at http:www.wpstewart.com , or call W.P. Stewart Investor Relations (Fred M. Ryan) at 1-888-695-4092 (toll-free within the United States) or +441-295-8585 (outside the United States) or e-mail to IRINFO @wpstewart.com . Statements made in this release concerning our assumptions, expectations, beliefs, intentions, plans or strategies are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. Such risks and uncertainties include, without limitation, the adverse effect from a decline or volatility in the securities markets, a general downturn in the economy, the effects of economic, financial or political events, a loss of client accounts, inability of the Company to attract or retain qualified personnel, a challenge to our U.S. tax status, competition from other companies, changes in government policy or regulation, a decline in the Company's products' performance, inability of the Company to implement its operating strategy, inability of the Company to manage unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations, industry capacity and trends, changes in demand for the Company's services, changes in the Company's business strategy or development plans and contingent liabilities. The -7- information in this release is as of the date of this release, and will not be updated as a result of new information or future events or developments. (Consolidated Statements of Operations appear on the following pages) # # # -8- W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended % Change From ================================================== ============================== Sept. 30, 2003 June 30, 2003 Sept. 30, 2002 June 30, 2003 Sept. 30, 2002 -------------- ------------- -------------- ------------- -------------- Revenue: Fees $ 24,327,761 $ 22,394,737 $ 25,616,124 8.63% -5.03% Commissions 4,613,917 7,010,827 8,096,957 -34.19% -43.02% Interest and other 710,096 674,921 805,928 5.21% -11.89% ------------ ------------ ------------ --------- --------- 29,651,774 30,080,485 34,519,009 -1.43% -14.10% ------------ ------------ ------------ --------- --------- Expenses: Employee compensation and benefits(1) 5,224,556 5,990,031 5,990,458 -12.78% -12.79% Fees paid out 1,517,274 1,632,350 1,685,749 -7.05% -9.99% Commissions, clearance and trading 1,064,392 1,478,499 1,676,277 -28.01% -36.50% Research and administration 3,513,126 3,544,961 3,925,803 -0.90% -10.51% Marketing(1) 1,070,342 1,172,133 1,603,747 -8.68% -33.26% Depreciation and amortization 2,007,883 1,960,065 2,055,380 2.44% -2.31% Other operating(1) 1,811,782 2,478,823 1,823,251 -26.91% -0.63% ------------ ------------ ------------ --------- --------- 16,209,355 18,256,862 18,760,665 -11.21% -13.60% ------------ ------------ ------------ --------- --------- Income before taxes 13,442,419 11,823,623 15,758,344 13.69% -14.70% Provision for taxes 1,487,104 1,170,989 1,768,428 27.00% -15.91% ------------ ------------ ------------ --------- --------- Net income $ 11,955,315 $ 10,652,634 $ 13,989,916 12.23% -14.54% ============ ============ ============ ========= ========= Earnings per share: Basic earnings per share $ 0.27 $ 0.24 $ 0.32 12.50% -15.63% ============ ============ ============ ========= ========= Diluted earnings per share $ 0.26 $ 0.24 $ 0.31 8.33% -16.13% ============ ============ ============ ========= =========
Note(1): Prior period amounts have been revised to reflect presentation consistent with current period reporting. W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statements of Operations For the Nine Months Ended September 30, ================================================== 2003 2002 % ------------- ------------- ---------- Revenue: Fees $ 69,997,646 $ 82,979,085 -15.64% Commissions 17,525,818 22,501,051 -22.11% Interest and other 1,950,376 2,777,962 -29.79% ------------- ------------- ---------- 89,473,840 108,258,098 -17.35% ------------- ------------- ---------- Expenses: Employee compensation and benefits(1) 17,568,872 19,334,052 -9.13% Fees paid out 4,518,523 5,729,493 -21.14% Commissions, clearance and trading 3,744,450 4,638,936 -19.28% Research and administration 10,782,706 10,809,754 -0.25% Marketing(1) 3,411,582 3,955,713 -13.76% Depreciation and amortization 5,932,015 5,984,908 -0.88% Other operating 6,872,276 6,369,804 7.89% ------------- ------------- ---------- 52,830,424 56,822,660 -7.03% ------------- ------------- ---------- Income before taxes 36,643,416 51,435,438 -28.76% Provision for taxes 3,795,830 5,336,137 -28.87% ------------- ------------- ---------- Net income $ 32,847,586 $ 46,099,301 -28.75% ============= ============= ========== Earnings per share: Basic earnings per share $ 0.74 $ 1.05 -29.52% ============= ============= ========== Diluted earnings per share $ 0.73 $ 0.99 -26.26% ============= ============= ==========
Note(1): Prior period amounts have been revised to reflect presentation consistent with current period reporting. W.P. Stewart & Co., Ltd. Net Flows of Assets Under Management*
(in millions) For the Three Months Ended For the Nine Months Ended ================================================ =============================== Sept. 30, 2003 Jun. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002 -------------- ------------- -------------- -------------- -------------- Existing Accounts: Contributions $ 256 $ 232 $ 246 $ 659 $ 686 Withdrawals (274) (214) (233) (664) (671) ---------- ---------- ---------- ---------- ---------- Net Flows of Existing Accounts (18) 18 13 (5) 15 ---------- ---------- ---------- ---------- ---------- Publicly Available Funds: Contributions 51 39 130 139 331 Withdrawals (32) (35) (93) (113) (196) Direct Accounts Opened 70 68 51 241 213 Direct Accounts Closed (55) (166) (88) (411) (390) ---------- ---------- ---------- ---------- ---------- Net New Flows 34 (94) -- (144) (42) ---------- ---------- ---------- ---------- ---------- Net Flows of Assets Under Management $ 16 $ (76) $ 13 $ (149) $ (27) ========== ========== ========== ========== ==========
* The table above sets forth the total net flows of assets under management for the three months ended September 30, 2003, June 30, 2003 and September 30, 2002, respectively, and for the nine months ended September 30, 2003 and 2002, respectively, which include changes in net flows of existing accounts and net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts). The table excludes total capital appreciation or depreciation in assets under management with the exception of the amount attributable to withdrawals and closed accounts. -----END PRIVACY-ENHANCED MESSAGE-----