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 August, 2001
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 June 30, 2001 and for the six months ended June 30, 2001
and 2000
2. Interim Financial Report
3. Exhibit - Press Release
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, the United Kingdom, Ireland 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, 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.
W.P. Stewart & Co., Ltd.
Condensed Consolidated Statements of Financial Condition
June 30, December 31,
2001 2000
------------- -------------
(unaudited)
Assets
Cash and cash equivalents $ 60,179,757 $ 56,764,420
Fees receivable 3,142,967 3,277,399
Fees receivable - affiliates 412,063 2,718,058
Receivable from broker-dealer 1,347,841 1,605,520
Investments in unconsolidated affiliates (net of accumulated
amortization of $41,186 and $0 at June 30, 2001 and
December 31, 2000, respectively) 3,876,957 3,649,298
Receivables from affiliates, net 363,620 318,755
Investments, available for sale (cost $1,012,400 and $575,140 at
June 30, 2001 and December 31, 2000, respectively) 969,581 1,025,458
Investment in aircraft (net of accumulated depreciation of
$10,670,064 and $8,706,682 at June 30, 2001 and
December 31, 2000, respectively) 11,781,411 13,744,793
Goodwill (net of accumulated amortization of $1,319,474 and
$691,120 at June 30, 2001 and December 31, 2000,
respectively.) 22,058,462 10,419,127
Customer lists (net of accumulated amortization of $1,672,201 and
$1,011,819 at June 30, 2001 and December 31, 2000,
respectively) 17,060,117 14,344,573
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization of $1,689,333 and
$1,325,482 at June 30, 2001 and December 31, 2000, respectively) 5,095,912 4,944,497
Interest receivable on shareholders' notes 391,117 366,030
Other assets 3,446,564 2,358,663
------------- -------------
$ 130,126,369 $ 115,536,591
============= =============
Liabilities and Shareholders' Equity
Liabilities:
Loans payable $ 18,376,999 $ 18,646,226
Employee compensation and benefits payable 2,655,909 447,973
Marketing fees payable 2,417,624 2,261,591
Marketing fees payable - affiliates 237,240 1,274,955
Taxes payable 515,714 1,324,017
Professional fees payable 3,229,486 3,448,332
Dividends payable 8,528 10,643
Accrued expenses and other liabilities 5,696,285 5,291,236
------------- -------------
33,137,785 32,704,973
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common shares (see Notes 1 and 2) $0.001 par value
(125,000,000 shares authorized, 47,348,451 and 47,912,112 shares
issued and outstanding at June 30, 2001 and December 31, 2000,
respectively) 47,348 47,912
Subscriptions for common shares -- 4,036,200
Additional paid-in-capital 95,503,461 101,482,513
Contingently returnable shares (1,951,532 and 2,601,699 shares
at June 30, 2001 and December 31, 2000, respectively) (28,526,305) (35,541,596)
Accumulated other comprehensive income (430,755) 217,413
Retained earnings 47,051,397 31,630,834
------------- -------------
113,645,146 101,873,276
Less: shareholders' notes receivable (16,656,562) (15,005,458)
Less: subscriptions receivable -- (4,036,200)
------------- -------------
96,988,584 82,831,618
------------- -------------
$ 130,126,369 $ 115,536,591
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----------- ----------- ------------ ------------
Revenue:
Fees $29,068,474 $35,747,579 $ 61,223,600 $ 77,360,190
Commissions 7,888,557 9,443,420 22,534,800 22,415,866
Interest and other 1,501,290 2,160,289 3,184,302 3,099,572
----------- ----------- ------------ ------------
38,458,321 47,351,288 86,942,702 102,875,628
----------- ----------- ------------ ------------
Expenses:
Employee compensation and
benefits 4,923,804 9,365,055 14,543,260 19,623,337
Marketing fees 1,542,544 1,977,032 3,216,080 5,126,126
Commissions, clearance and
trading 1,742,236 2,146,667 4,321,018 4,512,733
Research and administration 2,770,126 3,313,310 6,912,160 7,459,041
Depreciation and amortization 1,845,443 1,867,513 3,658,849 3,698,518
Other operating 3,603,868 3,300,104 6,413,656 7,528,539
----------- ----------- ------------ ------------
16,428,021 21,969,681 39,065,023 47,948,294
----------- ----------- ------------ ------------
Income before taxes 22,030,300 25,381,607 47,877,679 54,927,334
Provision for taxes 2,203,030 2,524,814 4,787,768 5,464,324
----------- ----------- ------------ ------------
Net income $19,827,270 $22,856,793 $ 43,089,911 $ 49,463,010
=========== =========== ============ ============
Earnings per share:
Basic earnings per share $ 0.45 $ 0.55 $ 0.99 $ 1.19
=========== =========== ============ ============
Diluted earnings per share $ 0.42 $ 0.50 $ 0.91 $ 1.09
=========== =========== ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2000
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 43,089,911 $ 49,463,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of available for sale securities (525,354) --
Depreciation and amortization 3,658,849 3,698,518
Equity in income of unconsolidated affiliates (268,845) (845,377)
Changes in operating assets and liabilities:
Fees receivable 134,432 (1,246,601)
Fees receivable - affiliates 2,305,995 776,249
Receivable from broker-dealer 257,679 1,029,146
Other assets (1,087,901) (434)
Employee compensation and benefits payable 2,207,936 6,994,664
Marketing fees payable 156,033 (23,405)
Marketing fees payable - affiliates (1,037,715) (682,032)
Taxes payable (808,303) (1,102,280)
Professional fees payable (218,846) 450,581
Accrued expenses and other liabilities 405,049 1,448,777
------------ ------------
Net cash provided by operating activities 48,268,920 59,960,816
------------ ------------
Cash flows (used in) investing activities:
Proceeds from sale of available for sale securities 1,115,064 9,828
Purchase of available for sale securities (1,009,100) --
Purchase of intangible assets (1,170,919) (1,872,479)
Receivables from affiliates, net (44,865) (42,099)
Purchase of furniture, equipment and leasehold improvements (516,960) (1,640,403)
------------ ------------
Net cash (used in) investing activities (1,626,780) (3,545,153)
------------ ------------
Cash flows (used for) financing activities:
Payments on loans payable (269,227) (251,549)
Proceeds from issuance of common shares -- 770,641
Repurchase of common shares (17,473,220) (100,440)
Proceeds from notes receivable for common shares 2,385,096 2,040,980
Interest receivable on shareholders' notes (25,087) (65,563)
Dividends to shareholders (27,671,463) (43,504,726)
------------ ------------
Net cash (used for) financing activities (43,053,901) (41,110,657)
Effect of exchange rate changes in cash (172,902) (181,806)
------------ ------------
Net increase in cash and cash equivalents 3,415,337 15,123,200
Cash and cash equivalents, beginning of period 56,764,420 24,791,813
------------ ------------
Cash and cash equivalents, end of period $ 60,179,757 $ 39,915,013
============ ============
Supplemental Disclosures of Cash Flows Information
Cash Paid During the Period for:
Income taxes $ 5,596,071 $ 4,824,476
============ ============
Interest expense $ 640,222 $ 657,900
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In 2001, 20% of the original shares 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 $4,001,591, $5,342,400 and $5,128,704,
respectively (see Note 2). On January 1, 2000, 20% of the original shares 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 $2,340,553, $3,124,800 and
$2,999,808, respectively.
As discussed in Note 9, the Company issued common shares for notes
receivable for the six months ended June 30, 2001 and 2000 in the amounts of
$4,036,200 and $1,016,771, respectively, and cancelled outstanding notes of $0
and $717,589 for the six months ended June 30, 2001 and 2000, respectively.
At June 30, 2001 and 2000, the Company had dividends payable to
shareholders of $8,528 and $106,655, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of W.P.
Stewart & Co., Ltd., formerly Global Reach Limited, a Bermuda exempt company
incorporated on August 16, 1996 and a registered investment adviser under the
United States of America ("US") Investment Advisers Act of 1940, as amended
("WPS & Co., Ltd." and, together with its subsidiaries and predecessors, the
"Company") are presented on a condensed consolidated basis and include the
historical operations of the Company.
These condensed consolidated financial statements are unaudited and should
be read in conjunction with the audited consolidated financial statements
incorporated by reference in the Annual Report on Form 20-F of the Company for
the year ended December 31, 2000. The condensed consolidated financial
information as of and for the year ended December 31, 2000 has been derived from
audited consolidated financial statements not included herein.
In our opinion, the unaudited condensed financial statements include all
adjustments, consisting only of normal recurring adjustments, that are necessary
for a fair presentation of our financial position and results of operations.
Operating results for the six months ended June 30, 2001 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 six months ended June 30, 2001 and 2000, the consolidated Company
consisted of several worldwide affiliated entities under common control, which
provide investment advisory and related securities brokerage services. The
Company's revenues will fluctuate based upon the market performance of its
clients' investments in US and European financial markets.
Recent Acquisitions
The repurchase provisions of the TPRS Services N.V. ("TPRS"), NS Money
Management (Bermuda) Limited ("NSMM") and First Long Island Investors, Inc.
("FLII") 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;
6
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.
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.
The following table shows information for each acquisition as of and for
the six months ended June 30, 2001.
Cash
Dividends
Paid on
Contingently Cumulative
Aggregate Shares Not Contingently Returnable Purchase Intangible
Number of Subject to Returnable Shares Price Amortization
Acquisition Shares Repurchase Shares For the Period Allocation For the Period
------------- ------------- ------------- ------------- ------------- -------------
TPRS 1,966,000 854,000 1,112,000 $ 667,200 $ 18,004,536 $ 545,725
NSMM 898,831 539,299 359,532 215,719 10,038,441 266,983
FLII 1,200,000 720,000 480,000 288,000 13,599,088 464,322
------------- ------------- ------------- ------------- ------------- -------------
4,064,831 2,113,299 1,951,532 $ 1,170,919 $ 41,642,065 $ 1,277,030
============= ============= ============= ============= ============= =============
The following table shows information for each acquisition as of and for
the year ended December 31, 2000.
Cash
Dividends
Paid on
Contingently Cumulative
Aggregate Shares Not Contingently Returnable Purchase Intangible
Number of Subject to Returnable Shares Price Amortization
Acquisition Shares Repurchase Shares For the Year Allocation For the Year
------------- ------------- ------------- ------------- ------------- -------------
TPRS 1,966,000 623,600 1,342,400 $ 1,195,776 $ 12,208,632 $ 534,783
NSMM 898,831 359,532 539,299 932,987 5,821,131 299,671
FLII 1,200,000 480,000 720,000 1,245,600 7,968,688 557,922
------------- ------------- ------------- ------------- ------------- -------------
4,064,831 1,463,132 2,601,699 $ 3,374,363 $ 25,998,451 $ 1,392,376
============= ============= ============= ============= ============= =============
The Company has agreed in principle to acquire TPR & Partners NV ("TPR"),
an asset gathering firm based in The Netherlands. As a result of a refinement of
the terms of the transaction, the parties have agreed that the Company will
acquire TPR via the acquisition of shares in a Bermuda holding company
indirectly holding 100% of the shares of TPR. Going forward, the Bermuda company
would be named W.P. Stewart Asset Management (Europe),
7
Ltd. ("WPSAM-Europe") and would serve as the umbrella for the Company's European
asset gathering and client servicing activities. In the transaction, which is
expected to close during the third quarter of 2001, the Company would initially
acquire 9,000 of WPSAM-Europe's 12,000 outstanding shares in exchange for
330,000 common shares of the Company. Current beneficial owners of TPR and their
assigns would continue to hold the remaining 3,000 shares of WPSAM-Europe until
June 30, 2006, at which time the Company would acquire those shares at a fair
value price determined on the basis of the performance of WPSAM-Europe for the
12-month period ending on that date.
NOTE 3: RECLASSIFICATION OF COMPARATIVE FINANCIAL STATEMENTS
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
NOTE 4: EARNINGS PER SHARE
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- --------------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ---------------
Basic Earnings Per Share:
Net income $ 19,827,270 $ 22,856,793 $ 43,089,911 $ 49,463,010
================ ================ ================ ===============
Weighted average basic shares
outstanding 43,631,489 41,853,887 43,608,956 41,739,424
---------------- ---------------- ---------------- ---------------
Net income per share $ 0.45 $ 0.55 $ 0.99 $ 1.19
================ ================ ================ ==============
Diluted Earnings Per Share:
Net Income $ 19,827,270 $ 22,856,793 $ 43,089,911 $ 49,463,010
================ ================ ================ ===============
Weighted average basic shares
outstanding 43,631,489 41,853,887 43,608,956 41,739,424
Add: Unvested shares and
contingently returnable shares 3,594,608 3,449,114 3,661,406 3,510,296
---------------- ---------------- ---------------- ---------------
Weighted average basic shares
outstanding 47,226,097 45,303,001 47,270,362 45,249,720
---------------- ---------------- ---------------- ---------------
Net income per share $ 0.42 $ 0.50 $ 0.91 $ 1.09
================ ================ ================ ==============
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 employee shares and contingently returnable
shares. Diluted earnings per share is computed using the same method as basic
earnings per share, but also reflects the impact of contingently returnable
shares, and unvested shares issued to employees of the Company or its affiliates
using the treasury stock method.
On June 26, 2001, the Company repurchased and cancelled an aggregate of
873,661 common shares from certain former employees for an aggregate purchase
price of $17,473,220.
On June 30, 2001 and 2000, respectively, 47,348,451 and 47,291,118 shares
were issued and outstanding. The shareholders of record are entitled to full
voting rights and dividends on
8
these shares; 2,538,350 and 3,481,998 of these shares were unvested and held by
the Company's or affiliates' employees on June 30, 2001 and 2000, respectively.
NOTE 5: 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 June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net income $ 19,827,270 $ 22,856,793 $ 43,089,911 $ 49,463,010
Other comprehensive income, net of tax
Reclassification adjustment for
realized gains on available for sale
securities, included in interest and
other -- -- (432,447) --
Unrealized gains on marketable
investments (194,292) -- (42,819) --
Foreign currency translation adjustment (768) (157,153) (172,902) (181,806)
------------- ------------- ------------- -------------
Comprehensive income $ 19,632,210 $ 22,699,640 $ 42,441,743 $ 49,281,204
============= ============= ============= =============
NOTE 6: RELATED PARTY TRANSACTIONS
Research and administrative expenses include travel expenses, consisting of
charter fees, of approximately $765,961 and $1,348,000 for the six months ended
June 30, 2001 and 2000, respectively, 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 approximately
$1,242,716 and $1,028,000 for the six months ended June 30, 2001 and 2000,
respectively.
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. Such costs
approximated $56,995 and $146,900 for the six months ended June 30, 2001 and
2000, respectively.
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 money management firm. WPS Investissements S.A. is
principally owned by Mr. William P. Stewart III, 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 $24,866 and $282,892 for the six months ended June 30,
2001 and 2000,
9
respectively. In addition, the Company pays WPS Investissements S.A. a portion
of the brokerage commissions charged to the fund from securities transactions
for such fund. Such commissions amounted to $20,840 and $7,482 for the six
months ended June 30, 2001 and 2000, respectively.
The Company pays Bowen Asia Limited ("Bowen"), a 40% unconsolidated
affiliate of the Company, a principal owner of which is a beneficial owner of a
minority interest in the Company, fees for solicitation, sub-advisory, and
research services. Such costs approximated $273,840 and $251,806 for the six
months ended June 30, 2001 and 2000, respectively. The Company receives
solicitation fees from Bowen Capital Management ("BCM"), an affiliate of Bowen,
for client referrals to BCM. Total fees were $10,188 and $0 for the six months
ended June 30, 2001 and 2000, respectively.
In 2000 the Company paid TPRS fees for marketing services. These fees
amounted to approximately $3,109,000 for the six months ended June 30, 2000.
Inter-company eliminations of approximately $1,555,000 resulting from the
Company's 50% ownership in TPRS resulted in a net expense to the Company of
approximately $1,554,000 for the six months ended June 30, 2000.
The Company pays TPR & Partners NV, a principal owner of which is an
executive officer of the Company, fees for marketing services. These fees
amounted to $259,587 for the six months ended June 30, 2001.
The Company pays Carl Spangler Kapitalanlagegesellschaft mbH, which is
owned by one of the Company's directors, fees for solicitation services. These
fees amounted to $4,602 for the six months ended June 30, 2001.
Certain directors of the Company have served as directors of funds from
which the Company has received investment advisory fees and commissions. Such
fees and commissions were $2,583,345 and $6,485,391 for the six months ended
June 30, 2001 and 2000, respectively.
Included in Receivables from Affiliates at June 30, 2001 and December 31,
2000 is a subordinated loan of $212,526 and accrued interest on such loan in the
amount of $34,132 and $17,416 due from Kirk Management Ltd., a 40%
unconsolidated affiliate of the Company. The loan has no fixed repayment date.
Interest income on the subordinated loan was $16,716 and $17,416 for the six
months ended June 30, 2001 and 2000, respectively.
NOTE 7: LONG-TERM DEBT
Interest expense on long-term debt totaled $640,222 and $657,900 for the
six months ended June 30, 2001 and 2000, respectively.
NOTE 8: COMMITMENTS AND CONTINGENCIES
At June 30, 2001, 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
10
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. This amount is guaranteed by the
Company, and is secured by a fixed deposit cash account, which will remain
intact over the term of the lease. This amount is reflected in Other Assets at
June 30, 2001 and December 31, 2000.
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 will continue to be available for use in the Company's business.
At the same time, Shamrock agreed to release WPSI from any and all obligations
to participate in the purchase of an additional aircraft of approximately $37
million, delivery of which is scheduled for 2001. In return, the Company has
agreed to indemnify Shamrock for any loss in value of the aircraft Shamrock has
agreed not to sell from the time the agreement was made until the aircraft is
sold or replaced. The value of that aircraft as of the date of Shamrock's
agreement with the Company was estimated to be $27,000,000. Based upon that
appraisal received, management does not believe that this agreement will have
any material adverse effect on the financial condition or results of operations
of the Company.
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. WPSSL is subject to credit
risk to the extent that the clearing broker may be unable to repay amounts owed.
NOTE 9: NOTES RECEIVABLE FOR COMMON SHARES
During the six months ended June 30, 2001, the Company issued an additional
310,000 common shares to certain employees and employees of affiliated entities,
for installment notes totaling $4,036,200. The installment notes are full
recourse, bear interest at 10% per annum and are collateralized by the shares
issued. Each principal payment, as defined in each of the promissory notes, is
equal to one twenty-eighth of the total face value of the note.
Pursuant to employee purchase agreements for common shares, in the event a
purchaser, as defined, is not in the employment, or does not serve as a
director, of the Company or any of its affiliates, the purchaser, as defined,
shall transfer to the Company all rights to 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.
Future minimum payments expected to be received on these notes and all
similar notes outstanding as of June 30, 2001 are as follows:
11
2001 (6 months) $1,220,774
2002 3,487,074
2003 3,492,095
2004 3,497,638
2005 2,594,387
Thereafter (through 2008) 2,364,594
--------------
$ 16,656,562
==============
Interest income on all such notes was $680,228 and $1,562,381 for the six
months ended June 30, 2001 and 2000, respectively.
NOTE 10: 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 US
subsidiaries of the Company is subject to income taxes imposed by US
authorities.
The provision for income taxes detailed below represents the Company's
estimate of taxes on income applicable to US jurisdictions and is calculated at
rates equal to the statutory income tax rate in each jurisdiction.
The income tax provision, all current, for the six months ended June 30,
2001 and 2000 is as follows:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ------------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Federal $ 1,967,656 $ 2,192,085 $ 3,766,556 $ 3,970,452
State and local 235,374 332,729 1,021,212 1,493,872
------------- ------------- ------------- -------------
$ 2,203,030 $ 2,524,814 $ 4,787,768 $ 5,464,324
============= ============= ============= =============
NOTE 11: PENSION BENEFITS
Total employer contributions amounted to $782,651 and $749,991 for the six
months ended June 30, 2001 and 2000, respectively. Participants are immediately
vested in their account balances.
NOTE 12: 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:
12
Fee Revenue
--------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
U.S. $ 22,639,194 $ 28,241,440 $ 47,907,683 $ 58,337,914
Non-U.S. 6,429,280 7,506,139 13,315,917 19,022,276
------------- ------------- ------------- -------------
Total $ 29,068,474 $ 35,747,579 $ 61,223,600 $ 77,360,190
============= ============= ============= =============
NOTE 13: NEW ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). These Statements make significant
changes to the accounting for business combinations, goodwill and intangible
assets. SFAS 141 eliminates the pooling-of-interests method of accounting for
business combinations with limited exceptions for combinations initiated prior
to July 1, 2001. In addition, it further clarifies the criteria for recognition
of intangible assets separately from goodwill. This Statement is effective for
business combinations completed after June 30, 2001. SFAS 142 discontinues the
practice of amortizing goodwill and allows indefinite lived intangible assets.
Such assets will be subject to annual impairment tests at a minimum. Intangible
assets with a determinable useful life will continue to be amortized over that
period. The amortization provisions apply to goodwill and intangible assets
acquired after June 30, 2001. Intangible assets acquired prior to July 1, 2001,
may be affected when the Company adopts the Statement on January 1, 2002.
Management is currently reviewing the Statements to determine their effect on
the Company.
NOTE 14: SUBSEQUENT EVENTS
On July 9, 2001, the Company declared a dividend of $0.30 per share to
shareholders of record as of July 20, 2001, payable on July 31, 2001 in the
aggregate amount of $14,204,402.
On July 1, 2001, repurchase provisions on 162,800 shares lapsed in
accordance with the terms of the TPRS acquisition agreement (see note 2).
13
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 partially 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 includes 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). We review from time to time the percentage of operating
profit made available for the compensation pool and review annually the
allocation of the compensation pool among all employees. We have completed a
refinement of our variable compensation program. Under this program, which
heavily weighs compensation against profit performance, compensation expense may
vary between 20.7% and 24.5% of actual operating profit. As a result, it is
currently anticipated that compensation expense for the year ending December 31,
2001 will be approximately 21% of operating profit versus 25% for the year ended
December 31, 2000.
Marketing fees are fees 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 marketing 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.
14
Commissions, clearance and trading expenses include fees paid at the
direction of clients to consultants based on commissions relating to referred
accounts, and clearance and trading 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, occupancy and equipment.
Other operating expenses include professional fees consisting of
accounting, auditing, tax, legal and consulting fees, charitable contributions
and other administration expenses. A significant component of professional fees
for the six months ended June 30, 2000 was nonrecurring and was related to our
global expansion.
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.
Three Months Ended June 30, 2001 as Compared to Three Months Ended June 30, 2000
Assets Under Management
Assets under management at June 30, 2001 were $9.3 billion, essentially
unchanged from $9.3 billion at March 31, 2001, and assets under management at
June 30, 2000 were $11.6 billion, essentially unchanged from $11.6 billion at
March 31, 2000.
The following table sets forth the net flows of assets under management for
the three months ended June 30, 2001 and 2000:
Net Flows of Assets Under Management
(in millions)
Three Months Ended June 30,
---------------------------
2001 2000
----- -----
Existing Accounts
Contributions $ 246 $ 185
Withdrawals (253) (341)
----- -----
Net Flows to Existing Accounts (7) (156)
Accounts Opened 170 54
Accounts Closed (141) (173)
----- -----
Net Flows of Assets Under Management $ 22 $(275)
===== =====
15
Revenues
Revenues were $38.5 million for the second quarter 2001, a decrease of $8.9
million, or 18.8%, from $47.4 million for the second quarter of 2000. The
changes were due to a $6.7 million, or 18.7%, decrease in fee revenue, a $1.5
million, or 16.5% decrease in commission revenue and a decrease of $0.7 million
in interest and other revenues. The average fee earned from client accounts,
including performance fees that apply to two accounts, decreased to 1.26% at
June 30, 2001 from 1.28% at June 30, 2000 due to an anticipated slight change in
client account mix to larger accounts subject to our fee break. The decrease in
commission revenue was primarily due to lower trading volume during the second
quarter of 2001, as compared with the higher levels of trading volume we
experienced over the last 15 months. Interest and other revenues decreased $0.7
million primarily due to an adjustment recorded in the second quarter of 2000 to
record the earnings of our unconsolidated affiliates.
Expenses
Expenses, excluding income taxes, decreased $5.6 million, or 25.2%, to
$16.4 million for the second quarter 2001 from $22.0 million in the same quarter
of the prior year. The decrease was primarily due to a decline in variable
expenses, including a decrease of $0.5 million in fees paid to marketers, which
are directly related to assets under management of referred accounts, and a
decrease of $0.4 million in commissions, clearance and trading costs, which vary
with account activity. Research and administration decreased $0.5 million due to
lower anticipated costs. Other operating expenses increased $0.3 million,
primarily due to an additional seminar in London. Employee compensation and
benefits decreased $4.5 million due to a decrease in adjusted operating profit
and a refinement to the compensation program, as noted above.
Our income tax expense decreased $0.3 million, to $2.2 million, for the
second quarter of 2001 from $2.5 million in the comparable quarter of the prior
year due to a decrease in our operating profit. Our effective tax rate was 10%
of income before taxes for both periods.
Net Income
Net income for the second quarter ended June 30, 2001 decreased $3.0
million, or 13.2%, to $19.8 million from $22.8 million in the second quarter of
the prior year as a result of the items described above.
Six Months Ended June 30, 2001 as Compared to Six Months Ended June 30, 2000
Assets Under Management
Assets under management at June 30, 2001 were $9.3 billion, a decline of
$1.0 billion, or 9.7%, from $10.3 billion at December 31, 2000. Assets under
management at June 30, 2000 were $11.6 billion, a decline of $0.6 billion, or
5.0%, from $12.3 billion at December 31, 1999.
16
The following table sets forth the net flows of assets under management for
the six months ended June 30, 2001 and 2000:
Net Flows of Assets Under Management
( in millions )
Six Months Ended June 30,
-------------------------
2001 2000
----- -----
Existing Accounts
Contributions $ 436 $ 373
Withdrawals (599) (773)
----- -----
Net Flows to Existing Accounts (163) (400)
Accounts Opened 225 116
Accounts Closed (333) (637)
----- -----
Net Flows of Assets Under Management $(271) $(921)
===== =====
Revenues
Revenues were $86.9 million for the six months ended June 30, 2001, a
decrease of $15.9 million, or 15.5%, from $102.8 million earned during the six
months ended June 30, 2000. The changes were due to a $16.1 million, or 20.9%,
decrease in fee revenue, a $0.1 million, or .5% increase in commission revenue
and a $0.1 million, or 2.7% increase in interest and other revenues. Included in
the quarter ended March 31, 2000 is a $3.7 million performance fee for one of
our accounts. The average fee earned from client accounts, including performance
fees that apply to two accounts, decreased to 1.25% at June 30, 2001 from 1.27%
at June 30, 2000, due to an anticipated slight change in client account mix, to
larger accounts subject to our fee break.
Expenses
Expenses, excluding income taxes, decreased $8.8 million, or 18.4%, to
$39.1 million for the six months ended June 30, 2001 from $47.9 million in the
same period of the prior year. The decrease was primarily due to a decline in
variable expenses, including a decrease of $1.9 million in fees paid to
marketers, which are directly related to assets under management of referred
accounts, and a decrease of $0.2 million in commissions, clearance and trading
costs, which vary with account activity. Research and administration expenses
decreased $0.5 million due to lower anticipated costs. Other operating expenses
decreased $1.1 million, primarily due to lower levels of expenditures relating
to our global expansion in 2001. Employee compensation and benefits decreased
$5.1 million due to a decrease in adjusted operating profit and a refinement to
the compensation program, as noted above.
Our income tax expense decreased $0.7 million, to $4.8 million, for the six
months ended June 30, 2001 from $5.5 million in the same period of the prior
year due to a decrease in our operating profit. Our effective tax rate was 10%
of income before taxes for both periods.
17
Net Income
Net income for the six months ended June 30, 2001 decreased $6.4 million,
or 12.9%, to $43.1 million from $49.5 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.
Liquidity and Capital Resources
Our financial condition is highly liquid with principal assets including
cash and cash equivalents 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 Securities and
Exchange Commission and 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 addition, in 1998 a newly-formed 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. General Electric Capital
Corporation is financing the aircraft with 10-year, amortizing loans with fixed
rates that range from 6.87% to 7.35%. 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.
We believe that our cash flow from operations is sufficient to meet our
debt and other obligations as they come due as well as our anticipated capital
requirements.
18
Exhibit
See press release attached hereto dated August 1, 2001, regarding the
Company's financial results for the second quarter of 2001.
19
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: August 7, 2001 By: /s/ Lisa D. Levey
---------------------------
Name: Lisa D. Levey
Title: General Counsel and
Assistant Secretary
20