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