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, 2005
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, 2005 and for the three and nine months ended
September 30, 2005 and 2004
2. Interim Financial Report
3. Exhibit - Press release dated October 26, 2005
4. Exhibit - Press release dated October 27, 2005
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,
2005 2004
------------- -------------
(unaudited)
Assets:
Cash and cash equivalents $ 61,307,214 $ 51,859,146
Fees receivable 2,457,445 2,626,200
Receivable from broker-dealer 653,968 274,936
Investments in unconsolidated affiliates (net of accumulated amortization
of $391,267 and $329,488 at September 30, 2005 and December 31, 2004, respectively) 3,507,649 3,783,010
Receivables from affiliates, net (includes fees receivable of $610,456 and $13,996,738 at
September 30, 2005 and December 31, 2004, respectively) 1,143,376 14,708,269
Investments, available for sale (cost $9,834,225 and $9,246,245 [primarily municipal
securities] at September 30, 2005 and December 31, 2004, respectively) 9,675,199 9,019,674
Investment in aircraft (net of accumulated depreciation of $20,946,723 and $19,445,223 at
September 30, 2005 and December 31, 2004, respectively) 1,504,752 3,006,252
Goodwill 5,631,797 5,631,797
Intangible assets (net of accumulated amortization of $22,737,407 and $18,766,788 at
September 30, 2005 and December 31, 2004, respectively) 63,094,055 67,064,672
Furniture, equipment, software and leasehold improvements
(net of accumulated depreciation and amortization of $5,406,220 and $4,890,622 at
September 30, 2005 and December 31, 2004, respectively) 3,340,983 3,315,698
Interest receivable on shareholders' notes 44,111 62,894
Income taxes receivable 1,838,241 86,582
Other assets 3,431,656 3,270,789
------------- -------------
$ 157,630,446 $ 164,709,919
============= =============
Liabilities and Shareholders' Equity:
Liabilities:
Loans payable $ 15,612,742 $ 16,202,992
Fees payable 2,389,665 2,466,561
Accrued expenses and other liabilities 8,485,534 14,611,085
------------- -------------
26,487,941 33,280,638
------------- -------------
Minority Interest 10,990 --
------------- -------------
Shareholders' Equity:
Common shares, $0.001 par value (125,000,000 shares authorized 46,559,703 and 46,113,462
shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively) 46,560 46,113
Additional paid-in-capital 92,775,510 82,344,878
Unearned compensation (8,959,534) (2,084,325)
Accumulated other comprehensive income 482,051 984,626
Retained earnings 48,766,160 53,204,705
------------- -------------
133,110,747 134,495,997
Less: notes receivable for common shares (1,979,232) (3,066,716)
------------- -------------
131,131,515 131,429,281
------------- -------------
$ 157,630,446 $ 164,709,919
============= =============
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 Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue:
Fees (includes fees from affiliates of $1,332,610 and $1,115,031
for the three months ended September 30, 2005 & 2004,
respectively, and $3,735,245 and $3,172,499 for the nine months
ended September 20, 2005 and 2004, respectively) $ 25,716,931 $ 25,717,280 $ 78,858,375 $ 77,087,812
Commissions 7,278,100 8,078,565 21,802,471 25,911,314
Interest and other 690,266 285,539 1,731,697 890,366
------------ ------------ ------------ ------------
33,685,297 34,081,384 102,392,543 103,889,492
------------ ------------ ------------ ------------
Expenses:
Employee compensation and benefits 7,118,277 6,398,023 21,576,980 19,415,825
Fees paid out 2,056,673 1,812,177 6,084,887 5,271,647
Commissions, clearance and trading 1,779,427 1,729,340 4,889,475 5,571,157
Research and administration 3,587,671 3,637,164 10,881,524 11,068,427
Marketing 1,216,257 1,056,972 3,940,064 3,782,718
Depreciation and amortization 2,058,776 2,021,273 6,154,910 6,029,445
Other operating 2,269,163 2,230,870 7,413,988 6,812,782
------------ ------------ ------------ ------------
20,086,244 18,885,819 60,941,828 57,952,001
------------ ------------ ------------ ------------
Income before taxes 13,599,053 15,195,565 41,450,715 45,937,491
Provision for taxes 1,384,429 1,519,556 4,169,595 4,593,749
------------ ------------ ------------ ------------
Net income $ 12,214,624 $ 13,676,009 $ 37,281,120 $ 41,343,742
============ ============ ============ ============
Earnings per share:
Basic earnings per share $ 0.27 $ 0.30 $ 0.82 $ 0.92
============ ============ ============ ============
Diluted earnings per share $ 0.27 $ 0.30 $ 0.81 $ 0.91
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 2005 and 2004
Common Shares Additional Contingently
------------------------- Paid-In Returnable Unearned
Shares Amount Capital Shares Compensation
----------- ----------- ------------ ------------- -------------
Balance @ December 31, 2004 46,113,462 $ 46,113 $ 82,344,878 $ -- $ (2,084,325)
Issuance of common shares, @ $0.001 par value
Cash 35,024 35 645,548
Notes receivable 714 1 11,837
Restricted shares 411,035 411 9,176,291 (9,176,702)
Contingently returnable shares, no longer
subject to repurchase
Repurchase and cancellation of common
shares, @ $0.001 par value
Cancellation of common shares, @ $0.001
par value (532) -- (8,772)
Non-cash compensation 605,728 2,301,493
Net income
Dividends
Other comprehensive income
Proceeds from notes receivable
for common shares
----------- ----------- ------------ ------------- -------------
Balance @ September 30, 2005 46,559,703 $ 46,560 $ 92,775,510 $ -- $ (8,959,534)
=========== =========== ============ ============= =============
Balance @ December 31, 2003 46,035,726 $ 46,036 $ 80,419,304 $ (3,623,928) $ --
Issuance of common shares, @ $0.001 par value
Cash 13,974 13 242,347
Notes receivable 7,858 7 148,366
Restricted shares 138,000 138 2,706,162 (2,706,300)
Contingently returnable shares, no longer
subject to repurchase (623,524) 3,623,928
Repurchase and cancellation of common
shares, @ $0.001 par value (45,164) (44) (333,436)
Cancellation of common shares, @ $0.001
par value (21,372) (21) (349,946)
Non-cash compensation 272,992 269,592
Net income
Dividends
Other comprehensive income
Proceeds from notes receivable
for common shares
----------- ----------- ------------ ------------- -------------
Balance @ September 30, 2004 46,129,022 $ 46,129 $ 82,482,265 $ 0 $ (2,436,708)
=========== =========== ============ ============= =============
Accumulated
Other
Comprehensive Retained Notes
Income Earnings Receivable Total
------------- ------------- ------------- -------------
Balance @ December 31, 2004 $ 984,626 $ 53,204,705 $ (3,066,716) $ 131,429,281
Issuance of common shares, @ $0.001 par value
Cash 645,583
Notes receivable (11,838) --
Restricted shares --
Contingently returnable shares, no longer
subject to repurchase --
Repurchase and cancellation of common
shares, @ $0.001 par value --
Cancellation of common shares, @ $0.001
par value 8,772 --
Non-cash compensation 8,643 2,915,864
Net income 37,281,120 37,281,120
Dividends (41,719,665) (41,719,665)
Other comprehensive income (502,575) (502,575)
Proceeds from notes receivable
for common shares 1,081,907 1,081,907
------------- ------------- ------------- -------------
Balance @ September 30, 2005 $ 482,051 $ 48,766,160 $ (1,979,232) $ 131,131,515
============= ============= ============= =============
Balance @ December 31, 2003 $ 573,284 $ 45,217,876 $ (7,963,982) $ 114,668,590
Issuance of common shares, @ $0.001 par value
Cash 242,360
Notes receivable (148,373) --
Restricted shares --
Contingently returnable shares, no longer
subject to repurchase 3,000,404
Repurchase and cancellation of common
shares, @ $0.001 par value (333,480)
Cancellation of common shares, @ $0.001
par value 349,967 --
Non-cash compensation 542,584
Net income 41,343,742 41,343,742
Dividends (41,321,821) (41,321,821)
Other comprehensive income 72,637 72,637
Proceeds from notes receivable
for common shares 3,339,474 3,339,474
------------- ------------- ------------- -------------
Balance @ September 30, 2004 $ 645,921 $ 45,239,797 $ (4,422,914) $ 121,554,490
============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2005 and 2004
2005 2004
------------- -------------
Cash flows from operating activities:
Net income $ 37,281,120 $ 41,343,742
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain)/loss on sale of available for sale securities (70,861) --
Unrealized (gain)/loss on available for sale securities (12,950) --
Amortization of bond premium 282,626 56,964
Depreciation and amortization 6,154,910 6,029,445
Equity in income of unconsolidated affiliates 213,582 301,261
Non-cash compensation 2,915,864 542,584
Minority interest 10,990 (416,731)
Changes in operating assets and liabilities:
Fees receivable 168,755 278,905
Receivable from broker-dealer (379,032) (824,008)
Receivables from affiliates, net 13,564,893 (724,229)
Income taxes receivable (1,751,659) 630,265
Interest receivable on shareholders' notes 18,783 42,101
Other assets (160,867) (415,314)
Fees payable (76,896) 1,133,946
Accounts payable and accrued expenses (6,125,551) 3,911,727
------------- -------------
Net cash provided by operating activities 52,033,707 51,890,658
------------- -------------
Cash flows (used for) investing activities:
Proceeds from sale of available for sale securities 6,045,861 4,010,267
Purchase of available for sale securities (6,926,354) (3,766,635)
Cash dividends paid on shares subject to repurchase -- (97,680)
Purchase of furniture, equipment, software and leasehold improvements (646,298) (437,764)
------------- -------------
Net cash (used for) investing activities (1,526,791) (291,812)
------------- -------------
Cash flows (used for) financing activities:
Payments on loans payable (590,250) (570,752)
Proceeds from issuance of common shares 645,583 242,360
Repurchase of common shares -- (333,480)
Proceeds from notes receivable for common shares 1,081,907 3,339,474
Dividends to shareholders (41,719,665) (41,321,821)
------------- -------------
Net cash (used for) financing activities (40,582,425) (38,644,219)
Effect of exchange rate changes in cash (476,423) 86,062
------------- -------------
Net increase in cash and cash equivalents 9,448,068 13,040,689
Cash and cash equivalents, beginning of period 51,859,146 36,824,614
------------- -------------
Cash and cash equivalents, end of period $ 61,307,214 $ 49,865,303
============= =============
Supplemental disclosures of cash flows information
Cash paid during the period for:
Income taxes $ 6,377,574 $ 4,665,381
============= =============
Interest $ 621,675 $ 418,466
============= =============
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company cancelled outstanding notes of $8,772 and $349,967 for the nine
months ended September 30, 2005 and 2004, respectively (see Note 9).
The Company issued common shares for notes receivable in the amounts of $11,838
and $148,373 for the nine months ended September 30, 2005 and 2004, respectively
(see Note 10).
The Company issued 411,035 common shares for the nine months ended September 30,
2005, recorded with a fair value of $9,176,702, and issued 138,000 common shares
for the nine months ended September 30, 2004, recorded with a fair value of
$2,706,300 (see Note 12).
The accompanying notes are an integral part of these condensed consolidated
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, 2004.
The condensed consolidated financial information as of and for the year ended
December 31, 2004 has been derived from audited consolidated financial
statements not included herein. Certain reclassifications have been made to
prior-period amounts to conform to the current-year presentation. All material
inter-company 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 presentation of the results in the interim periods. Interim
period operating results for the three months and nine months ended September
30, 2005 are not necessarily indicative of results that may be expected for the
entire year or any other period.
For the nine months ended September 30, 2005 and 2004, the consolidated Company
consisted of several worldwide affiliated entities under common control, which
provide investment advisory and related services including securities brokerage.
NOTE 2: 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 specified that 80%
of the Company's common shares issued in connection therewith could 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
were July 1, 2001, 2002, 2003 and 2004, if assets under management which were
part of the acquisitions decreased below defined reference amounts at the
specified dates and were not replaced.
The recorded purchase price for each acquisition was 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.
Intangible assets arising from the Company's business acquisitions are comprised
primarily of customer relationships.
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 ceased to be subject to repurchase,
the contra-equity account was relieved and any difference between the initial
issue price and the then current fair value of the shares was charged or
credited to additional paid-in capital, and the purchase price was adjusted for
the fair value of the shares. Cash dividends on shares no longer subject to
repurchase were recorded as a reduction of shareholders' equity.
The following table shows information for each acquisition as of and for the
nine months ended September 30, 2005.
Aggregate Shares Not Purchase Intangible
Number of Subject to Price Amortization
Acquisition Shares Repurchase Allocation for the Period
----------- ----------- ----------- ----------- --------------
TPRS 1,966,000 1,966,000 $42,367,772 $ 1,947,474
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 4,029,831 $83,113,266 $ 3,815,062
=========== =========== =========== ===========
The following table shows information for each acquisition as of and for the
year ended December 31, 2004.
Cash
Dividends
Paid on
Aggregate Shares Not Contingently Purchase Intangible
Number of Subject to Returnable Price Amortization
Acquisition Shares Repurchase Shares Allocation for the Year
----------- ----------- ------------ ----------- ------------
TPRS 1,966,000 1,966,000 $ 97,680 $42,367,772 $ 2,496,619
NSMM 863,831 863,831 -- 17,042,406 953,839
FLII 1,200,000 1,200,000 -- 23,703,088 1,536,279
----------- ----------- ----------- ----------- -----------
4,029,831 4,029,831 $ 97,680 $83,113,266 $ 4,986,737
=========== =========== =========== =========== ===========
NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS No. 123R
include stock options, restricted share awards, certain performance-based
awards, share appreciation rights, and employee share purchase plans. The
Company has adopted the revised standard as of January 1, 2005 (See Note 11).
The effect of adopting SFAS No. 123R resulted in an increase in compensation
expense for the nine months ended September 30, 2005 of $212,040.
7
NOTE 4: EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Basic Earnings Per Share:
Net income $ 12,214,624 $ 13,676,009 $ 37,281,120 $ 41,343,742
============= ============= ============= =============
Weighted average basic shares outstanding 45,691,787 45,262,593 45,592,618 45,013,177
------------- ------------- ------------- -------------
Net income per share $ 0.27 $ 0.30 $ 0.82 $ 0.92
============= ============= ============= =============
Diluted Earnings Per Share:
Net income $ 12,214,624 $ 13,676,009 $ 37,281,120 $ 41,343,742
============= ============= ============= =============
Weighted average basic shares outstanding 45,691,787 45,262,593 45,592,618 45,013,177
Add: Unvested shares, unvested
options, vested unexercised
options and dilutive
potentially issuable common
shares 299,684 269,546 303,106 459,625
------------- ------------- ------------- -------------
Weighted average diluted shares
outstanding 45,991,471 45,532,139 45,895,724 45,472,802
------------- ------------- ------------- -------------
Net income per share $ 0.27 $ 0.30 $ 0.81 $ 0.91
============= ============= ============= =============
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,
unvested options, vested unexercised options and potentially issuable common
shares. 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, and the dilutive effect of unvested
options, vested unexercised options issued to employees of the Company or its
affiliates and potentially issuable common shares, using the treasury stock
method.
On September 30, 2005 and 2004, respectively, 46,559,703 and 46,129,022 shares
were issued and outstanding. The shareholders of record are entitled to full
voting rights and dividends on these shares; 850,437 and 867,853 of these shares
were unvested and held by the Company's or affiliates' employees on September
30, 2005 and 2004, respectively.
8
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 September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net income $ 12,214,624 $ 13,676,009 $ 37,281,120 $ 41,343,742
Other
comprehensive
income, net of tax:
Reclassification
adjustment for
unrealized gains /
(losses) on available
for sale securities
included in interest
and other 47,612 (42) 71,518 (12,661)
Unrealized gains /
(losses) on available
for sale securities (43,302) 28,970 (97,670) (764)
Foreign currency
translation
adjustment (105,096) (24,244) (476,423) 86,062
------------- ------------- ------------- -------------
Comprehensive income $ 12,113,838 $ 13,680,693 $ 36,778,545 $ 41,416,379
============= ============= ============= =============
NOTE 6: RELATED PARTY TRANSACTIONS
Research and administration expenses include travel expenses of $1,439,260 and
$2,071,689 for the nine months ended September 30, 2005 and 2004, 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, either Shamrock or
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
$2,291,628 and $1,832,936 for the nine months ended September 30, 2005 and 2004,
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, which amounted
to $123,697 and $137,383 for the nine months ended September 30, 2005 and 2004,
respectively. These amounts are based upon the actual space utilized in each of
those periods.
The Company pays solicitation fees in respect of certain accounts and an amount
calculated on the basis of a portion of the brokerage commissions paid by
certain accounts, as directed by those clients to a
9
beneficial owner of a minority interest in the Company. Such payments amounted
to $4,555 for the nine months ended September 30, 2005. Prior to 2005, these
payments were made to WPS Investissements S.A., a Swiss investment management
firm, principally owned by a beneficial owner of a minority interest in the
Company. Such payments amounted to $4,792 for the nine months ended September
30, 2004.
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 amounted to $843,154 and
$789,461 for the nine months ended September 30, 2005 and 2004, 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, 2005 and 2004 were
$4,612 and $4,578, 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
$505,296 and $484,330 for the nine months ended September 30, 2005 and 2004,
respectively.
The Company paid Appleby Spurling Hunter & Appleby Corporate Services (formerly
Appleby, Spurling & Kempe and A.S. & K. Services Ltd.), of which, prior to March
31, 2005 one of the Company's directors was a senior partner, fees for various
legal, corporate administrative and secretarial services. Such fees for services
amounted to $3,552 for the three months ended March 31, 2005 and $43,333 for the
nine months ended September 30, 2004.
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 $7,169,387 and $5,174,781
for the nine months ended September 30, 2005 and 2004, 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. 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, 2005 and 2004.
Included in receivables from affiliates, net, at September 30, 2005 and 2004 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.
Included in investments available for sale at September 30, 2005 and 2004 are
amounts of $864,583 and $824,051, 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, 2005 and 2004 is rent expense in the amounts of $143,157 and
$141,952, 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.
10
Included in other operating expenses for the nine months ended September 30,
2005 and 2004, are contributions in the amounts of $357,500 and $311,000,
respectively, paid to the W.P. Stewart & Co. Foundation, Inc., a private
charitable foundation.
NOTE 7: LONG-TERM DEBT
On July 10, 2003, WPS Aviation Holdings LLC entered into a 10-year amortizing
loan agreement with General Electric Capital Corporation ("GECC") to continue to
finance its obligations under the purchase agreement relating to the purchase of
a Challenger aircraft. 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 documents require the Company to maintain certain financial ratios and
a minimum level of $15 million of tangible net worth (as defined in the loan
documents).
Interest expense on long-term debt totaled $597,258 and $417,973 for the nine
months ended September 30, 2005 and 2004, respectively.
NOTE 8: COMMITMENTS AND CONTINGENCIES
At September 30, 2005, 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,
2005 and 2004.
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 to this
right. At September 30, 2005, 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.
W.P. Stewart Asset Management Ltd. ("WPSAM") serves as investment adviser to
W.P. Stewart Holdings N.V. ("WPSH NV"), our mutual fund listed on Euronext
Amsterdam. This fund has a fixed fee of 25 basis points per annum and a 10%
performance fee. As per the terms of the investment advisory agreement, the
performance fee is payable annually in arrears and is calculated as 10% of the
change in WPSH NV's net asset value per share from valuation date to valuation
date, multiplied by the number of shares outstanding as of the earlier of the
two dates. However, if the calculation were to produce a negative figure, that
amount would be treated as a credit against future performance fees. If the
advisory
11
agreement were to be terminated by the investment adviser, the remaining
negative balance, if any, would have to be paid back to WPSH NV by the
investment adviser. At September 30, 2005, there is no intention by WPSAM, the
investment adviser, to terminate the investment advisory agreement nor is there
any negative balance.
The Company has committed to make future issuances of 480,000 common shares as
non-cash incentive employee compensation. The commitments made by the Company to
issue such shares are conditioned upon the satisfaction of certain individual
employee performance conditions relating to Company profitability, investment
performance or both. Any shares that may be issued by the Company in the future
in satisfaction of those commitments will be restricted shares. When issued,
these restricted shares will remain subject to vesting requirements over time,
with limited exceptions permitting accelerated or immediate vesting. The
dilutive effect of these potentially issuable common shares is included in the
weighted average diluted shares outstanding in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
The Company is involved in a legal action with a vendor arising in the ordinary
course of business. Management believes, based on currently available
information, that the results of such proceedings will not have a material
adverse effect on the financial condition or results of operations of the
Company.
NOTE 9: NOTES RECEIVABLE FOR COMMON SHARES
Pursuant to employee or director purchase agreements for common shares, in the
event a purchaser is no longer in the employment of, or no longer serves 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, 2005, 532 unvested common shares of former employees were
repurchased and their installment notes totaling $8,772 were abated.
Future minimum payments, expected to be received, on notes receivable for common
shares as of September 30, 2005 are as follows:
2005 (3 months) $ 190,338
2006 667,720
2007 475,407
2008 384,616
2009 195,989
Thereafter (through 2011) 65,162
------------
$ 1,979,232
============
Interest income on all such notes was $152,332 and $385,360 for the nine months
ended September 30, 2005 and 2004, respectively.
NOTE 10: 2001 EMPLOYEE EQUITY INCENTIVE PLAN
The W.P. Stewart & Co., Ltd. 2001 Employee Equity Incentive Plan, as amended
(the "Plan") provided 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 that vest are
12
exercisable in equal annual amounts on each of the first seven anniversaries of
the grant dates. The dilutive effect of unvested options and vested unexercised
options is included in the weighted average diluted shares outstanding in
accordance with SFAS No. 128.
As provided in the Plan, as of July 24, 2004 no further grants may be awarded
under the Plan. However, all previously issued grants will extend beyond that
date as expressly provided for in the Plan documents.
During the three months ended September 30, 2005, pursuant to the terms of the
Plan, 9,286 and 17,016 vested employee share options granted in 2001 and 2002,
respectively, were exercised for an aggregate amount of $480,805. Also, during
the same period, 714 vested employee share options granted in 2002 were
exercised for an installment note in the amount of $11,838. The installment note
bears interest at 8.5% per annum, is for a term of two years and is
collateralized by the shares issued. For the three months ended September 30,
2004, pursuant to the terms of the Plan, 300 vested employee share options
granted in 2002 were exercised for an aggregate amount of $4,974.
During the three months ended September 30, 2005, pursuant to the terms of the
Plan, 7,671 unexercised options granted in 2001 were forfeited by former
employees of the Company and 19,048 vested options granted in 2002 expired. For
the three months ended September 30, 2004, 86 unexercised options granted in
2001, were forfeited by former employees of the Company and 20,095 vested
options granted in 2002 expired.
During the three months ended June 30, 2005, pursuant to the terms of the Plan,
3,572 vested employee share options granted in 2002 were exercised for an
aggregate amount of $59,224. For the three months ended June 30, 2004, pursuant
to the terms of the Plan, 429 vested employee share options granted in 2002 were
exercised for an aggregate amount of $7,113.
During the three months ended June 30, 2005, pursuant to the terms of the Plan,
64,657 unexercised options granted in 2001 were forfeited by former employees of
the Company and 21,809 vested options granted in 2002 expired. For the three
months ended June 30, 2004, 13,628 unexercised options granted in 2001 and 2,000
unexercised options granted in 2002, were forfeited by former employees and
non-employee directors of the Company and 21,809 vested options granted in 2002
expired.
During the three months ended March 31, 2005, pursuant to the terms of the Plan,
4,950 and 200 vested employee share options granted in 2001 and 2002,
respectively, were exercised for an aggregate amount of $106,276. For the three
months ended March 31, 2004, pursuant to the terms of the Plan, 2,529 and 10,716
vested employee share options granted in 2001 and 2002, respectively, were
exercised for an aggregate amount of $230,274. Also, during the same period,
4,286 and 3,572 vested employee share options granted in 2001 and 2002,
respectively, were exercised for installment notes in the amount of $148,373.
The installment notes bear interest at 8.5% per annum, are for a term of two
years and are collateralized by the shares issued.
During the three months ended March 31, 2005, pursuant to the terms of the Plan,
342 unexercised options granted in 2001 were forfeited by former employees of
the Company. For the three months ended March 31, 2004, 6,042 unexercised
options granted in 2001 and 5,714 unexercised options granted in 2002, were
forfeited by former employees of the Company.
NOTE 11: 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
13
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 is
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 recognized under SFAS No. 123 for the nine months ended September
30, 2005 and 2004, for share options granted in 2003, was $3,353 and $4,230,
respectively. There were no share options granted during 2004 or during the nine
months ended September 30, 2005.
The options outstanding as of September 30, 2005 and 2004 for grants awarded
during the year ended December 31, 2003, are set forth below:
Options Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life (Years) Exercise Price
--------------- ----------- ------------------------ --------------
$20.20 65,250 7 $20.20
Prior to January 1, 2003, the Company had elected to account for its share-based
employee compensation plan in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). In
accordance with APB No. 25, compensation expense is not recognized for employee
options that have no intrinsic value on the date of grant.
Share options granted for all periods prior to January 1, 2003 were accounted
for under the intrinsic value-based method as prescribed by APB No. 25.
Therefore, no compensation expense was recognized for those share options that
had no intrinsic value on the date of grant. The dilutive effect of these
options is included in the weighted average diluted shares outstanding in
accordance with SFAS No. 128.
The options outstanding as of September 30, 2005 and 2004 for grants made prior
to January 1, 2003 are set forth below:
Weighted Average
Options Remaining Contractual Weighted Average
September 30, Exercise Prices Outstanding Life (Years) Exercise Price
------------- --------------- ----------- ------------ --------------
$20.80 - $25.65 585,634 4 $20.91
$16.58 - $28.42 360,565 5 $21.75
---------
2005 946,199
=========
$20.80 - $25.65 810,080 5 $20.90
$16.58 - $28.42 439,294 6 $21.67
---------
2004 1,249,374
=========
Options exercisable at September 30, 2005 and 2004 were 166,785 and 188,363,
respectively.
Had compensation cost for the options granted under the Plan prior to January 1,
2003 been determined based on fair value at the grant dates consistent with the
fair value method prescribed by SFAS No. 123, the Company's net income and
earnings per share for the period ended September 30, 2004, would have been the
following pro forma amounts:
14
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
------------------ ------------------
Net income, as reported $ 13,676,009 $ 41,343,742
Pro forma net income $ 13,803,942 $ 41,299,080
Earnings Per Share, as reported:
Basic $ 0.30 $ 0.92
Diluted $ 0.30 $ 0.91
Pro forma Earnings Per Share:
Basic $ 0.30 $ 0.92
Diluted $ 0.30 $ 0.91
In the preceding table, pro forma compensation expense associated with option
grants is recognized over the relevant vesting periods.
NOTE 12: RESTRICTED SHARES
During the nine months ended September 30, 2005, 19,500 restricted shares were
granted to certain non-employee directors of the Company and 391,535 restricted
shares were granted as employee non-cash compensation. During the nine months
ended September 30, 2004, 20,000 restricted shares were granted to certain
non-employee directors of the Company and 118,000 restricted shares were granted
as employee non-cash compensation. These shares are subject to vesting schedules
and resale restrictions set forth in the associated Restricted Share Agreements.
Unearned compensation equivalent to the market value of the shares at the date
of grant was charged to shareholder's equity as of that date and is being
amortized over the two through five year vesting periods as specified in the
terms of the individual Restricted Share Agreements. Compensation expense
resulting from the amortization of the unearned compensation for the nine months
ended September 30, 2005 and 2004 was $2,301,493 and $269,592, respectively.
NOTE 13: 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.
15
The income tax provision, all current, for the periods ended September 30, 2005
and 2004 is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
US:
Federal $ 1,282,780 $ 1,074,073 $ 3,149,027 $ 3,382,182
State and local 95,511 506,149 1,008,991 1,267,870
------------- ------------- ------------- -------------
1,378,291 1,580,222 4,158,018 4,650,052
Other: 6,138 (60,666) 11,577 (56,303)
------------- ------------- ------------- -------------
$ 1,384,429 $ 1,519,556 $ 4,169,595 $ 4,593,749
============= ============= ============= =============
NOTE 14: PENSION BENEFITS
Total employer contributions amounted to $1,438,330 and $1,132,807 for the nine
months ended September 30, 2005 and 2004, respectively. Participants are
immediately vested in their account balances.
NOTE 15: 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,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
U.S. $ 18,369,431 $ 18,854,877 $ 56,609,760 $ 58,028,265
Non-U.S 7,347,500 6,862,403 22,248,615 19,059,547
------------- ------------- ------------- -------------
Total $ 25,716,931 $ 25,717,280 $ 78,858,375 $ 77,087,812
============= ============= ============= =============
NOTE 16: SUBSEQUENT EVENTS
On October 3, 2005, the Company declared a dividend of $0.30 per share to
shareholders of record as of October 14, 2005, payable on October 28, 2005 in
the aggregate amount of $14,018,114.
On October 3, 2005, 155,000 restricted shares were granted to our employees at a
value of $22.06 per share.
During the month of October 2005, 9,944 vested employee share options granted in
2001 and 2,400 vested employee share options granted in 2002 were exercised for
an aggregate amount of $246,627.
During the month of October 2005, the Company committed to make future issuances
of 360,000 common shares as non-cash incentive compensation. The commitments
made by the Company to issue such shares are conditioned upon the satisfaction
of certain individual employee performance conditions relating to Company
profitability, investment performance or both. Any shares that may be issued by
the Company in the future in satisfaction of those commitments will be
restricted shares. When issued, these restricted shares will remain subject to
vesting requirements over time, with limited exceptions permitting accelerated
or immediate vesting.
16
Operating and Financial Review and Prospects
Overview
W.P. Stewart & Co., Ltd., together with its subsidiaries, is a
research-focused investment adviser 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. Additionally, significant components of our expenses
are variable in nature and tend to partially offset fluctuations in revenue.
Our 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.
Another component of our revenues is brokerage commissions. Commission
revenues earned on our brokerage activities, substantially all of which relate
to client accounts, vary with account trading activity, account market value and
new account generation. Therefore, commission revenue is also affected by market
conditions.
Interest and other revenue primarily consists of interest earned on our
cash management activities, interest earned on notes receivable for employee
purchases of common shares, investment and foreign currency gains and losses,
subscription fees earned from our mutual funds and equity adjustments 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. Certain employees may also be eligible
for other cash or non-cash incentive compensation. Compensation paid depends
upon our actual operating profit, as adjusted for amortization of intangibles,
non-cash compensation 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 was approximately 24% of adjusted operating profit for the year ended
December 31, 2004. It is currently anticipated that compensation expense for the
year ending December 31, 2005 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.
17
Commissions, clearance and trading expenses include fees incurred related
to brokerage activities. These transaction-related costs vary directly with
trading activity. Transaction costs are reviewed quarterly and are competitive.
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,
marketing related travel, marketing related compensation and other operational
expenses.
Other operating expenses include professional fees consisting of auditing,
tax, legal and consulting fees, charitable contributions and other
administration expenses.
Substantially 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
participate in the results of our operations.
Critical Accounting Policies
Goodwill and Intangible Assets Our condensed consolidated statement of financial
condition includes substantial assets in the form of goodwill and intangible
assets. We account for those assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." The
intangible assets were among the assets that we acquired in the business
acquisitions described in Note 2 of our condensed consolidated financial
statements included with this report. We amortize the intangible assets on a
straight-line basis over their estimated useful lives, which range from five to
20 years. We test the carrying values of these assets for impairment annually
and whenever events or changes in circumstances indicate that such values may
not be recoverable. There would be an impairment loss if and to the extent that
the sum of the assets' expected future undiscounted cash flows were to be less
than their carrying values. We acquired goodwill in our acquisition of TPR &
Partners N.V. Goodwill is the excess of the total acquisition cost over the fair
value of the net assets on the date of the acquisition. We do not amortize
goodwill, but we test it annually for impairment. If we were to experience a
significant reduction in revenues from the acquired businesses or from our
reporting units, the carrying values of our goodwill or intangible assets could
be materially impaired and the resulting impairment losses could have a material
adverse effect on our earnings.
Operating Results
Three Months Ended September 30, 2005 as Compared to Three Months Ended
September 30, 2004
Assets Under Management
Assets under management were approximately $9.6 billion at September 30,
2005, an increase of approximately $0.8 billion or 9.1% from approximately $8.8
billion at June 30, 2005. Assets under management were approximately $8.5
billion at September 30, 2004, a decrease of approximately $0.1 billion or 1.2%
from approximately $8.6 billion at June 30, 2004.
The following table sets forth the total net flows of assets under
management for the three months ended September 30, 2005 and 2004, 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
18
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,
-----------------------
2005 2004
-------- --------
Existing Accounts:
Contributions $ 245 $ 156
Withdrawals (222) (185)
-------- --------
Net Flows of Existing Accounts 23 (29)
-------- --------
Publicly Available Funds:
Contributions 55 61
Withdrawals (18) (40)
Direct Accounts Opened 23 36
Direct Accounts Closed (55) (95)
-------- --------
Net New Flows 5 (38)
-------- --------
Net Flows of Assets Under Management $ 28 $ (67)
======== ========
Revenues
Revenues were $33.7 million for the third quarter of 2005, a decrease of
$0.4 million or 1.2% from $34.1 million earned for the third quarter of 2004.
The change was due to a $0.8 million or 9.9% decrease in commission revenue,
partially offset by a $0.4 million increase in interest and other revenues. The
average gross fee earned from client accounts, was 1.17% for the quarter ended
September 30, 2005 as compared to 1.19% for the quarter ended September 30,
2004. The change in the average gross fee rate was due to a slight change in
client account mix in favor of larger accounts subject to our fee break, a
greater percentage of our accounts having been with us for a longer period of
time and having lower fee rates which have been grandfathered under our current
fee structure and the fact that three of our large accounts are performance fee
based accounts. These accounts have a reduced quarterly base advisory fee and
pay a performance fee, if applicable, generally at calendar year-end. Because we
bill our fees quarterly, in advance, the strong performance during the third
quarter of 2005 will not have an impact on fee revenue until the fourth quarter
of 2005. Commission revenue was lower in the quarter due to lower trading volume
based upon the investment decisions made by our portfolio managers.
Expenses
Expenses, excluding income taxes, increased approximately $1.2 million or
6.4% to $20.1 million for the third quarter of 2005 from $18.9 million in the
same period of the prior year. The increase was due to changes in operating
expenses, including an increase in variable expenses of $0.2 million in fees
paid out, which are directly related to assets under management of referred
accounts, an increase of $0.1 million in commissions, clearance and trading,
which vary with account activity, and an increase in employee compensation and
benefits of $0.7 million. The increase in employee compensation and benefits was
primarily due to additional non-cash compensation expense related to restricted
share issuances by the Company in 2004 and through the third quarter of 2005.
These grants were to several key employees and resulted in higher non-cash
compensation of approximately $0.8 million in the third quarter of 2005.
Additionally, marketing expenses increased by $0.2 million.
19
Our income tax expense decreased $0.1 million to $1.4 million for the
third quarter of 2005 from $1.5 million in the same period of the prior year.
The effective tax rate was 10.2% and 10% for the three months ended September
30, 2005 and 2004, respectively.
Net Income
Net income for the quarter ended September 30, 2005 decreased $1.5 million or
10.7% to $12.2 million from $13.7 million in the third quarter of the prior year
as operating expenses increased while revenues decreased.
Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September
30, 2004
Assets Under Management
Assets under management were approximately $9.6 billion at September 30,
2005, an increase of approximately $0.3 billion or 3.2% from approximately $9.3
billion at December 31, 2004. Assets under management were approximately $8.5
billion at September 30, 2004, a decrease of approximately $0.1 billion or 1.2%
from approximately $8.6 billion at December 31, 2003.
The following table sets forth the total net flows of assets under
management for the nine months ended September 30, 2005 and 2004, 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)
Nine Months Ended
September 30,
-----------------------
2005 2004
-------- --------
Existing Accounts:
Contributions $ 728 $ 536
Withdrawals (793) (569)
-------- --------
Net Flows of Existing Accounts (65) (33)
-------- --------
Publicly Available Funds:
Contributions 171 159
Withdrawals (111) (101)
Direct Accounts Opened 198 154
Direct Accounts Closed (323) (454)
-------- --------
Net New Flows (65) (242)
-------- --------
Net Flows of Assets Under Management $ (130) $ (275)
======== ========
Revenues
Revenues were $102.4 million for the nine months ended September 30, 2005,
a decrease of $1.5 million or 1.4% from $103.9 million earned for the nine
months ended September 30, 2004. The change was due to a $1.8 million or 2.3%
increase in fee revenue, a $4.1 million or 15.9% decrease in
20
commission revenue and a $0.8 million increase in interest and other revenues.
The average gross fee earned from client accounts, was 1.17% for the nine months
ended September 30, 2005 as compared to 1.20% for the nine months ended
September 30, 2004. The change in the average gross fee rate was due to a slight
change in client account mix in favor of larger accounts subject to our fee
break, a greater percentage of our accounts having been with us for a longer
period of time and having lower fee rates which have been grandfathered under
our current fee structure and the fact that three of our large accounts are
performance fee based accounts. These accounts have a reduced quarterly base
advisory fee and pay a performance fee, if applicable, generally at calendar
year-end. The increase in fee revenue was attributable to higher levels of
assets under management. Because we bill our fees quarterly, in advance, the
strong fourth quarter 2004 increase in assets under management had a direct
impact on our first quarter 2005 fee revenue and the strong performance during
the third quarter of 2005 will not have an impact on fee revenue until the
fourth quarter of 2005. Commission revenue was lower for the nine months ended
September 30, 2005 due to lower trading volume based upon the investment
decisions made by our portfolio managers. Interest and other revenues increased
primarily due to an increase in interest income earned from our cash management
activities on higher cash balances and from realized gains on the sale of
municipal securities during the nine months ended September 30, 2005.
Expenses
Expenses, excluding income taxes, increased approximately $3.0 million or
5.2% to $60.9 million for the nine months ended September 30, 2005 from $58.0
million in the same period of the prior year. The increase was due to changes in
operating expenses, including an increase in variable expenses of $0.8 million
in fees paid out, which are directly related to assets under management of
referred accounts, a decrease of $0.7 million in commissions, clearance and
trading, which vary with account activity, and an increase in employee
compensation and benefits of $2.2 million. The increase in employee compensation
and benefits was primarily due to additional non-cash compensation expense
related to restricted share issuances by the Company in 2004 and through the
third quarter of 2005. These grants were to several key employees and resulted
in higher non-cash compensation of approximately $2.3 million for the nine
months ended September 30, 2005. We expect the non-cash compensation for these
specific issuances of restricted share grants to be at least $3.1 million for
2005 and we anticipate that there will be additional issuances of restricted
share grants during the fourth quarter of 2005. Additionally, research and
administration expenses decreased $0.2 million, marketing expenses increased by
$0.2 million, depreciation and amortization expense increased $0.1 million and
other operating expenses increased $0.6 million. Included in other operating
expenses are costs of approximately $0.5 million or approximately one cent per
share, related to due diligence work performed in connection with the Company's
entering into negotiations for a strategic acquisition. We did not proceed with
the acquisition and these costs were expensed in the first quarter of 2005.
Our income tax expense decreased $0.4 million to $4.2 million for the nine
months ended September 30, 2005 from $4.6 million in the same period of the
prior year. The effective tax rate was 10.1% and 10% for the nine months ended
September 30, 2005 and 2004, respectively.
Net Income
Net income for the nine months ended September 30, 2005 decreased
approximately $4.1 million or 9.8% to $37.3 million from $41.3 million for the
same period of the prior year as operating expenses increased while revenues
decreased.
21
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 operating lease agreements and
has contingent commitments as disclosed in the notes to the consolidated
financial statements. The following tables set forth these contractual
obligations and contingent commitments as of September 30, 2005:
Contractual Obligations
(in millions)
Remaining 2005 2006-2007 2008-2009 2010-Thereafter Total
-------------- --------- --------- --------------- -----
Long-Term Debt (1) $0.2 $1.6 $1.8 $12.0 $15.6
Minimum Rental Commitments $0.7 $5.5 $2.0 $5.5 $13.7
(1) See Note 7 to the condensed consolidated financial statements for
additional information
Contingent Commitments
(in millions)
Amount of Commitment Expiration Per Period
------------------------------------------
2005 2006-2007 2008-2009 2010-Thereafter Total
---- --------- --------- --------------- -----
Commitments under letters of credit (2) -- $1.2 -- $ 0.7 $ 1.9
(2) See Note 8 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 in general require us to maintain significant capital
balances. However, our advisory activities for clients in The Netherlands, 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 activities and have consistently maintained net capital in excess of
the prescribed amounts. Historically, we have met our liquidity requirements
with cash generated from our operations.
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. Our liquidity, facilities and overall financial condition
remain strong. We have maintained our customary quarterly dividend and have
funded that dividend essentially out of operating cash flow. Our board of
directors carefully scrutinizes our earnings and cash position
quarter-by-quarter to ascertain the prudence of our dividend.
22
Although there can be no guarantee that the dividend will remain at historic
levels indefinitely, there currently are no plans for reducing it. Consistent
with this focus, our board of directors will continue to monitor our liquidity
and our ability to pay dividends and will also consider opportunities for share
repurchases with a view toward increasing long-term shareholder value.
EXHIBITS
See press release attached hereto dated October 26, 2005 regarding the
Company's announcement of the departure of a Deputy Managing Director of the
Company.
See press release attached hereto dated October 27, 2005 regarding the
Company's financial results for the third quarter of 2005.
23
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 10, 2005 By: /s/ Susan G. Leber
----------------------------------
Name: Susan G. Leber
Title: Deputy Managing Director -
Chief Financial Officer
24
[LETTERHEAD OF W.P. STEWART & CO., LTD.]
PRESS RELEASE
Contact: Fred Ryan
telephone: 441.295.8585
26 October 2005
Hamilton, Bermuda
W.P. Stewart Announces the Departure of John A. Allison
W.P. Stewart & Co., Ltd announced today that John A. Allison, Deputy Managing
Director of the Company and Chairman of its subsidiary, W.P. Stewart Asset
Management Ltd., will be leaving to pursue business interests outside of W.P.
Stewart, the most immediate of which will be his purchase and development of a
company that has been in his family for many decades. Bill Stewart, W.P.
Stewart's Chairman of the Board said "Over the years that John has been with us
he has made contributions to the firm across a broad front - in investment
management as well as corporate activities. Henry Smith, our President and Chief
Executive Officer, the management team, our employees and the board of directors
join me in thanking John for his contributions to the firm and to wish him
well."
W.P. Stewart & Co., Ltd. is an asset management company that has provided
research intensive equity management services to clients throughout the world
since 1975. The Company is headquartered in Hamilton, Bermuda and has additional
operations or affiliates in the United States, Europe and Asia.
The Company's shares are listed for trading on the New York Stock Exchange
(symbol: WPL) and on the Bermuda Stock Exchange (symbol: WPS).
For more information, please visit the Company's website at
http://www.wpstewart.com, or call W.P. Stewart Investor Relations (Fred M. Ryan)
at 1-888-695-4092 (toll-free within the United States) or +441-295-8585 (outside
the United States) or e-mail to IRINFO@wpstewart.com.
[LETTERHEAD OF W.P. STEWART & CO., LTD.]
PRESS RELEASE
Contact: Fred M. Ryan
telephone: 441-295-8585
27th October, 2005
Hamilton, Bermuda
W.P. Stewart & Co., Ltd. Reports Net Income For
Third Quarter and First Nine Months of 2005
of $12.2 Million and $ 37.3 Million
Diluted earnings per share of $ 0.27 and $0.81 for the third quarter
and first nine months, respectively
W.P. Stewart & Co., Ltd. today reported net income of $12.2 million, or
$0.27 per share (diluted) and $0.27 per share (basic), for the third quarter
ended 30 September 2005. This compares with net income in the third quarter of
the prior year of $13.7 million, or $0.30 per share (diluted) and $0.30 per
share (basic).
Third Quarter 2005 Highlights
Cash earnings for the quarter ended 30 September 2005 were $14.9 million
(net income of $12.2 million adjusted to include $2.7 million representing
non-cash expenses of depreciation, amortization and other non-cash charges on a
tax effected basis), or $0.32 per share (diluted). In the same quarter of the
prior year, cash earnings were $15.8 million (net income of $13.7 million
adjusted for the inclusion of $2.1 million representing non-cash expenses of
depreciation, amortization and other non-cash charges on a tax-effected basis),
or $0.35 per share (diluted).
Assets under management at quarter-end were approximately $9.6 billion,
compared to $8.8 billion at the end of the prior quarter, an increase of 9.1%
and an increase of 12.9% from the $8.5 billion reported at 30 September 2004.
For the third quarter of 2005 there were 45,991,471 common shares
outstanding on a weighted average diluted basis compared to 45,532,139 common
shares outstanding for the third quarter of 2004 on the same weighted average
diluted basis.
Nine Month Results
For the nine months ended 30 September 2005, net income was down 9.8%,
compared to the first nine months of 2004, to $37.3 million, or $0.81 per share
(diluted) and $0.82 per share (basic), on revenues of $102.4 million. Net income
for the nine months ended 30 September 2004 was $41.3 million, or $0.91 per
share (diluted) and $0.92 per share (basic), on revenues of $103.9 million.
Cash earnings for the nine months ended 30 September 2005 were $45.4
million (net income of $37.3 million adjusted to include $8.1 million,
representing non-cash expenses of depreciation, amortization and other non-cash
charges on a tax-effected basis), or $0.99 per share (diluted). In the same
period of the prior year, cash earnings were $47.2 million (net income of $41.3
million adjusted for the inclusion of $5.9 million representing non-cash
expenses of depreciation, amortization and other non-cash charges on a
tax-effected basis), or $1.04 per share (diluted).
On a limited number of its accounts, the Company is entitled to receive a
performance-based fee depending on the absolute performance in the account over
a specified time period or in some cases by the out-performance in the account
relative to a chosen benchmark. Based on performance through the end of the
third quarter of 2005, the Company may be entitled this year to a performance
fee on some of those accounts, including on W.P. Stewart Holdings N.V., our
mutual fund listed on Euronext Amsterdam. Regardless of performance at any other
point during the year, the Company's right to receive a performance fee on those
accounts will depend entirely upon the account's performance on 31 December, the
date that the performance fee is measured and earned.
2
For the nine months ended 30 September 2005, there were 45,895,724 common
shares outstanding on a weighted average diluted basis compared to 45,472,802
common shares outstanding for the same period in 2004 on the same weighted
average diluted basis.
Performance
Performance in the W.P. Stewart & Co., Ltd. U.S. Equity Composite (the
"Composite") for the third quarter of 2005 was 9.4% pre-fee and 9.2% post-fee,
compared to 3.6% for the S&P 500. For the nine months ended 30 September 2005,
performance in the Composite was 5.8% pre-fee and 4.9% post-fee, compared to
2.8% for the S&P 500. For the twelve month period ending 30 September 2005,
performance in the Composite was 22.6% pre-fee and 21.5% post-fee, compared to
12.3% for the S&P 500.
W.P. Stewart's five-year performance record for the period ended 30
September 2005 averaged 4.0% pre-fee (2.8% post-fee), compounded annually,
compared to an average of -1.5% for the S&P 500 in the five-year period.
In each of the one, five and ten-year periods, ended 30 September 2005,
performance of the Composite has exceeded the performance of the S&P 500 on a
pre-fee and on a post-fee basis. For the three-year period ending 30 September
2005, performance exceeded the S&P 500 on a pre-fee basis but not on a post-fee
basis.
Assets Under Management
Assets under management (AUM) at quarter-end were approximately $9.6
billion, compared with $8.8 billion at the quarter ended 30 June 2005, and $8.5
billion reported at the quarter ended 30 September 2004.
Total net flows of AUM for the quarter ended 30 September 2005 were +$28
million, compared with -$67 million in the comparable quarter of 2004 and -$115
million in the second quarter of 2005.
Total net flows of AUM for the nine months ended 30 September 2005 and
2004 were -$130 million and -$275 million, respectively.
In the third quarter of 2005, net cash flows to existing accounts were
+$23 million compared with net cash flows of -$29 million in the third quarter
of 2004. Net cash flows to
3
existing accounts for the nine months ended 30 September 2005 were -$65 million
compared to -$33 million for the nine months ended 30 September 2004.
Net new flows (net contributions to our publicly available funds and flows
from new accounts minus closed accounts) were +$5 million for the quarter
compared to -$38 million for the same quarter of the prior year. Net new flows
were -$65 million for the nine-months ending 30 September 2005 compared to -$242
million for the nine months ended 30 September 2004.
Look Through Earning Power
W.P. Stewart & Co., Ltd. concentrates its investments in large, generally
less cyclical, growing businesses. Throughout most of the Company's history, the
growth in earning power behind clients' portfolios has ranged from approximately
11% to 22%, annually.
Currently, such earning power behind clients' portfolios remains solidly
positive and the Company's research analysts expect portfolio earnings growth to
be within the historical range over the next few years.
Revenues and Profitability
Revenues were $33.7 million for the quarter ended 30 September 2005, down
1.2% from $34.1 million for the same quarter of 2004. Revenues for the nine
months ended 30 September 2005 and 2004 were $102.4 million and $103.9 million,
respectively.
The average gross management fee was 1.17% for the quarter ended 30
September 2005 and 1.17% for the nine months ended 30 September 2005, compared
to 1.19% and 1.20%, respectively, in each of the comparable periods of the prior
year.
Total operating expenses increased 6.4% to $20.1 million, for the third
quarter 2005, from $18.9 million in the same quarter of the prior year. Total
operating expenses were $60.9 million and $58.0 million for the nine months
ended 30 September 2005 and 2004, respectively.
During 2004 and through the first nine months of 2005, the Company issued
restricted stock to various employees. The non-cash compensation expense related
to these restricted stock grants was approximately $820,000 for the third
quarter of 2005 and approximately $2.3 million for the nine months ended 30
September 2005. This non-cash compensation expense is included in
4
"employee compensation and benefits". We expect non-cash compensation expense
related to these restricted stock grants to be at least $3.1 million for 2005.
Pre-tax income, at $13.6 million, was 40.4% of gross revenues for the
quarter ended 30 September 2005 compared to $15.2 million or 44.6% of gross
revenues in the comparable quarter of the prior year. Pre-tax income was $41.5
million (40.5% of gross revenues) for the nine months ended 30 September 2005,
and $45.9 million (44.2% of gross revenues) for the nine months ended 30
September 2004.
The Company's provision for taxes was $1.4 million for the three-month
period ended 30 September 2005 versus $1.5 million in the comparable period of
2004. The provision for taxes for the nine months ended 30 September 2005 was
$4.2 million versus $4.6 million in the comparable period of the prior year. The
effective tax rate was approximately 10.1% and 10% of income before taxes for
the nine-month periods ended 30 September 2005 and 2004, respectively.
Other Events
The Company paid a dividend of $0.30 per common share on 29 July 2005 to
shareholders of record as of 15 July 2005 and will pay a dividend of $0.30 per
share on 28 October 2005 to shareholders of record as of 14 October 2005.
Conference Call
In conjunction with this third quarter 2005 earnings release, W.P. Stewart
& Co., Ltd. will host a conference call on Thursday, 27 October 2005. The
conference call will commence promptly at 9:15am (EDT) and will conclude at
10:00am (EDT). Those who are interested in participating in the teleconference
should dial 1-800-370-0898 (within the United States) or +973-409-9260 (outside
the United States). The conference ID is "W.P. Stewart".
To listen to the live broadcast of the conference over the Internet,
simply visit our website at www.wpstewart.com and click on the Investor
Relations tab for a link to the web-cast.
The teleconference will be available for replay from Thursday 27 October,
2005 at 12:00 noon (EDT) through Friday, 28 October, 2005 at 5:00 p.m. (EDT). To
access the replay, please dial 1-877-519-4471 (within the United States) or +
973-341-3080 (outside the United States). The PIN number for accessing this
replay is 6574252.
5
You will be able to access a replay of the Internet broadcast through
Thursday, 3 November, 2005, on the Company's website at www.wpstewart.com. The
Company will respond to questions submitted by e-mail, following the conference.
W.P. Stewart & Co., Ltd. is an asset management company that has provided
research-intensive equity management services to clients throughout the world
since 1975. The Company is headquartered in Hamilton, Bermuda and has additional
operations or affiliates in the United States, Europe and Asia.
The Company's shares are listed for trading on the New York Stock Exchange
(symbol: WPL) and on the Bermuda Stock Exchange (symbol: WPS).
For more information, please visit the Company's website at
www.wpstewart.com, or call W.P. Stewart Investor Relations (Fred M. Ryan) at
1-888-695-4092 (toll-free within the United States) or + 441-295-8585 (outside
the United States) or e-mail to IRINFO@wpstewart.com .
Statements made in this release concerning our assumptions, expectations,
beliefs, intentions, plans or strategies are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties that may cause actual results to
differ from those expressed or implied in these statements. Such risks and
uncertainties include, without limitation, the adverse effect from a decline or
volatility in the securities markets, a general downturn in the economy, the
effects of economic, financial or political events, a loss of client accounts,
inability of the Company to attract or retain qualified personnel, a challenge
to our U.S. tax status, competition from other companies, changes in government
policy or regulation, a decline in the Company's products' performance,
inability of the Company to implement its operating strategy, inability of the
Company to manage unforeseen costs and other effects related to legal
proceedings or investigations of governmental and self-regulatory organizations,
industry capacity and trends, changes in demand for the Company's services,
changes in the Company's business strategy or development plans and contingent
liabilities. The information in this release is as of the date of this release,
and will not be updated as a result of new information or future events or
developments.
6
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended % Change From
---------------------------------------------------- --------------------------------
Sept. 30, 2005 June 30, 2005 Sept. 30, 2004 June 30, 2005 Sept. 30, 2004
-------------- ------------- -------------- ------------- --------------
Revenue:
Fees $ 25,716,931 $ 25,905,543 $ 25,717,280 -0.73% 0.00%
Commissions 7,278,100 7,334,973 8,078,565 -0.78% -9.91%
Interest and other 690,266 632,934 285,539 9.06% 141.74%
------------- ------------- ------------- ------------- -------------
33,685,297 33,873,450 34,081,384 -0.56% -1.16%
------------- ------------- ------------- ------------- -------------
Expenses:
Employee compensation and benefits 7,118,277 7,231,107 6,398,023 -1.56% 11.26%
Fees paid out 2,056,673 2,140,864 1,812,177 -3.93% 13.49%
Commissions, clearance and trading 1,779,427 1,623,246 1,729,340 9.62% 2.90%
Research and administration 3,587,671 3,557,819 3,637,164 0.84% -1.36%
Marketing 1,216,257 1,183,848 1,056,972 2.74% 15.07%
Depreciation and amortization 2,058,776 2,052,745 2,021,273 0.29% 1.86%
Other operating 2,269,163 2,465,856 2,230,870 -7.98% 1.72%
------------- ------------- ------------- ------------- -------------
20,086,244 20,255,485 18,885,819 -0.84% 6.36%
------------- ------------- ------------- ------------- -------------
Income before taxes 13,599,053 13,617,965 15,195,565 -0.14% -10.51%
Provision for taxes 1,384,429 1,361,796 1,519,556 1.66% -8.89%
------------- ------------- ------------- ------------- -------------
Net income $ 12,214,624 $ 12,256,169 $ 13,676,009 -0.34% -10.69%
============= ============= ============= ============= =============
Earnings per share:
Basic earnings per share $ 0.27 $ 0.27 $ 0.30 0.00% -10.00%
============= ============= ============= ============= =============
Diluted earnings per share $ 0.27 $ 0.27 $ 0.30 0.00% -10.00%
============= ============= ============= ============= =============
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30,
-------------------------------------------------------
2005 2004 %
-------------- -------------- --------------
Revenue:
Fees $ 78,858,375 $ 77,087,812 2.30%
Commissions 21,802,471 25,911,314 -15.86%
Interest and other 1,731,697 890,366 94.49%
-------------- -------------- --------------
102,392,543 103,889,492 -1.44%
-------------- -------------- --------------
Expenses:
Employee compensation and benefits 21,576,980 19,415,825 11.13%
Fees paid out 6,084,887 5,271,647 15.43%
Commissions, clearance and trading 4,889,475 5,571,157 -12.24%
Research and administration 10,881,524 11,068,427 -1.69%
Marketing 3,940,064 3,782,718 4.16%
Depreciation and amortization 6,154,910 6,029,445 2.08%
Other operating 7,413,988 6,812,782 8.82%
-------------- -------------- --------------
60,941,828 57,952,001 5.16%
-------------- -------------- --------------
Income before taxes 41,450,715 45,937,491 -9.77%
Provision for taxes 4,169,595 4,593,749 -9.23%
-------------- -------------- --------------
Net income $ 37,281,120 $ 41,343,742 -9.83%
============== ============== ==============
Earnings per share:
Basic earnings per share $ 0.82 $ 0.92 -10.87%
============== ============== ==============
Diluted earnings per share $ 0.81 $ 0.91 -10.99%
============== ============== ==============
W.P. Stewart & Co., Ltd.
Net Flows of Assets Under Management*
(in millions)
-------------
For the Three Months Ended For the Nine Months Ended
-------------------------------------------------- --------------------------------
Sept. 30, 2005 Jun. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004
-------------- -------------- -------------- -------------- --------------
Existing Accounts:
Contributions $ 245 $ 171 $ 156 $ 728 $ 536
Withdrawals (222) (290) (185) (793) (569)
-------------- -------------- -------------- -------------- --------------
Net Flows of Existing Accounts 23 (119) (29) (65) (33)
-------------- -------------- -------------- -------------- --------------
Publicly Available Funds:
Contributions 55 62 61 171 159
Withdrawals (18) (18) (40) (111) (101)
Direct Accounts Opened 23 104 36 198 154
Direct Accounts Closed (55) (144) (95) (323) (454)
-------------- -------------- -------------- -------------- --------------
Net New Flows 5 4 (38) (65) (242)
-------------- -------------- -------------- -------------- --------------
Net Flows of Assets Under Management $ 28 $ (115) $ (67) $ (130) $ (275)
============== ============== ============== ============== ==============
* The table above sets forth the total net flows of assets under management for
the three months ended September 30, 2005, June 30, 2005 and September 30, 2004,
respectively, and for the nine months ended September 30, 2005 and 2004,
respectively, which include changes in net flows of existing accounts and net
new flows (net contributions to our publicly available funds and flows from new
accounts minus closed accounts). The table excludes total capital appreciation
or depreciation in assets under management with the exception of the amount
attributable to withdrawals and closed accounts.