[Letterhead of W.P. Stewart & Co., Ltd.]
July 12, 2007
VIA EDGAR
- ---------
Mr. Rufus Decker
Branch Chief
Division of Corporation Finance
United States Securities and
Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: W.P. Stewart & Co., Ltd.
Form 20-F for the Fiscal Year Ended December 31, 2006
Form 6-K for the Fiscal Quarter Ended March 31, 2007
File No. 1-16245
Dear Mr. Decker:
W.P. Stewart & Co., Ltd. ("we" or the "Company") is hereby responding to
the comment letter of the Staff, dated June 12, 2007, in respect of the
Company's Annual Report on Form 20-F for the year ended December 31, 2006 (the
"Annual Report") filed with the Securities and Exchange Commission (the
"Commission") on April 2, 2007 and the Company's Report on Form 6-K regarding
the Company's first quarter fiscal results for 2007 (the "Quarter Report") filed
with the Commission on May 16, 2007. Terms utilized in this letter shall have
the same meanings as were ascribed to them in the Annual Report.
The numbered paragraphs of the responses set forth below correspond to the
numbered comments in the Staff's letter.
1. The Staff requested that, where applicable in response to the Staff's
letter, additional disclosures or revisions be shown in this response letter. We
have done so as shown below. Any additional disclosures or revisions will be
incorporated in the Company's future filings, including interim filings, with
the Commission where applicable.
2. The Staff requested that the table entitled "Contractual Obligations"
under Item 5.F. "Tabular Disclosure of Contractual Arrangements" be revised to
include interest payments on indebtedness. The Staff further requested that any
assumptions used
1
Mr. Rufus Decker
July 12, 2007
Page 2 of 4
regarding such interest component be disclosed. We will include interest
payments on indebtedness in the table in future filings, as well as any
assumptions made to derive such amounts.
With the inclusion of interest payments on indebtedness, the "Contractual
Obligations" table in the Annual Report would have been as follows:
Contractual Obligations
-----------------------
(in millions)
2012-
2007 2008-2009 2010-2011 Thereafter Total
---- --------- --------- ---------- -----
Long-Term Debt (1) $1.9 $3.7 $3.5 $11.2 $20.3
Minimum Rental Commitments (2) $3.0 $6.4 $6.9 $19.3 $35.6
(1) See Note 8 to the consolidated financial statements for additional
information.
(2) See Note 17 to the consolidated financial statements for additional
information.
In order to make clear that the table includes interest payments, in
future filings we will add the following sentence to the paragraph immediately
preceding the table: "The contractual obligations set forth below include
interest payments on indebtedness. Our long-term debt carries interest at a rate
of 2.25% plus a variable per annum interest rate equal to the rate listed for
one-month commercial paper. For purposes of the table below, we assumed that
this variable rate of interest will remain at the rate applicable as of December
31, 2006, 7.48%."
3. The Staff inquired about the recent decline in assets under management
and whether that indicates an impairment of intangible assets and goodwill. As
stated within Note 2 under "Business Acquisitions" on page F-8 of the Annual
Report as well as in our critical accounting policies, we test the carrying
values of our intangible assets and goodwill annually and whenever events or
circumstances indicate that they may not be recoverable. Such analysis was
prepared in accordance with SFAS #142 and evaluated for the year ended December
31, 2006. Furthermore, given the additional level of asset outflows of
approximately $1.7 billion in the first quarter of 2007, this analysis was
prepared and evaluated at the end of the first quarter of 2007. Please refer to
such analyses attached as Exhibits I and II, respectively.
The intangible assets arose from our acquisitions of TPRS Services N.V.
(50 % in 1999 and the remaining 50% in 2000), First Long Island Investors, Inc.
(100% in 1999) and W.P. Stewart Asset Management (Europe), N.V. ("WPSAM Europe"
[formerly TPR & Partners, N.V.]) (75% in 2001 and the remaining 25% in 2006),
and as such the acquired assets represent a discrete identifiable population of
our client accounts. Although in the recent periods the Company has experienced
significant asset outflows we have been able to retain the pool of customers
supporting those intangible assets. As indicated in Exhibits I and II, for the
year ended December 31, 2006 and through the first quarter ended March 31, 2007,
the actual cash flows received from these acquired clients for the related year
and quarter were used to forecast revenue streams for 12 years. Such
2
Mr. Rufus Decker
July 12, 2007
Page 3 of 4
forecasted gross cash flows are in excess of the carrying value of these
intangible assets. Further, the implied fair value of goodwill at WPSAM Europe
both at December 31, 2006 and March 31, 2007 exceeded its carrying amount and
accordingly no potential impairment was identified.
4. The Staff inquired about the time period over which we amortize
intangible assets. The Staff correctly noted that in Note 3 to our Consolidated
Financial Statements we state that intangible assets arising from business
acquisition are amortized over five to 20 years. It was also correctly noted
that in Note 2, the business acquisitions listed in the charts on pages F-8 and
F-9 show that the intangible assets relating to those acquisitions were
amortized over 15 to 20 years. However, during the period for which the
financial statements relate, we had additional intangible assets that were
amortized over shorter periods. Please refer to the paragraph following the
charts on page F-9 which discuss WPSAM Europe. A portion of the intangibles
relating to such business acquisition were amortized over five years. As a
result, that portion of intangibles was fully amortized as of November 2006.
Subsequent to this date, all other intangible assets will be amortized over
periods of 14 to 20 years. Please note that the intangible assets recorded as a
result of the July 2006 purchase of the remaining minority interest in WPSAM
Europe are to be amortized over 14 years.
5. The Staff inquired as to whether the legal action mentioned in Note 9
of the Notes to the Company's Consolidated Financial Statements could have a
material impact on the Company's cash flows. As disclosed in the first paragraph
of Item 8.A of the Annual Report, we do not believe the claims of this suit are
merited. Therefore, we do not believe it will have a material adverse effect on
our cash flows. In order to clarify this, in future filings we will revise the
last sentence of the first paragraph of Item 8.A. and the last sentence of the
last paragraph of Note 9 to include a reference to cash flows in addition to
financial condition and results of operation.
6. The Staff asked about our stock volatility assumption used to determine
equity compensation given the decline in share value during the reporting
periods. The W.P. Stewart & Co., Ltd. 2001 Employee Equity Incentive Plan
provided for the granting of options to acquire W.P. Stewart & Co., Ltd. shares.
The only options granted by the Company pursuant to this plan were during the
years 2001 and 2002 at various strike prices ranging from $16.58 per share to
$28.42 per share (the Company did not issue any options during 2004-2006). The
options were exercisable annually in a series of tranches starting on October
24, 2002 and going through December 19, 2009. Prior to January 1, 2005, the plan
was accounted for as a variable plan under APB #25. The Company adopted FAS
123(R) on January 1, 2005, using the modified prospective method of adoption.
However, we inadvertently continued to apply ABP #25 methodology to these
variable options in calculating the compensation charge.
The Company has determined that had FAS 123(R) been applied to such
options, and a FIN #28 attrition model used, the difference in stock
compensation recorded in 2005 and 2006, would have been immaterial. In
determining grant date fair value, we determined that a thirty day period to
measure volatility was reasonable. This resulted in
3
Mr. Rufus Decker
July 12, 2007
Page 4 of 4
volatility ranging from 25% to 41%. The Company plans to clarify its disclosures
in its 2007 Form 20-F related to the assumptions used to value the 2001 and 2002
options under adoption of FAS 123(R) as follows:
The following range assumptions were applied in determining the effect on
compensation expense upon adoption of FAS 123(R) for the year ended December 31,
2006:
2006
----
Expected Life 1 to 7 years
Risk free interest rate 5.09% - 5.33%
Dividend yield 4.22% - 7.24%
Volatility 25% - 41%
The Company hereby acknowledges that (a) the Company is responsible for
the adequacy and accuracy of the disclosure in its filings with the Commission;
(b) Staff comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to filings with the
Commission; and (c) the Company may not assert Staff comments as a defense in
any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If the Staff has any further questions or comments, please telephone the
undersigned at 212-750-8585
Sincerely,
/s/ Susan G. Leber
Susan G. Leber
Managing Director - Chief Financial
Officer
4
Exhibit I(a)
WPS/FLI REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
FLII
12/31/1999
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 6,022 $6,022 $6,022 $6,022 $6,022 $6,022 $6,022
Expenses 3,258 3,258 3,258 3,258 3,258 3,258 3,258
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 2,764 2,764 2,764 2,764 2,764 2,764 2,764
Taxes 1,106 1,106 1,106 1,106 1,106 1,106 1,106
---------- -------- -------- -------- -------- -------- --------
Net Income 1,659 1,659 1,659 1,659 1,659 1,659 1,659
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $14,707
==========
Fair Value of Intangible Assets $19,902
==========
1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018
---------- -------- -------- -------- --------
Revenue $6,022 $6,022 $6,022 $6,022 $6,022
Expenses 3,258 3,258 3,258 3,258 3,258
---------- -------- -------- -------- --------
Pre-tax Income 2,764 2,764 2,764 2,764 2,764
Taxes 1,106 1,106 1,106 1,106 1,106
---------- -------- -------- -------- --------
Net Income 1,659 1,659 1,659 1,659 1,659
========== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 12/31/06 annualized
2) Expenses are at our run rate of 54.1% which is an approximate average over
the last 5 years
3) Tax rate is 40% [equal to full Fed/NYS&C tax rate]
Exhibit I(b)
WPS/TPRS REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
TPRS
12/31/1999
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 3,021 $3,021 $3,021 $3,021 $3,021 $3,021 $3,021
Expenses 1,634 1,634 1,634 1,634 1,634 1,634 1,634
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 1,387 1,387 1,387 1,387 1,387 1,387 1,387
Taxes 55 55 55 55 55 55 55
---------- -------- -------- -------- -------- -------- --------
Net Income 1,331 1,331 1,331 1,331 1,331 1,331 1,331
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $15,502
==========
Fair Value of Intangible Assets $15,974
==========
1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018
-------- -------- -------- -------- --------
Revenue $3,021 $3,021 $3,021 $3,021 $3,021
Expenses 1,634 1,634 1,634 1,634 1,634
-------- -------- -------- -------- --------
Pre-tax Income 1,387 1,387 1,387 1,387 1,387
Taxes 55 55 55 55 55
-------- -------- -------- -------- --------
Net Income 1,331 1,331 1,331 1,331 1,331
======== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 12/31/06 annualized
2) Expenses are at our run rate of 54.1% which is an approximate average over
the last 5 years
3) Tax rate is 4% [assumed rate in Curacao]
Exhibit I(c)
WPS/TPRS REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
TPRS
12/29/2000
----------
7/1/2007 7/1/2008 7/1/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 3,021 $3,021 $3,021 $3,021 $3,021 $3,021 $3,021
Expenses 1,634 1,634 1,634 1,634 1,634 1,634 1,634
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 1,387 1,387 1,387 1,387 1,387 1,387 1,387
Taxes 55 55 55 55 55 55 55
---------- -------- -------- -------- -------- -------- --------
Net Income 1,331 1,331 1,331 1,331 1,331 1,331 1,331
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $13,181
==========
Fair Value of Intangible Assets $15,974
==========
7/1/2014 7/1/2015 7/1/2016 7/1/2017 7/1/2018
---------- -------- -------- -------- --------
Revenue $3,021 $3,021 $3,021 $3,021 $3,021
Expenses 1,634 1,634 1,634 1,634 1,634
---------- -------- -------- -------- --------
Pre-tax Income 1,387 1,387 1,387 1,387 1,387
Taxes 55 55 55 55 55
---------- -------- -------- -------- --------
Net Income 1,331 1,331 1,331 1,331 1,331
========== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 12/31/06 annualized
2) Expenses are at our run rate of 54.1% which is an approximate average over
the last 5 years
3) Tax rate is 4% [assumed rate in Curacao]
Exhibit I(d)
WPS/WPSAM EUROPE REVENUE INTANGIBLES CASHFLOW ANALYSIS
Currency Amounts in Thousands $US
WPSAM Europe
11/14/2001
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014
---------- -------- -------- -------- -------- -------- -------- --------
Revenue $ 5,336 $5,336 $5,336 $5,336 $5,336 $5,336 $5,336 $5,336
Expenses 2,887 2,887 2,887 2,887 2,887 2,887 2,887 2,887
---------- -------- -------- -------- -------- -------- -------- --------
Pre-tax Income 2,449 2,449 2,449 2,449 2,449 2,449 2,449 2,449
Taxes 122 122 122 122 122 122 122 122
---------- -------- -------- -------- -------- -------- -------- --------
Net Income 2,327 2,327 2,327 2,327 2,327 2,327 2,327 2,327
========== ======== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $ 4,158
==========
Fair Value of Intangible Assets $32,575
==========
Carrying Value of Goodwill $ 8,682
==========
Fair Value of Goodwill $11,634
==========
1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020
---------- -------- -------- -------- -------- --------
Revenue $5,336 $5,336 $5,336 $5,336 $5,336 $5,336
Expenses 2,887 2,887 2,887 2,887 2,887 2,887
---------- -------- -------- -------- -------- --------
Pre-tax Income 2,449 2,449 2,449 2,449 2,449 2,449
Taxes 122 122 122 122 122 122
---------- -------- -------- -------- -------- --------
Net Income 2,327 2,327 2,327 2,327 2,327 2,327
========== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Carrying Value of Goodwill
Fair Value of Goodwill
Assumptions
1) Actual revenue at 12/31/06 per WPSAM Europe
2) Expenses are at our run rate of 54.1% which is an approximate average over
the last 5 years
3) Tax rate is 5% [assumed blended rate in Holland / Curacao]
Exhibit II(a)
WPS/FLI REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
FLII
12/31/1999
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 5,624 $5,624 $5,624 $5,624 $5,624 $5,624 $5,624
Expenses 3,307 3,307 3,307 3,307 3,307 3,307 3,307
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 2,317 2,317 2,317 2,317 2,317 2,317 2,317
Taxes 927 927 927 927 927 927 927
---------- -------- -------- -------- -------- -------- --------
Net Income 1,390 1,390 1,390 1,390 1,390 1,390 1,390
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $13,170
==========
Fair Value of Intangible Assets $16,684
==========
1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018
-------- -------- -------- -------- --------
Revenue $5,624 $5,624 $5,624 $5,624 $5,624
Expenses 3,307 3,307 3,307 3,307 3,307
-------- -------- -------- -------- --------
Pre-tax Income 2,317 2,317 2,317 2,317 2,317
Taxes 927 927 927 927 927
-------- -------- -------- -------- --------
Net Income 1,390 1,390 1,390 1,390 1,390
======== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 03/31/07 annualized
2) Expenses are at our run rate of 58.8% which is an approximate average over
the last 5 years
3) Tax rate is 4% [assumed rate in Curacao]
Exhibit II(b)
WPS/TPRS REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
TPRS
12/31/1999
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 2,540 $2,540 $2,540 $2,540 $2,540 $2,540 $2,540
Expenses 1,494 1,494 1,494 1,494 1,494 1,494 1,494
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 1,047 1,047 1,047 1,047 1,047 1,047 1,047
Taxes 42 42 42 42 42 42 42
---------- -------- -------- -------- -------- -------- --------
Net Income 1,005 1,005 1,005 1,005 1,005 1,005 1,005
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $14,116
==========
Fair Value of Intangible Assets $12,057
==========
1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018
---------- -------- -------- -------- --------
Revenue $2,540 $2,540 $2,540 $2,540 $2,540
Expenses 1,494 1,494 1,494 1,494 1,494
---------- -------- -------- -------- --------
Pre-tax Income 1,047 1,047 1,047 1,047 1,047
Taxes 42 42 42 42 42
---------- -------- -------- -------- --------
Net Income 1,005 1,005 1,005 1,005 1,005
========== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 03/31/07 annualized
2) Expenses are at our run rate of 58.8% which is an approximate average over
the last 5 years
3) Tax rate is 4% [assumed rate in Curacao]
Exhibit II(c)
WPS/TPRS REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
TPRS
12/29/2000
----------
7/1/2007 7/1/2008 7/1/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013
---------- -------- -------- -------- -------- -------- --------
Revenue $ 2,540 $2,540 $2,540 $2,540 $2,540 $2,540 $2,540
Expenses 1,494 1,494 1,494 1,494 1,494 1,494 1,494
---------- -------- -------- -------- -------- -------- --------
Pre-tax Income 1,047 1,047 1,047 1,047 1,047 1,047 1,047
Taxes 42 42 42 42 42 42 42
---------- -------- -------- -------- -------- -------- --------
Net Income 1,005 1,005 1,005 1,005 1,005 1,005 1,005
========== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $11,971
==========
Fair Value of Intangible Assets $12,057
==========
7/1/2014 7/1/2015 7/1/2016 7/1/2017 7/1/2018
---------- -------- -------- -------- --------
Revenue $2,540 $2,540 $2,540 $2,540 $2,540
Expenses 1,494 1,494 1,494 1,494 1,494
---------- -------- -------- -------- --------
Pre-tax Income 1,047 1,047 1,047 1,047 1,047
Taxes 42 42 42 42 42
---------- -------- -------- -------- --------
Net Income 1,005 1,005 1,005 1,005 1,005
========== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Assumptions
1) Actual revenue at 03/31/07 annualized
2) Expenses are at our run rate of 58.8% which is an approximate average over
the last 5 years
3) Tax rate is 4% [assumed rate in Curacao]
Exhibit II(d)
WPS/WPSAM EUROPE REVENUE INTANGIBLES CASHFLOW ANALYSIS
- --------------------------------------------------------------------------------
Currency Amounts in Thousands $US
WPSAM Europe
11/14/2001
----------
1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014
---------- -------- -------- -------- -------- -------- -------- --------
Revenue $ 4,359 $4,359 $4,359 $4,359 $4,359 $4,359 $4,359 $4,359
Expenses 2,563 2,563 2,563 2,563 2,563 2,563 2,563 2,563
---------- -------- -------- -------- -------- -------- -------- --------
Pre-tax Income 1,796 1,796 1,796 1,796 1,796 1,796 1,796 1,796
Taxes 90 90 90 90 90 90 90 90
---------- -------- -------- -------- -------- -------- -------- --------
Net Income 1,706 1,706 1,706 1,706 1,706 1,706 1,706 1,706
========== ======== ======== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets $ 3,814
==========
Fair Value of Intangible Assets $23,888
==========
Carrying Value of Goodwill $ 8,682
==========
Fair Value of Goodwill $ 8,531
==========
1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020
---------- -------- -------- -------- -------- --------
Revenue $4,359 $4,359 $4,359 $4,359 $4,359 $4,359
Expenses 2,563 2,563 2,563 2,563 2,563 2,563
---------- -------- -------- -------- -------- --------
Pre-tax Income 1,796 1,796 1,796 1,796 1,796 1,796
Taxes 90 90 90 90 90 90
---------- -------- -------- -------- -------- --------
Net Income 1,706 1,706 1,706 1,706 1,706 1,706
========== ======== ======== ======== ======== ========
Carrying Value of Intangible Assets
Fair Value of Intangible Assets
Carrying Value of Goodwill
Fair Value of Goodwill
Assumptions
1) Actual revenue at 03/31/07 annualized
2) Expenses are at our run rate of 58.8% which is an approximate average over
the last 5 years
3) Tax rate is 5% [assumed blended rate in Holland / Curacao]