Provides Update On Business Reorganization and Turnaround Initiatives
* Second quarter GAAP loss of $0.39 per share (diluted) after
non-recurring, non-cash charge of $18.0 million, or $0.39 per
share, diluted; GAAP earnings of $0.21 per share (diluted) in
second quarter, 2006
* Six months GAAP loss of $0.43 per share (diluted); GAAP
earnings of $0.49 per share (diluted) for the six months
ended 30 June 2006
* Cash earnings of $0.11 per share (diluted) for the second
quarter ($0.29 per share, diluted, in second quarter 2006)
and $0.26 per share (diluted) for the six months ended 30
June 2007 ($0.60 per share, diluted, for the six months
ended 30 June 2006) - see GAAP reconciliation statement below
HAMILTON, Bermuda, August 2 2007 (PRIME NEWSWIRE) -- W.P. Stewart & Co., Ltd. today reported a net loss of $17.8 million, or $0.39 per share (diluted) and $0.39 per share (basic) for the second quarter ended 30 June 2007. This loss reflects a second quarter non-recurring, non-cash charge of approximately $18.0 million, or $0.39 per share, diluted, related to an impairment of intangible assets. This impairment reflects a decrease in assets under management, the fees from which were supporting intangible assets per the Financial Accounting Standards Board (SFAS No. 142). Excluding this non-recurring, non-cash charge, second quarter 2007 net income was $173,000, less than one cent per share. These results compare with net income in the second quarter of the prior year of $9.6 million, or $0.21 per share (diluted) and $0.21 per share (basic).
Cash earnings for the quarter ended 30 June 2007 were $5.0 million (net loss of $17.8 million adjusted to include $22.8 million representing non-cash income and expenses consisting of unrealized gains and losses, non-cash compensation, depreciation, amortization and other non-cash charges, including the non-recurring impairment charges on a tax-effected basis), or $0.11 per share (diluted). In the same quarter of the prior year, cash earnings were $13.3 million (net income of $9.6 million adjusted for the inclusion of $3.7 million representing expenses of non-cash compensation, depreciation, amortization and other non-cash charges on a tax-effected basis), or $0.29 per share (diluted).
Assets under management (AUM) at quarter-end were approximately $5.3 billion, compared to approximately $6.4 billion at the end of the prior quarter, a decrease of approximately 17.2% and a decrease of approximately 36.9% from $8.4 billion at 30 June 2006.
For the second quarter of 2007 there were 46,060,247 common shares outstanding on a weighted average diluted basis compared to 45,915,096 common shares outstanding for the second quarter of 2006 on the same weighted average diluted basis.
Management Review & Comment
In announcing the results, William P. Stewart, Chairman & Chief Executive Officer, said, "Overall, while our financial results in the second quarter reflect the disruptions of the past and the preference of investors for other strategies than U.S. quality growth companies, looking forward we believe we have begun to see a change in investor mood coupled with a strengthening of our own business and investment performance."
The Company continues on the reorganization and turnaround which began in February of this year. The following highlights are noted:
1. Strengthening and widening the employee talent pool is a key
factor in the Company's turnaround efforts. As previously
announced, James D. Awad recently joined the firm as Chairman
of W.P. Stewart Asset Management (NA), Inc. Also, during the
second quarter, the Company added another experienced professional
to the New York investment team, one senior professional to our
London based research group and one senior client service
professional in New York. The Company expects to add more senior
people to our U.S. investment and corporate development areas over
the next few weeks.
2. A review of the Company's advisory fees and brokerage commissions
has been completed. A range of fixed and performance oriented fee
choices is being offered to clients. In addition to the changes
announced last year, an advisory fee option combining a lower
fixed fee with a performance fee has been introduced for account
relationships greater than $10 million. Brokerage commissions for
account relationships totaling $10 million are being eliminated.
We also now offer a fixed fee alternative for all standard fee
relationships under that limit.
3. As part of an ongoing initiative to enhance operational
efficiency and improve our cost structure, a thorough review of
expenses was completed during the second quarter. The Company's
corporate aircraft was sold last month for $18.8 million. As the
aircraft was fully depreciated, the sale is a taxable event.
Additionally, certain other expenses have been identified for
reduction and there has been a further reduction in employee
count. Accordingly, there will be additional one-time charges
related to employee terminations in the third quarter of 2007.
4. During the second quarter, the Company streamlined the framework
for offering the W.P. Stewart global and international (ex-U.S.)
investment services to clients. The demand for international
exposure among the Company's clients is strong. A large group of
clients, related to a third party solicitor asked us to include
some high quality international companies in their existing U.S.
portfolios. This conversion is expected to be completed by the
end of August.
5. At a recent meeting the Company's Board of Directors confirmed
the policy that dividend declarations include a consideration
of the Company's cash earnings as well as future requirements
for building out our global franchise.
Six Month Results
For the six months ended 30 June 2007, the net loss was $19.6 million or $0.43 per share (diluted), and $0.43 per share (basic), on revenues of $48.1 million. This includes the non-recurring charges of approximately $18 million noted above and approximately $5.8 million relating to agreements with certain employees, reached in the first quarter of 2007, whose employment with the Company terminated in that quarter. As noted, the second quarter non-recurring, non-cash charge of approximately $18.0 million or $0.39 per share (diluted) related to an impairment of intangible assets. This impairment reflects a decrease in assets under management, the fees from which were supporting intangible assets per the Financial Accounting Standards Board (SFAS No. 142). Net income for the six months ended 30 June 2006 was $22.3 million or $0.49 per share (diluted) and $0.49 per share (basic), on revenues of $74.8 million.
Cash earnings for the six months ended 30 June 2007 were $11.9 million (net loss of $19.7 million adjusted to include $31.6 million, representing non-cash income and expenses consisting of unrealized gains and losses, non-cash compensation, depreciation, amortization and other non-cash charges, including the non-recurring impairment charges on a tax-effected basis), or $0.26 per share (diluted). In the same period of the prior year, cash earnings were $27.7 million (net income of $22.3 million adjusted for the inclusion of $5.4 million representing expenses of non-cash compensation, depreciation, amortization and other non-cash charges on a tax-effected basis), or $0.60 per share (diluted).
For the six months ended 30 June 2007, there were 46,023,754 common shares outstanding on a weighted average diluted basis compared to 45,928,110 common shares outstanding for the same period in 2006 on the same weighted average diluted basis.
Performance
Performance in the W.P. Stewart & Co., Ltd. U.S. Equity Composite (the "Composite") for the second quarter of 2007 was +2.8%, pre-fee, and +2.5%, post-fee. This compares to +6.3% for the S&P 500.
For the six months ended 30 June 2007, performance in the Composite was +2.1%, pre-fee, and +1.5%, post-fee. This compares to +7.0% for the S&P 500.
For the twelve month period ending 30 June 2007, performance in the Composite was +14.1%, pre-fee, and 13.0%, post-fee. This compares to 20.6% for the S&P 500.
Performance in the W.P. Stewart International portfolio (ex-United States) for the second quarter of 2007 was 6.0%, pre-fee, and 5.9%, post-fee, compared to 6.4% for the MSCI EAFE Index. Performance in the Global portfolio was 5.5%, pre-fee, and 5.3%, post-fee, compared to 6.5% the MSCI World Index. For the six months ended 30 June 2007, performance in the W.P. Stewart International portfolio was 8.3%, pre-fee, and 8.0%, post-fee, compared to 10.7% for the MSCI EAFE Index. In the Global portfolio, performance for the six moths ended 30 June 2007 was 5.4%, pre-fee, and 5.0%, post-fee, compared to 9.2% for the MSCI World Index.
Monthly Performance Reporting
Beginning with July 2007, the Company will be releasing composite portfolio investment returns on a monthly basis. These returns will be posted on our website at www.wpstewart.com.
Preliminary indications are that performance in July 2007 for the U.S. Equity Composite was -1.2%, pre-fee, and -1.3%, post-fee. This compares with -3.2% for the S&P 500. The year-to-date performance for the Composite, as of 31 July 2007 was 0.9%, pre-fee, and 0.2%, post-fee, compared with 3.6% for the S&P 500. For the twelve months ended 31 July 2007, the Composite was up 17.5%, pre-fee, and 16.3%, post-fee, compared with 16.1% for the S&P 500 Index.
The Company's international performance remains strong. Performance in the International portfolios on a year-to-date basis as of 31 July 2007 was 9.9%, pre-fee, and 9.6%, post-fee, compared to 9.1% for the MSCI EAFE Index. For the Global portfolios performance was 5.5%, pre-fee and 5.0%, post-fee, year-to-date as of 31 July 2007, compared to 6.7% for the MSCI World Index.
The Stewart Asia Fund, managed by our affiliate, Bowen Asia and which we will be including in our monthly reporting, posted returns of 16.9%, year-to-date as of 31 July 2007, compared to 12.9% for its benchmark, the Dow Jones Asia Pac.
Assets Under Management
Assets under management (AUM) for the quarter ended 30 June 2007 were approximately $5.3 billion, compared with approximately $6.4 billion for the quarter ended 31 March 2007 and $8.4 billion reported at the quarter ended 30 June 2006.
Total net flows of AUM for the quarter ended 30 June 2007 were -$1,156 million, compared with -$510 million in the comparable quarter of 2006 and -$1,663 million in the first quarter of 2007.
Total net flows of AUM for the six months ended 30 June 2007 and 2006 were -$2,819 million and -$747 million, respectively.
In the second quarter of 2007, net cash flows of existing accounts were approximately -$251 million compared with net cash flows of approximately -$207 million in the second quarter of 2006. Net cash flows of existing accounts for the six months ended 30 June 2007 were -$490 million compared to -$238 million for the six months ended 30 June 2006.
Net new flows (net contributions to our publicly-available funds and flows from new accounts minus closed accounts) were approximately -$905 million for the quarter compared to approximately -$303 million for the same quarter of the prior year. Net new flows were approximately -$2,329 million and approximately -$509 million for the six months ended 30 June 2007 and 2006, respectively.
Net flows in July 2007 were negative approximately $190 million.
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 the "look-through" earnings power behind our clients' portfolios remains solidly positive with portfolio earnings per share growth on a trailing four quarter basis as at 30 June 2007 expected to have advanced at the high end of the historical range. The Company's research analysts expect "look-through" portfolio earnings growth to be within the 12-15% range over the next few years, about twice the growth expected for the S&P 500 Index earning power.
Revenues and Profitability
Revenues were $22.2 million for the quarter ended 30 June 2007, compared to $38.5 million for the same quarter 2006. Revenues for the six months ended 30 June 2007 and 2006 were $48.1 million and $74.8 million, respectively.
The average gross management fee was 1.06%, annualized, for the quarter ended 30 June 2007 and 1.07%, annualized, for the six months ended 30 June 2007, compared to 1.13% and 1.13%, annualized, for each of the comparable periods of the prior year.
Excluding performance fee based accounts, the average gross management fee was 1.23%, annualized, for the quarter ended 30 June 2007 and 1.22%, annualized, for the six months ended 30 June 2007, compared to 1.25%, and 1.26%, annualized, for each of the comparable periods of the prior year.
Total operating expenses for the second quarter 2007 increased 39.1% to $38.7 million, and include the non-cash, non-recurring impairment charge of approximately $18 million, from $27.8 million in the same quarter of the prior year. Total operating expenses were $66.6 million, including the non-cash, non-recurring charges, and $49.1 million for the six months ended 30 June 2007 and 2006, respectively.
The increase in employee compensation and benefits substantially reflects non-cash compensation expense related to the Company's restricted share issuances to employees of approximately $9.3 million for the six months ended 30 June 2007, which includes $4.2 million related to employees whose employment terminated in February 2007. In the comparable period of 2006 these non-cash compensation expenses were $2.6 million.
We expect non-cash compensation expense related to restricted share grants to be at least $14.5 million for 2007 versus $7.9 in 2006.
The Company's provision for taxes for the quarter ended 30 June 2007 was $1.3 million versus $1.1 million in the comparable quarter of the prior year, and was $1.2 million versus $3.4 million for the six months ended 30 June 2007 and 2006, respectively.
Other Events
The Company paid a dividend of $0.15 per common share on 27 April 2007 to shareholders of record as of 13 April 2007, and will pay a dividend of $0.15 per common share on 3 August 2007 to shareholders of record as of 23 July 2007.
Conference Call
In conjunction with this second quarter 2007 earnings release, W.P. Stewart & Co., Ltd. will host a conference call on Thursday, 2 August 2007. The conference call will commence promptly at 9:15am (EDT). Those who are interested in participating in the teleconference should dial 1-800-289-0544 (within the United States) or +913-981-5533 (outside the United States). The conference ID number is 4704671. 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 webcast.
The teleconference will be available for replay from Thursday, 2 August 2007 at 12:00 noon (EDT) through Friday, 3 August 2007 at 5:00 p.m. (EDT). To access the replay, please dial 1-888-203-1112 (within the United States) or +719-457-0820 (outside the United States). The pass code for accessing this replay is 4704671.
You will be able to access a replay of the Internet broadcast through Thursday, 9 August 2007, on the Company's website at http://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 (NYSE:WPL) and on the Bermuda Stock Exchange (BSX:WPS).
For more information, please visit the Company's website at http://www.wpstewart.com, or call W.P. Stewart Investor Relations (Fred M. Ryan) at 1-888-695-4092 (toll-free within the United States) or +441-295-8585 (outside the United States) or e-mail to IRINFO@wpstewart.com.
Statements made in this release concerning our assumptions, expectations, beliefs, intentions, plans or strategies are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. Such risks and uncertainties include, without limitation, the adverse effect from a decline or volatility in the securities markets, a general downturn in the economy, the effects of economic, financial or political events, a loss of client accounts, inability of the Company to attract or retain qualified personnel, a challenge to our U.S. tax status, competition from other companies, changes in government policy or regulation, a decline in the Company's products' performance, inability of the Company to implement its operating strategy, inability of the Company to manage unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations, industry capacity and trends, changes in demand for the Company's services, changes in the Company's business strategy or development plans and contingent liabilities. The 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.
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended
-----------------------------------------------
June 30, Mar. 31, June 30,
2007 2007 2006
----------- ----------- -----------
Revenue:
Fees $16,019,572 $21,061,944 $25,788,508
Commissions 4,256,289 4,459,454 11,916,558
Realized and
unrealized
gains/(losses) on
investments (1) 1,300,243 (21,201) 79,255
Interest and
other (1) 580,435 440,328 753,017
------------ ------------ -----------
22,156,539 25,940,525 38,537,338
------------ ------------ -----------
22,156,539 419,127
Expenses:
Employee
compensation
and benefits 9,487,651 16,149,555 11,228,135
Fees paid out 1,846,777 1,781,660 1,949,680
Performance
fee charge -- -- 2,625,642
Commissions,
clearance
and trading 726,948 787,965 2,245,933
Research and
administration 3,070,359 3,392,907 3,330,257
Marketing 1,280,031 1,564,158 1,488,922
Depreciation
and amortization 1,448,278 1,438,229 1,648,745
Impairment
of intangible
asset 17,985,000 -- --
Other operating 2,860,020 2,737,124 3,318,203
------------ ------------ -----------
38,705,064 27,851,598 27,835,517
------------ ------------ -----------
Income before
taxes (16,548,525) (1,911,073) 10,701,821
Provision for
taxes 1,263,722 (74,295) 1,053,940
------------ ------------ -----------
Net income $(17,812,247) $ (1,836,778) $ 9,647,881
============ ============ ===========
Earnings per
share:
Basic earnings
per share $ (0.39) $ (0.04) $ 0.21
============ ============ ===========
Diluted earnings
per share $ (0.39) $ (0.04) $ 0.21
============ ============ ===========
% Change From
------------------------
Mar. 31, June 30,
2007 2006
--------- ---------
Revenue:
Fees -23.94% -37.88%
Commissions -4.56% -64.28%
Realized and unrealized gains/(losses)
on investments (1) -6232.93% 1540.58%
Interest and
other (1) 31.82% -22.92%
--------- ---------
-14.59% -42.51%
--------- ---------
Expenses:
Employee compensation and benefits -41.25% -15.50%
Fees paid out 3.65% -5.28%
Performance fee charge -- --
Commissions, clearance and trading -7.74% -67.63%
Research and administration -9.51% -7.80%
Marketing -18.16% -14.03%
Depreciation and amortization 0.70% -12.16%
Impairment of intangible asset -- --
Other operating 4.49% -13.81%
--------- ---------
38.97% 39.05%
--------- ---------
Income before taxes 765.93% -254.63%
Provision for taxes -1800.95% 19.90%
--------- ---------
Net income 869.76% -284.62%
========= =========
Earnings per share:
Basic earnings per share 875.00% -285.71%
========= =========
Diluted earnings per share 875.00% -285.71%
========= =========
Note (1): Prior period amounts have been revised to reflect
presentation consistent with current period reporting.
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the Six Months Ended June 30,
----------------------------------------
2007 2006 %
------------ ----------- --------
Revenue:
Fees $ 37,081,516 $52,975,816 -30.00%
Commissions 8,715,743 20,177,352 -56.80%
Realized and unrealized
gains/(losses) on
investments (1) 1,279,042 121,007 957.00%
Interest and other (1) 1,020,763 1,509,342 -32.37%
------------ ----------- --------
48,097,064 74,783,517 -35.68%
------------ ----------- --------
Expenses:
Employee compensation
and benefits 25,637,206 18,966,972 35.17%
Fees paid out 3,628,437 4,124,588 -12.03%
Performance fee charge -- 2,625,642 --
Commissions, clearance
and trading 1,514,913 3,888,012 -61.04%
Research and
administration 6,463,266 6,959,801 -7.13%
Marketing 2,844,189 3,200,016 -11.12%
Depreciation and
amortization 2,886,507 3,224,539 -10.48%
Impairment of
intangible asset 17,985,000 -- --
Other operating 5,597,144 6,080,340 -7.95%
------------ ----------- --------
66,556,662 49,069,910 35.64%
------------ ----------- --------
Income before taxes (18,459,598) 25,713,607 -171.79%
Provision for taxes 1,189,427 3,401,615 -65.03%
------------ ----------- --------
Net income $(19,649,025) $22,311,992 -188.06%
============ =========== ========
Earnings per share:
Basic earnings per
share $ (0.43) $ 0.49 -187.76%
============ =========== ========
Diluted earnings per
share $ (0.43) $ 0.49 -187.76%
============ =========== ========
Note (1): Prior period amounts have been revised to reflect
presentation consistent with current period reporting.
W.P. Stewart & Co., Ltd.
Net Flows of Assets Under Management*
(in millions)
For the For the
Three Months Ended Six Months Ended
------------------------------- ------------------
Jun. 30, Mar. 31, Jun. 30, Jun. 30, Jun. 30,
2007 2007 2006 2007 2006
-------- -------- --------- -------- -------
Existing
Accounts:
Contributions $ 56 $ 83 $ 168 $ 139 $ 497
Withdrawals (307) (322) (375) (629) (735)
------- ------- ----- ------- -----
Net Flows of
Existing
Accounts (251) (239) (207) (490) (238)
------- ------- ----- ------- -----
Publicly
Available
Funds:
Contributions 19 75 78 94 112
Withdrawals (190) (119) (93) (309) (162)
Direct
Accounts
Opened 28 115 27 143 84
Direct
Accounts
Closed (762) (1,495) (315) (2,257) (543)
------- ------- ----- ------- -----
Net New Flows (905) (1,424) (303) (2,329) (509)
------- ------- ----- ------- -----
Net Flows of
Assets Under
Management $(1,156) $(1,663) $(510) $(2,819) $(747)
======= ======= ===== ======= =====
* The table above sets forth the total net flows of assets under
management for the three months ended June 30, 2007, March 31, 2007
and June 30, 2006, respectively, and for the six months ended
June 30, 2007 and 2006, 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.