Third Quarter 2002 Highlights
For the third quarter of 2002 there were 45,449,921 common shares outstanding on a weighted average diluted basis compared to 46,450,956 common shares outstanding for the third quarter of 2001 on the same weighted average diluted basis.
Net income for the quarter ended 30 September 2002, adjusted to include non-cash expenses such as depreciation, amortization and other non-cash charges on a tax-effected basis ("cash earnings"), was $15.9 million, or $0.35 per share (diluted), compared with $21.4 million, or $0.46 per share (diluted) in the same quarter of the prior year.
Assets under management at quarter-end were $7.3 billion, reflecting a decline of $1.0 billion or 12.1% from the end of the prior quarter, and a decline of 11% from $8.2 billion at 30 September 2001.
Nine Month Results
For the nine months ended 30 September 2002, net income was down 26.6% to $46.1 million, or $0.99 per share (diluted) and $1.05 per share (basic), on revenues of $108.3 million. Net income for the nine months ended 30 September 2001 was $62.8 million, or $1.34 per share (diluted) and $1.45 (basic), on revenues of $125.3 million.
Cash earnings for the nine months ended 30 September 2002 were,$51.7 million, or $1.12 per share (diluted), versus $67.8 million, or $1.44 per share (diluted), in the same period of the prior year.
For the nine months ended 30 September 2002, there were 46,381,845 common shares outstanding on a weighted average diluted basis compared to 46,994,225 common shares outstanding for the same period in 2001 on the same weighted average diluted basis.
Performance
Performance in the W.P. Stewart & Co., Ltd. U.S. equity composite for the third quarter of 2002 was -11.9% pre-fee and -12.3% post-fee. For the nine months ended 30 September 2002, the Company's performance was -18.7% pre-fee and -19.6% post-fee.
W.P. Stewart's five-year performance record for the period ended 30 September 2002 averaged 3.5% pre-fee (2.2% post-fee), compounded annually.
Assets Under Management
Assets under management (AUM) at quarter-end were approximately $7.3 billion, compared with approximately $8.2 billion reported for the quarter ended 30 September 2001 and approximately $8.3 billion for the quarter ended 30 June 2002.
Net flows of AUM for the quarter ended 30 September 2002 were +$13 million, compared with +$50 million in the comparable quarter of 2001 and net flows of +$39 million in the second quarter of 2002.
Net flows of AUM for the nine months ended 30 September 2002 and 2001 were -$27 million and -$221 million, respectively.
In the third quarter of 2002, net cash inflows from existing accounts were approximately $13 million compared with inflows of approximately $91 million in the third quarter of 2001. Net cash flows from existing accounts for the nine months ended 30 September 2002 were +$15 million compared to net outflows of $86 million in the nine months ended 30 September 2001.
Net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts) were approximately flat for the quarter compared to a decline of approximately $41 million for the same quarter of the prior year. Net new flows were approximately -$42 million and approximately -$135 million for the nine months ended 30 September 2002 and 2001, respectively.
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 27-year history, the growth in earning power behind clients' portfolios has ranged from approximately 11% to 22%, annually.
Currently, portfolio earnings growth 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 $34.5 million for the quarter ended 30 September 2002, down 10.1%, from $38.4 million, for the same quarter in 2001. Revenues for the nine months ended 30 September 2002 and 2001 were $108.3 million and $125.3 million, respectively.
The average gross management fee was 1.23% for the quarter ended 30 September 2002 and 1.23 % for the nine months ended 30 September 2002, compared to 1.26% and 1.25% for the comparable periods of the prior year. The decline in the average gross fee reflects a slight change in account mix.
Total operating expenses increased 13.9%, to $18.8 million, for the third quarter 2002, from $16.5 million in the same quarter of the prior year. Total operating expenses were $56.8 million and $55.5 million for the nine months ended 30 September 2002 and 2001, respectively.
Pre-tax income, at $15.8 million, was 45.7% of gross revenues for the quarter ended 30 September 2002 compared to $21.9 million or 57.1% of gross revenues in the comparable quarter of the prior year. Pre-tax income was $51.4 million (47.5% of gross revenues) for the nine months ended 30 September 2002, and $69.8 million (55.7% of gross revenues) for the nine months ended 30 September 2001.
The Company's provision for taxes for the quarter ended 30 September 2002 was $1.8 million versus $2.2 million in the comparable quarter of the prior year, and was $5.3 million versus $7.0 million for the nine months ended 30 September 2002 and 2001, respectively. The effective tax rate for the third quarter of 2002 was 11.2% and 10.4% for the nine months ended 30 September 2002. This is the result of our anticipated 10% tax rate for 2002 plus an adjustment in our prior year tax accrual determined when our tax returns were finalized in September 2002. The effective tax rate was 10% for both comparable periods in 2001.
Other Events
During the third quarter of 2002, the Company repurchased an aggregate of 493,300 of its common shares in open market transactions for an aggregate purchase price of approximately $8.4 million. Following these repurchases, the Board of Directors replenished the Company's authority to repurchase up to $30 million of the Company's shares at the discretion of the Company's Executive Committee.
The Company paid a dividend of $0.30 per share on 31 July 2002 and will pay a dividend of $0.30 per common share on 31 October 2002 to shareholders of record as of 17 October 2002.