WPL W.P. Stewart & CO. Ltd.

Diluted earnings per share of $0.08 and $0.56 for the third quarter and first nine months, respectively HAMILTON, Bermuda, Oct. 26 /PRNewswire-FirstCall/ -- Third Quarter 2006 Summary W.P. Stewart & Co., Ltd. today reported net income of $3.5 million, or $0.08 per share (diluted) and $0.08 per share (basic), for the third quarter ended 30 September 2006. This compares with net income in the third quarter of 2005 of $12.2 million, or $0.27 per share (diluted) and $0.27 per share (basic). Cash earnings for the quarter ended 30 September 2006 were $7.5 million (net income of $3.5 million adjusted to include $4.0 million representing non- cash expenses of depreciation, amortization and other non-cash charges on a tax effected basis), or $0.16 per share (diluted). In the same quarter of the prior year, cash earnings were $14.9 million (net income of $12.2 million adjusted for the inclusion of $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). Portfolio trading activity for the quarter was equal to only approximately 53% of the average quarterly transaction levels dating back to the first quarter of 2001. This abnormally low level of transactions represented a reduction of $0.15 per share in the third quarter of 2006 as compared with the second quarter of 2006 when portfolio transactions were abnormally high. The Company bills clients quarterly, in advance, based on assets under management ("AUM") at the end of the prior quarter. AUM billings in the third quarter were down approximately 10.6% from AUM billings in the second quarter of 2006 which resulted in a $2.8 million decrease in fee revenue for the quarter and represents $0.05 per share. Assets under management at 30 September 2006 were approximately $8.3 billion, compared to $8.4 billion at the end of the prior quarter, a decrease of 1.2% and a decrease of 13.5% from the $9.6 billion reported at 30 September 2005. For the third quarter of 2006 there were 45,794,313 common shares outstanding on a weighted average diluted basis compared to 45,991,471 common shares outstanding for the third quarter of 2005 on the same weighted average diluted basis. Current Perspective There has been a substantial improvement in portfolio performance since late July with the W.P. Stewart U.S. Equity Composite (the "Composite") up approximately 6.1%, pre-fee, year-to-date, as of 23 October 2006 and approximately 630 basis points behind the S&P 500. In contrast, at the end of July, when the Company reported second quarter results, the Composite was down approximately 7.3%, pre-fee, on a year-to-date basis and approximately 940 basis points behind the S&P 500. Based on performance through the end of the third quarter of 2006, the Company may be entitled to a performance fee this year on a limited number of its accounts, including on W.P. Stewart Holdings, 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 for the period ended 31 December, the date that the performance fee is measured and earned. Accordingly, no performance fee had been recorded at 30 September 2006. Portfolio trading activity during October has returned to levels more closely approximating our quarterly average levels of the past five years. As previously announced, the Board of Directors agreed to invest an aggregate of $30 million in three new pooled fund products. Two of these new funds are U.S. equity products targeted at investors with large asset bases and utilize performance fee structures. The third, an EAFE fund (world ex US), is expected to be launched in the fourth quarter and will be available to the company's worldwide client base. These investments reflect the Board's strong confidence in the W.P. Stewart investment style and a commitment to capitalize on new opportunities identified by the Company. Using what we believe to be reasonable assumptions, the implementation of targeted expense reductions and continued development of a meaningful expense discipline, we expect the fourth quarter of 2006 and calendar year 2007 to produce forward twelve month cash earnings sufficient to sustain our current annual dividend level of $0.92 per share. Nine Month Results For the nine months ended 30 September 2006, net income was down 30.7%, compared to the first nine months of 2005, to $25.8 million, or $0.56 per share (diluted) and $0.56 per share (basic), on revenues of $102.4 million. Net income for the nine months ended 30 September 2005 was $37.3 million, or $0.81 per share (diluted) and $0.82 per share (basic), on revenues of $102.4 million. Cash earnings for the nine months ended 30 September 2006 were $35.1 million (net income of $25.8 million adjusted to include $9.3 million, representing non-cash expenses of depreciation, amortization and other non- cash charges on a tax-effected basis), or $0.77 per share (diluted). In the same period of the prior year, cash earnings were $45.4 million (net income of $37.3 million adjusted for the inclusion of $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). For the nine months ended 30 September 2006, there were 45,883,021 common shares outstanding on a weighted average diluted basis compared to 45,895,724 common shares outstanding for the same period in 2005 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 2006 was 4.6% pre-fee and 4.3% post-fee, compared to 5.7% for the S&P 500. For the nine months ended 30 September 2006, performance in the Composite was 2.0% pre-fee and 1.1% post-fee, compared to 8.5% for the S&P 500. For the twelve month period ending 30 September 2006, performance in the Composite was 3.5 % pre-fee and 2.3 % post-fee, compared to 10.8 % for the S&P 500. W.P. Stewart's five-year performance record for the period ended 30 September 2006 averaged 9.0% pre-fee (7.8% post-fee), compounded annually, compared to an average of 7.0% for the S&P 500 in the five-year period. In the five and ten-year periods, ended 30 September 2006, 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 2006, 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 $8.3 billion, compared with $8.4 billion at the quarter ended 30 June 2006, and $9.6 billion reported at the quarter ended 30 September 2005. Total net flows of AUM for the quarter ended 30 September 2006 were -$476 million, compared with +$28 million in the comparable quarter of 2005 and - $510 million in the second quarter of 2006. Total net flows of AUM for the nine months ended 30 September 2006 and 2005 were -$1,223 million and -$130 million, respectively. In the third quarter of 2006, net cash flows of existing accounts were - $142 million compared with net cash flows of +$23 million in the third quarter of 2005. Net cash flows of existing accounts for the nine months ended 30 September 2006 were -$380 million compared to -$65 million for the nine months ended 30 September 2005. Net new flows (net contributions to our publicly available funds and flows from new accounts minus closed accounts) were -$334 million for the quarter compared to +$5 million for the same quarter of the prior year. Net new flows were -$843 million for the nine-months ending 30 September 2006 compared to -$65 million for the nine months ended 30 September 2005. A confluence of factors has pressured flows over the past few quarters including a significant realignment of account relationship responsibilities over the past 18 months, prior dispersion, competitive pressures, large-cap growth asset class fatigue and weak short-term performance. The Company continues to profitably manage a substantial and diverse pool of client assets and relationships, has maintained a superior long-term investment track record and has a stable and experienced investment team which is committed to serving the firm's clients over the coming years. As noted above, there has been a significant turn in the direction of our performance. 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 10% to 20%, annually. Currently the "look-through" earning power behind our clients' portfolios remains solidly positive with portfolio earnings per share growth on a trailing four quarter basis as at 30 September 2006 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. Revenues and Profitability Revenues were $27.6 million for the quarter ended 30 September 2006, down 18.1% from $33.7 million for the same quarter of 2005. Revenues for the nine months ended 30 September 2006 and 2005 were $102.4 million and $102.4 million, respectively. The average gross management fee was 1.09%, annualized, for the quarter ended 30 September 2006 and 1.12% for the nine months ended 30 September 2006, compared to 1.17% and 1.17%, respectively, in 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 September 2006, and 1.25% for the nine months ended 30 September 2006, compared to 1.28% in each of the comparable periods of the prior year. Total operating expenses increased 17.3% to $23.6 million, for the third quarter 2006, from $20.1 million in the same quarter of the prior year. Total operating expenses were $72.6 million and $60.9 million for the nine months ended 30 September 2006 and 2005, respectively. The increase in operating expenses in the third quarter of 2006 compared to the third quarter of 2005 resulted primarily from an increase in compensation expenses, both cash, including accruals, and non-cash expenses related to the issuance of restricted shares to various employees. Operating expenses declined sequentially from the second quarter of 2006 by $4.2 million. The increase in operating expenses for the nine months ended 30 September 2006 compared to the same period in 2005 relates to an increase in these same compensation expenses, noted above, plus the one-time $2.6 million charge in connection with the completion of the transfer of W.P. Stewart Holdings NV from Curacao to Luxembourg. As previously reported, the Company expects cash compensation to be in the range of $26 - $28 million for 2006 as compared with $26.8 million in 2005. The non-cash compensation expense related to the restricted share grants was approximately $2.6 million for the third quarter of 2006 (approximately $820,000 in third quarter 2005) and approximately $5.2 million for the nine months ended 30 September 2006 (approximately $2.3 million for nine months 2005). This non-cash compensation expense is included in "employee compensation and benefits". We expect non-cash compensation expense related to these restricted share grants to be at least $7.7 million for 2006. Pre-tax income, at $4.0 million, was 14.6% of gross revenues for the quarter ended 30 September 2006 compared to $13.6 million or 40.4% of gross revenues in the comparable quarter of the prior year. Pre-tax income was $29.7 million (29.1% of gross revenues) for the nine months ended 30 September 2006, and $41.5 million (40.5% of gross revenues) for the nine months ended 30 September 2005. The Company's provision for taxes for the quarter ended 30 September 2006 was $0.5 million versus $1.4 million in the comparable quarter of the prior year, and was $3.9 million versus $4.2 million for the nine months ended 30 September 2006 and 2005, respectively. The effective tax rate was approximately 12.2% of income before taxes in the third quarter of 2006 compared to approximately 10.2% in the third quarter of 2005. The effective tax rate was approximately 13.1% and 10.1% of income before taxes for the nine month periods ended 30 September 2006 and 2005, respectively. The increase in the tax rate for the nine month period in 2006 relates to changes in the allocation of portfolio management activities among various jurisdictions reflecting recent portfolio manager departures and other management changes. The proportion of various activities based in high-tax jurisdictions has increased somewhat relative to the activity based in lower- tax jurisdictions. Whereas the Company had previously indicated that the anticipated tax rate for 2006 would be between 17% and 20%, it now expects that the tax rate will be approximately 14% for 2006. Other Events The Company paid a dividend of $0.30 per common share on 28 July 2006 to shareholders of record as of 14 July 2006 and will pay a dividend of $0.23 per share on 27 October 2006 to shareholders of record as of 13 October 2006. Conference Call In conjunction with this third quarter 2006 earnings release, W.P. Stewart & Co., Ltd. will host a conference call on Thursday, 26 October 2006. 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 7990805". To listen to the live broadcast of the conference over the Internet, simply visit our website at http://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 26 October, 2006 at 12:00 noon (EDT) through Friday, 27 October, 2006 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 7990805. You will be able to access a replay of the Internet broadcast through Thursday, 2 November, 2006, 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 . 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 Sept. 30, June 30, Sept. 30, 2006 2006 2005 Revenue: Fees $22,952,366 $25,788,508 $25,716,931 Commissions 3,745,090 11,916,558 7,278,100 Interest and other 899,771 832,272 690,266 27,597,227 38,537,338 33,685,297 Expenses: Employee compensation and benefits 11,858,821 11,228,135 7,118,277 Fees paid out 1,998,151 1,949,680 2,056,673 Performance fee charge - 2,625,642 - Commissions, clearance and trading 617,937 2,245,933 1,779,427 Research and administration 3,320,368 3,330,257 3,587,671 Marketing 1,356,107 1,488,922 1,216,257 Depreciation and amortization 1,620,681 1,648,745 2,058,776 Other operating 2,797,460 3,318,203 2,269,163 23,569,525 27,835,517 20,086,244 Income before taxes 4,027,702 10,701,821 13,599,053 Provision for taxes 490,831 1,053,940 1,384,429 Net income $3,536,871 $9,647,881 $12,214,624 Earnings per share: Basic earnings per share $0.08 $0.21 $0.27 Diluted earnings per share $0.08 $0.21 $0.27 % Change From June 30, 2006 Sept. 30, 2005 Revenue: Fees -11.00% -10.75% Commissions -68.57% -48.54% Interest and other 8.11% 30.35% -28.39% -18.07% Expenses: Employee compensation and benefits 5.62% 66.60% Fees paid out 2.49% -2.85% Performance fee charge -100.00% - Commissions, clearance and trading -72.49% -65.27% Research and administration -0.30% -7.45% Marketing -8.92% 11.50% Depreciation and amortization -1.70% -21.28% Other operating -15.69% 23.28% -15.33% 17.34% Income before taxes -62.36% -70.38% Provision for taxes -53.43% -64.55% Net income -63.34% -71.04% Earnings per share: Basic earnings per share -61.90% -70.37% Diluted earnings per share -61.90% -70.37% W.P. Stewart & Co., Ltd. Unaudited Condensed Consolidated Statements of Operations For the Nine Months Ended September 30, 2006 2005 % Revenue: Fees $75,928,182 $78,858,375 -3.72% Commissions 23,922,442 21,802,471 9.72% Interest and other 2,530,120 1,731,697 46.11% 102,380,744 102,392,543 -0.01% Expenses: Employee compensation and benefits 30,825,793 21,576,980 42.86% Fees paid out 6,122,739 6,084,887 0.62% Performance fee charge 2,625,642 - - Commissions, clearance and trading 4,505,949 4,889,475 -7.84% Research and administration 10,280,169 10,881,524 -5.53% Marketing 4,556,123 3,940,064 15.64% Depreciation and amortization 4,845,220 6,154,910 -21.28% Other operating 8,877,800 7,413,988 19.74% 72,639,435 60,941,828 19.19% Income before taxes 29,741,309 41,450,715 -28.25% Provision for taxes 3,892,446 4,169,595 -6.65% Net income $25,848,863 $37,281,120 -30.67% Earnings per share: Basic earnings per share $0.56 $0.82 -31.71% Diluted earnings per share $0.56 $0.81 -30.86% W.P. Stewart & Co., Ltd. Net Flows of Assets Under Management* (in millions) For the Three Months For the Nine Ended Months Ended Sept. Jun. Sept. Sept. Sept. 30, 30, 30, 30, 30, 2006 2006 2005 2006 2005 Existing Accounts: Contributions $ 100 $ 168 $ 245 $ 597 $ 728 Withdrawals (242) (375) (222) (977) (793) Net Flows of Existing Accounts (142) (207) 23 (380) (65) Publicly Available Funds: Contributions 17 78 55 129 171 Withdrawals (70) (93) (18) (232) (111) Direct Accounts Opened 27 27 23 111 198 Direct Accounts Closed (308) (315) (55) (851) (323) Net New Flows (334) (303) 5 (843) (65) Net Flows of Assets Under Management $(476) $ (510) $ 28 $(1,223) $(130) * The table above sets forth the total net flows of assets under management for the three months ended September 30, 2006, June 30, 2006 and September 30, 2005, respectively, and for the six months ended September 30, 2006 and 2005, 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. DATASOURCE: W.P. Stewart & Co., Ltd. CONTACT: Fred M. Ryan, +1-441-295-8585, for W.P. Stewart & Co., Ltd. Web site: http://www.wpstewart.com/

Copyright