SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended January 31, 1994 Commission File No. 1-8100
EATON VANCE CORP
(Exact name of registrant as specified in its charter)
Maryland 04-2718215
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
24 Federal Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
(617) 482-8260 Registrant's telephone number, including area code
None
(Former name, address and former fiscal year, if changed since last record)
Shares outstanding as of January 31, 1994:
Voting common stock - 19,360 shares
Non-Voting Common Stock - 9,244,690 shares
Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO .
Page 1 of 17 pages
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PART I
FINANCIAL INFORMATION
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Consolidated Balance Sheets
(unaudited)
ASSETS
January 31, October 31,
1994 1993
(all figures in thousands)
Current Assets:
Cash and equivalents $ 13,762 $ 12,414
Receivable for investment company
shares sold 4,209 3,007
Investment adviser fees and other
receivables 2,933 2,923
Marketable securities, at market (cost $3,185) 3,497 -
Other current assets 3,173 1,390
Total current assets 27,574 19,734
Investors Bank & Trust Company Assets:
Cash and equivalents 23,767 16,241
Investment securities (market value
$79,952 and $82,404, respectively) 78,067 80,206
Loans, less allowance for possible
loan losses 12,699 10,221
Accrued interest and fees receivable 7,012 5,668
Equipment and leasehold improvements, net 3,087 3,010
Other assets 5,026 4,838
Total bank assets 129,658 120,184
Other Assets:
Investments -
Real estate 22,292 22,448
VenturesTrident, L.P. and
VenturesTrident II, L.P. 3,846 6,924
Investment companies (market value
$5,362 and $5,025, respectively) 3,616 3,377
Other investments 3,837 4,154
Notes receivable & receivables from affiliates 3,343 3,381
Deferred sales commissions 260,778 240,017
Property and equipment, net 3,699 3,329
Goodwill 1,971 1,999
Total other assets 303,382 285,629
Total assets $460,614 $425,547
See notes to consolidated financial statements
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Consolidated Balance Sheets (continued)
(unaudited)
LIABILITIES AND January 31, October 31,
SHAREHOLDERS' 1994 1993
EQUITY (all figures in thousands)
Current Liabilities:
Payable for investment company
shares purchased $ 4,275 $ 3,073
Accrued compensation 2,189 8,626
Accounts payable and accrued expenses 4,630 4,046
Accrued income taxes 1,206 1,443
Dividend payable 1,300 1,285
Other current liabilities 1,359 603
Total current liabilities 14,959 19,076
Investors Bank & Trust Company Liabilities:
Demand and time deposits 112,862 104,851
Other 2,959 3,624
Total bank liabilities 115,821 108,475
Other Liabilities:
Note payable to unaffiliated banks 61,950 42,300
Mortgage notes payable 16,678 16,759
Subordinated debentures 14,169 14,169
Minority interest in consolidated subsidiaries 2,447 2,340
Total other liabilities 95,244 75,568
Deferred income taxes 81,450 77,128
Commitments 0 0
Shareholders' Equity:
Common stock, par value $.0625 per share-
Authorized, 80,000 shares
Issued, 19,360 shares 1 1
Non-voting common stock, par value
$.0625 per share-
Authorized, 11,920,000 shares
Issued 9,244,690 and 9,134,218 shares
respectively 579 571
Additional paid-in capital 54,752 52,845
Notes receivable from stock sales (2,287) (1,804)
Retained earnings 100,095 93,687
Total shareholders' equity 153,140 145,300
Total liabilities and shareholders' equity $460,614 $425,547
See notes to consolidated financial statements
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Consolidated Statements of Income
(unaudited)
Three Months Ended
January 31,
1994 1993
(in thousands, except
per share figures)
Income:
Investment adviser and administration fees $21,444 $17,434
Distribution income 20,925 15,634
Bank fee income 9,081 7,756
Bank net interest income 1,188 891
Real estate, oil and gas, other income 1,252 1,107
Total income 53,890 42,822
Expenses:
Compensation of officers and employees 17,439 14,556
Amortization of deferred sales commissions 12,751 8,847
Other expenses 10,874 9,085
Total expenses 41,064 32,488
Operating income 12,826 10,334
Other income (Expense):
Interest income 132 241
Share of partnership income (losses) 736 (926)
Interest expense (1,351) (1,364)
Income before income taxes 12,343 8,285
Income taxes:
Currently payable-
Federal - 151
State 295 127
Deferred-
Federal 4,485 2,373
State 1,157 710
Total income taxes 5,937 3,361
Net income before cumulative effect of
change in accounting for income taxes 6,406 4,924
Cumulative effect of change in
accounting for income taxes 1,300 -
Net income $ 7,706 $ 4,924
Earnings per share before cumulative effect of
change in accounting for income taxes $0.67 $0.62
Cumulative effect of change in
accounting for income taxes per share $0.14 $ -
Earnings per share $0.81 $0.62
Dividends declared, per share $0.14 $0.11
Average common shares outstanding 9,530 7,969
See notes to consolidated financial statements
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Consolidated Statements of Cash Flows
(unaudited) Three Months ended
January 31,
1994 1993
(in thousands)
Cash and Equivalents (including IB&T),
Beginning of period................................... $28,655 $ 9,535
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. 7,706 4,924
Adjustments to reconcile net income to net cash
provided by (used for) operating activities--
Share of net (income) loss of partnerships.............. (736) 984
Deferred income taxes................................... 5,632 3,083
Change in accounting principle.......................... (1,300) -
Amortization of deferred sales commissions.............. 12,751 8,847
Depreciation and other amortization..................... 1,282 1,017
Payments of sales commissions........................... (38,527) (27,852)
Capitalized sales charges received...................... 4,969 5,103
Change in refundable income taxes....................... 0 1,036
Changes in other assets and liabilities................. (9,097) (7,918)
Net cash provided by (used for) operating activities... (17,320) (10,776)
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from (investment in) partnerships......... - (75)
Additions to real estate, property and equipment........ (842) (356)
Net (increase) decrease in notes and other receivables.. (550) (291)
Net (increase) decrease in investment companies
and other investments.................................. 115 (434)
Proceeds from sales and maturities of
investment securities.................................. 1,761 430
Decrease (increase) in federal funds sold............... 0 13,250
Net (increase) decrease in loans........................ (2,478) (484)
Net cash provided by (used for) investing activities... (1,994) 12,040
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................. 31,350 25,300
Payments on notes payable............................... (11,777) (15,674)
Proceeds from the issuance of non-voting common stock... 1,946 2,329
Dividends paid.......................................... (1,314) (858)
Repurchase of non-voting common stock................... (28) (771)
Changes in demand and time deposits..................... 8,011 (11,051)
Net cash provided by (used for) financing activities.. 28,188 (725)
Net increase in cash and equivalents................. 8,874 539
Cash and equivalents (including IB&T), end of period.... $37,529 $10,074
NONCASH INVESTING ACTIVITY:
Distribution of securities from Gold mining partnership $ 3,815 $ -
SUPPLEMENTAL INFORMATION:
Interest paid........................................... $ 1,031 $ 1,101
Income taxes paid (refunded)............................ $ 686 $ (417)
See notes to consolidated financial statements
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) January 31, 1994
(1) Consolidating Financial Statements
The components of the January 31, 1994 Eaton Vance Corp. consolidated
balance sheet and statement of income by major business segment follow:
BALANCE SHEET January 31, 1994
Investment Real Mining Consolidated
Management Banking Estate Oil&Gas Eliminations Total
Current Assets: (in thousands)
Cash and equivalents $ 16,053 $ - $ 595 $ 172 $ (3,058) $ 13,762
Receivables and other
current assets 9,526 754 3,907 (375) 13,812
Total current assets 25,579 1,349 4,079 (3,433) 27,574
IB&T Co. Assets: 129,658 129,658
Other Assets:
Investments-
Real estate 22,292 22,292
VenturesTrident,L.P. &
VenturesTrident II,L.P. 3,846 3,846
Investments in and
advances to
Northeast Properties, Inc. 6,118 (6,118)
Investors Bank & Trust Co. 8,378 (8,378)
Marblehead Energy Corp. 396 (396)
Energex Corp. 408 (408)
Mining related subs. 10,287 (10,287)
Investment companies 3,616 3,616
Other investments 1,791 2,046 3,837
Notes and other receivables 336 3,007 3,343
Deferred sales commissions 260,453 325 260,778
Property & equipment 3,314 1 384 3,699
Goodwill 1,959 12 1,971
Intercompany receivable
(payable) 2,399 (130) (2,269)
Total assets $322,299 $129,658 $26,714 $13,232 ($31,289) $460,614
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)-January 31, 1994
Consolidating Financial Statements (Continued)
BALANCE SHEET (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31,
1994
Investment Real Mining Consolidated
Management Banking Estate Oil&Gas Eliminations Total
(in thousands)
Current Liabilities:
Payable for investment
company shares purchased $ 4,275 $ - $ - $ - $ - $ 4,275
Accrued compensation 2,189 2,189
Accounts payable and
accrued expenses 4,484 118 174 (146) 4,630
Accrued income taxes 2 (13) 1,217 1,206
Dividend payable 1,300 1,300
Other current liabilities 1,406 328 (375) 1,359
Total current liabilities 13,656 433 1,391 (521) 14,959
IB&T Co. Liabilities 118,879 (3,058) 115,821
Other Liabilities:
Note payable to two
unaffiliated banks 61,950 61,950
Mortgage notes payable 16,678 16,678
Subordinated debentures 14,169 14,169
Minority interest in
consolidated subsidiary 2,447 2,447
Total Other Liabilities 76,119 16,678 2,447 95,244
Deferred income taxes 79,339 1,084 1,027 81,450
Shareholders' Equity 153,185 10,779 8,519 10,814 (30,157) 153,140
Total Liabilities & Equity $322,299 $129,658 $26,714 $13,232 ($31,289) $460,614
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)-January 31, 1994
Consolidating Financial Statements (Continued)
STATEMENT OF INCOME
Three months
ended
January 31, 1994
Investment Real Mining Consolidated
Management Banking Estate Oil&Gas Eliminations Total
(all figures in thousands)
Income:
Investment adviser and
administration fees $ 20,876 $ 0 $ 0 $ 568 $ 0 $ 21,444
Distribution income 20,925 20,925
Bank fee income 9,218 (137) 9,081
Bank net interest income 1,162 26 1,188
Real Estate, Oil & Gas
and Other income 241 1,309 94 (392) 1,252
Total Income 42,042 10,380 1,309 662 (503) 53,890
Expenses:
Compensation of officers
and employees 11,097 6,130 163 49 17,439
Amortization of deferred
sales commissions 12,751 12,751
Other expenses 6,065 3,470 871 877 (409) 10,874
Total expenses 29,913 9,600 1,034 926 (409) 41,064
Operating income (loss) 12,129 780 275 (264) (94) 12,826
Other Income (Expense):
Interest income 78 15 65 (26) 132
Share of partnership
income (losses) 40 (40) 736 736
Interest expense (986) (365) (1,351)
Income before Income Taxes 11,261 780 (115) 537 (120) 12,343
Income Taxes 4,797 253 (48) 935 5,937
Net Income (Loss), before
cumulative effect of
change in accounting
for income taxes 6,464 527 (67) (398) (120) 6,406
Cumulative effect of
change in accounting
for income taxes 1,374 - 129 (203) - 1,300
Net Income (Loss) $7,838 $527 $62 ($601) ($120) $7,706
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - January 31, 1994
(2) Investment in VenturesTrident, L.P. ("V.T.") and VenturesTrident II, L.P.
("V.T.II")
The balance sheets of V.T. and V.T.II at January 31, 1994 and October 31,
1993 follow:
VenturesTrident, L.P. (unaudited) January 31, October 31,
1994 1993
(in thousands)
Assets
Cash and short-term investments.................... $ 184 $ 280
Investments, at fair value......................... 6,008 6,702
Other assets....................................... 64 80
Total.................................... $6,256 $7,062
Liabilities and Partners' Capital:
Liabilities........................................ $1,905 $1,909
Partners' capital.................................. 4,351 5,153
Total.................................... $6,256 $7,062
VenturesTrident II, L.P. (unaudited) January 31, October 31,
1994 1993
(in thousands)
Assets
Cash and short-term investments.................... $ 450 $ 818
Investments, at fair value......................... 55,339 92,279
Other assets....................................... 889 1,189
Total.................................... $56,678 $94,286
Liabilities and Partners' Capital:
Liabilities........................................ $ 1,924 $ 1,941
Partners' capital.................................. 54,754 92,345
Total.................................... $56,678 $94,286
For the three months ended January 31, 1994 and 1993 the unaudited operating
results of V.T. reflect net investment income (losses) of ($802,000) and
$4,546,000, respectively, including realized and unrealized losses on
investments of ($716,000) and ($4,616,000), respectively.
For the three months ended January 31, 1994 and 1993, the unaudited
operating results of V.T.II reflect net operating income (losses) of $4,409,000
and ($7,206,000), respectively, including realized gains (losses) on
investments of $4,765,000 and ($8,454,000), respectively.
On January 18, 1994, V.T.II distributed 1,750,000 shares of Pegasus Gold
Corporation, with a value of $24 million, to its partners. The Company
received 159,000 shares of Pegasus Gold Corporation, which represents its
partnership interests in V.T.II.
For the three months ended January 31, 1994 and 1993, the Company's share of
the income of V.T. and V.T.II as accounted for under the equity method was
$737,000 and ($964,000), respectively. At January 31, 1994, the Company's
investment in V.T. and V.T.II approximated its share of the carrying value of
the underlying net assets of each partnership.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - January 31, 1994
(3) Non-Voting Common Stock Options
Options to subscribe to shares of non-voting common stock are summarized as
follows:
Shares Under Option Option Price Range
Balance, October 31, 1992.............. 740,400 $ 3.95 - 17.00
Exercised.............................. (216,200) 3.95 - 15.75
Granted................................ 202,084 27.25 - 33.50
Cancelled/Expired...................... (7,600) 8.75 - 15.75
Balance, October 31, 1993.............. 718,684 8.75 - 33.50
Exercised.............................. (80,100) 8.75 - 27.25
Granted................................ 109,970 34.00
Cancelled/Expired...................... (2,500) 27.25
Balance, January 31, 1994.............. 746,054 $ 8.75 - 34.00
At January 31, 1994, options for 474,911 shares were exercisable. Options
for 271,143 additional shares will become exercisable over the next four years.
(4) Net Capital Requirements
A subsidiary of the Company is subject to the Securities and Exchange
Commission uniform net capital rule (Rule 15c3-1) requiring such subsidiary to
maintain a certain level of net capital (as defined). For purposes of this
rule the subsidiary had net capital of $8,803,661 at January 31, 1994, which
exceeded the net capital requirement of $164,234 as of that date.
(5) Property and Equipment
Property and equipment (including Bank furniture and equipment) at January
31, 1994, and October 31, 1993 follow:
January 31, October 31,
1994 1993
(all figures in thousands)
At Cost:
Furniture and equipment.............................. $12,549 $11,544
Leasehold improvements............................... 635 530
Total.............................................. 13,184 12,074
Less accumulated depreciation........................ 6,398 5,735
Net book value..................................... $ 6,786 $ 6,339
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - January 31, 1994
(6) Real Estate Investments
Real estate investments held at January 31, 1994 and October 31, 1993
follow:
January 31, October 31,
1994 1993
(all figures in thousands)
Buildings..................................... $27,112 $26,999
Land.......................................... 2,479 2,478
Total....................................... 29,591 29,477
Less: Accumulated depreciation................ 6,823 6,594
Net book value.............................. 22,768 22,883
Share of accumulated losses in excess of
partnership interest......................... (476) (435)
Total....................................... $22,292 $22,448
(7) Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" affective November 1, 1993. The cumulative
effect of adopting SFAS No. 109 on the Company's financial statements was to
increase income by $1.3 million ($.14 per share) for the three months ended
January 31, 1994.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards. The tax effect of significant
items comprising the Company's net deferred tax liability as of November 1,
1993 are as follows:
Deferred tax liabilities:
Deferred commissions.................................. $93,250
Differences between book and tax basis of property.... 1,479
Other................................................. 2,233
Deferred tax assets:
Operating loss carryforwards.......................... 18,886
Tax credit carryforwards.............................. 1,659
Other................................................. 589
21,134
Valuation allowance................................... 0
Net deferred tax liability............................ $75,828
There was no change in the valuation allowance for the three months ended
January 31, 1994.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - January 31, 1994
(7) Income Taxes (continued)
As of October 31, 1993, the Company has a remaining operating loss
carryforward of approximately $55 million, of which $13 million and $42 million
can be carried forward to offset future taxable income through 2007 and 2008,
respectively. Additionally, the Company has an alternative minimum tax credit
carryforward of approximately $1.7 million, of which $1.3 million and $.4
million can be carried forward to offset future regular tax liabilities through
2003 and 2005, respectively.
The Company's effective tax rate increased from 41% in the first quarter of
1993 to 48% in the first quarter of 1994. A large part of the increase
resulted from the reversal of the tax benefit recorded on unrealized losses
booked in prior periods.
(8) Earnings Per Common and Common Equivalent Share
Earnings per share for the three months ended January 31, 1994 and January
31, 1993, are based upon the weighted average number of common, non-voting
common and non-voting common equivalent shares outstanding of 9,530,471 and
7,969,460. Earnings per common, non-voting common and common equivalent share
assuming full dilution have not been presented because the dilutive effect is
immaterial.
(9) Subsequent Events
On March 1, 1994, The Company announced that on April 1, 1994 it will call
the 10% Subordinated Debentures due April 1, 1998. The Debentures have a face
value of $14,16,000 and are being called at par.
(10) Opinion of Management
In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the results for the interim periods.
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Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Quarter ended January 31, 1994, compared with quarter ended January 31, 1993
INCOME
Assets under management rose 37% to $16.3 billion at January 31, 1994, from
$11.9 billion a year earlier. The sale of mutual fund shares was the primary
contributor to the increase in assets. Sales of $1.4 billion in the first
quarter set a new Company record and exceeded sales in the comparable 1993
quarter by 68%. Redemptions were $454 million during the first quarter of 1994
and $338 million in the same quarter of 1993.
In the first quarter of 1994, total income increased 26% over that of the
first quarter of 1993. Investment management revenues rose to $42 million, 29%
over those for the comparable three months of 1993. The increase was a result
of the increased assets under management. The revenue growth included an
increase in distribution income from $15.6 million to $20.9 million despite the
application in July, 1993, of a new NASD rule reducing the annual rate of the
distribution plan payments received by the Company from its Marathon Family of
funds from 1.0% to 0.75% of assets managed.
Bank income increased 20% to $10.3 million from $8.6 million in the
preceding period as a result of an increase in custody assets.
EXPENSES
In the first quarter of 1994, total expenses rose 26% to $41.1 million, the
largest single item being amortization of sales commissions, which increases
44% to $12.8 million. The increase is the result of greater assets under
management in funds with deferred sales commissions. Compensation rose 20%
to $17.4 million, while other expenses increased 20% to $10.9 million. The
increases in both categories were largely the result of increased sales and
marketing efforts. Unrealized losses of $318,000 on shares of Pegasus Gold
which were distributed to Eaton Vance Corp. for its General and Limited
partnership interests are included in other expenses.
OTHER INCOME (EXPENSE)
The Company's gold mining partnerships, V.T. and V.T.II, contributed a gain
of $737,000 during the first quarter of 1994, rather than the $964,000 loss in
the same quarter a year earlier.
TAXES
The Company's effective tax rate increased from 41% in the first quarter of
1993 to 48% in the first quarter of 1994. A large part of the increase
resulted from the reversal of the tax benefit previously recorded on unrealized
losses booked in prior periods.
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Item 2. Management's Discussion and Analysis
NET INCOME OR LOSS
Net income in the first quarter of 1994 amounted to $7,706,000 or $.81 per
share on 9,530,000 average shares outstanding. Net income includes the
cumulative effect of a change in accounting for income taxes of $1.3 million,
or $0.14 per share. In the first quarter of 1993, net income was $4,924,000 or
$0.62 per share on 7,969,000 average shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's income is received from its investment management and
banking activities. Investment management income is provided primarily by
investment adviser fees, administrative fees and distribution plan payments.
These fees are directly related to the amount of assets under management.
Those assets rose 37% to $16.3 billion on January 31, 1994 from $11.9 billion a
year earlier. The banking income is largely accounting and custody fees for
assets in trust or custody at the Company's 77.3% owned banking subsidiary,
Investors Bank & Trust Company. Assets under custody rose 22% to $55 billion on
January 31, 1994, from $45 billion a year earlier.
Investments in investment companies are carried at the lower of cost or
market. At January 31, 1994 and October 31, 1993, the Company had gross
unrealized gains of $1,746,000 and $1,648,000, respectively. The Company, as a
non-managing partner of certain investment company partnerships, is required to
maintain a minimum investment in such partnerships. At January 31, 1994, a
minimum investment investment of $2,987,000 was required under the terms of the
partnership agreements.
On January 31, 1994, the Company had borrowings of $62 million under a $75
million revolving line of credit with two unaffiliated banks. Certain
covenants in the credit agreement require specified levels of cash flow and net
income and others restrict additional investment and indebtedness.
The Company is currently arranging a $50 million Senior Note issue to
increase credit availability and to convert a large part of its borrowings from
a floating to a fixed interest rate. The Company intends to use a portion of
the proceeds of the issue to call its outstanding $14 million of 10%
Subordinated Debentures.
On April 16, 1993, the Company completed a public offering and sale of 1.38
million shares of its Non-Voting Common Stock, par value $0.0625 per share.
The net proceeds of $44.0 million were used to repay a portion of the principal
amount outstanding under the Company's bank credit agreement.
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<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information
The Company announced in a press release dated March 1, 1994 that on April
1, 1994, it will call the 10% Subordinated Debentures due April 1, 1998. The
Debentures have a face value of $14,169,000 and are being called at par.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EATON VANCE CORP.
(Registrant)
DATE: March 17, 1994 /S/Curtis H. Jones
(Signature)
Curtis H. Jones, Treasurer
DATE: March 17, 1994 /S/John P. Rynne
(Signature)
John P. Rynne, Comptroller
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