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 April 30, 1995 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)
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
Shares outstanding as of April 30, 1995:
Voting common stock - 19,360 shares
Non-Voting Common Stock - 9,158,361 shares
Page 1 of 26 pages
PART I
FINANCIAL INFORMATION
-2-
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
ASSETS April 30, October 31,
1995 1994
(all figures in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 39,745 $ 24,681
Short-term investments 11,131 -
Receivable for investment company shares sold 1,078 1,073
Investment adviser fees and other receivables 3,314 2,632
Refundable income taxes 7,469 -
Other current assets 791 1,233
Total current assets 63,528 29,619
INVESTORS BANK & TRUST COMPANY ASSETS:
Cash and equivalents 4,596 9,344
Investment securities (market value $76,104 and
$86,172, respectively) 77,105 88,278
Loans, less allowance for loan losses 12,604 13,570
Accrued interest and fees receivable 11,177 9,383
Equipment and leasehold improvements, net 3,969 3,251
Other assets 2,398 3,780
Total bank assets 111,849 127,606
OTHER ASSETS:
Investments:
Real estate 21,853 22,173
Gold mining partnerships 1,997 3,072
Investment companies (market value at
October 31, 1994 $5,702) 6,756 4,088
Other investments 3,376 4,120
Notes receivable and receivables from affiliates 3,251 3,139
Deferred sales commissions 228,443 256,326
Equipment and leasehold improvements, net 2,919 3,477
Goodwill 1,829 1,886
Total other assets 270,424 298,281
Total assets $445,801 $455,506
See notes to consolidated financial statements
</TABLE>
-3-
Consolidated Balance Sheets (unaudited) (continued)
<TABLE>
<CAPTION>
LIABILITIES AND April 30, October 31,
SHAREHOLDERS' 1995 1994
EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Payable for investment company shares purchased $ 1,100 $ 1,096
Accrued compensation 4,707 8,817
Accounts payable and accrued expenses 6,328 4,539
Accrued income taxes - 1,761
Dividend payable 1,472 1,461
Current portion of mortgage notes payable 6,423 6,449
Other current liabilities 643 688
Total current liabilities 20,673 24,811
INVESTORS BANK & TRUST COMPANY LIABILITIES:
Demand and time deposits 87,790 106,909
Other 5,656 5,214
Total bank liabilities 93,446 112,123
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Mortgage notes payable 10,157 10,311
Minority interest in consolidated subsidiary 3,765 3,113
Total other liabilities 63,922 63,424
Deferred income taxes 90,611 89,540
Commitments - -
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
9,158,361 and 9,090,394 shares, respectively 574 568
Additional paid-in capital 50,102 49,595
Notes receivable from stock option exercises (3,104) (2,511)
Unrealized gain on investments 776 -
Retained earnings 128,800 117,955
Total shareholders' equity 177,149 165,608
Total liabilities and shareholders' equity $445,801 $455,506
See notes to consolidated financial statements
</TABLE>
-4-
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
(in thousands, except per share figures)
REVENUE:
<S> <C> <C> <C> <C>
Investment adviser and
administration fees $20,545 $21,679 $ 41,162 $ 43,123
Distribution income 19,066 19,402 38,819 39,545
Bank fee income 14,775 10,726 26,886 19,807
Bank net interest income 1,271 1,154 2,629 2,342
Income from real estate
activities 865 995 1,721 1,912
Other income 281 298 537 632
Total revenue 56,803 54,254 111,754 107,361
EXPENSES:
Compensation of officers and
employees 17,349 16,928 34,823 34,367
Amortization of deferred sales
commissions 12,743 12,797 24,426 25,548
Other expenses 13,275 11,727 26,088 21,501
Total expenses 43,367 41,452 85,337 81,416
Operating income 13,436 12,802 26,417 25,945
OTHER INCOME (EXPENSE):
Interest income 519 321 878 452
Share of partnership losses (160) (524) (1,143) (106)
Interest expense (1,221) (1,430) (2,444) (2,781)
Income before income taxes 12,574 11,169 23,708 23,510
Income Taxes
Current:
Federal 5,852 704 6,420 704
State 1,584 (157) 3,223 138
Deferred:
Federal (1,528) 2,595 1,963 7,080
State (720) 389 (1,687) 1,546
Total income taxes 5,188 3,531 9,919 9,468
See notes to consolidated financial statements
</TABLE>
-5-
Consolidated Statements of Income (unaudited) (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
(in thousands, except per share figures)
<S> <C> <C> <C> <C>
Net income before cumulative
effect of change in accounting
for income taxes 7,386 7,638 13,789 14,042
Cumulative effect of change in
accounting for income taxes - - - 1,300
Net income $ 7,386 $ 7,638 $13,789 $15,342
Earnings per share before
cumulative effect of change in
accounting for income taxes $0.81 $0.80 $1.51 $1.47
Cumulative effect of change in
accounting for income taxes
per share - - - .14
Earnings per share $0.81 $0.80 $1.51 $1.61
Dividends declared, per share $0.16 $0.15 $0.32 $0.29
Average common shares outstanding 9,176 9,574 9,154 9,552
See notes to consolidated financial statements
</TABLE>
-6-
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1995 1994
(in thousands)
<S> <C> <C>
Cash and equivalents (including IB&T),
Beginning of period $ 34,025 $ 28,655
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 13,789 15,342
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Share of net losses of partnerships 1,143 106
Deferred income taxes 276 8,626
Cumulative effect of change in accounting
for income taxes - (1,300)
Amortization of deferred sales commissions 24,426 25,548
Amortization of premiums on investment securities,
net of accretion of discounts 470 650
Depreciation and other amortization 1,641 1,786
Payments of sales commissions (15,664) (64,947)
Capitalized sales charges received 18,969 11,807
Increase (decrease) in accrued income taxes (9,230) 17
Changes in other assets and liabilities (986) (2,534)
Net cash provided by (used for) operating activities $ 34,834 $ (4,899)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in partnerships (58) -
Additions to real estate, equipment and
leasehold improvements (1,897) (1,607)
Net proceeds from notes and receivables
from affiliates (705) (689)
Net (increase) decrease in investment companies and
other investments (736) 2,853
Purchase of short-term investment (11,000) -
Proceeds from maturities of investment securities 10,703 3,112
Net (increase) decrease in loans 966 (1,930)
Net cash provided by (used for) investing activities $ (2,727) $ 1,739
See notes to consolidated financial statements
</TABLE>
-7-
Consolidated Statements of Cash Flows (unaudited) (continued)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 107,000
Payments on notes payable (180) (82,662)
Payment of 10% subordinated debentures - (14,169)
Proceeds from the issuance of non-voting common stock 1,745 2,243
Dividends paid (2,932) (2,711)
Repurchase of non-voting common stock (1,305) (63)
Changes in demand and time deposits (19,119) (15,474)
Net cash used for financing activities $(21,791) $ (5,836)
Net increase (decrease) in cash and equivalents $ 10,316 $ (8,996)
Cash and equivalents (including IB&T), end of period $ 44,341 $ 19,659
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,988 $ 2,940
Income taxes paid $ 18,752 $ 1,142
See notes to consolidated financial statements
</TABLE>
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements
The components of the April 30, 1995 Eaton Vance Corp. consolidated balance
sheet and statement of income by major business segment follow:
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET April 30, 1995
ASSETS Investment Consolidated
(in thousands) Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 40,833 $ 729 $ (1,817) $ 39,745
Short-term investments 11,131 11,131
Receivable for investment
company shares sold 1,078 1,078
Investment adviser fees and
other receivables 2,777 537 3,314
Refundable income taxes 7,421 48 7,469
Other current assets 262 529 791
Total current assets 63,502 1,843 (1,817) 63,528
INVESTORS BANK & TRUST COMPANY ASSETS:
Cash and equivalents 4,596 4,596
Investment securities 77,105 77,105
Loans, less allowance for loan losses 12,604 12,604
Accrued interest and fees receivable 11,177 11,177
Equipment and leasehold improvements, net 3,969 3,969
Other assets 2,398 2,398
Total bank assets 111,849 111,849
</TABLE>
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET April 30, 1995
ASSETS (continued) Investment Consolidated
(in thousands) Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
OTHER ASSETS:
Investments:
Real estate 21,853 21,853
Gold mining partnerships 1,997 1,997
Banking subsidiary 12,821 (12,821) -
Other subsidiaries 14,913 (14,913) -
Investment companies 6,756 6,756
Other investments 1,799 1,577 3,376
Notes receivable and receivables
from affiliates 162 3,251 (162) 3,251
Deferred sales commissions 228,090 353 228,443
Equipment and leasehold improvements, net 2,861 58 2,919
Goodwill 1,823 6 1,829
Intercompany receivable (payable) (2,551) 2,551 -
Total other assets 266,674 31,646 (27,896) 270,424
Total assets $330,176 $111,849 $33,489 $(29,713) $445,801
</TABLE>
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET April 30, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY Investment Consolidated
(in thousands) Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Payable for investment company shares
purchased $ 1,100 $ 1,100
Accrued compensation 4,707 4,707
Accounts payable and accrued expenses 6,186 142 6,328
Dividend payable 1,472 1,472
Current portion of mortgage notes payable 6,423 6,423
Other current liabilities 643 643
Total current liabilities 14,108 6,565 20,673
INVESTORS BANK & TRUST COMPANY LIABILITIES:
Demand and time deposits 89,607 (1,817) 87,790
Other 5,656 5,656
Total bank liabilities 95,263 (1,817) 93,446
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Note payable to affiliate 162 (162) -
Mortgage notes payable 10,157 10,157
Minority interest in consolidated
subsidiary 3,765 3,765
Total other liabilities 50,000 10,319 3,603 63,922
</TABLE>
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET (continued) April 30, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY Investment Consolidated
(in thousands) Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
Deferred income taxes 88,447 2,164 90,611
Commitments -
Shareholders' equity 177,621 16,586 14,441 (31,499) 177,149
Total liabilities & shareholders' equity $330,176 $111,849 $33,489 $(29,713) $445,801
</TABLE>
-12-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME Six months ended
(in thousands) April 30, 1995
Investment Consolidated
Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
REVENUE:
Investment adviser and
administration fees 40,264 898 41,162
Distribution income 38,819 38,819
Bank fee income 27,143 (257) 26,886
Bank net interest income 2,562 67 2,629
Income from real estate activities 2,475 (754) 1,721
Other income 444 93 537
Total revenue 79,527 29,705 3,466 (944) 111,754
EXPENSES:
Compensation of officers and employees 18,698 15,781 344 34,823
Amortization of deferred sales
commissions 24,426 24,426
Other expenses 14,179 9,238 3,016 (345) 26,088
Total expenses 57,303 25,019 3,360 (345) 85,337
Operating income 22,224 4,686 106 (599) 26,417
OTHER INCOME (EXPENSE):
Interest income 795 150 (67) 878
Share of partnership income (losses) 46 (1,189) (1,143)
Interest expense (1,699) (745) (2,444)
Income (loss) before income taxes 21,366 4,686 (1,678) (666) 23,708
</TABLE>
-13-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME (continued) Six months ended
(in thousands) April 30, 1995
Investment Consolidated
Management Banking Other Eliminations Total
<S> <C> <C> <C> <C> <C>
Income taxes 8,390 1,753 (224) 9,919
Net income (loss) $12,976 $ 2,933 $(1,454) $ (666) $ 13,789
</TABLE>
-14-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(2) Investment in VenturesTrident, L.P. ("VT") and VenturesTrident II,
L.P. ("VT II")
The balance sheets of VT and VT II at April 30, 1995 and October 31, 1994
follow:
<TABLE>
<CAPTION>
VenturesTrident, L.P. (unaudited) April 30, October 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS:
Cash and short-term investments $ 73 $ 144
Investments, at fair value 5,174 7,437
Other assets 100 110
Total $ 5,347 $ 7,691
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities $ 1,935 $ 1,891
Partners' capital 3,412 5,800
Total $ 5,347 $ 7,691
</TABLE>
<TABLE>
VenturesTrident II, L.P. (unaudited) April 30, October 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS:
Cash and short-term investments $ 351 $ 471
Investments, at fair value 39,437 47,985
Other assets 170 118
Total $39,958 $48,574
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities $ 1,860 $ 1,749
Partners' capital 38,098 46,825
Total $39,958 $48,574
</TABLE>
For the six months ended April 30, 1995 and 1994, the unaudited operating
results of VT reflect net income (losses) of ($2,388,000) and $697,000,
respectively, including realized and unrealized gains (losses) on
investments of ($2,263,000) and $873,000, respectively.
For the six months ended April 30, 1995 and 1994, the unaudited operating
results of VT II reflect net income (losses) of ($8,727,000) and
$2,948,000, respectively, including realized and unrealized gains
(losses) on investments of ($7,816,000) and $3,946,000, respectively.
-15-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(2) Investment in VenturesTrident, L.P. ("VT") and VenturesTrident II,
L.P. ("VT II") (continued)
For the six months ended April 30, 1995 and 1994, the Company's share of
the net income (losses) of VT and VT II as accounted for under the equity
method, and allocated pursuant to the terms of the partnerships'
agreements, was ($1,075,000) and $680,000, respectively. At April 30,
1995, the Company's investment in VT and VT II approximated its share of
the partners' capital of each partnership.
In January 1994, VT II distributed 1,750,000 shares of Pegasus Gold
Corporation with a value of $42 million to its partners. The Company's
share of this distribution was 159,000 shares with a value of $3.8
million. The Company's Consolidated Statement of Cash Flows for the six
months ended April 30, 1994 excludes the effect of this non-cash
investing activity. At April 30, 1995, all but 14,000 of these shares
were sold.
(3) Non-Voting Common Stock Options
Options to subscribe to shares of non-voting common stock are summarized
as follows:
<TABLE>
<CAPTION>
Shares Under Option Option Price Range
<S> <C> <C>
Balance, October 31, 1993 718,684 $ 8.75 - 33.50
Exercised (141,181) 8.75 - 27.25
Granted 159,970 27.375 - 34.00
Cancelled/Expired (4,725) 27.25 - 34.00
Balance, October 31, 1994 732,748 8.75 - 34.00
Exercised (104,450) 8.75 - 27.25
Granted 132,300 27.75 - 30.525
Cancelled/Expired - -
Balance, April 30, 1995 760,598 $ 8.75 - 34.00
</TABLE>
At April 30, 1995, options for 462,498 shares were exercisable. Options
for 298,100 additional shares will become exercisable over the next four
years.
(4) Net Capital Requirements
Two subsidiaries of the Company are subject to the Securities and
Exchange Commission uniform net capital rule (Rule 15c3-1), requiring
such subsidiaries to maintain a certain level of net capital (as
defined). For purposes of this rule, the subsidiaries had net capital of
$30,665,000 and $193,000, respectively, at April 30, 1995, which exceeded
the net capital requirements of $217,000 and $5,000, respectively, as of
that date.
-16-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements (including IB&T) at April 30, 1995
and October 31, 1994 follow:
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
(in thousands)
<S> <C> <C>
At Cost:
Furniture and equipment $13,542 $13,036
Leasehold improvements 1,051 815
Total 14,593 13,851
Less accumulated depreciation 7,705 7,123
Net book value $ 6,888 $ 6,728
</TABLE>
(6) Real Estate Investments
Real estate investments held at April 30, 1995 and October 31, 1994
follow:
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
(in thousands)
<S> <C> <C>
Buildings $27,540 $27,347
Land 2,463 2,465
Total 30,003 29,812
Less: Accumulated depreciation 7,966 7,510
Net book value 22,037 22,302
Share of accumulated losses in excess of
partnership interest (184) (129)
Total $21,853 $22,173
</TABLE>
(7) Investment Securities
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", effective November 1, 1994. SFAS No. 115 requires that
certain investments in debt and equity securities be classified as
trading, available-for-sale or held-to-maturity. Securities classified
as trading are to be reported at fair value with the corresponding
unrealized gain or loss included in income. Securities classified as
available-for-sale are to be reported at fair value with the
corresponding unrealized gain or loss included as a separate component of
shareholders' equity. Securities classified as held-to-maturity are to
be recorded at amortized cost.
-17-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(7) Investment Securities (continued)
Securities classified as available-for-sale are included in the following
balance sheet categories at April 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Estimated unrealized unrealized
fair value gains losses Cost
<S> <C> <C> <C> <C>
Current Assets:
Short-term investments $11,131 $ 131 $ - $11,000
Investments:
Investment companies 6,756 2,072 159 4,843
Other investments 1,103 - 473 1,576
Total $18,990 $2,203 $ 632 $17,419
</TABLE>
Securities classified as held-to-maturity are included in the following
balance sheet category at April 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Estimated unrealized unrealized Amortized
fair value gains losses cost
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury
securities $65,076 $ - $ 606 $65,682
Mortgage-backed
securities 11,028 6 401 11,423
Total $76,104 $ 6 $1,007 $77,105
</TABLE>
The contractual maturities of debt securities held-to-maturity at April
30, 1995 follow (in thousands):
<TABLE>
<CAPTION>
Estimated Amortized
fair value cost
<S> <C> <C>
Due within one year $19,968 $20,046
Due after one year through five years 45,108 45,636
Mortgage-backed securities 11,028 11,423
Total $76,104 $77,105
</TABLE>
The adoption of SFAS No. 115 resulted in an increase in shareholders'
equity, net of applicable taxes, of $776,000 through April 30, 1995.
Prior year's financial statements have not been restated to reflect the
change in accounting principle.
-18-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30, 1995
(8) Legal Proceedings
The Company was informed on January 13, 1995, that a National Association
of Securities Dealers (NASD) arbitration panel had awarded a former
wholesaler for the firm $0.6 million in damages and an additional $1.2
million as punitive damages in response to his claim for wrongful
termination of employment. At January 31, 1995, the Company accrued a
liability of $2.0 million for these damages. The Company is examining
all possible legal steps to overturn the decision.
(9) Income Taxes
As of October 31, 1994, the Company had a remaining operating loss
carryforward of approximately $25 million that can be carried forward to
offset future taxable income through 2008. Additionally, the Company has
an alternative minimum tax credit carryforward of approximately $2.3
million which can be carried forward to offset future regular tax
liabilities through 2006.
(10) Earnings Per Common and Common Equivalent Share
Earnings per share for the six months ended April 30, 1995 are based upon
the weighted average number of common and non-voting common shares
outstanding of 9,154,000. Earnings per share assuming primary and full
dilution have not been presented because the dilutive effect is
immaterial.
Earnings per share for the six months ended April 30, 1994 are based upon
the weighted average number of common, non-voting common and non-voting
common equivalent shares outstanding of 9,552,000. Earnings per share
assuming full dilution have not been presented because the dilutive
effect is immaterial.
(11) Employee Benefit Plans - Stock Purchase Plan
On January 6, 1995, the Board of Directors of the Company reserved an
additional 100,000 shares for issuance under the Employee Stock Purchase
Plan. The plan permits all eligible full-time employees to direct up to
15 percent of their salaries toward the purchase of Eaton Vance Corp.
non-voting common stock at the lower of 90 percent of the fair market
value of the non-voting common stock at the beginning or at the end of
each six-month offering period. Through April 30, 1995, 297,076 shares
of the total 412,000 shares reserved have been issued pursuant to this
plan.
(12) Certain prior year amounts have been reclassified to conform to
current year presentation.
(13) 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.
-19-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS:
The Company's largest sources of revenues are investment adviser fees and
distribution fees received from the Eaton Vance funds and separately
managed accounts. Such fees are generally based on the net asset value
of the investment portfolios managed by the Company and fluctuate with
changes in the total value of the assets under management. Bank fee
income, also a significant source of revenue, is dependent upon assets
custodied and administered by Investors Bank & Trust Company (IB&T). The
Company's expenses other than the amortization of deferred sales
commissions include primarily employee compensation, occupancy costs,
service fees and other marketing costs.
QUARTER ENDED APRIL 30, 1995 TO QUARTER ENDED APRIL 30, 1994:
Assets under management of $15.1 billion on April 30, 1995, were 2
percent lower than the $15.4 billion reported a year earlier. Market
appreciation and reinvested dividends have contributed to the stability
of the Company's assets under management, despite the overall decline in
mutual fund industry sales. Although mutual fund sales of $0.4 billion
in the second quarter of 1995 were significantly lower than the $0.9
billion reported in the second quarter of 1994, monthly net sales have
been steadily improving since December, 1994. Redemptions were $0.5
billion in both the second quarter of 1995 and the second quarter of
1994.
Total revenue increased $2.5 million to $56.8 million in the second
quarter of 1995 from $54.3 million in the second quarter of 1994.
Investment adviser and distribution fees decreased 4 percent in the
second quarter of 1995 to $39.6 million from $41.1 million a year
earlier. The decrease in investment adviser and distribution fees can be
primarily attributed to lower average assets under management. The
decrease in distribution fees was partially offset by an increase in
contingent deferred sales charges received on early redemptions.
Bank fee income was a significant contributor to revenue growth in the
second quarter of 1995, increasing 38 percent to $14.8 million from $10.7
million a year earlier. The increase in bank fee income can be partially
attributed to the sale of part of IB&T's unit investment trust servicing
to The Bank of New York. The remainder of the increase can be attributed
to an increase in the assets custodied and administered by IB&T. These
assets totalled $77.0 billion at April 30, 1995, an increase of $11.9
billion over April 30, 1994.
Total expenses increased $1.9 million to $43.4 million in the second
quarter of 1995. Compensation expense increased by only 2 percent,
despite significant increases in personnel at IB&T in comparison with the
prior year. The overall stability of the average dollar value of assets
in spread commission funds resulted in a decrease in the amortization of
deferred sales commissions of less than 1 percent. Other expenses rose a
total of $1.6 million.
The Company's two gold mining partnerships, VenturesTrident, L.P. and
VenturesTrident II, L.P., contributed losses of $76,000 for the second
quarter of 1995 and $57,000 for the second quarter of 1994. These losses
resulted primarily from marking to market the investments held by the two
-20-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
gold mining partnerships. After accounting for management fees,
operating expenses and income taxes, the Company's gold mining operations
contributed a loss of $0.02 per share in the second quarter of 1995 and a
gain of $0.08 per share in the second quarter of 1994. The termination
of VenturesTrident, L.P., the first of the two gold mining partnerships
offered by the Company, is expected to take place late in fiscal 1995.
Net income of the Company amounted to $7.4 million in the second quarter
of 1995 compared to $7.6 million in the second quarter of 1994. Earnings
per share were $.81 and $.80 for the second quarters of 1995 and 1994,
respectively.
SIX MONTHS ENDED APRIL 30, 1995 TO SIX MONTHS ENDED APRIL 30, 1994:
Mutual fund sales for the first half of 1995 of $0.6 billion were 74
percent below the record $2.4 billion reported in the first half of 1994.
Redemptions of $1.1 billion in the first half of 1995 were 22 percent
above the $0.9 billion in the first half of 1994.
Total revenue increased $4.4 million to $111.8 million in the first half
of 1995. Investment adviser and distribution fees decreased by $2.7
million in the first half of 1995 to $80.0 million from $82.7 million a
year earlier. The decrease in investment adviser and distribution fees
can be attributed primarily to lower average assets under management.
The impact of the decrease in distribution fees was partially offset by
an increase in contingent deferred sales charges received on early
redemptions.
Total expenses increased $3.9 million to $85.3 million in the first half
of 1995. Compensation expense of $34.8 million was consistent with the
prior year's expense of $34.4 million, despite significant increases in
personnel at IB&T. A decrease in the average dollar value of assets in
spread commission funds resulted in a decrease in the amortization of
deferred sales commissions of $1.1 million. Other expenses rose a total
of $4.6 million, due in part to the accrual of an National Association of
Securities Dealers (NASD) arbitration panel award of $2.0 million in the
first quarter. The Company is currently examining all possible legal
steps to overturn the arbitration panel's decision.
The Company's two gold mining partnerships contributed a loss of $1.1
million during the first half of 1995, in comparison with a gain of $0.7
million during the first half of 1994. This loss resulted primarily from
marking to market the investments held by the two gold mining
partnerships. After accounting for management fees, operating expenses
and income taxes, the Company's gold mining operations contributed a loss
of $0.12 per share in the first half of 1995 and a gain of $0.04 per
share in the first half of 1994.
Net income of the Company amounted to $13.8 million in the first half of
1995, compared to $15.3 million in the first half of 1994. Net income
for the first half of 1994 included a gain of $1.3 million associated
with the implementation of Statement of Financial Accounting Standards
(SFAS) No. 109 effective November 1, 1993. Earnings per share were $1.51
and $1.47 for the first halves of 1995 and 1994, respectively, excluding
the $.14 per share impact of the change in accounting for income taxes
in 1994.
-21-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Total assets, excluding bank assets, increased in the second half of 1995
to $334.0 million from $327.9 million at October 31, 1994. The increase
can be primarily attributed to an increase in cash, cash equivalents and
short-term investments of $26.2 million and an increase in refundable
income taxes of $7.5 million, net of a decrease in deferred sales
commissions of $27.9 million. The decrease in deferred sales commissions
can be attributed primarily to redemptions in excess of new sales in the
first half of 1995. Total IB&T assets decreased by $15.8 million to
$111.9 million in the first half of 1995.
The net increase in investments in investment companies and other
investments of $1.9 million can be attributed primarily to the adoption
of Statement of Financial Accounting Standards (SFAS) No. 115 effective
November 1, 1994. SFAS No. 115 requires that investment securities
classified as "available-for-sale" be carried at fair value on the
Company's balance sheet. The unrealized holding gains and losses for
these securities are excluded from earnings and reported as a separate
component of shareholders' equity, net of applicable taxes, until
realized.
LIQUIDITY AND CAPITAL RESOURCES:
In the first half of 1995, retained earnings of $10.8 million, net
proceeds of $1.1 million from the issuance of new stock to employees
under stock purchase and stock option plans and the $0.8 million effect
of the adoption of SFAS No. 115 effective November 1, 1994, contributed
to the increase in the Company's consolidated shareholders' equity from
$165.6 million at the end of fiscal 1994 to $177.1 million at April 30,
1995. These contributions were offset by the use of $1.3 million to
repurchase 50,000 shares of the Company's stock on the open market at an
average price per share of $26.00.
The Company's primary sources of cash flows from operating activities
were net income of $13.8 million and capitalized sales charges received
on early redemption of spread-commission funds of $19.0 million, offset
by the payment of sales commissions of $15.7 million. In the first six
months of 1995, the primary use of capital was for the commission
payments associated with the sales of spread-commission mutual funds,
which were financed entirely by cash flows from operating activities of
$34.8 million. The Company anticipates that the primary use of cash will
continue to be the payment of sales commissions on sales of the Company's
spread-commission funds and anticipates funding the payment of these
commissions with cash flows generated from operating activities and, if
necessary, with borrowings.
At April 30, 1995, the Company, excluding IB&T, had $50.9 million in cash,
cash equivalents and short-term investments and no borrowings under its
$75.0 million bank credit facility.
-22-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
OTHER MATTERS:
The Company has begun to explore the feasibility of distributing its
77.3% interest in IB&T to the Company's shareholders. A public offering
of additional shares to increase the capital of IB&T in conjunction with
the distribution is also being considered. The purpose of the
distribution and public offering would be to remove from IB&T the
constraint of the Competitive Equality Banking Act of 1987 (CEBA), which
limits asset growth to seven percent per year, and to enhance the
opportunities for IB&T's global custody and administrative services by
making it an independent public company. Such a transaction would
require the approval of Federal and Massachusetts banking authorities as
well as a favorable ruling from the Internal Revenue Service.
The Company is also exploring avenues to expand its existing relationship
with Lloyd George Management (B.V.I.) Limited to increase Eaton Vance
Corp.'s portfolio of international equity funds.
-23-
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to various employment-related
claims, including claims of discrimination, before federal, state and
local administrative agencies and courts. The Company vigorously defends
itself against these claims. In the opinion of management, after
consultation with counsel, it is unlikely that any adverse determination
in one or more pending employment-related claims would have a material
adverse effect on the Company's financial position or results of
operations.
-25-
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: June 2, 1995 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: June 2, 1995 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
-26-
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