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, 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 January 31, 1995:
Voting common stock - 19,360 shares
Non-Voting Common Stock - 9,154,361 shares
Page 1 of 25 pages
PART I
FINANCIAL INFORMATION
-2-
<TABLE>
Consolidated Balance Sheets (unaudited)
<CAPTION>
ASSETS January 31, October 31,
1995 1994
(all figures in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 37,527 $ 24,681
Receivable for investment company shares sold 396 1,073
Investment adviser fees and other receivables 2,281 2,632
Other current assets 1,192 1,233
Total current assets 41,396 29,619
INVESTORS BANK & TRUST COMPANY ASSETS:
Cash and equivalents 7,810 9,344
Investment securities (market value $85,497 and
$86,172, respectively) 87,594 88,278
Loans, less allowance for loan losses 13,596 13,570
Accrued interest and fees receivable 11,409 9,383
Equipment and leasehold improvements, net 3,785 3,251
Other assets 3,882 3,780
Total bank assets 128,076 127,606
OTHER ASSETS:
Investments:
Real estate 21,968 22,173
Gold mining partnerships 2,073 3,072
Investment companies (market value at
October 31, 1994 $5,702) 6,344 4,088
Other investments 3,453 4,120
Notes receivable and receivables from affiliates 3,215 3,139
Deferred sales commissions 240,399 256,326
Equipment and leasehold improvements, net 3,569 3,477
Goodwill 1,858 1,886
Total other assets 282,879 298,281
Total assets $452,351 $455,506
See notes to consolidated financial statements
</TABLE>
-3-
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited) (continued)
LIABILITIES AND January 31, October 31,
SHAREHOLDERS' 1995 1994
EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Payable for investment company shares purchased $ 407 $ 1,096
Accrued compensation 2,461 8,817
Accounts payable and accrued expenses 6,952 4,539
Accrued income taxes (3,971) 1,761
Dividend payable 1,471 1,461
Current portion of mortgage notes payable 8,439 6,449
Other current liabilities 280 688
Total current liabilities 16,039 24,811
INVESTORS BANK & TRUST COMPANY LIABILITIES:
Demand and time deposits 106,423 106,909
Other 4,912 5,214
Total bank liabilities 111,335 112,123
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Mortgage notes payable 8,235 10,311
Minority interest in consolidated subsidiary 3,334 3,113
Total other liabilities 61,569 63,424
Deferred income taxes 92,700 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
9,154,361 and 9,090,394 shares, respectively 572 568
Additional paid-in capital 50,051 49,595
Notes receivable from stock option exercises (3,120) (2,511)
Unrealized gain on investments 320 -
Retained earnings 122,884 117,955
Total shareholders' equity 170,708 165,608
Total liabilities and shareholders' equity $452,351 $455,506
See notes to consolidated financial statements
</TABLE>
-4-
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited)
Three Months Ended
January 31,
1995 1994
(in thousands, except per share figures)
REVENUE:
<S> <C> <C>
Investment adviser and administration fees $20,617 $21,444
Distribution income 19,753 20,142
Bank fee income 12,111 9,081
Bank net interest income 1,358 1,188
Income from real estate activities 856 917
Other income 256 335
Total revenue 54,951 53,107
EXPENSES:
Compensation of officers and employees 17,474 17,439
Amortization of deferred sales commissions 11,683 12,751
Other expenses 12,813 10,091
Total expenses 41,970 40,281
Operating income 12,981 12,826
OTHER INCOME (EXPENSE):
Interest income 359 132
Share of partnership income (losses) (983) 736
Interest expense (1,223) (1,351)
Income before income taxes 11,134 12,343
Income Taxes
Current:
Federal 568 -
State 1,639 295
Deferred:
Federal 3,491 4,485
State (967) 1,157
Total income taxes 4,731 5,937
Net income before cumulative effect of change in
accounting for income taxes 6,403 6,406
Cumulative effect of change in accounting for
income taxes - 1,300
Net income $ 6,403 $ 7,706
See notes to consolidated financial statements
</TABLE>
-5-
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited) (continued)
Three Months Ended
January 31,
1995 1994
(in thousands, except per share figures)
<S> <C> <C>
Earnings per share before cumulative effect of
change in accounting for income taxes $0.70 $0.67
Cumulative effect of change in
accounting for income taxes per share - $0.14
Earnings per share $0.70 $0.81
Dividends declared, per share $0.16 $0.14
Average common shares outstanding 9,132 9,530
See notes to consolidated financial statements
</TABLE>
-6-
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended
January 31,
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 6,403 7,706
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Share of net (income) losses of partnerships 983 (736)
Deferred income taxes 2,524 5,632
Cumulative effect of change in accounting
for income taxes - (1,300)
Amortization of deferred sales commissions 11,683 12,751
Amortization of premiums on investment securities,
net of accretion of discounts 306 379
Depreciation and other amortization 695 903
Payments of sales commissions (7,123) (38,527)
Capitalized sales charges received 11,294 4,969
Changes in other assets and liabilities (11,808) (9,097)
Net cash provided by (used for) operating activities 14,957 (17,320)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment and
leasehold improvements (1,057) (842)
Net increase in notes and receivables from affiliates (685) (550)
Net (increase) decrease in investment companies and
other investments (604) 115
Proceeds from sales and maturities of investment
securities 378 1,761
Net increase in loans (26) (2,478)
Net cash used for investing activities (1,994) (1,994)
See notes to consolidated financial statements
</TABLE>
-7-
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited) (continued)
Three Months Ended
January 31,
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 31,350
Payments on notes payable (87) (11,777)
Proceeds from the issuance of non-voting common stock 1,691 1,946
Dividends paid (1,464) (1,314)
Repurchase of non-voting common stock (1,305) (28)
Changes in demand and time deposits (486) 8,011
Net cash provided by (used for) financing activities (1,651) 28,188
Net increase in cash and equivalents 11,312 8,874
Cash and equivalents (including IB&T), end of period $45,337 $37,529
SUPPLEMENTAL INFORMATION:
Interest paid $ 742 $ 1,031
Income taxes paid $ 7,950 $ 686
See notes to consolidated financial statements
</TABLE>
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) January 31, 1995
(1) Consolidating Financial Statements
The components of the January 31, 1995 Eaton Vance Corp. consolidated
balance sheet and statement of income by major business segment follow:
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET Real January 31, 1995
ASSETS Investment Estate Consolidated
(in thousands) Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 38,874 $ 709 $ (2,056) $ 37,527
Receivable for investment
company shares sold 396 396
Investment adviser fees and
other receivables 1,864 417 2,281
Other current assets 492 700 1,192
Total current assets 41,626 1,826 (2,056) 41,396
INVESTORS BANK & TRUST COMPANY ASSETS:
Cash and equivalents 7,810 7,810
Investment securities 87,594 87,594
Loans, less allowance for loan losses 13,596 13,596
Accrued interest and fees receivable 11,409 11,409
Equipment and leasehold improvements, net 3,785 3,785
Other assets 3,882 3,882
Total bank assets 128,076 128,076
</TABLE>
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET Real January 31, 1995
ASSETS (continued) Investment Estate Consolidated
(in thousands) Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
OTHER ASSETS:
Investments:
Real estate 21,968 21,968
Gold mining partnerships 2,073 2,073
Northeast Properties, Inc. 8,388 (8,388) -
Investors Bank & Trust Company 11,351 (11,351) -
Marblehead Energy Corp. 168 (168) -
Energex Corporation 251 (251) -
Mining related subsidiaries 6,597 (6,597) -
Investment companies 6,344 6,344
Other investments 1,800 1,653 3,453
Notes receivable and receivables
from affiliates 150 3,215 (150) 3,215
Deferred sales commissions 240,006 393 240,399
Equipment and leasehold improvements, net 3,494 75 3,569
Goodwill 1,851 7 1,858
Intercompany receivables (2,621) 2,621 -
Total other assets 277,779 32,005 (26,905) 282,879
Total assets $319,405 $128,076 $33,831 $(28,961) $452,351
</TABLE>
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET Real January 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY Investment Estate Consolidated
(in thousands) Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Payable for investment company shares
purchased $ 407 $ 407
Accrued compensation 2,461 2,461
Accounts payable and accrued expenses 6,806 146 6,952
Accrued income taxes (3,998) 27 (3,971)
Dividend payable 1,471 1,471
Current portion of mortgage notes payable 8,439 8,439
Other current liabilities 280 280
Total current liabilities 7,427 8,612 16,039
INVESTORS BANK & TRUST COMPANY LIABILITIES
Demand and time deposits 108,479 (2,056) 106,423
Other 4,912 4,912
Total bank liabilities 113,391 (2,056) 111,335
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Note payable to affiliate 150 (150) -
Mortgage notes payable 8,235 8,235
Minority interest in consolidated
subsidiary 3,334 3,334
Total other liabilities 50,000 8,385 3,184 61,569
</TABLE>
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET (continued) Real January 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY Investment Estate Consolidated
(in thousands) Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
Deferred income taxes 90,588 2,112 92,700
Commitments -
Shareholders' equity 171,390 14,685 14,722 (30,089) 170,708
Total liabilities & shareholders' equity $319,405 $128,076 $33,831 $(28,961) $452,351
</TABLE>
-12-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME Three months ended
(in thousands) Real January 31, 1995
Investment Estate Consolidated
Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
REVENUE:
Investment adviser and
administration fees $ 20,146 $ 471 $ 20,617
Distribution income 19,753 19,753
Bank fee income 12,240 (129) 12,111
Bank net interest income 1,319 39 1,358
Income from real estate activities 1,242 (386) 856
Other income 226 30 256
Total revenue 40,125 13,559 1,743 (476) 54,951
EXPENSES:
Compensation of officers and employees 9,517 7,760 197 17,474
Amortization of deferred sales
commissions 11,683 11,683
Other expenses 7,547 4,199 1,349 (282) 12,813
Total expenses 28,747 11,959 1,546 (282) 41,970
OPERATING INCOME 11,378 1,600 197 (194) 12,981
OTHER INCOME (EXPENSE):
Interest income 323 75 (39) 359
Share of partnership income (losses) 28 (1,011) (983)
Interest expense (850) (373) (1,223)
INCOME (LOSS) BEFORE INCOME TAXES 10,879 1,600 (1,112) (233) 11,134
</TABLE>
-13-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(1) Consolidating Financial Statements (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME (continued) Three months ended
(in thousands) Real January 31, 1995
Investment Estate Consolidated
Management Banking & Other Eliminations Total
<S> <C> <C> <C> <C> <C>
INCOME TAXES 4,262 568 (99) 4,731
NET INCOME (LOSS) $ 6,617 $ 1,032 $(1,013) $(233) $ 6,403
</TABLE>
-14-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) January 31,
1995
(2) Investment in VenturesTrident, L.P. ("VT") and VenturesTrident II,
L.P. ("VT II")
The balance sheets of VT and VT II at January 31, 1995 and October 31,
1994 follow:
<TABLE>
<CAPTION>
VenturesTrident, L.P. (unaudited) January 31, October 31,
1995 1994
(in thousands)
ASSETS:
<S> <C> <C>
Cash and short-term investments $ 141 $ 144
Investments, at fair value 6,418 7,437
Other assets 91 110
Total $ 6,650 $ 7,691
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities $ 1,955 $ 1,891
Partners' capital 4,695 5,800
Total $ 6,650 $ 7,691
</TABLE>
<TABLE>
<CAPTION>
VenturesTrident II, L.P. (unaudited) January 31, October 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS:
Cash and short-term investments $ 64 $ 471
Investments, at fair value 37,093 47,985
Other assets 124 118
Total $37,281 $48,574
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities $ 1,802 $ 1,749
Partners' capital 35,479 46,825
Total $37,281 $48,574
</TABLE>
For the three months ended January 31, 1995 and 1994, the unaudited
operating results of VT reflect net losses of $1,105,000 and $802,000,
respectively, including realized and unrealized losses on investments of
$1,017,000 and $716,000, respectively.
For the three months ended January 31, 1995 and 1994, the unaudited
operating results of VT II reflect net income (losses) of ($11,346,000)
and $4,409,000, respectively, including unrealized gains (losses) on
investments of ($10,888,000) and $4,765,000, respectively.
-15-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) January 31,
1995
(2) Investment in VenturesTrident, L.P. ("VT") and VenturesTrident II,
L.P. ("VT II") (continued)
For the three months ended January 31, 1995 and 1994, the Company's share
of the net income (loss) of VT and VT II as accounted for under the
equity method, and allocated pursuant to the terms of the partnerships'
agreements, was ($999,000) and $737,000, respectively. At January 31,
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
three months ended January 31, 1994 excludes the effect of this non-cash
investing activity. At January 31, 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 (100,450) 8.75 - 15.75
Granted 132,300 27.75 - 30.525
Cancelled/Expired - -
Balance, January 31, 1995 764,598 $ 8.75 - 34.00
</TABLE>
At January 31, 1995, options for 466,496 shares were exercisable.
Options for 298,102 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 $27,285,000 at
January 31, 1995, which exceeded the net capital requirement of $197,000
as of that date.
-16-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) January 31,
1995
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements (including IB&T) at January 31, 1995
and October 31, 1994 follow:
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
(all figures in thousands)
<S> <C> <C>
At Cost:
Furniture and equipment $13,912 $13,036
Leasehold improvements 856 815
Total 14,768 13,851
Less accumulated depreciation 7,414 7,123
Net book value $ 7,354 $ 6,728
(6) Real Estate Investments
</TABLE>
Real estate investments held at January 31, 1995 and October 31, 1994
follow:
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
(all figures in thousands)
<S> <C> <C>
Buildings $27,384 $27,347
Land 2,463 2,465
Total 29,847 29,812
Less: Accumulated depreciation 7,738 7,510
Net book value 22,109 22,302
Share of accumulated losses in excess of
partnership interest (141) (129)
Total $21,968 $22,173
</TABLE>
-17-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(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.
Securities classified as available-for-sale are included in the following
balance sheet categories at January 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Estimated unrealized unrealized
fair value gains losses Cost
<S> <C> <C> <C> <C>
Investment companies $6,344 $1,636 $ - $4,708
Other investments 1,137 - 680 1,817
Total $7,481 $1,636 $ 680 $6,525
</TABLE>
Securities classified as held-to-maturity are included in the following
balance sheet category at January 31, 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 $74,458 $ 2 $1,393 $75,849
Mortgage-backed
securities 11,039 - 706 11,745
Total $85,497 $ 2 $2,099 $87,594
</TABLE>
The contractual maturities of debt securities held-to-maturity at January
31, 1995 follow (in thousands):
<TABLE>
<CAPTION>
Estimated Amortized
fair value Cost
<S> <C> <C>
Due within one year $24,863 $24,962
Due after one year through five years 49,595 50,887
Mortgage-backed securities 11,039 11,745
Total $85,497 $87,594
</TABLE>
-18-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 1995
(7) Investment Securities (continued)
The adoption of SFAS No. 115 resulted in an increase in shareholders'
equity, net of applicable taxes, of $320,000. Prior year's financial
statements have not been restated to reflect the change in accounting
principle.
(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 three months ended January 31, 1995 are based
upon the weighted average number of common and non-voting common shares
outstanding of 9,132,000. Earnings per share assuming primary and full
dilution have not been presented because the dilutive effect is
immaterial.
Earnings per share for the three months ended January 31, 1994 are based
upon the weighted average number of common, non-voting common and non-
voting common equivalent shares outstanding of 9,530,000. 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 January 31, 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
The Company's largest sources of revenues are investment adviser fees and
distribution fees received from the Eaton Vance funds and investment
adviser fees from 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 JANUARY 31, 1995 TO QUARTER ENDED JANUARY 31, 1994:
Assets under management of $14.6 billion on January 31, 1995, were 10
percent lower than the $16.3 billion reported a year earlier. Rising
interest rates and the consequent fall of bond prices throughout fiscal
1994 had a negative effect on sales of bond funds and reduced the market
value of fixed-income assets under management. Sales of $0.3 billion in
the first quarter of 1995 fell short of the record sales of $1.4 billion
recognized in the first quarter of 1994, while redemptions increased
moderately from $0.5 billion in the first quarter of 1994 to $0.6 billion
in the first quarter of 1995.
Total revenue increased $1.8 million to $55.0 million in the first
quarter of 1995. Investment adviser and distribution fees decreased
marginally in the first quarter of 1995 to $40.4 million from $41.6
million a year earlier. The decrease in investment adviser and
distribution fees can be attributed primarily to redemptions in excess of
new mutual fund sales. The impact of the decrease in mutual fund sales
on 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
first quarter of 1995, increasing 33 percent to $12.1 million from $9.1
million a year earlier. As noted above, bank fee income is dependent
upon the assets custodied and administered by IB&T. These assets
totalled $75.0 billion at January 31, 1995, an increase of $2.6 billion
over October 31, 1994.
Total expenses increased $1.7 million to $42.0 million in the first
quarter of 1995. Compensation expense of $17.5 million was consistent
with the prior year's expense of $17.4 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 $2.7 million, due primarily to the accrual of an
National Association of Securities Dealers (NASD) arbitration panel award
of $2.0 million. The Company is currently examining all possible legal
steps to overturn the arbitration panel's decision.
-20-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company's two gold mining partnerships, VenturesTrident and
VenturesTrident II, contributed a loss of $1.0 million during the first
quarter of 1995, in comparison with a gain of $0.7 million during the
first quarter 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 losses of $0.10 per share in
the first quarter of 1995 and $0.04 per share in the first quarter of
1994.
Net income of the Company amounted to $6.4 million in the first quarter
of 1995 compared to $7.7 million in the first quarter of 1994. Net
income for the first quarter 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, 1994. Earnings per share
were $.70 and $.67 for the first quarters of 1995 and 1994, respectively,
excluding the $.14 per share impact of the change in accounting principle
in 1994.
Total assets decreased $3.8 million in the first quarter of 1995 to
$452.3 million, due primarily to a decrease in deferred sales commissions
of $15.9 million, net of an increase in cash and equivalents of $12.8
million. The decrease in deferred sales commissions can be attributed
to redemptions in excess of new sales in the first quarter of 1995.
Total IB&T assets increased by less than 1 percent to $128.1 million in
the first quarter of 1995.
The net increase in investments in investment companies and other
investments of $1.6 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 "available-for-sale" 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 quarter of 1995, retained earnings of $5.0 million, net
proceeds of $1.1 million from the issuance of new stock to employees
under stock purchase and stock option plans, and the $0.3 million effect
of the adoption of SFAS No. 115 effective November 31, 1994, contributed
to the increase in the Company's consolidated shareholders' equity from
$165.6 million at the end of fiscal 1994 to $170.7 million at January 31,
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 of $26.00.
The Company's primary sources of cash flows from operating activities
were net income of $6.4 million and capitalized sales charges received on
early redemption of spread-commission funds of $11.3 million, offset by
the payment of sales commissions of $7.1 million. In the first quarter
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 $15.0
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 through cash flows generated from operating activities and,
if necessary, through borrowings.
At January 31, 1995, the Company had no borrowings under its $75.0
million bank credit facility.
-21-
PART II
OTHER INFORMATION
-22-
Item 1. Legal Proceedings
The Company was informed on January 13, 1995, that a National Association
of Securities Dealers (NASD) arbitration panel in Tampa, Florida had
awarded a former wholesaler for the firm $625,000 in damages and an
additional $1,250,000 as punitive damages in response to his claim for
wrongful termination of employment. One member of the three-person panel
dissented as to the award of punitive damages. The Company had requested
dismissal of the wholesaler's claim and counterclaimed for damages of
$435,000. It believes that the wholesaler's termination was fully
justified and even compelled by the facts, and that there is no basis for
the award of actual or punitive damages. As a result, the Company is
examining all possible legal steps to overturn what it regards as a most
inequitable decision, and affirms that it will pursue the matter to the
fullest.
At January 31, 1995, there were no other material pending legal
proceedings to which the Company or any of its subsidiaries is a party or
of which any of its property is the subject.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed by the Company on January 17, 1995 for the express
purpose of disclosing the NASD arbitration panel decision as described in
Part II, Item 1 above.
-23-
EXHIBIT INDEX
Exhibit 27, Financial Data Schedule, Article 5
Exhibit 27, Financial Data Schedule, Article 9
Exhibit 27, Financial Data Schedule, Article CT
-24-
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 8, 1995 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: March 8, 1995 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
-25-
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