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 July 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 July 31, 1995:
Voting common stock - 19,360 shares
Non-Voting Common Stock - 9,260,667 shares
Page 1 of 22 pages
PART II
FINANCIAL INFORMATION
-2-
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited)
ASSETS July 31, October 31,
1995 1994
(all figures in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 55,006 $ 24,681
Short-term investments 11,316 -
Receivable for investment company shares sold 958 1,073
Investment adviser fees and other receivables 2,978 2,632
Refundable income taxes 5,430 -
Net assets of discontinued operations 13,333 -
Other current assets 894 1,233
Total current assets 89,915 29,619
INVESTORS BANK & TRUST COMPANY ASSETS:
Cash and equivalents - 9,344
Investment securities (market value $86,172) - 88,278
Loans, less allowance for loan losses - 13,570
Accrued interest and fees receivable - 9,383
Equipment and leasehold improvements, net - 3,251
Other assets - 3,780
Total bank assets - 127,606
OTHER ASSETS:
Investments:
Real estate 21,741 22,173
Investment in affiliates 10,143 3,984
Investment companies (market value at
October 31, 1994 $5,702) 7,230 4,088
Other investments 2,565 3,208
Notes receivable and receivables from affiliates 3,273 3,139
Deferred sales commissions 219,515 256,326
Equipment and leasehold improvements, net 2,907 3,477
Goodwill 1,801 1,886
Total other assets 269,175 298,281
Total assets $359,090 $455,506
</TABLE>
See notes to consolidated financial statements
-3-
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited) (continued)
LIABILITIES AND July 31, October 31,
SHAREHOLDERS' 1995 1994
EQUITY (in thousands, except share figures)
<S> <C> <C>
CURRENT LIABILITIES:
Payable for investment company shares purchased $ 985 $ 1,096
Accrued compensation 7,111 8,817
Accounts payable and accrued expenses 7,889 4,539
Accrued income taxes - 1,761
Dividend payable 1,485 1,461
Current portion of mortgage notes payable 6,412 6,449
Other current liabilities 669 688
Total current liabilities 24,551 24,811
INVESTORS BANK & TRUST COMPANY LIABILITIES:
Demand and time deposits - 106,909
Other - 5,214
Total bank liabilities - 112,123
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Mortgage notes payable 10,087 10,311
Minority interest in consolidated subsidiary - 3,113
Total other liabilities 60,087 63,424
Deferred income taxes 86,190 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
9,260,667 and 9,090,394 shares, respectively 579 568
Additional paid-in capital 53,236 49,595
Notes receivable from stock option exercises (3,075) (2,511)
Unrealized gain on investments 1,170 -
Retained earnings 136,351 117,955
Total shareholders' equity 188,262 165,608
Total liabilities and shareholders' equity $359,090 $455,506
</TABLE>
See notes to consolidated financial statements
-4-
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
(in thousands, except per share figures)
<S> <C> <C> <C> <C>
REVENUE:
Investment adviser and
administration fees $21,688 $21,276 $ 62,850 $ 64,399
Distribution income 19,788 20,087 58,607 59,632
Income from real estate
activities 866 926 2,619 2,932
Other income 348 206 885 838
Total revenues 42,690 42,495 124,961 127,801
EXPENSES:
Compensation of officers and
employees 10,207 8,306 29,249 29,695
Amortization of deferred sales
commissions 12,404 13,797 36,830 39,345
Other expenses 7,492 7,714 24,077 22,057
Total operating expenses 30,103 29,817 90,156 91,097
OPERATING INCOME 12,587 12,678 34,805 36,704
OTHER INCOME (EXPENSE):
Interest income 834 177 1,825 742
Equity in net income of
affiliates 62 (1,344) (1,013) (1,450)
Interest expense (1,221) (1,321) (3,666) (4,102)
Income from continuing operations
before income taxes and
cumulative effect of change
in accounting for income taxes 12,262 10,190 31,951 31,894
INCOME TAXES 3,740 4,800 11,907 13,564
Income from continuing operations
before cumulative effect of
change in accounting for
income taxes 8,522 5,390 20,044 18,330
Income from discontinued
operations, net of income taxes 512 767 2,779 1,869
Income before cumulative effect
of change in accounting for
income taxes 9,034 6,157 22,823 20,199
</TABLE>
See notes to consolidated financial statements
-5-
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited) (continued)
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
(in thousands, except per share figures)
<S> <C> <C> <C> <C>
Cumulative effect of change in
accounting for income taxes - - - 1,300
NET INCOME $9,034 $6,157 $22,823 $21,499
Earnings per share from
continuing operations before
cumulative effect of change in
accounting for income taxes $0.92 $0.57 $2.18 $1.92
Earnings per share from
discontinued operations,
net of income taxes 0.06 0.08 0.30 0.19
Cumulative effect of change in
accounting for income taxes
per share - - - 0.14
Earnings per share $0.98 $0.65 $2.48 $2.25
Dividends declared, per share $0.16 $0.15 $0.48 $0.44
Average common shares outstanding 9,250 9,464 9,186 9,536
</TABLE>
See notes to consolidated financial statements
-6-
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended
July 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 from continuing operations 20,044 19,630
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Equity in net income of affiliates 1,013 1,450
Deferred income taxes (4,351) 7,779
Cumulative effect of change in accounting
for income taxes - (1,300)
Amortization of deferred sales commissions 36,830 39,144
Depreciation and other amortization 1,622 1,769
Payments of sales commissions (27,955) (80,635)
Capitalized sales charges received 27,755 18,112
Increase (decrease) in accrued income taxes - -
Changes in other assets and liabilities (3,752) 4,126
Operating activities of discontinued operations 5,878 2,126
Net cash provided by operating activities $ 57,084 $ 12,201
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in partnerships (88) $ (252)
Additions to real estate, equipment and
leasehold improvements (927) (1,304)
Net repayments of notes and receivables
from affiliates (698) (473)
Investment in affiliate (4,473) -
Net increase in investment companies and
other investments (868) (228)
Purchase of short-term investment (11,000) -
Proceeds from sales of investment securities - 2,901
Spinoff cash transfer (5,737) -
Investing activities of discontinued operations 9,601 (157)
Net cash provided by (used for) investing activities $(14,190) $ 487
</TABLE>
See notes to consolidated financial statements
-7-
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited) (continued)
Nine Months Ended
July 31,
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - $119,150
Payments on notes payable (261) (106,841)
Payment of 10% subordinated debentures - (14,169)
Proceeds from the issuance of non-voting
common stock 2,186 2,918
Dividends paid (4,403) (3,982)
Repurchase of non-voting common stock (1,305) (5,814)
Financing activities of discontinued operations (18,130) (14,215)
Net cash used for financing activities $(21,913) $(22,953)
Net increase (decrease) in cash and equivalents $ 20,981 $(10,265)
Cash and equivalents (including IB&T for the nine
months ended July 31, 1994), end of period $ 55,006 $ 18,390
NONCASH INVESTING ACTIVITY:
Distribution of securities from gold mining
partnership $ - $ 3,815
Issuance of non-voting common stock for shares
of unconsolidated affiliate $ 2,698 -
SUPPLEMENTAL INFORMATION:
Interest paid $ 3,604 $ 3,684
Income taxes paid $ 25,622 $ 2,468
</TABLE>
See notes to consolidated financial statements
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995
1. Acquisitions and Investments in Unconsolidated Affiliates
In June, 1995 the Company increased its investment in Lloyd George
Management (BVI) Limited ("LGM"), an independent investment management
company based in Hong Kong, to 21.0 percent for a combination of cash and
non-voting common stock. LGM currently manages a series of emerging
market mutual funds sponsored by the Company. The Company has an
agreement with LGM which governs the manner in which the stock can be
disposed. At July 31, 1995, the excess of the Company's investment over
its equity in the underlying net assets of LGM was approximately $6.9
million, which is being amortized over a twenty-year period. The Company
recorded an equity loss from LGM of $(20,000), net of amortization of
$58,000, for the nine months ended July 31, 1995. During 1995, the
Company has received dividends totalling $126,000. The Company's share
of undistributed earnings of LGM included in consolidated retained
earnings was $38,000 at July 31, 1995. The carrying value of this
investment was $8.1 million at July 31, 1995.
Summarized unaudited condensed financial information of Lloyd George
Management (BVI) Limited in U.S. dollars is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEET June 30, 1995
<S> <C>
ASSETS:
Current assets $5,312
Noncurrent assets 3,289
Total $8,601
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities $3,009
Noncurrent liabilities -
Shareholders' equity 5,592
Total $8,601
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA Six months ended
June 30, 1995
<S> <C>
Revenues $4,917
Expenses 3,993
Net income $ 924
</TABLE>
The Company's investment in unconsolidated affiliates also includes a 79
percent general partnership interest in Fulcrum Management Partners, L.P.
(F.M.P.) and an 82 percent general partnership interest in Fulcrum
Management Partners II, L.P. (F.M.P.II), both Delaware limited
partnerships, of which a principal officer of the Company is the other
general partner. F.M.P. and F.M.P.II are 20 percent general partners of
VenturesTrident, L.P. (V.T.) and VenturesTrident II, L.P. (V.T.II),
respectively, both Delaware limited partnerships formed to invest in
equity securities of public and private gold-mining ventures. The Company
also has a 12 percent limited partnership interest in V.T. and a 3 percent
limited partnership interest in V.T.II.
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995
Summarized condensed combined financial information of V.T. and V.T.II,
both of which are accounted for under the equity method, is as follows
(in thousands):
<TABLE>
<CAPTION>
BALANCE SHEET July 31, October 31,
1995 1994
<S> <C> <C>
ASSETS:
Cash and short-term investments $ 276 $ 615
Investments, at fair value 48,111 55,422
Other assets 252 228
Total $48,639 $56,265
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities $ 4,291 $ 3,640
Partners' Capital 44,348 52,625
Total $48,639 $56,265
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA Nine months ended
July 31,
1995 1994
<S> <C> <C>
Realized and unrealized gains
(losses) on investments $(6,727) $ 1,906
Other income (loss) (1,550) (1,717)
Net income (loss) $(8,277) $ 189
</TABLE>
For the nine months ended July 31, 1995 and 1994, the Company's share of
the net losses of V.T. and V.T.II, as accounted for under the equity
method and allocated pursuant to the terms of the partnerships'
agreements, was $993,000 and $628,000, respectively. At July 31, 1995
and 1994, the Company's investments in V.T. and V.T.II approximated its
share of the partners' capital of each partnership.
2. Discontinued Operations
On July 12, 1995, the Board of Directors approved in principle the
Company's plan to spinoff its 77.3 percent owned subsidiary, Investors
Bank & Trust Company (IB&T), in a tax-free distribution of bank shares to
the Company's shareholders. The Company has requested a private letter
ruling from the Internal Revenue Service on the tax-free status of the
distribution and is actively pursuing the necessary regulatory approvals
from both Federal and Massachusetts banking authorities. The spinoff is
expected to be completed prior to calendar year end after receipt of the
necessary regulatory approvals and formal declaration of the distribution
by the Board of Directors. The spinoff will result in a reduction of
shareholders' equity by an amount which approximates the carrying value
of Investors Bank & Trust Company at the time of the spinoff.
As a result of the Board action regarding the spinoff, the operations of
IB&T have been classified as discontinued for all periods presented.
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995
Revenues applicable to discontinued operations for the nine months ended
July 31, 1995 and 1994 were $43.7 million and $34.9 million, respectively.
Income taxes applicable to discontinued operations for the nine months
ended July 31, 1995 and 1994 were $2.2 million and $1.3 million,
respectively.
The assets and liabilities of IB&T have been reclassified on the balance
sheet to separately identify them as net assets of discontinued
operations. These net assets consist of the following:
<TABLE>
<CAPTION>
July 31,
1995
<S> <C>
Investment securities $ 76,545
Loans, less allowance for loan losses 13,672
Other assets 22,322
Demand and time deposits (88,777)
Other liabilities (10,429)
Net assets of discontinued operations $ 13,333
</TABLE>
(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 (110,000) 8.75 - 27.25
Granted 133,300 27.75 - 32.25
Cancelled/Expired (14,500) 8.75 - 34.00
Balance, July 31, 1995 741,548 $ 8.75 - 34.00
</TABLE>
At July 31, 1995, options for 454,281 shares were exercisable. Options
for 287,267 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 $43,061,000 and
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995
$190,000, respectively, at July 31, 1995, which exceeded the net capital
requirements of $230,000 and $5,000, respectively, as of that date.
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements at July 31, 1995 (excluding IB&T)
and October 31, 1994 follow:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
(in thousands)
<S> <C> <C>
At Cost:
Furniture and equipment $ 6,688 $13,036
Leasehold improvements 300 815
Total 6,988 13,851
Less accumulated depreciation 4,081 7,123
Net book value $ 2,907 $ 6,728
</TABLE>
At July 31, 1995 net equipment and leasehold improvements of discontinued
operations were $3,766,000.
(6) Real Estate Investments
Real estate investments held at July 31, 1995 and October 31, 1994
follow:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
(in thousands)
<S> <C> <C>
Buildings $27,681 $27,347
Land 2,461 2,465
Total 30,142 29,812
Less: Accumulated depreciation 8,195 7,510
Net book value 21,947 22,302
Share of accumulated losses in excess of
partnership interest (206) (129)
Total $21,741 $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
-12-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995
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 July 31, 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 $11,316 $ 316 $ - $11,000
Investments:
Investment companies 7,230 2,413 151 4,968
Other investments 1,205 12 414 1,607
Total $19,751 $ 2,741 $ 565 $17,575
</TABLE>
Securities classified as held-to-maturity are included in the following
balance sheet category at July 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Estimated unrealized unrealized Amortized
fair value gains losses cost
Net assets of discontinued operations:
<S> <C> <C> <C> <C>
U.S. Treasury
securities $65,522 $ 198 $ 204 $65,528
Mortgage-backed
securities 10,897 36 156 11,017
Total $76,419 $ 234 $ 360 $76,545
</TABLE>
The contractual maturities of debt securities held-to-maturity at July
31, 1995 follow (in thousands):
<TABLE>
<CAPTION>
Estimated Amortized
fair value cost
<S> <C> <C>
Due within one year $30,158 $30,231
Due after one year through five years 35,364 35,297
Mortgage-backed securities 10,897 11,017
Total $76,419 $76,545
</TABLE>
The adoption of SFAS No. 115 resulted in an increase in shareholders'
equity, net of applicable taxes, of $1,170 through July 31, 1995. Prior
year's financial statements have not been restated to reflect the change
in accounting principle.
-13-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 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.
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.
(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 nine months ended July 31, 1995 are based upon
the weighted average number of common and non-voting common shares
outstanding of 9,186,000. Earnings per share assuming primary and full
dilution have not been presented because the dilutive effect is
immaterial.
Earnings per share for the nine months ended July 31, 1994 are based upon
the weighted average number of common, non-voting common and non-voting
common equivalent shares outstanding of 9,536,000. 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 July 31, 1995, 309,499 shares of
the total 412,000 shares reserved have been issued pursuant to this plan.
(12) Subsequent Events
On August 1, 1995, a subsidiary of the Company repaid a maturing mortgage
note secured by retail rental property located in Goffstown, New
Hampshire. The principal and accrued interest paid were $6.2 million.
-14-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995
(13) Certain prior year amounts have been reclassified to conform to
current year presentation.
(14) 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.
-15-
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. 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 JULY 31, 1995 COMPARED TO QUARTER ENDED JULY 31, 1994:
Assets under management of $15.6 billion on July 31, 1995, were 1 percent
higher than the $15.4 billion reported a year earlier. Market
appreciation and reinvested dividends have contributed to the overall
stability of the Company's assets under management. Mutual fund sales of
$0.5 billion in the third quarter of 1995 were even with the third
quarter of 1994, while redemptions of $0.5 billion in the third quarter
of 1995 were up 25 percent from the same quarter a year ago. Monthly net
sales, however, have been steadily improving since December, 1994.
On July 12, 1995, the Board of Directors approved in principle the
Company's plan to spinoff its interest in Investors Bank & Trust Company
(IB&T) in a tax-free distribution to the Company's shareholders. The
purpose of the distribution is to remove IB&T from certain regulatory
restrictions under the Competitive Equality Banking Act of 1987 (CEBA)
and to enhance the opportunities for IB&T's global custody and
administrative services by making IB&T an independent company. The
Company has requested a private letter ruling from the Internal Revenue
Service on the tax-free status of the distribution and is actively
pursuing the necessary regulatory approvals from both Federal and
Massachusetts banking authorities. Management anticipates that the
spinoff will be completed by calendar year end after receipt of the
necessary regulatory approvals and formal declaration of the distribution
by the Board of Directors. The consolidated statements of operations and
cash flows have been restated to reflect the bank as a discontinued
operation for all periods presented.
Total revenue from continuing operations increased $0.2 million to $42.7
million in the third quarter of 1995 from $42.5 million in the third
quarter of 1994. Investment adviser and distribution fees increased $0.1
million in the third quarter of 1995 to $41.5 million from $41.4 million
a year earlier. The overall stability in investment adviser and
distribution fees can primarily be attributed to stable average assets
under management in comparison with the same quarter a year ago and
steadily improving net sales of mutual fund shares.
Total operating expenses of $30.1 million in the third quarter of 1995
were even with operating expenses a year earlier. Compensation expense
increased by 23 percent in the third quarter of 1995, primarily due to
higher salaries and benefits and a reclass of other personnel costs in
the third quarter of 1994. Decreases in the average dollar value of
assets in spread commission funds resulted in a decrease in the
amortization of deferred sales commissions of 10 percent. Other expenses
of $7.5 million in the third quarter of 1995 were even with the $7.7
million reported a year earlier.
-16-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
After accounting for management fees, operating expenses and income
taxes, the Company's gold mining and energy operations contributed a gain
of $0.09 per share in the third quarter of 1995, compared to a loss of
$0.13 per share in the third quarter of 1994. The gain in the third
quarter of 1995 can primarily be attributed to the realization of
previously unrealized losses for tax purposes. The realization of these
losses resulted in a significant decrease in the Company's effective tax
rate on income from continuing operations, from 31 percent for the third
quarter of 1995 to 47 percent for the third quarter of 1994.
Income from discontinued banking operations, net of taxes, decreased by
33 percent from $767,000, or $0.08 per share, in the third quarter of
1994 to $512,000, or $0.06 per share, in the third quarter of 1995. The
decrease in income from discontinued banking operations can primarily be
attributed to a temporary decrease in bank fee income following the sale
of certain custodied UIT assets to the Bank of New York in the second
quarter of 1995.
Net income from continuing operations of the Company amounted to $8.5
million in the third quarter of 1995 compared to $5.4 million in the
second quarter of 1994. Earnings per share from continuing operations
were $0.92 and $0.57 for the third quarters of 1995 and 1994,
respectively.
NINE MONTHS ENDED JULY 31, 1995 COMPARED TO NINE MONTHS ENDED JULY 31,
1994:
Mutual fund sales for the first nine months of 1995 of $1.1 billion were
62 percent below the $2.9 billion reported in the first nine months of
1994. Redemptions of $1.6 billion in the first nine months of 1995 were
23 percent above the $1.3 billion in the first nine months of 1994.
Total revenue from continuing operations decreased $2.8 million to $125.0
million in the first nine months of 1995. Investment adviser and
distribution fees decreased by $2.5 million in the first nine months of
1995 to $121.5 million from $124.0 million a year earlier. The decrease
in investment adviser and distribution fees can be attributed primarily
to lower average assets under management in comparison with the same
period a year ago and redemptions in excess of new mutual fund sales for
the nine month period. 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.
Total operating expenses decreased $0.9 million to $90.2 million in the
first nine months of 1995. Compensation expense of $29.2 million was
consistent with the prior year's expense of $29.7 million for the
comparable period. 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 $2.5 million. Other expenses rose $2.0
million, primarily due to the accrual of a National Association of
Securities Dealers (NASD) arbitration panel award of $2.0 million in the
first quarter of 1995. The Company is currently vigorously pursuing all
appropriate legal steps to overturn the arbitration panel's decision.
-17-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company's two gold mining partnerships contributed losses of $1.0
million and $0.6 million during the first nine months of 1995 and 1994,
respectively. These losses resulted primarily from fluctuations in the
portfolio valuations of the two partnerships. After accounting for
management fees, operating expenses and income taxes, the Company's gold
mining and energy operations contributed losses of $0.04 and $0.11 per
share for the first nine months of 1995 and 1994, respectively. The
increase can be primarily attributed to the realization of previously
unrealized losses for tax purposes. The realization of these losses
resulted in a significant decrease in the Company's effective tax rate on
income from continuing operations, from 43 percent in 1994 to 37 percent
in 1995.
Income from discontinued banking operations, net of taxes, increased by
47 percent from $1.9 million, or $0.19 per share, for the nine months
ended July 31, 1994 to $2.8 million, or $0.30 per share, for the nine
months ended July 31, 1995. The increase can primarily be attributed to
an increase in the assets custodied and administered by IB&T. These
assets totalled $86.7 billion at July 31, 1995, an increase of $16.8
billion over July 31, 1994.
Net income from continuing operations of the Company amounted to $20.0
million in the first nine months of 1995, compared to $18.3 million in
the first nine months of 1994. Earnings per share from continuing
operations were $2.18 and $1.92 for the first nine months of 1995 and
1994, respectively. Net income for the first nine months of 1994
includes a gain of $1.3 million, or $0.14 per share, associated with the
implementation of Statement of Financial Accounting Standards (SFAS) No.
109 effective November 1, 1993.
Total assets, excluding discontinued banking operations, increased to
$345.8 million at July 31, 1995 from $327.9 million at October 31, 1994.
Cash and cash equivalents and short-term investments increased by $41.6
million to $66.3 million at July 31, 1995. Investments in affiliates
increased by $6.2 million, primarily due to an increase in the Company's
investment in Lloyd George Management (BVI) Limited, an independent
investment management company based in Hong Kong. Deferred sales
commissions decreased $36.8 million to $219.5 million at July 31, 1995.
The decrease in deferred sales commissions can primarily be attributed to
amortization and redemptions in excess of new sales in spread commission
funds in the first nine months of 1995.
The increase in investments in investment companies and other investments
of $2.5 million can primarily be attributed to the adoption of Statement
of Financial Accounting Standards (SFAS) No. 115, effective November 1,
1994 and subsequent portfolio adjustments. 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:
Cash and cash equivalents, excluding discontinued banking operations,
increased by $30.3 million to $55.0 million at July 31, 1995.
-18-
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company generated $51.2 million in cash from continuing operating
activities in the nine months ended July 31, 1995. The Company's primary
sources of cash flows from continuing operating activities were net
income from continuing operations of $20.0 million and capitalized sales
charges received on early redemptions of spread-commission funds of $27.8
million. The primary use of capital was for the payment of $28.0 million
in commissions associated with the sales of spread-commission mutual
funds. 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.
Investing activities of continuing operations reduced cash and cash
equivalents by $18.1 million in the first nine months of 1995. The
decrease was primarily due to the purchase of $11.0 million in short term
investments and the acquisition of additional shares of Lloyd George
Management (BVI) Limited. The Company paid $4.5 million in cash and
issued non-voting common stock valued at $2.7 million as consideration
for the additional Lloyd George Management shares acquired in the third
quarter.
Financing activities of continuing operations reduced cash and cash
equivalents by $3.8 million in the first nine months of 1995, primarily
due to 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 and the payment of $4.4 million in dividends to the Company's
shareholders. These reductions were offset by net proceeds of $2.2
million from the issuance of new stock to employees under stock purchase
and stock option plans. On August 1, 1995, a subsidiary of the Company
repaid a maturing mortgage note secured by retail rental property located
in Goffstown, New Hampshire. The principal and accrued interest paid
were $6.2 million.
In July 1995, the Board of Directors approved in principle the Company's
plan to spinoff its interest in IB&T in a tax-free distribution to the
Company's shareholders. The spinoff will result in a reduction of
shareholders' equity by an amount which approximates the carrying value
of IB&T at the time of the spinoff. The carrying value of IB&T was $13.3
million at July 31, 1995. Management anticipates that the spinoff will
be completed by the end of the calendar year.
In January of 1995, the Board of Directors authorized the repurchase of
up to 500,000 shares of the Company's non-voting common stock. There
have been no share repurchases to date under this plan. The 50,000
shares repurchased in the first quarter of 1995 were repurchased under a
previously authorized plan.
At July 31, 1995, the Company had no borrowings under its $75.0 million
bank credit facility.
-19-
PART II
OTHER INFORMATION
-20-
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.
-21-
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: September 5, 1995 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: September 5, 1995 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
-22-
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