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, 1996 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, 1996:
Voting common stock - 19,360 shares
Non-Voting common stock - 9,417,404 shares
Page 1 of 20 pages
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Balance Sheets (unaudited)
ASSETS April 30, October 31,
1996 1995
(in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 74,678 $ 67,650
Short-term investments 20,159 11,471
Receivable for investment company shares sold 1,060 1,156
Investment adviser fees and other receivables 4,589 3,342
Prepaid income taxes 1,853 658
Net assets of discontinued operations - 13,961
Other current assets 448 364
Total current assets 102,787 98,602
OTHER ASSETS:
Investments:
Real estate 21,134 21,606
Investment in affiliates 10,099 10,113
Investment companies 8,470 7,542
Other investments 7,251 2,338
Notes receivable and receivables from affiliates 1,471 3,458
Deferred sales commissions 197,504 209,542
Equipment and leasehold improvements, net 3,019 2,855
Goodwill (net of accumulated amortization of $2,675
and $2,422, respectively) 1,277 1,530
Total other assets 250,225 258,984
Total assets $353,012 $357,586
See notes to consolidated financial statements
</TABLE>
-3-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Balance Sheets (unaudited) (continued)
LIABILITIES AND April 30, October 31,
SHAREHOLDERS' 1996 1995
EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Payable for investment company shares purchased $ 1,075 $ 1,179
Accrued compensation 5,288 9,341
Accounts payable and accrued expenses 7,742 7,482
Accrued income taxes - 184
Dividend payable 1,608 1,590
Current portion of mortgage notes payable 243 4,189
Other current liabilities 826 762
Total current liabilities 16,782 24,727
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Mortgage notes payable 5,967 6,102
Total other liabilities 55,967 56,102
Deferred income taxes 80,368 82,237
Commitments and contingencies - -
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
9,417,404 and 9,315,712 shares, respectively 589 582
Additional paid-in capital 39,977 53,753
Unrealized gain on investments 3,467 1,186
Notes receivable from stock option exercises (3,435) (3,313)
Retained earnings 159,296 142,311
Total shareholders' equity 199,895 194,520
Total liabilities and shareholders' equity $353,012 $357,586
See notes to consolidated financial statements
</TABLE>
-4-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
(in thousands, except per share figures)
REVENUE:
<S> <C> <C> <C> <C>
Investment adviser and
administration fees $24,758 $20,545 $48,459 $41,162
Distribution income 19,078 19,066 38,508 38,819
Income from real estate activities 1,042 841 1,943 1,753
Other income 583 281 1,049 537
Total revenue 45,461 40,733 89,959 82,271
EXPENSES:
Compensation of officers and
employees 10,173 9,328 20,645 19,042
Amortization of deferred sales
commissions 13,423 12,743 26,060 24,426
Other expenses 7,162 8,007 14,923 16,585
Total operating expenses 30,758 30,078 61,628 60,053
OPERATING INCOME 14,703 10,655 28,331 22,218
OTHER INCOME (EXPENSE):
Interest income 825 564 1,796 991
Gain on sale of investments 482 - 1,057 -
Equity in net income (loss) of
affiliates 101 (75) 1,768 (1,075)
Interest expense (938) (1,222) (1,879) (2,445)
Income from continuing operations
before income taxes and
extraordinary item 15,173 9,922 31,073 19,689
INCOME TAXES 6,362 4,004 12,464 8,167
Income from continuing operations
before extraordinary item 8,811 5,918 18,609 11,522
Income from discontinued
operations, net of income taxes - 1,468 - 2,267
See notes to consolidated financial statements
</TABLE>
-5-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Income (unaudited) (continued)
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
(in thousands, except per share figures)
<S> <C> <C> <C> <C>
Extraordinary gain on early
retirement of debt, net of income
taxes of $1,100 1,590 - 1,590 -
NET INCOME $10,401 $ 7,386 $20,199 $13,789
Earnings per share from
continuing operations before
extraordinary item $ 0.93 $ 0.65 $ 1.97 $ 1.26
Earnings per share from
discontinued operations,
net of income taxes - 0.16 - 0.25
Extraordinary gain on early
retirement of debt, net of
income taxes, per share 0.17 - 0.17 -
Earnings per share $ 1.10 $ 0.81 $ 2.14 $ 1.51
Dividends declared, per share $ 0.17 $ 0.16 $ 0.34 $ 0.32
Average common shares outstanding 9,430 9,176 9,423 9,154
See notes to consolidated financial statements
</TABLE>
-6-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended
April 30,
1996 1995
(in thousands)
<S> <C> <C>
Cash and equivalents (including IB&T for 1995),
beginning of period $67,650 $34,025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations 20,199 11,522
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain on early retirement of debt (1,590) -
Equity in net (income) loss of affiliates (1,768) 1,075
Deferred income taxes (2,125) 276
Amortization of deferred sales commissions 26,060 24,426
Depreciation and other amortization 1,175 1,092
Payment of sales commissions (30,621) (15,664)
Capitalized sales charges received 16,505 18,969
Gain on sale of investments (1,057) -
Change in prepaid income taxes (2,316) (9,230)
Changes in other assets and liabilities (4,821) 1,831
Cash used for discontinued operations - (8,181)
Net cash provided by operating activities 19,641 26,116
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment and
leasehold improvements (424) (629)
Investment in partnership - (58)
Net increase in notes and receivables from affiliates (122) (705)
Net increase in investment companies and
other investments (659) (736)
Proceeds from sale of investments 12,792 -
Purchase of short-term investment (19,939) (11,000)
Net cash used for investing activities (8,352) (13,128)
See notes to consolidated financial statements
</TABLE>
-7-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Statements of Cash Flows (unaudited) (continued)
Six Months Ended
April 30,
1996 1995
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on notes payable (1,370) (180)
Proceeds from issuance of non-voting common stock 1,718 1,745
Dividends paid (3,197) (2,932)
Repurchase of non-voting common stock (1,412) (1,305)
Net cash used for financing activities (4,261) (2,672)
Net increase in cash and equivalents 7,028 10,316
Cash and equivalents (including IB&T for 1995),
end of period $74,678 $44,341
NON-CASH INVESTING ACTIVITIES:
Fair value of common stock received in exchange for
note receivable from affiliate $ 1,774 $ -
Fair value of common stock distributed from gold
mining partnership 271 -
Total non-cash investing activities $ 2,045 $ -
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,877 $ 2,444
Income taxes paid $17,191 $17,159
See notes to consolidated financial statements
</TABLE>
-8-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30,
1996
(1) Investment in Affiliates
Investment in affiliates includes an $8.2 million and an $8.5 million
investment in Lloyd George Management (BVI) Limited (LGM) at April 30,
1996 and October 31, 1995, respectively, and a $1.9 million and $1.6
million investment in gold mining partnerships at April 30,1996 and
October 31, 1995, respectively.
The Company has a 24 percent investment in LGM, an independent investment
management company based in Hong Kong. LGM currently manages a series of
emerging market mutual funds sponsored by the Company. At April 30, 1996
the excess of the Company's investment over its equity in the underlying
net assets of LGM was approximately $7.0 million, which is being
amortized over a twenty-year period.
The Company's investment in gold mining partnerships includes an 82
percent general partnership interest in Fulcrum Management Partners II,
L.P. (FMPII) and a 3 percent limited partnership interest in
VenturesTrident II, L.P. (VTII). FMPII, a Delaware limited partnership
of which a principal officer of the Company is the other general partner,
is a 20 percent general partner of VTII, also a Delaware limited
partnership formed to invest in equity securities of public and private
gold mining ventures.
In accordance with the VenturesTrident, L.P. (VT) Limited Partnership
Agreement, as amended, the General Partner terminated the partnership
effective December 31, 1995. On December 29, 1995 VT distributed 662,000
shares of Dakota Mining Corporation with a value of $0.9 million and
769,000 shares of Gold Queen Mining Company Limited with a value of $0.8
million to its partners. The Company's share of this distribution was
100,300 shares of Dakota Mining with a value of $151,000 and 116,600
shares of Golden Queen with a value of $120,000.
(2) Discontinued operations
On November 10, 1995 the Company completed the spinoff of its banking
operations in a tax-free distribution to its shareholders of shares of a
newly created holding company for Investors Bank & Trust Company (IB&T)
named Investors Financial Services Corp. (IFSC). Under the plan of
distribution, the Company transferred to IFSC approximately $14.0 million
of net banking assets, including $10.1 million in cash. Each shareholder
of the Company received 2.799 shares of Common Stock of IFSC and .538
shares of Class A Stock of IFSC for each ten shares of Eaton Vance Corp.
stock held at the close of business on October 30, 1995, which was the
record date of the distribution. Revenue applicable to discontinued
operations for the three and six months ended April 30, 1995 was $16.1
million and $29.7 million, respectively. Income taxes applicable to
discontinued operations were $1.2 million and $1.8 million for the same
periods.
-9-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30,1996
(3) Extraordinary Item
In the second quarter of 1996, Northeast Properties, Inc., the Company's
real estate subsidiary, retired at a discount an existing mortgage with a
remaining unpaid balance of $4.0 million. The Company realized an
extraordinary gain on the retirement of $1.6 million, net of income taxes
of $1.1 million.
(4) Non-Voting Common Stock Options
Options to subscribe to shares of non-voting common stock are summarized
as follows:
Shares Under Option Option Price Range
<TABLE>
<S> <C> <C>
Balance, October 31, 1994 732,748 $ 8.75 - 34.00
Exercised (174,327) 8.75 - 15.75
Granted 133,300 27.75 - 30.53
Cancelled/Expired (22,000) 8.75 - 34.00
Balance, October 31, 1995 669,721 8.75 - 34.00
Adjustment for spinoff of IB&T 139,408
Adjusted balance 809,129 7.24 - 28.14
Exercised (130,203) 7.24 - 28.14
Granted 143,770 28.25 - 31.08
Cancelled/Expired (40,291) 22.66 - 28.25
Balance, April 30, 1996 782,405 $13.04 - 31.08
</TABLE>
At April 30, 1996, options for 510,335 shares were exercisable. Options
for 272,070 additional shares will become exercisable over the next four
years. As a result of the spinoff of IFSC, all outstanding options to
subscribe to shares of the Company's non-voting common stock at November
10, 1995 were adjusted to reflect the decreased value of the stock. This
adjustment resulted in additional options for 139,408 shares of the
Company's non-voting common stock and a decrease in the option price
range to $7.24 - $28.14.
-10-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30,1996
(5) Net Capital Requirements
Two subsidiaries of the Company are subject to the Securities and
Exchange Commission uniform net capital rule (Rule 15c3-1) which requires
such subsidiaries to maintain a certain minimum level of net capital (as
defined). For purposes of this rule, the subsidiaries had net capital of
$57,000,000 and $173,000, respectively, which exceeded their respective
net capital requirements of $304,000 and $5,000 at April 30, 1996.
(6) Equipment and Leasehold Improvements
Equipment and leasehold improvements at April 30,1996 and October 31,
1995 follow:
April 30, October 31,
1996 1995
(all figures in thousands)
<TABLE>
At Cost:
<S> <C> <C>
Furniture and equipment $ 7,066 $ 6,723
Leasehold improvements 513 323
Total 7,579 7,046
Less accumulated depreciation 4,560 4,191
Net book value $ 3,019 $ 2,855
</TABLE>
(7) Real Estate Investments
Real estate investments held at April 30,1996 and October 31, 1995
follow:
April 30, October 31,
1996 1995
(all figures in thousands)
<TABLE>
<S> <C> <C>
Buildings $28,053 $27,831
Land 2,216 2,457
Total 30,269 30,288
Less: Accumulated depreciation 8,881 8,424
Net book value 21,388 21,864
Share of accumulated losses in excess of
partnership interest (254) (258)
Total $21,134 $21,606
</TABLE>
-11-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
April 30, 1996
(8) Investment Securities
The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." 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 April 30, 1996 and October 31, 1995 (in
thousands):
<TABLE>
April 30, 1996 Estimated Gross Gross
fair unrealized unrealized
value gains losses Cost
Current Assets:
<S> <C> <C> <C> <C>
Short-term investments $20,159 $ 220 $ - $19,939
Investments:
Investment companies 8,470 3,047 31 5,454
Other investments 5,073 1,623 - 3,450
Total $33,702 $ 4,890 $ 31 $28,843
</TABLE>
<TABLE>
October 31, 1995 Estimated Gross Gross
fair unrealized unrealized
value gains losses Cost
Current Assets:
<S> <C> <C> <C> <C>
Short-term investments $11,471 $ 471 $ - $11,000
Investments:
Investment companies 7,542 2,597 155 5,100
Other investments 1,018 13 604 1,609
Total $20,031 $ 3,081 $ 759 $17,709
</TABLE>
-12-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30,1996
(8) Investment Securities (continued)
At April 30, 1996 the unrealized gain included as a separate component of
shareholders' equity was $3,467,000, net of income taxes of $1,392,000.
At October 31, 1995 the unrealized gain included as a separate component
of shareholders' equity was $1,186,000, net of income taxes of
$1,136,000.
Proceeds from the sale of available-for-sale securities during the six
months ended April 30, 1996 were $12.1 million.
(9) 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 Company $0.6 million in damages and an additional $1.2
million in punitive damages in response to a claim for wrongful
termination of employment. Through April 30, 1996, the Company has
accrued a liability of $2.7 million for these damages. The Company has
appealed the decision to the courts and intends to pursue all 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 of such claims would have any material adverse effect on
the Company's financial position or results of operations.
(10) Earnings Per Share
Earnings per share for the six months ended April 30, 1996 and 1995 are
based upon the weighted average number of common and non-voting common
shares outstanding of 9,423,000 and 9,154,000, respectively. Earnings
per share assuming primary and full dilution have not been presented
because the dilutive effect is immaterial.
(11) In fiscal 1997 the Company will be required to adopt Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans and
requires certain disclosures about employee stock options based on their
fair value at the date of grant. Management does not anticipate adopting
the "fair value" recognition provisions of SFAS No. 123.
-13-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) April 30,1996
(12) Certain prior year amounts have been reclassified to conform to
current year presentation and to reflect the spinoff of IB&T.
(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.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's primary sources of revenue 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
major expenses, other than the amortization of deferred sales
commissions, include employee compensation, occupancy costs, service fees
and other marketing costs.
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 30, 1996 TO QUARTER ENDED APRIL 30, 1995
Assets under management of $16.7 billion on April 30, 1996 were 4 percent
higher than the $16.0 billion at the beginning of the fiscal year and 11
percent higher than the $15.1 billion reported a year earlier. Mutual
fund sales increased to $0.7 billion in the second quarter of 1996 from
$0.3 billion in the second quarter of 1995. Redemptions were $0.5 billion
in both the second quarter of 1996 and 1995.
On November 10, 1995, the Company completed the spin-off of Investors
Financial Services Corp. (IFSC), the new parent company of Investors Bank
& Trust Company (IB&T), in a tax-free distribution to Eaton Vance Corp.
shareholders. The banking business has been treated as a discontinued
operation in the accompanying consolidated financial statements.
Total revenue from continuing operations increased $4.8 million to $45.5
million in the second quarter of 1996 from $40.7 million a year earlier.
Investment adviser and distribution fees increased by $4.2 million in
1996 to $43.8 million from $39.6 million a year ago. The increase in
investment adviser and distribution fees can be attributed primarily to
higher average assets under management in comparison with the same period
a year ago and new mutual fund sales in excess of redemptions in the
second quarter of 1996.
Total operating expenses increased 2 percent or $0.7 million to $30.8
million in the second quarter of 1996. Compensation expense increased 10
percent to $10.2 million from $9.3 million a year earlier as a result of
an increase in incentives associated with the growth in mutual fund
sales. Amortization expense increased 5 percent to $13.4 million
primarily due to an increase in the gross sales of spread commission
mutual funds. The increases noted in compensation and amortization
expense were offset by a decrease in other expenses of $0.8 million or 11
percent.
Net income from continuing operations of the Company amounted to $8.8
million for the quarter ended April 30, 1996 compared to $5.9 million for
the quarter ended April 30, 1995. Earnings per share from continuing
operations were $0.93 and $0.65 for the second quarters of 1996 and 1995,
respectively. Net income of $10.4 million for the second quarter of
1996 includes an extraordinary gain of $1.6 million or $0.17 per share,
net of income taxes, related to the early retirement of a mortgage owed
by the Company s real estate subsidiary. Net income of $7.4 million for
the second quarter of 1995 includes income from discontinued banking
operations of $1.5 million.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Excluding discontinued banking operations of $14.0 million on October 31,
1995, total assets increased 3 percent to $353.0 million on April 30,
1996 from $343.6 million on October 31, 1995. Cash, cash equivalents and
short-term investments increased by $15.7 million to $94.8 million on
April 30, 1996. The increase in other investments of $4.9 million can be
primarily attributed to the receipt of gold mining securities in the
first quarter of 1996 following the termination of one of the Company's
two gold mining partnerships and subsequent distribution of the
partnership's assets. Deferred sales commissions decreased $12.0 million
to $197.5 million on April 30, 1996 primarily due to an increase in
amortization expense and redemptions in excess of new mutual fund sales
in spread commission funds.
In fiscal 1997 the Company will be required to adopt Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans and
requires certain disclosures about employee stock options based on their
fair value at the date of grant. Management does not anticipate adopting
the fair value recognition provisions of SFAS No. 123.
SIX MONTHS ENDED APRIL 30, 1996 TO SIX MONTHS ENDED APRIL 30, 1995:
Mutual fund sales for the first half of 1996 were $1.4 billion compared
to $0.6 billion in the first six months of last year. The sales gain
was led by the Company's senior floating-rate loan funds. Sales from the
recently introduced Eaton Vance High Yield Municipals Funds, Eaton Vance
Information Age Funds and Eaton Vance Tax-Managed Growth Funds also
contributed to the increase. Fund redemptions of $1.0 billion in the
first half of 1996 were 9 percent below the $1.1 billion recorded in the
first half of 1995.
Total revenue increased $7.7 million to $90.0 million in the first half
of 1996. Investment adviser and distribution fees increased by $7.0
million in the first half of 1996 to $87.0 million from $80.0 million a
year earlier. The increase in investment adviser and distribution fees
can be attributed primarily to the growth in average assets under
management.
Total operating expenses increased $1.6 million to $61.6 million in the
first half of 1996. Compensation expense increased by $1.6 million to
$20.6 million, primarily as a result of an increase in sales incentives
associated with the increase in mutual fund sales. Amortization expense
increased by 7 percent to $26.1 million as a result of the increase in
gross sales of spread commission mutual funds. The increases noted in
compensation and amortization expense were offset by a decrease in other
expenses due to the inclusion of a one-time charge of $2.0 million in the
first quarter of 1995 relating to the accrual of a National Association
of Securities Dealers (NASD) arbitration panel award. The Company has
appealed the decision to the courts and continues to pursue all legal
steps to overturn the decision.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net income amounted to $20.2 million in the first half of 1996, compared
to $13.8 million in the first half of 1995. Net income for the first
half of 1996 includes an extraordinary gain of $1.6 million or $0.17 per
share, net of income taxes, related to the early retirement of a mortgage
owed by the Company's real estate subsidiary. Bank earnings of $2.3
million or $0.25 per share were included in 1995 results but were
insignificant in 1996. Earnings per share from continuing operations
were $1.97 and $1.26 for the first halves of 1996 and 1995, respectively.
The Company's two gold mining partnerships contributed a gain of $1.5
million during the first half of 1996 compared to a loss of $1.1 million
during the first half of 1995. The gain in the first half of 1996
resulted primarily from fluctuations in the portfolio valuations of the
two partnerships. The general partner of VenturesTrident, L.P., one of
the Company's two gold mining partnerships, terminated that partnership
effective December 31, 1995. In conjunction with the termination of the
partnership and the distribution of the partnership's assets, the Company
received marketable securities with a fair value of $0.3 million. The
Company also received marketable securities with a fair value of $1.7
million in settlement of a note receivable from the partnership.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $7.0 million to $74.7 million on
April 30, 1996 from $67.7 million on October 31, 1995. In addition, the
Company's short-term investments increased by $8.7 million to $20.2
million on April 30, 1996 from $11.5 million at the end of the previous
fiscal year.
Cash provided by operating activities in the first six months of 1996 was
$19.6 million, compared to $26.1 million in the same period a year ago.
The decrease can be primarily attributed to an increase in sales
commissions paid to brokers and a decrease in the collection of
capitalized sales charges received on early redemptions. In the first
six months of 1996, the Company paid $30.6 million in sales commissions
associated with the sale of spread commission mutual funds, compared to
$15.7 million in the same period a year earlier. In contrast, the
Company collected only $16.5 million in capitalized sales charges in the
first half of 1996 compared to $19.0 million in the first half of 1995.
The spin-off of IFSC had no significant impact on cash flows in the first
six months of 1996.
Cash used for investing activities was $8.4 million in the first six
months of 1996. The primary use was the purchase of $19.9 million in
short term investments following the sale of certain marketable
securities.
Significant financing activities during the first six months of 1996
included the repurchase of 50,000 shares of the Company's non-voting
common stock. In the second quarter of 1996, Northeast Properties Inc.,
the Company's real estate subsidiary, retired at a discount an existing
mortgage with a remaining unpaid balance of $4.0 million. The Company
realized an extraordinary gain on the retirement of $1.6 million (net of
income taxes of $1.1 million) or $0.17 per share.
At April 30, 1996, the Company had no borrowings under its $75.0 million
bank credit facility.
-17-
PART II
OTHER INFORMATION
-18-
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 of such claims would have any material adverse effect on
the Company's financial position or results of operations.
-19-
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 5, 1996 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: June 5, 1996 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000350797
<NAME> EATON VANCE CORP.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 74678
<SECURITIES> 20159
<RECEIVABLES> 5649
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102787
<PP&E> 3019
<DEPRECIATION> 0
<TOTAL-ASSETS> 353012
<CURRENT-LIABILITIES> 16782
<BONDS> 0
<COMMON> 590
0
0
<OTHER-SE> 199305
<TOTAL-LIABILITY-AND-EQUITY> 353012
<SALES> 0
<TOTAL-REVENUES> 89959
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 61628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1879
<INCOME-PRETAX> 31073
<INCOME-TAX> 12464
<INCOME-CONTINUING> 18609
<DISCONTINUED> 0
<EXTRAORDINARY> 1590
<CHANGES> 0
<NET-INCOME> 20199
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.14
</TABLE>