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, 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 pricipal 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, 1996:
Voting common stock - 19,360 shares
Non-Voting common stock - 9,455,430 shares
Page 1 of 22 pages
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Balance Sheets (unaudited)
ASSETS July 31, October 31,
1996 1995
(in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 90,543 $ 67,650
Short-term investments 20,398 11,471
Receivable for investment company shares sold 894 1,156
Investment adviser fees and other receivables 4,573 3,342
Prepaid income taxes 2,751 658
Net assets of discontinued operations - 13,961
Other current assets 768 364
Total current assets 119,927 98,602
OTHER ASSETS:
Investments:
Real estate 21,330 21,606
Investment in affiliates 8,612 10,113
Investment companies 8,907 7,542
Other investments 6,329 2,338
Notes receivable and receivables from
affiliates 1,229 3,458
Deferred sales commissions 188,026 209,542
Equipment and leasehold improvements, net 2,901 2,855
Goodwill (net of accumulated amortization of
$2,801 and $2,422, respectively) 1,151 1,530
Total other assets 238,485 258,984
Total assets $ 358,412 $ 357,586
See notes to consolidated financial statements
</TABLE>
-3-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Balance Sheets (unaudited) (continued)
LIABILITIES AND July 31, October 31,
SHAREHOLDERS' 1996 1995
EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Payable for investment company shares
purchased $ 898 $ 1,179
Accrued compensation 7,184 9,341
Accounts payable and accrued expenses 8,587 7,482
Accrued income taxes - 184
Dividend payable 1,611 1,590
Current portion of mortgage notes payable 246 4,189
Other current liabilities 759 762
Total current liabilities 19,285 24,727
OTHER LIABILITIES:
6.22% Senior Note 50,000 50,000
Mortgage notes payable 5,906 6,102
Total other liabilities 55,906 56,102
Deferred income taxes 76,363 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,
9,455,430 and 9,315,712 shares, respectively 591 582
Additional paid-in capital 40,184 53,753
Unrealized gain on investments 2,264 1,186
Notes receivable from stock option exercises (3,362) (3,313)
Retained earnings 167,180 142,311
Total shareholders' equity 206,858 194,520
Total liabilities and shareholders' equity $ 358,412 $ 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 Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
(in thousands, except per share figures)
REVENUE:
<S> <C> <C> <C> <C>
Investment adviser and
administration fees $25,605 $21,688 $74,064 $62,850
Distribution income 18,176 19,788 56,684 58,607
Income from real estate
activities 845 866 2,788 2,619
Other income 436 348 1,485 885
Total revenue 45,062 42,690 135,021 124,961
EXPENSES:
Compensation of officers and
employees 9,682 10,207 30,327 29,249
Amortization of deferred
sales commissions 13,294 12,404 39,354 36,830
Other expenses 5,676 7,492 20,599 24,077
Total operating expenses 28,652 30,103 90,280 90,156
OPERATING INCOME 16,410 12,587 44,741 34,805
OTHER INCOME (EXPENSE):
Interest income 961 834 2,757 1,825
Gain on sale of investments 1 - 1,058 -
Equity in net income (loss)
of affiliates (1,083) 62 685 (1,013)
Interest expense (935) (1,221) (2,814) (3,666)
Income from continuing
operations before income
taxes and extraordinary item 15,354 12,262 46,427 31,951
INCOME TAXES 5,859 3,740 18,323 11,907
Income from continuing
operations before
extraordinary item 9,495 8,522 28,104 20,044
Income from discontinued
operations, net of income
taxes - 512 - 2,779
See notes to consolidated financial statements
</TABLE>
-5-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Income (unaudited) (continued)
Three Months Ended Nine Months Ended
July 31, July 31,
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 -
NET INCOME $ 9,495 $ 9,034 $29,694 $22,823
EARNINGS PER SHARE:
Earnings per share from
continuing operations before
extraordinary item $ 0.98 $ 0.92 $ 2.95 $ 2.18
Earnings per share from
discontinued operations,
net of income taxes - 0.06 - 0.30
Extraordinary gain on early
retirement of debt, net of
income taxes, per share - - 0.17 -
Earnings per share $ 0.98 $ 0.98 $ 3.12 $ 2.48
Dividends declared, per share $ 0.17 $ 0.16 $ 0.51 $ 0.48
Average common shares
outstanding 9,731 9,250 9,526 9,186
See notes to consolidated financial statements
</TABLE>
-6-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended
July 31,
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 29,694 20,044
Adjustment 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 (685) 1,013
Deferred income taxes (6,162) (4,351)
Amortization of deferred sales commissions 39,354 36,830
Depreciation and other amortization 1,797 1,622
Payment of sales commissions (42,477) (27,955)
Capitalized sales charges received 24,547 27,755
Gain on sale of investments (1,058) -
Change in prepaid income taxes (3,213) -
Changes in other assets and liabilities (1,873) (3,752)
Cash used for discontinued operations - (8,388)
Net cash provided by operating activities 38,334 42,818
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment and
leasehold improvements (957) (927)
Investment in partnership - (88)
Investment in affiliates - (4,473)
Net (increase) decrease in notes receivable
and receivables from affiliates 434 (698)
Net increase in investment companies and
other investments (2,761) (868)
Proceeds from sale of investments 13,501 -
Purchase of short-term investments (19,939) (11,000)
Net cash used for investing activities (9,722) (18,054)
See notes to consolidated financial statements
</TABLE>
-7-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Statements of Cash Flows (unaudited) (continued)
Nine Months Ended
July 31,
1996 1995
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on notes payable (1,428) (261)
Proceeds from issuance of non-voting common
stock 2,310 2,186
Dividends paid (4,804) (4,403)
Repurchase of non-voting common stock (1,797) (1,305)
Net cash used for financing activities (5,719) (3,783)
Net increase in cash and equivalents 22,893 20,981
Cash and equivalents, end of period $ 90,543 $ 55,006
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 partnerships 1,689 -
Issuance of non-voting common stock for shares
of unconsolidated affiliate - (2,698)
Total non-cash investing activities $ 3,463 $ (2,698)
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,033 $ 3,604
Income taxes paid $ 28,018 $ 25,622
See notes to consolidated financial statements
</TABLE>
-8-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31,
1996.
(1) Investment in Affiliates
Investment in affiliates includes an $8.3 million and an $8.5 million
investment in Lloyd George Management (BVI) Limited (LGM) at July 31,
1996 and October 31, 1995, respectively, and a $0.3 million and $1.6
million investment in gold mining partnerships at July 31, 1996 and
October 31, 1995, respectively.
The Company has a 21 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
July 31, 1996 the excess of the Company's investment over its equity in
the underlying net assets of LGM was approximately $6.8 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 pricipal 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 share of Golden Queen Mining Co. Ltd. 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 $151,000
and 116,600 shares of Golden Queen with a value of $120,000.
On May 1, 1996, VTII distributed 3,690,000 shares of Canyon Resources
Corporation with a value of $13.6 million to its partners. The
Company's share of this distribution was 385,000 shares with a value of
$1.4 million.
(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 nine months
ended July 31, 1995 was $14 million and $43.7 million, respectively.
Income taxes applicable to discontinued operations were $0.4 million
and $2.2 million for the same periods.
-9-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31,
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 stock are summarized as
follows:
<TABLE>
Shares Under Option Option Price Range
<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 (145,503) 7.24 - 28.14
Granted 143,770 28.25 - 31.08
Cancelled/Expired (66,476) 22.55 - 28.25
Balance, July 31, 1996 740,920 $ 13.04 - 31.08
</TABLE>
At July 31, 1996, options for 479,680 shares were exercisable. Options
for 261,240 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) July 31,
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 $296,000, respectively, which exceeded
their respective net capital requirements of $1,143,000 and $5,900 at
July 31, 1996.
(6) Equipment and Leasehold Improvements
Equipment and leasehold improvements at July 31, 1996 and October 31,
1995 follow:
<TABLE>
July 31, October 31,
1996 1995
(all figures in thousands)
AT COST:
<S> <C> <C>
Furniture and equipment $ 7,127 $ 6,723
Leasehold improvements 531 323
Total 7,658 7,046
Less accumulated depreciation 4,757 4,191
Net book value $ 2,901 $ 2,855
</TABLE>
(7) Real Estate Investments
Real estate investments held at July 31, 1996 and October 31, 1995
follow:
<TABLE>
July 31, October 31,
1996 1995
(all figures in thousands)
<S> <C> <C>
Buildings $ 28,494 $ 27,831
Land 2,216 2,457
Total 30,710 30,288
Less: Accumulated depreciation 9,114 8,424
Net book value 21,596 21,864
Share of accumulated losses in
excess of partnership interest (266) (258)
Total $ 21,330 $ 21,606
</TABLE>
-11-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
July 31, 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 July 31, 1996 and October 31,
1995 (in thousands):
<TABLE>
July 31, 1996 Estimated Gross Gross
fair unrealized unrealized
value gains losses Cost
<S> <C> <C> <C> <C>
Current Assets:
Short-term investments $ 20,398 $ 459 $ - $ 19,939
Investments:
Investment companies 8,907 2,973 40 5,974
Other investments 5,167 729 433 4,871
Total $ 34,472 $ 4,161 $ 473 $ 30,784
</TABLE>
<TABLE>
October 31, 1995 Estimated Gross Gross
fair unrealized unrealized
value gains losses Cost
<S> <C> <C> <C> <C>
Current Assets:
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) July 31,
1996
(8) Investment Securities (continued)
At July 31, 1996 the unrealized gain included as a separate component
of shareholders' equity was $2.3 million, net of income taxes of $1.4
million. At October 31, 1995 the unrealized gain included as a
separate component of shareholders' equity was $1.2 million, net of
income taxes of $1.1 million.
Proceeds from the sale of available-for-sale securities during the nine
months ended July 31, 1996 were $13.8 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 July 31, 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 was 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 nine months ended July 31, 1996 are based
upon the weighted average number of common, non-voting common and non-
voting common equivalent shares outstanding of 9,526,000. Earnings per
share assuming full dilution have not been presented because the
dilutive effect is immaterial.
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.
(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.
-13-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31,
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 JULY 31, 1996 TO QUARTER ENDED JULY 31, 1995
Assets under management of $16.7 billion on July 31, 1996 were 4
percent higher than the $16.0 billion at the beginning of the fiscal
year and 7 percent higher than the $15.6 billion reported a year
earlier. Mutual fund sales increased to $0.6 billion in the third
quarter of 1996 from $0.5 billion in the third quarter of 1995.
Redemptions were $0.5 billion in the third quarter of both 1996 and
1995.
Total revenue increased $2.4 million to $45.1 million in the third
quarter of 1996 from $42.7 million a year earlier. Investment adviser
and administration fees increased by $3.9 million to $25.6 million in
1996 from $21.7 million a year ago, primarily as a result of higher
average assets under management (in total) in comparison with the same
period last year. Distribution income, however, decreased by $1.6
million to $18.2 million in the third quarter of 1996 from $19.8
million in the same quarter of 1995 as a result of a decrease in
average assets under management in the Company's spread-commission
funds.
Total operating expenses decreased 5 percent or $1.5 million to $28.6
million in the third quarter of 1996. Compensation expense was little
changed from the third quarter of 1995. Amortization expense increased
7 percent to $13.3 million primarily due to an increase in the gross
sales of Eaton Vance Prime Rate Reserves, a spread-commission fund with
no distribution fee. Other expenses decreased by $1.8 million or 24
percent as a result of a decrease in legal costs and sales and
literature costs and the reversal of a bad debt reserve associated with
the termination of a gold mining partnership, VenturesTrident, L.P.
Portfolio valuations of the Company's remaining gold mining investment
partnership contributed net partnership losses of $1.2 million in the
third quarter of 1996 compared to net partnership gains of $0.1 million
in the third quarter of 1995. Interest expense decreased to $0.9
million in the third quarter of 1996 from $1.2 million in the third
quarter of 1995 primarily as a result of the retirement, at a discount,
of an existing mortgage with a remaining unpaid balance of $4.0 million
in the second quarter of 1996.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net income from continuing operations of the Company totaled $9.5
million for the quarter ended July 31, 1996 compared to $8.5 million
for the quarter ended July 31, 1995. Earnings per share from
continuing operations were $0.98 and $0.92 for the third quarters of
1996 and 1995, respectively. 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. Net income of $9.0
million for the third quarter of 1995 includes income from discontinued
banking operations of $0.5 million.
NINE MONTHS ENDED JULY 31, 1996 TO NINE MONTHS ENDED JULY 31, 1995
Mutual fund sales in the first nine months of 1996 were $2.0 billion
compared to $1.1 billion in the first nine 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
$1.5 billion in the first nine months of 1996 were 6 percent below the
$1.6 billion recorded in the first nine months of 1995.
Total revenue increased $10.0 million to $135.0 million in the first
nine months of 1996. Investment adviser and administration fees
increased by $11.2 million in the first nine months of 1996 to $74.1
million from $62.9 million a year earlier, primarily as a result of
higher average assets under management (in total) in comparison with
the same period last year. Distribution income, however, decreased by
$1.9 million to $56.7 million in the first nine months of 1996 from
$58.6 million in the same period a year ago as a result of a decrease
in average assets under management in the Company's spread-commission
funds.
Total operating expenses of $90.3 million in the first nine months of
1996 were consistent with the $90.2 million recorded a year earlier.
Compensation expense increased by $1.1 million to $30.3 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 $39.4 million primarily as a result of the increase in
gross sales of Eaton Vance Prime Rate Reserves. 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 $29.7 million or $3.12 per share in the first
nine months of 1996, compared to $22.8 million or $2.48 per share in
the first nine months of 1995. Net income for the first three quarters
of 1996 included 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 $2.8 million or $0.30 per share were included in 1995 results but
were insignificant in 1996. Earnings per share from continuing
operations before extraordinary item were $2.95 and $2.18 for the first
nine months of 1996 and 1995, respectively.
Despite significant partnership losses recognized in the third quarter
of 1996, the Company's gold mining partnerships contributed a gain of
$0.3 million in the first nine months of 1996 compared to a loss of
$1.0 million in the first nine months of 1995. 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 in the first quarter of 1996,
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
VenturesTrident, L.P. In the third quarter of 1996, VenturesTrident
II, L.P., the remaining gold mining partnership, distributed marketable
securities with a fair value of $13.6 million to its partners. The
Company received securities with a fair value of $1.4 million as a
result of this distribution.
Excluding discontinued banking operations of $14.0 million on October
31, 1995, total assets increased 4 percent to $358.4 million at July
31, 1996 from $343.6 million on October 31, 1995. Cash, cash
equivalents and short-term investments increased by $31.8 million to
$110.9 million on July 31, 1996. The increase in other investments of
$4.0 million can be primarily attributed to the receipt of gold mining
securities distributed by the Company's two gold mining partnerships in
the first and third quarters of 1996. Both distributions were offset
by unrealized losses on the securities recognized in the third quarter
of 1996. Deferred sales commissions decreased $21.5 million to $188.0
million on July 31, 1996 primarily due to an increase in amortization
expense and redemptions in excess of new mutual fund sales in the
Company's 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $22.8 million to $90.5 million
at July 31, 1996 from $67.7 million at October 31, 1995. In addition,
the Company's short-term investments increased by $8.9 million to $20.4
million at July 31, 1996 from $11.5 million at the end of the previous
fiscal year.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash provided by operating activities in the first nine months of 1996
was $38.3 million, compared to $42.8 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
nine months of 1996, the Company paid $42.5 million in sales
commissions associated with the sale of spread commission mutual funds,
compared to $28.0 million in the same period a year earlier. In
contrast, the Company collected only $24.5 million in capitalized sales
charges in the first nine months of 1996 compared to $27.8 million in
the first nine months of 1995. The spin-off of IFSC had no significant
impact on cash flows in the first nine months of 1996.
Cash used for investing activities was $9.7 million in the first nine
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 nine months of 1996
included the repurchase of 62,000 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.
On July 17, 1996, the Board of Directors of the Company declared a
quarterly common stock dividend of $.17 per share, payable on August
12, 1996, to stockholders of record on July 31, 1996.
At July 31, 1996, the Company had no borrowings under its $75.0 million
bank credit facility.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or information
included in its filings with the Securities and Exchange Commission
(including this Form 10-Q) may contain statements which are not
historical facts, for this purpose referred to as "forward-looking
statements." The Company's actual future results may differ
significantly from those stated in any forward-looking statements.
Important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements include, but
are not limited to, the factors discussed below.
The Company is subject to substantial competition in all aspects of its
business. The Company's ability to market investment products is
highly dependent on access to the retail distribution systems of
national and regional securities dealer firms, which generally offer
competing internally and externally managed investment products.
Although the Company has historically been successful in gaining access
to these channels, there can be no assurance that it will continue to
do so. The inability to have such access could have a material adverse
effect on the Company's business.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
There are few barriers to entry by new investment management firms.
The Company's funds compete against an ever increasing number of
investment products sold to the public by investment dealers, banks,
insurance companies and others that sell tax-free investments, taxable
income funds, equity funds and other investment products. Many
institutions competing with the Company have greater resources than the
Company. The Company competes with other providers of investment
products on the basis of the range of products offered, the investment
performance of such products, quality of service, fees charged, the
level and type of sales representative compensation, the manner in
which such products are marketed and distributed and the services
provided to investors.
As noted above, the Company derives almost all of its revenues from
investment adviser and administration fees and distribution income
received from the Eaton Vance funds and separately managed accounts.
As a result, the Company is dependent upon the contractual
relationships it maintains with these funds and separately managed
accounts. In the event that any of the management contracts,
administration contracts, underwriting contracts or service agreements
are not renewed pursuant to the terms of these contracts or agreements,
the Company may be adversely affected.
-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 of such claims would have any 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 13, 1996 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: September 13, 1996 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 90543
<SECURITIES> 20398
<RECEIVABLES> 5467
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 119927
<PP&E> 2901
<DEPRECIATION> 0
<TOTAL-ASSETS> 358412
<CURRENT-LIABILITIES> 19285
<BONDS> 0
<COMMON> 592
0
0
<OTHER-SE> 206266
<TOTAL-LIABILITY-AND-EQUITY> 358412
<SALES> 0
<TOTAL-REVENUES> 135021
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 90280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2814
<INCOME-PRETAX> 46427
<INCOME-TAX> 18323
<INCOME-CONTINUING> 28104
<DISCONTINUED> 0
<EXTRAORDINARY> 1590
<CHANGES> 0
<NET-INCOME> 29694
<EPS-PRIMARY> 3.12
<EPS-DILUTED> 3.12
</TABLE>
