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, 1997 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, 1997:
Voting Common Stock - 38,720 shares
Non-Voting Common Stock - 18,529,675 shares
Page 1 of 21 pages
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Balance Sheets (unaudited)
July 31, October 31,
1997 1996
ASSETS: (in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 52,675 $ 55,583
Short-term investments 77,867 60,792
Investment adviser fees and other
receivables 5,588 7,650
Assets held for sale 3,031 2,500
Other current assets 7,112 3,547
Total current assets 146,273 130,072
OTHER ASSETS:
Investments:
Real estate 21,622 18,541
Investments in affiliates 8,000 9,565
Investment companies 11,007 8,965
Other investments 4,540 5,763
Receivable for income taxes 5,817 -
Notes receivable and receivables
from affiliates 2,060 1,241
Deferred sales commissions 174,061 180,283
Equipment and leasehold
improvements, net of accumulated
depreciation and amortization of
$5,111 and $4,713, respectively 2,658 2,828
Goodwill, net of accumulated
amortization of $3,400
and $2,924, respectively 2,615 3,004
Total other assets 232,380 230,190
Total assets $ 378,653 $ 360,262
See notes to consolidated financial statements
</TABLE>
-3-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Balance Sheets (unaudited) (continued)
July 31, October 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands, except
share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Accrued compensation $ 7,894 $ 10,981
Accounts payable and accrued
expenses 8,923 7,839
Dividend payable 1,857 1,881
Current portion of long-term debt 8,704 1,545
Other current liabilities 3,800 1,835
Total current liabilities 31,178 24,081
OTHER LIABILITIES:
6.22% Senior Note 42,857 50,000
Mortgage notes payable 10,238 4,549
Total other liabilities 53,095 54,549
Deferred income taxes 68,885 70,852
Commitments and contingencies - -
SHAREHOLDERS' EQUITY:
Common stock, par value $.03125
per share - Authorized, 160,000
shares, Issued, 38,720 shares 1 1
Non-voting common stock, par value
$.03125 per share - Authorized,
23,840,000 shares, Issued, 18,529,675
and 18,729,576 shares, respectively 578 585
Additional paid-in capital 27,216 36,788
Notes receivable from stock option
exercises (3,177) (3,221)
Unrealized gain on investments 3,450 3,598
Retained earnings 197,427 173,029
Total shareholders' equity 225,495 210,780
Total liabilities and
shareholders' equity $ 378,653 $ 360,262
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,
1997 1996 1997 1996
REVENUE: (in thousands, except per share figures)
<S> <C> <C> <C> <C>
Investment adviser and
administration fees $ 30,548 $ 25,605 $ 86,099 $ 74,064
Distribution income 19,369 18,318 56,126 57,138
Income from real estate 1,229 845 3,066 2,788
activities
Other income 351 436 1,756 1,485
Total revenue 51,497 45,204 147,047 135,475
EXPENSES:
Compensation of officers
and employees 13,171 9,682 35,065 30,327
Amortization of deferred
sales commissions 13,780 13,294 40,607 39,354
Other expenses 9,100 5,818 24,299 21,053
Total expenses 36,051 28,794 99,971 90,734
OPERATING INCOME 15,446 16,410 47,076 44,741
OTHER INCOME (EXPENSE):
Interest income 828 961 2,507 2,757
Interest expense (1,037) (935) (2,923) (2,814)
Gain on sale of investments 2,366 1 3,516 1,058
Equity in net income (loss)
of affiliates 145 (1,083) 178 685
Income before income taxes
and extraordinary item 17,748 15,354 50,354 46,427
INCOME TAXES 7,227 5,859 20,343 18,323
Income before extraordinary
item 10,521 9,495 30,011 28,104
Extraordinary gain on early
retirement of debt, net of
income taxes - - - 1,590
NET INCOME $ 10,521 $ 9,495 $ 30,011 $ 29,694
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,
1997 1996 1997 1996
EARNINGS PER SHARE: (in thousands, except per share figures)
<S> <C> <C> <C> <C>
Earnings per share before
extraordinary item $ 0.55 $ 0.49 $ 1.55 $ 1.48
Extraordinary gain on early
retirement of debt, net of
income taxes, per share - - - 0.08
Earnings per share $ 0.55 $ 0.49 $ 1.55 $ 1.56
Dividends declared, per share $ 0.10 $ 0.09 $ 0.30 $ 0.26
Average common shares
outstanding 19,287 19,462 19,334 19,052
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,
1997 1996
(in thousands)
<S> <C> <C>
Cash and equivalents, beginning of
period $ 55,583 $ 67,650
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 30,011 29,694
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary gain on early (1,590)
retirement of debt -
Equity in net income of affiliates (178) (685)
Deferred income taxes (1,712) (6,162)
Amortization of deferred sales
commissions 40,607 39,354
Depreciation and other
amortization 1,966 1,797
Payment of sales commissions (56,948) (42,477)
Capitalized sales charges received 22,608 24,547
Gain on sale of investments (3,516) (1,058)
Change in income taxes receivable (7,776) (3,213)
Change in accrued compensation (3,087) (2,157)
Changes in other assets and 3,490 (213)
liabilities
Net cash provided by operating
activities 25,465 38,334
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment
and leasehold improvements (1,288) (957)
Net (increase) decrease in notes
and receivable from affiliates (775) 434
Net increase in investment
companies and other investments (2,024) (2,761)
Dividends received from affiliate 621 497
Acquisition of real estate
partnership (600) -
Proceeds from sale of investments 67,344 13,501
Purchase of short-term investments (76,240) (19,939)
Net cash used for investing
activities (12,962) (9,225)
See notes to consolidated financial statements
</TABLE>
-7-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Consolidated Statements of Cash Flows (unaudited) (continued)
Nine Months Ended
July 31,
1997 1996
(in thousands)
CASH FLOWS FROM FINANCING
ACTIVITIES:
<S> <C> <C>
Payments on notes payable $ (197) $ (1,428)
Proceeds from the issuance of non-
voting common stock 2,977 2,310
Dividends paid (5,636) (4,804)
Repurchase of non-voting common
stock (12,555) (1,797)
Net cash used for financing
activities (15,411) (5,719)
Net (decrease) increase in cash and
equivalents (2,908) 22,893
Cash and equivalents, end of period $ 52,675 $ 90,543
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,920 $ 2,033
Income taxes paid $ 30,240 $ 28,018
See notes to consolidated financial statements
</TABLE>
-8-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of Eaton Vance Corp. (the
"Company") include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the results
for the interim periods in accordance with generally accepted
accounting principles. Such financial statements have been
prepared in accordance with the instructions to Form 10-Q
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures have been omitted pursuant to such rules and
regulations. As a result, these financial statements should be
read in conjunction with the audited consolidated financial
statements and related notes included in the Company's latest
annual report on Form 10-K.
The number of shares used for purposes of calculating earnings
per share and all other per share data has been adjusted for all
periods presented to reflect a two-for-one stock split effective
May 15, 1997.
(2) Investments in Affiliates
The Company has a 22 percent investment in Lloyd George
Management (BVI) Limited (LGM), an independent investment
management company based in Hong Kong that manages a series of
emerging market mutual funds sponsored by the Company. The
Company's investment in LGM was $7.9 million and $8.4 million at
July 31, 1997 and October 31, 1996, respectively. At July 31,
1997, the Company's investment exceeded its share of the
underlying net assets of LGM by $6.3 million. This excess is
being amortized over a twenty-year period.
The Company also maintains an 82 percent general partnership
interest in Fulcrum Management Partners II, L.P. (FMPII), a
Delaware limited partnership of which a principal officer of the
Company is the other general partner. FMPII is a 20 percent
general partner of VenturesTrident II, L.P. (VTII), a Delaware
limited partnership formed to invest in equity securities of
public and private gold mining ventures. In addition to its
general partnership interest in FMPII, the Company maintains a 3
percent limited partnership interest in VTII. The Company's
investment in VTII was $0.2 million and $1.2 million at July 31,
1997 and October 31, 1996, respectively. VTII will complete its
tenth and final year in 1997 and is scheduled for termination
effective December 31, 1997.
On July 18, 1997, VTII distributed shares of various gold mining
securities with a value of approximately $26.2 million to its
partners. The Company received gold mining securities with a
value of approximately $1.0 million as a result of this
distribution.
In the first nine months of fiscal 1996, the Company received
gold mining securities with a value of approximately $0.3 million
resulting from the termination of a second gold mining
partnership (VenturesTrident, L.P.) and the subsequent
distribution of that partnership's assets. The Company also
received gold mining securities with a value of approximately
$1.8 million in settlement of notes receivable for management
services provided to the partnership.
-9-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(3) Stock Option Plans
Outstanding options to subscribe to shares of non-voting common
stock issued under the Company's stock option plans are
summarized as follows:
<TABLE>
Shares Under Option Option Price Range
<S> <C> <C>
Balance, October 31, 1995 1,339,442 $ 4.38 - 17.00
Adjustment for distribution
of IB&T 278,816
Adjusted balance 1,618,258 3.62 - 14.07
Exercised (332,720) 3.62 - 14.07
Granted 282,540 14.13 - 15.54
Cancelled/Expired (134,784) 11.28 - 14.13
Balance, October 31, 1996 1,433,294 6.52 - 15.54
Exercised (257,124) 6.52 - 14.13
Granted 496,396 20.88 - 22.96
Cancelled/Expired (112,702) 11.28 - 20.88
Balance, July 31, 1997 1,559,864 $11.28 - 22.96
</TABLE>
At July 31, 1997, options to purchase 878,226 shares were
exercisable. Options to purchase 681,638 additional shares will
become exercisable over the next four years.
(4) Common Stock Repurchases
In the first nine months of fiscal 1997 the Company purchased
548,000 shares of its non-voting common stock under its current
share repurchase authorization. The total cost of this
repurchase was $12.6 million.
(5) Regulatory Requirements
A subsidiary of the Company is subject to the Securities and
Exchange Commission uniform net capital rule (Rule 15c3-1) which
requires the maintenance of minimum net capital. For purposes of
this rule the subsidiary had net capital of $23.1 million at July
31, 1997, which exceeded the net capital requirement of $0.3
million as of that date. The ratio of aggregate indebtedness to
net capital at July 31, 1997 was 0.23 to 1.
-10-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
(6) Real Estate Investments
Real estate investments held at July 31, 1997 and October 31,
1996 follow:
<TABLE>
July 31, October 31,
1997 1996
(in thousands)
<S> <C> <C>
Buildings $ 25,636 $ 24,632
Land 2,524 1,721
Total 28,160 26,353
Less: Accumulated depreciation 6,538 7,534
Net book value 21,622 18,819
Share of accumulated losses in
excess of partnership interest - (278)
Total $ 21,622 $ 18,541
</TABLE>
In the second quarter of 1997, the Company committed to a plan to
sell two industrial warehouse buildings located in Springfield,
MA and Colonie, NY. The estimated net realizable values of the
buildings exceeds their respective carrying values of $1.6
million and $1.4 million. As a result no impairment loss has
been recognized. The Company expects the sale of the properties
to be completed by April 30, 1998.
On March 7, 1997, the Company acquired the remaining 50 percent
interest in the Post Office Square Building Company, L.P. (the
"partnership") which owns an office building in Boston,
Massachusetts for $0.6 million in cash. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to assets acquired
and liabilities assumed based on their estimated fair values on
the date of acquisition. The cost in excess of net assets
acquired of $88,000 is being amortized on a straight-line basis
over a twenty-year period. The operating results of the
remaining 50 percent partnership interest have been included in
the consolidated financial statements since the date of
acquisition. The acquisition did not have a material pro forma
impact on operations.
On July 2, 1997, the Company sold an office building located in
downtown Boston, MA for $3.6 million. The Company recognized a
pre-tax gain of $1.1 million on the sale which is included in
"Gain on sale of investments" on the Company's consolidated
statements of income.
-11-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
(7) Unrealized Securities Holding Gains and Losses
The Company has classified as available-for-sale securities
having an aggregate fair value of approximately $92.5 million and
$74.4 million at July 31, 1997 and October 31, 1996,
respectively. These securities are classified as "Short-term
investments," "Investments in investment companies," and "Other
investments" on the Company's consolidated balance sheets. Gross
unrealized gains of approximately $6.4 million and $5.6 million
at July 31, 1997 and October 31, 1996, respectively, and gross
unrealized losses of approximately $1.3 million at July 31, 1997
have been excluded from earnings and reported as a separate
component of shareholders' equity, net of deferred taxes.
(8) Income Taxes
The Massachusetts Department of Revenue (MDOR) has examined the
tax returns for the Company and its subsidiaries for fiscal years
1993 through 1995. In connection with this examination the MDOR
has assessed additional taxes and interest of $5.8 million. In
the opinion of management, after consultation with outside tax
and legal counsel, there is significant merit to the positions
claimed on the tax returns as filed and the Company intends to
vigorously contest the assessment. However, Massachusetts General
Laws require the Company to pay the assessment in advance. At
July 31, 1997, the payment has been recorded as a "Receivable for
Income Taxes" on the Company's consolidated balance sheet.
(9) Earnings Per Common and Common Equivalent Share
Earnings per share for the three and nine months ended July 31,
1997 are based upon the weighted average number of common, non-
voting common and non-voting common equivalent shares outstanding
of 19.3 million. Earnings per share assuming full dilution have
not been presented because the dilutive effect is immaterial.
Earnings per share for the three and 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 19.5 million and 19.1 million, respectively. Earnings per
share assuming full dilution have not been presented because
the dilutive effect is immaterial.
In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share (EPS) and will
require a dual presentation of basic and diluted EPS on the face
of the consolidated statement of income for all periods presented
beginning with the Company's fiscal quarter ending January 31,
1998. Neither basic nor diluted EPS as calculated in accordance
with SFAS No. 128 would be materially different from EPS as
presented in these financial statements.
-12-
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
(10) Stock-Based Compensation
Effective November 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not
require, the recognition of compensation expense for the fair
value of stock options and other equity instruments issued to
employees. The Company does not intend to adopt the fair-value
provisions of SFAS No. 123. The Company will provide footnote
disclosure in its 1997 annual report presenting pro forma net
income and earnings per share amounts as if the fair value of
employee stock options, determined on the date of grant, had been
included in compensation expense.
(11) Reclassifications
Certain prior year amounts have been reclassified to conform to
current year presentation.
-13-
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 adviser fees received from separately managed accounts.
These 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, 1997 Compared to Quarter Ended July 31,
1996
The Company earned $10.5 million or $0.55 per share in the third
quarter of 1997 compared to $9.5 million or $0.49 per share in
the third quarter of 1996. The per share data for all periods
presented reflects the two-for-one stock split declared on April
9, 1997 for shareholders of record on May 15, 1997.
Assets under management increased 26 percent to $21.0 billion on
July 31, 1997 from $16.7 billion on July 31, 1996 as a result of
net sales of new fund shares and appreciation in the market value
of managed assets. Mutual fund sales of $1.6 billion in the third
quarter of fiscal 1997 were $1.0 billion greater than the $0.6
billion reported in the second quarter of fiscal 1996. The sales
gain was led primarily by the Company's equity funds and a $1.1
billion private placement of the Belvedere Equity Fund LLC. As a
result of continued sales growth, equity funds (both domestic and
international) increased to 26 percent of total assets under
management on July 31, 1997 from 18 percent on July 31, 1996.
Floating-rate bank loan funds experienced growth as well,
increasing to 17 percent of total assets under management on July
31, 1997 from 15 percent a year ago. Taxable and non-taxable
fixed income funds decreased to 45 percent of total mutual fund
assets under management on July 31, 1997 from 55 percent a year
ago.
Total revenue increased $6.3 million to $51.5 million in the
third quarter of 1997 from $45.2 million in the third quarter of
1996. Investment adviser and administration fees increased by 19
percent to $30.5 million in the third quarter of fiscal 1997 from
$25.6 million in the third quarter of fiscal 1996, primarily as a
result of the growth in total assets under management and the
change in the Company's product mix. Distribution income
increased by $1.1 million or 6 percent to $19.4 million in the
third quarter of 1997 from $18.3 million a year earlier due to an
increase in spread-commission fund assets under management.
Total operating expenses increased to $36.1 million in the third
quarter of 1997 from $28.8 million in the third quarter of 1996
largely as a result of the marketing expenses associated with the
strong increase in mutual fund sales and the Belvedere Equity
Fund LLC private placement.
In fiscal 1997, the Company will be required to adopt Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." In accordance with the statement, the
Company will provide new footnote disclosures in its 1997 annual
report presenting pro forma net income and earnings per share
amounts as if stock options had been expensed based on their
estimated fair value on the grant date, determined by using
certain option pricing models.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share and will require the Company to
change its presentation of earnings per share from primary
earnings per share to basic and diluted earnings per share for
its fiscal year ending October 31, 1998. In the first quarter of
1998, all prior period earnings per share data will be restated.
Neither basic nor diluted earnings per share as calculated in
accordance with SFAS No. 128 would be materially different from
earnings per share as presented in these financial statements.
Nine Months Ended July 31, 1997 Compared to Nine Months Ended
July 31, 1996
The Company earned $30.0 million or $1.55 per share in the first
nine months of 1997 compared to $29.7 million or $1.56 per share
in the first nine months of 1996. Operating results for the
first nine months of 1996 include an extraordinary gain of $1.6
million or $0.08 per share, net of income taxes, related to the
early retirement of a mortgage owed by the Company's real estate
subsidiary. Earnings per share in the first nine months of 1997
included $0.02 per share resulting from gold operations compared
to a $0.07 earnings per share impact in the first nine months of
1996.
Total revenue increased $11.5 million to $147.0 million in the
first nine months of 1997 from $135.5 million in the first nine
months of 1996. Investment adviser and administration fees
increased to $86.1 million from $74.1 million, primarily as a
result of the increase in total assets under management and a
change in the Company's product mix. Distribution income
decreased by $1.0 million in the first nine months of 1997 to
$56.1 million from $57.1 million a year earlier despite third
quarter 1997 growth in spread-commission fund assets under
management.
Total operating expenses increased by $9.2 million to $100.0
million in the first nine months of 1997. Compensation expense
increased by $4.8 million to $35.1 million, primarily as a result
of an increase in marketing expenses associated with the increase
in mutual fund sales and the Belvedere Equity Fund LLC private
placement. Amortization expense increased by $1.2 million, or 3
percent, to $40.6 million primarily as a result of the increase
in gross sales of the Company's spread-commission funds.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments aggregated
$130.5 million at July 31, 1997, an increase of $14.2 million
from October 31, 1996.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating activities generated cash of $25.5 million in the first
nine months of 1997 compared to $38.3 million in the first nine
months of 1996. The decrease in cash provided by operating
activities can primarily be attributed to an increase in sales
commissions paid to brokers and the payment of $5.8 million
associated with an assessment made by the Massachusetts
Department of Revenue (MDOR) in the second quarter of 1997. The
assessment was made in conjunction with the MDOR's examination of
the Company's state tax returns for fiscal years 1993 through
1995. The Company, on the basis of the opinion of legal counsel,
intends to vigorously contest the assessment. Massachusetts
General Laws, however, require payment of the amount assessed
prior to the resolution of the issues and the Company has made
such payment as required. The payment of additional taxes and
interest has therefore been recorded as a "Receivable for Income
Taxes" on the Company's consolidated balance sheet.
Investing activities for the Company reduced cash and cash
equivalents by $13.0 million in the first nine months of 1997
compared to $9.2 million in the first nine months of 1996. The
primary use of cash in the first nine months of 1997 was the
purchase of $76.2 million in short-term investments following the
sale of certain short-term marketable securities.
Significant financing activities during the first nine months of
1997 included the repurchase of 548,000 shares of the Company's
non-voting common stock under its authorized repurchase program.
On April 9, 1997, the Board of Directors approved a new
repurchase program which authorizes the Company to repurchase up
to 1 million shares of its outstanding non-voting common stock.
At July 31, 1997, the Company had no borrowings under its $50.0
million senior unsecured revolving credit facility.
The Company anticipates that cash flows from operations and
available debt will be sufficient to meet the Company's
foreseeable cash requirements and provide the Company with the
financial resources to take advantage of strategic growth
opportunities.
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 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 (including this Quarterly Report on Form 10-Q).
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.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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.
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's financial results may be
adversely affected.
The major sources of revenue for the Company - i.e., investment
adviser fees, administration fees and distribution fees - are
calculated as percentages of assets under management. A decline
in securities prices in general would reduce fee income. If, as
a result of inflation, expenses rise and assets under management
decline, lower fee income and higher expenses will reduce or
eliminate profits. If expenses rise and assets rise, bringing
increased fees to offset the increased expenses, profits may not
be affected by inflation. There is no predictable relationship
between changes in financial assets under management and the rate
of inflation. If inflation leads to increases in the price of
gold or in the price of real estate, the value of the Company's
investments in gold mining securities or real estate may be
increased.
-17-
PART II
OTHER INFORMATION
-18-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Each Exhibit is listed in this index according to the number
assigned to it in the exhibit table set forth in Item 601 of
Regulation S-K. The following Exhibits are filed as a part
of this Report or incorporated herein by reference pursuant
to Rule 12b-32 under the Securities Exchange Act of 1934:
Exhibit No. Description
11.1 Statement of Computation of Average Number of
Shares Outstanding (filed herewith).
27.1 Financial Data Schedule as of July 31, 1997 (filed
herewith - electronic filing only).
(b) Reports on Form 8-K
None.
-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: September 3, 1997 /s/William M. Steul
(Signature)
William M. Steul
Chief Financial Officer
DATE: September 3, 1997 /s/John P. Rynne
(Signature)
John P. Rynne
Corporate Controller
-20-
EXHIBIT 11.1
Computation of average number of shares outstanding in accordance
with Securities and Exchange Commission Act of 1934, Release No.
9083.
<TABLE>
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
Primary:
<S> <C> <C> <C> <C>
Weighted average number of
voting and non-voting common
shares outstanding 18,585,902 18,910,462 18,702,362 18,868,102
Assumed exercise of certain
non-voting stock options
based on average market
value and shares reserved
for issuance under employee
stock purchase plan 701,453 551,972 631,324 183,990
Weighted average number of
shares used in primary per
share computations 19,287,355 19,462,434 19,333,686 19,052,092
Fully diluted:
Weighted average number of
voting and non-voting common
shares outstanding 18,585,902 18,910,462 18,702,362 18,868,102
Assumed exercise of certain
non-voting stock options
based on higher of average
or closing market value and
shares reserved for issuance
under employee stock
purchase plan 842,450 606,986 842,450 606,986
Weighted average number of
shares used in fully diluted
per share computations 19,428,352 19,517,448 19,544,812 19,475,088
</TABLE>
All share amounts reflect a two-for-one stock split effective May 15, 1997.
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 52675
<SECURITIES> 77867
<RECEIVABLES> 5588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146273
<PP&E> 2658
<DEPRECIATION> 0
<TOTAL-ASSETS> 378653
<CURRENT-LIABILITIES> 31178
<BONDS> 0
<COMMON> 579
0
0
<OTHER-SE> 224916
<TOTAL-LIABILITY-AND-EQUITY> 378653
<SALES> 0
<TOTAL-REVENUES> 147047
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 99971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2923
<INCOME-PRETAX> 50354
<INCOME-TAX> 20343
<INCOME-CONTINUING> 30011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30011
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
