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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended January 31, 2000 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)
255 STATE STREET, BOSTON, MASSACHUSETTS 02109
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 482-8260
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, address and former fiscal year,
if changed since last record)
Indicate by check-mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Shares outstanding as of January 31, 2000:
Voting Common Stock - 77,440 shares
Non-Voting Common Stock - 35,448,326 shares
Page 1 of 21 pages
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<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited)
January 31, October 31,
2000 1999
---------------------------------------
ASSETS (in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 40,756 $ 77,395
Short-term investments 59,252 -
Investment adviser fees and other receivables 7,656 9,101
Real estate asset held for sale 1,451 1,451
Other current assets 3,039 2,541
---------------------------------------
Total current assets 112,154 90,488
---------------------------------------
OTHER ASSETS:
Investments:
Investment in affiliate 7,239 7,235
Investment companies 16,050 15,106
Other investments 6,274 6,326
Other receivables 5,834 5,836
Deferred sales commissions 218,913 219,201
Equipment and leasehold improvements, net of
accumulated depreciation and amortization of $3,675
and $3,425, respectively 12,405 12,459
Goodwill and other intangibles, net of accumulated
amortization of $456 and $422, respectively 1,544 1,578
---------------------------------------
Total other assets 268,259 267,741
---------------------------------------
Total assets $ 380,413 $ 358,229
=======================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Consolidated Balance Sheets (unaudited) (continued)
January 31, October 31,
2000 1999
------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
<S> <C> <C>
Accrued compensation $ 8,541 $ 20,947
Accounts payable and accrued expenses 14,347 14,938
Dividend payable 3,375 3,357
Current portion of long-term debt 7,143 7,143
Other current liabilities 15,177 2,505
------------------------------------------
Total current liabilities 48,583 48,890
------------------------------------------
OTHER LIABILITIES:
6.22% Senior Note 28,571 28,571
------------------------------------------
Deferred income taxes 86,688 86,500
------------------------------------------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY:
Common stock, par value $.015625 per share:
Authorized, 320,000 shares
Issued, 77,440 shares 1 1
Non-voting common stock, par value $.015625 per share:
Authorized, 47,680,000
shares 554 550
Issued, 35,448,326 and 35,182,355 shares, respectively
Accumulated other comprehensive income 4,730 4,040
Notes receivable from stock option exercises (2,302) (2,231)
Retained earnings 213,588 191,908
------------------------------------------
Total shareholders' equity 216,571 194,268
------------------------------------------
Total liabilities and shareholders' equity $ 380,413 $ 358,229
==========================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited)
Three Months Ended
January 31,
2000 1999
--------------------------------------------
(in thousands, except per share
figures)
REVENUE:
<S> <C> <C>
Investment adviser and administration fees $ 52,936 $ 47,305
Distribution income 48,664 27,052
Income from real estate activities - 666
Other income 648 454
--------------------------------------------
Total revenue 102,248 75,477
--------------------------------------------
EXPENSES:
Compensation of officers and employees 17,574 17,444
Amortization of deferred sales commissions 20,243 12,020
Sales commission expense - 47,478
Other expenses 19,187 14,738
--------------------------------------------
Total expenses 57,004 91,680
--------------------------------------------
OPERATING INCOME (LOSS) 45,244 (16,203)
OTHER INCOME (EXPENSE):
Interest income 983 1,315
Interest expense (573) (889)
Gain (loss) on sale of investments 50 (98)
Equity in net income (loss) of affiliates 3 (116)
--------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 45,707 (15,991)
INCOME TAXES 17,368 (6,236)
--------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 28,339 (9,755)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF
INCOME TAXES - (36,607)
--------------------------------------------
NET INCOME (LOSS) $ 28,339 $ (46,362)
============================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Consolidated Statements of Income (unaudited) (continued)
EARNINGS (LOSS) PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE:
<S> <C> <C>
Basic $ 0.80 $(0.27)
============================================
Diluted $ 0.77 $(0.27)
============================================
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, PER SHARE:
Basic $- $(1.02)
============================================
Diluted $- $(1.02)
============================================
EARNINGS (LOSS) PER SHARE:
Basic $ 0.80 $(1.29)
============================================
Diluted $ 0.77 $(1.29)
============================================
DIVIDENDS DECLARED, PER SHARE $ 0.10 $ 0.08
============================================
WEIGTED AVERAGE SHARES
OUTSTANDING ASSUMING DILUTION 36,927 35,881
============================================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended
January 31,
2000 1999
--------------------------------------
(in thousands)
<S> <C> <C>
Cash and equivalents, beginning of period $ 77,395 $ 54,386
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 28,339 (46,362)
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Cumulative effect of change in accounting principle,
net of tax - 36,607
Equity in net (income) loss of affiliate (3) 116
Deferred income taxes (131) 3,340
Amortization of deferred sales commissions 20,243 12,020
Depreciation and other amortization 509 448
Payment of capitalized sales commissions (26,918) (25,061)
Capitalized sales charges received 6,953 4,012
(Gain) loss on sale of investments (50) 98
Changes in other assets and liabilities 885 (12,668)
--------------------------------------
Net cash provided by (used for) operating activities 29,827 (27,450)
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment and
leasehold improvements (415) (2,520)
Net (increase) decrease in notes and receivable
from affiliates (70) 624
Proceeds from sale of investments 10,611 3,663
Purchase of investments (69,570) (4,467)
--------------------------------------
Net cash used for investing activities (59,444) (2,700)
--------------------------------------
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (unaudited) (continued)
Three Months Ended
January 31,
2000 1999
---------------------------------------
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on notes payable - (59)
Proceeds from the issuance of non-voting
common stock 5,455 3,758
Dividends paid (3,357) (2,681)
Repurchase of non-voting common stock (9,120) (639)
-------------------------------------
Net cash provided by (used for) financing activities (7,022) 379
-------------------------------------
Net decrease in cash and equivalents (36,639) (29,771)
-------------------------------------
Cash and equivalents, end of period $ 40,756 $ 24,615
=====================================
SUPPLEMENTAL INFORMATION:
Interest paid $ 17 $ 222
=====================================
Income taxes paid $ 5,079 $ 65
=====================================
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
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 (SEC). 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.
(2) SIGNIFICANT ACCOUNTING CHANGE
In September 1998, the Financial Accounting Standards Board (FASB) staff
addressed the accounting for offering costs incurred in connection with the
distribution of funds when the sponsor does not receive both 12b-1 fees and
contingent deferred sales charges. In its announcement, the FASB staff concluded
that such offering costs, including sales commissions paid, were to be
considered start-up costs in accordance with American Institute of Certified
Public Accountants Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities." Accordingly, the FASB staff concluded that subsequent to
July 23, 1998, the effective date of the announcement, these offering costs
should be expensed as incurred. Prior to the FASB staff announcement, it had
been the Company's policy to capitalize and amortize these costs over a period
not to exceed five years.
In order to comply with the requirements of both the FASB staff announcement and
SOP 98-5, the Company expensed all offering costs incurred subsequent to July
23, 1998 in connection with the distribution of its closed-end funds and bank
loan interval funds which did not have both 12b-1 fees and contingent deferred
sales charges. Closed-end, interval and private fund sales commissions paid and
capitalized prior to and including the July 23, 1998 effective date of the FASB
staff announcement were expensed as a cumulative effect of change in accounting
principle, as described in Accounting Principles Board (APB) Opinion No. 20,
"Accounting Changes," upon adoption of SOP 98-5 by the Company effective
November 1, 1998. The cumulative effect of adoption on November 1, 1998 was
$36.6 million, net of income taxes of $23.4 million.
In April of 1999, the bank loan interval funds received shareholder approval and
a Securities and SEC exemptive order permitting them, beginning May 1, 1999, to
implement Rule 12b-1 equivalent distribution plans. With the implementation of
these distribution plans, the Company resumed capitalizing and amortizing sales
commissions paid to broker-dealers for sales of its bank loan interval funds
effective May 1, 1999, the beginning of the third fiscal quarter. Closed-end and
bank loan interval fund sales commissions expensed from November 1, 1998 to
January 31, 1999 totaled $47.5 million.
The changes in accounting treatment have not had, nor will have, any effect on
the Company's cash flow or cash position.
9
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(3) INVESTMENT IN AFFILIATES
The Company has a 21 percent investment in Lloyd George Management (BVI) Limited
(LGM), an independent investment management company based in Hong Kong that
manages five emerging market mutual funds sponsored by the Company. The
Company's investment in LGM which is accounted for under the equity method, was
$7.2 million at January 31, 2000 and October 31, 1999, respectively. At January
31, 2000, the Company's investment exceeded its share of the underlying net
assets of LGM by $5.1 million. This excess is being amortized over a twenty-year
period.
(4) STOCK PLANS
STOCK OPTION PLAN
The Company has a Stock Option Plan (the 1998 Plan) administered by the Option
Committee of the Board of Directors under which stock options may be granted to
key employees of the Company. No stock options may be granted under the plan
with an exercise price of less than the fair market value of the stock at the
time the stock option is granted. The options expire five to ten years from the
date of grant and vest over a four- to five-year period.
Stock option transactions under the current plan and predecessor plans are
summarized as follows:
-----------------------------------------------------------
Weighted
Average Exercise
Shares Price
-----------------------------------------------------------
(SHARE FIGURES IN THOUSANDS)
Balance, October 31, 1998 2,606 $ 10.78
Granted 706 23.01
Exercised (718) 7.33
Forfeited/Expired (29) 17.03
-----------------------------------------------------------
Balance, October 31, 1999 2,565 $ 15.04
-----------------------------------------------------------
Granted 614 34.70
Exercised (300) 11.43
Forfeited/Expired (27) 28.89
-----------------------------------------------------------
Balance, January 31, 2000 2,852 $ 19.52
===========================================================
10
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Outstanding options to subscribe to shares of non-voting common stock issued
under the current plan and predecessor plans are summarized as follows:
<TABLE>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Outstanding Contractual Exercise Exercisable as Exercise
Range of Exercise Prices at 1/31/00 Life Price of 1/31/00 Price
- ----------------------------------- --------------- -------------- ---------------- ----------------- ----------------
(SHARE FIGURES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$7.06-$7.77 225 0.9 $ 7.09 225 $ 7.09
$10.44-$11.48 866 1.9 10.51 734 10.50
$17.84-$20.81 513 2.9 17.96 407 17.87
$22.63-$25.23 644 6.6 22.97 123 22.95
$34.38 568 9.7 34.38 - -
$35.56-$37.81 16 7.5 36.58 - -
$43.06 20 10.0 43.06 - -
- ----------------------------------- --------------- -------------- ---------------- ----------------- ----------------
2,852 4.7 $ 19.52 1,489 $ 13.03
=================================== =============== ============== ================ ================= ================
</TABLE>
RESTRICTED STOCK PLAN
The Company has a Restricted Stock Plan administered by the Compensation
Committee of the Board of Directors under which certain employees may receive
restricted stock. A total of 500,000 shares have been reserved for issuance
under the plan. Through January 31, 2000, 145,455 shares have been issued
pursuant to the plan. The Company has recorded compensation expense of $0.3
million for the quarter ended January 31, 2000 related to restricted stock
awards.
(5) COMMON STOCK REPURCHASES
In the first three months of fiscal 2000, the Company purchased 254,000 shares
of its non-voting common stock under its current share repurchase authorization.
(6) REGULATORY REQUIREMENTS
Eaton Vance Distributors, Inc., a wholly owned subsidiary of the Company and
principal underwriter of the Eaton Vance Funds, 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 $43.8 million, which exceeds its minimum net capital
requirement of $0.7 million at January 31, 2000. The ratio of aggregate
indebtedness to net capital at January 31, 2000 was .23 to 1.
11
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(7) REAL ESTATE ASSET HELD FOR SALE
The real estate asset held for sale consists of a warehouse located in
Springfield, Massachusetts at both January 31, 2000 and October 31, 1999. The
Company expects the sale of the Springfield, Massachusetts property to be
completed in fiscal 2000. The estimated fair value less the cost to sell the
Springfield property exceeds its carrying value at January 31, 2000.
(8) FINANCIAL INSTRUMENTS
FORWARD EXCHANGE CONTRACT
At January 31, 2000, the Company had an open forward exchange contract to sell
European Currency Units (Euros) for an underlying principal amount of $5.0
million. The contract was entered to hedge a Euro denominated investment thereby
limiting the risk that would otherwise result from changes in exchange rates.
The Company does not enter into foreign currency transactions for trading or
speculative purposes.
UNREALIZED SECURITIES HOLDING GAINS AND LOSSES
The Company has classified as available-for-sale securities having an aggregate
fair value of approximately $36.5 million and $15.5 million at January 31, 2000
and October 31, 1999, 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 $7.8 million and $6.8 million at January 31, 2000 and
October 31, 1999, respectively, and gross unrealized losses of approximately
$0.3 million and $0.2 million at January 31, 2000 and October 31, 1999,
respectively, have been excluded from earnings and reported as a component of
shareholders' equity, "Accumulated other comprehensive income," net of deferred
taxes.
The Company has classified as trading securities having an aggregate fair value
of $39.2 million at January 31, 2000. Gross unrealized gains related to
securities classified as trading of approximately $0.1 million have been
included in earnings at January 31, 2000.
(9) COMPREHENSIVE INCOME
Total comprehensive income includes net income and net unrealized gains and
losses on investments. Accumulated other comprehensive income, a component of
shareholders' equity, consists of the net unrealized holding gains and losses.
The following table shows comprehensive income for the three months ended
January 31, 2000 and 1999.
<TABLE>
(IN THOUSANDS) 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 28,339 $ (46,362)
Net unrealized gain on available for sale securities, net of
income taxes of $288 and $600, respectively 690 923
---------------------------------
Comprehensive income (loss) $ 29,029 $ (45,439)
=================================
</TABLE>
12
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. ACCOUNTING DEVELOPMENTS
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or a liability measured at its fair value.
The Company has not yet determined the effect, if any, of this announcement on
the consolidated financial statements. The Company intends to adopt the
provisions of SFAS No. 133 as amended by SFAS No. 137 in fiscal 2001.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's principal business is creating, marketing and managing mutual
funds and providing investment management and counseling services to
institutions and individuals. The Company distributes its funds through third
party broker-dealers, independent financial institutions and investment
advisers.
The Company's revenue is primarily derived from investment adviser,
administration and distribution fees received from the Eaton Vance funds and
adviser fees received from separately managed accounts. Generally, these fees
are 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 are the amortization of deferred sales
commissions and other marketing costs, sales commissions associated with the
offering of closed-end funds, employee compensation, occupancy costs and service
fees.
RESULTS OF OPERATIONS
QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED JANUARY 31, 1999
The Company reported earnings of $28.3 million or $0.77 per share diluted in the
first quarter of fiscal 2000 compared to a loss of $9.8 million or $0.27 per
share diluted before a "cumulative effect of change in accounting principle" in
the first quarter of 1999.
In September 1998, the Financial Accounting Standards Board (FASB) staff
addressed the accounting for offering costs incurred in connection with the
distribution of funds when the sponsor does not receive both 12b-1 distribution
fees and contingent deferred sales charges and concluded that such offering
costs should be expensed as incurred. Prior to the FASB staff announcement, it
had been the Company's policy to capitalize and amortize these costs, notably
sales commissions paid to brokers, over a period not to exceed five years.
Closed-end fund, bank loan interval fund and private placement sales commissions
paid and capitalized prior to and including the July 23, 1998 effective date of
the FASB staff announcement were written off as a cumulative effect of a change
in accounting principle on November 1, 1998. The cumulative effect of adoption,
net of tax, was $36.6 million or $0.98 per diluted share.
In April of 1999, the bank loan interval funds received shareholder approval and
a SEC exemptive order permitting them to implement Rule 12b-1 equivalent
distribution plans. With the implementation of these distribution plans, the SEC
permitted the Company to resume the capitalization and amortization of sales
commissions associated with the distribution of these funds effective May 1,
1999, the beginning of the Company's third fiscal quarter. For the period
November 1, 1998 through January 31, 1999, these commissions totaled $47.5
million and have been recorded in "Sales commission expense" in the Company's
consolidated statement of income for the fiscal quarter ended January 31, 1999.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Assets under management of $41.8 billion on January 31, 2000 were 26 percent
higher than the $33.1 billion reported a year earlier. Asset growth benefited
from strong sales of the Company's stock funds, bank loan funds, taxable bond
funds and the private placement of an equity fund. Fund sales in the first three
months of fiscal 2000 were $1.6 billion compared to $3.2 billion in the first
three months of fiscal 1999. Fund sales in the first quarter of fiscal 2000 were
lower than fund sales in the same period last year because the Company did not
offer any closed-end funds or privately placed equity funds during the first
quarter of fiscal 2000. As a result of equity market appreciation, continued
sales growth and private placements, equity fund assets increased to 46 percent
of total assets under management on January 31, 2000 from 37 percent on January
31, 1999, and bank loan fund assets increased to 24 percent of total assets
under management on January 31, 2000 from 22 percent at January 31, 1999. As a
result of the growth in equity and bank loan funds, taxable and non-taxable
fixed income funds decreased to 22 percent of total assets under management on
January 31, 2000 from 32 percent on January 31, 1999.
The Company reported revenue of $102.3 million in the first quarter of fiscal
2000 compared to $75.5 million in the first quarter of fiscal 1999, an increase
of $26.8 million or 35 percent. Investment adviser and administration fees
increased by 12 percent to $52.9 million in the first quarter of fiscal 2000
from $47.3 million in the first quarter of fiscal 1999, primarily as a result of
the growth in total assets under management. The Company's bank loan interval
funds changed their fee structures by adopting 12b-1 equivalent distribution
plans. This change reduced significantly the investment advisory fees from these
funds, but increased the distribution fees from these funds by a like amount.
Distribution income increased 80 percent to $48.7 million in the first quarter
of 2000 from $27.1 million a year earlier primarily as a result of the
implementation of the 12b-1 equivalent distribution plans on the bank loan
interval funds.
Total operating expenses decreased 38 percent to $57.0 million in the first
three months of fiscal 2000 from $91.7 million in the first quarter of fiscal
1999. The decrease in operating expenses can primarily be attributed to the
expensing of $47.5 million of sales commissions in the first quarter of fiscal
1999. Amortization of deferred sales commissions increased to $20.2 million in
the first quarter of fiscal 2000 from $12.0 million in the first quarter of
fiscal 1999 as a result of the change in accounting treatment of bank loan
interval fund offering costs and the adjustment of the amortization period of
certain deferred sales commissions assets in order to better match amortization
expense with projected distribution fee income. The increase noted in other
expenses reflects the increase in marketing expenses and sales incentives
associated with asset growth and occupancy costs.
Interest income decreased 23 percent to $1.0 million in first quarter of fiscal
2000 from $1.3 million in the first quarter of fiscal 1999 despite an increase
in cash equivalents and short-term investments. The decrease in interest income
reflects a change in the Company's short-term investment strategy from
investments generating dividends and interest income to investments generating
capital gains.
The Company reduced its effective tax rate to 38 percent at January 31, 2000
from 39 percent at January 31, 1999 as a result of favorable state tax
developments.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments aggregated $100.0 million at
January 31, 2000, an increase of $22.6 million from October 31, 1999.
Operating activities generated cash and cash equivalents of $29.8 million in the
first three months of 2000. In the first three months of fiscal 1999, operating
activities reduced cash by $27.5 million. The increase in cash provided by
operating activities in the first quarter of 2000 can be attributed primarily to
the significant decrease in sales commissions paid to brokers in connection with
fund sales. In the first three months of fiscal 1999, the Company offered and
paid commissions related to a private placement and the public offering of nine
closed-end municipal bond funds. The $72.6 million of sales commissions paid in
the first three months of 1999 is comprised of $47.5 million of sales
commissions related to the sale of the Company's closed-end funds and $25.1
million of sales commissions related to the sale of the Company's open-end
funds. Closed-end and bank loan interval fund sales commissions of $47.5 million
paid prior to January 31, 1999 were expensed as incurred and therefore included
as a component of net income in the Company's consolidated statements of income
and cash flows. The payment of sales commissions associated with the
distribution of the Company's spread-commission and interval funds continues to
be the primary use of cash and totaled $26.9 in the first quarter of fiscal
2000.
Investing activities, consisting primarily of the purchase and sale of
investments, reduced cash and cash equivalents by $59.4 million in the first
three months of fiscal 2000 compared to $2.7 million in the first three months
of 1999. The primary use of cash in the first three months of 2000 was the
purchase of short-term investments.
Financing activities reduced cash and cash equivalents by $7.0 million in the
first three months of fiscal 2000. Financing activities generated cash and cash
equivalents of $0.4 million in the first three months of fiscal 1999.
Significant financing activities during the first three months of 2000 included
the repurchase of 254,000 shares of the Company's non-voting common stock under
its authorized repurchase program compared to 28,700 shares in the first three
months of 1999. The Company's dividend was $0.10 per share in the first three
months of fiscal 2000 compared to $0.08 per share in the first three months of
fiscal 1999.
At January 31, 1999, the Company had no borrowings outstanding under its $50
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 possible strategic
growth opportunities.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000
As of the date of this filing, all of the Company's systems have successfully
transitioned to the year 2000. The Company's contingency plans for the Year 2000
were in place for the crossover weekend but no material problems were
experienced. The Company did not experience and was not alerted to any material
problems involving third party systems. The Company will continue to monitor
system compliance during the year.
COSTS
The Company's costs associated with its Year 2000 initiative consisted largely
of software upgrades and consulting expenses to coordinate testing with key
service partners and providers. The total budgeted cost of the Company's Year
2000 project was $1.1 million. The amount expended on the project through
January 31, 2000 was approximately $0.8 million, of which $0.1 million was
expensed in the first quarter of fiscal 2000.
Readers are cautioned that forward-looking statements contained above regarding
Year 2000 issue should be read in conjunction with the Company's disclosures
under the heading "Certain Factors That May Affect Future Results" below.
To the fullest extent permitted by law, the foregoing Year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of the Year 2000 Information
Readiness Disclosure Act, 15 U.S.C. Sec.1 (1998).
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
Quarterly Report on 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.
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.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 and
distribution income) are calculated as percentages of assets under management. A
decline in securities prices or significant redemptions in general would reduce
fee income. Also, financial market declines or adverse changes in interest rates
will negatively impact the Company's assets under management and consequently,
its revenue and net 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risks associated
with interest rate movements and fluctuations in foreign currency exchange
rates. The Company is exposed to changes in the interest rates primarily in its
cash, investment and debt transactions. The Company does not believe that the
effect of reasonably possible near-term changes in the interest rates on the
Company's financial position, results of operations or cash flow would be
material. The Company utilized a forward contract to limit foreign currency
exchange rate exposure related to an investment. At January 31, 2000, the
Company had an open forward exchange contract to sell European Currency Units
for an underlying principal amount of $5.0 million. The Company does not enter
into foreign currency transactions for trading or speculative purposes.
18
<PAGE>
PART II
OTHER INFORMATION
19
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently subject to any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
An annual meeting of holders of Voting Common Stock (Stockholders) of Eaton
Vance Corp. was held at the principal office of the Company on January 18, 2000.
All of the outstanding Voting Common Stock, namely the 77,440 shares, was
represented in person at the meeting.
The following matters received the affirmative vote of all of the outstanding
Voting Common Stock and were approved:
1) The Annual Report to Shareholders of the Company for the fiscal year ended
October 31, 1999.
2) The election of the following individuals as directors for the ensuing
corporate year to hold office until the next annual meeting and until their
successors are elected and qualify:
John G. L. Cabot
James B. Hawkes
John M. Nelson
Vincent M. O'Reilly
Ralph Z. Sorenson
3) The selection of the firm of Deloitte and Touche LLP as the auditors to
audit the books of the Company for its fiscal year ended October 31, 2000.
4) The ratification of the acts of the Directors since the previous meeting of
Stockholders held on January 21, 1999.
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
27.1 Financial Data Schedule as of January 31, 2000 (filed
herewith - electronic filing only).
(b) REPORTS ON FORM 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EATON VANCE CORP.
-----------------
(Registrant)
DATE: March 10, 2000 /s/William M. Steul
---------------------------------------
(Signature)
William M. Steul
Chief Financial Officer
DATE: March 10, 2000 /s/Laurie G. Russell
----------------------------------------
(Signature)
Laurie G. Russell
Chief Accounting Officer
21
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