-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, J1mlDx0qe1NjvIArYbxoTQ+SUQZTqxR7CPl4q+BE7tSY70Q8oHmBi2r8Y28/Jzb0 RyzQGdXdo380VzkvO2YBAw== 0000350797-95-000022.txt : 19950906 0000350797-95-000022.hdr.sgml : 19950906 ACCESSION NUMBER: 0000350797-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950905 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE CORP CENTRAL INDEX KEY: 0000350797 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 042718215 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08100 FILM NUMBER: 95570232 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 24 FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02110 10-Q 1 JUL 95 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended July 31, 1995 Commission File No. 1-8100 EATON VANCE CORP. (Exact name of registrant as specified in its charter) MARYLAND 04-2718215 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110 (Address of principal executive offices) (Zip Code) (617) 482-8260 (Registrant's telephone number, including area code) NONE (Former name, address and former fiscal year, if changed since last record) Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Shares outstanding as of July 31, 1995: Voting common stock - 19,360 shares Non-Voting Common Stock - 9,260,667 shares Page 1 of 22 pages PART II FINANCIAL INFORMATION -2-
Consolidated Balance Sheets (unaudited) ASSETS July 31, October 31, 1995 1994 (all figures in thousands) CURRENT ASSETS: Cash and equivalents $ 55,006 $ 24,681 Short-term investments 11,316 - Receivable for investment company shares sold 958 1,073 Investment adviser fees and other receivables 2,978 2,632 Refundable income taxes 5,430 - Net assets of discontinued operations 13,333 - Other current assets 894 1,233 Total current assets 89,915 29,619 INVESTORS BANK & TRUST COMPANY ASSETS: Cash and equivalents - 9,344 Investment securities (market value $86,172) - 88,278 Loans, less allowance for loan losses - 13,570 Accrued interest and fees receivable - 9,383 Equipment and leasehold improvements, net - 3,251 Other assets - 3,780 Total bank assets - 127,606 OTHER ASSETS: Investments: Real estate 21,741 22,173 Investment in affiliates 10,143 3,984 Investment companies (market value at October 31, 1994 $5,702) 7,230 4,088 Other investments 2,565 3,208 Notes receivable and receivables from affiliates 3,273 3,139 Deferred sales commissions 219,515 256,326 Equipment and leasehold improvements, net 2,907 3,477 Goodwill 1,801 1,886 Total other assets 269,175 298,281 Total assets $359,090 $455,506
See notes to consolidated financial statements -3-
Consolidated Balance Sheets (unaudited) (continued) LIABILITIES AND July 31, October 31, SHAREHOLDERS' 1995 1994 EQUITY (in thousands, except share figures) CURRENT LIABILITIES: Payable for investment company shares purchased $ 985 $ 1,096 Accrued compensation 7,111 8,817 Accounts payable and accrued expenses 7,889 4,539 Accrued income taxes - 1,761 Dividend payable 1,485 1,461 Current portion of mortgage notes payable 6,412 6,449 Other current liabilities 669 688 Total current liabilities 24,551 24,811 INVESTORS BANK & TRUST COMPANY LIABILITIES: Demand and time deposits - 106,909 Other - 5,214 Total bank liabilities - 112,123 OTHER LIABILITIES: 6.22% Senior Note 50,000 50,000 Mortgage notes payable 10,087 10,311 Minority interest in consolidated subsidiary - 3,113 Total other liabilities 60,087 63,424 Deferred income taxes 86,190 89,540 Commitments - - SHAREHOLDERS' EQUITY: Common stock, par value $.0625 per share- Authorized, 80,000 shares, Issued, 19,360 shares 1 1 Non-voting common stock, par value $.0625 per share - Authorized, 11,920,000 shares, Issued 9,260,667 and 9,090,394 shares, respectively 579 568 Additional paid-in capital 53,236 49,595 Notes receivable from stock option exercises (3,075) (2,511) Unrealized gain on investments 1,170 - Retained earnings 136,351 117,955 Total shareholders' equity 188,262 165,608 Total liabilities and shareholders' equity $359,090 $455,506
See notes to consolidated financial statements -4-
Consolidated Statements of Income (unaudited) Three Months Ended Nine Months Ended July 31, July 31, 1995 1994 1995 1994 (in thousands, except per share figures) REVENUE: Investment adviser and administration fees $21,688 $21,276 $ 62,850 $ 64,399 Distribution income 19,788 20,087 58,607 59,632 Income from real estate activities 866 926 2,619 2,932 Other income 348 206 885 838 Total revenues 42,690 42,495 124,961 127,801 EXPENSES: Compensation of officers and employees 10,207 8,306 29,249 29,695 Amortization of deferred sales commissions 12,404 13,797 36,830 39,345 Other expenses 7,492 7,714 24,077 22,057 Total operating expenses 30,103 29,817 90,156 91,097 OPERATING INCOME 12,587 12,678 34,805 36,704 OTHER INCOME (EXPENSE): Interest income 834 177 1,825 742 Equity in net income of affiliates 62 (1,344) (1,013) (1,450) Interest expense (1,221) (1,321) (3,666) (4,102) Income from continuing operations before income taxes and cumulative effect of change in accounting for income taxes 12,262 10,190 31,951 31,894 INCOME TAXES 3,740 4,800 11,907 13,564 Income from continuing operations before cumulative effect of change in accounting for income taxes 8,522 5,390 20,044 18,330 Income from discontinued operations, net of income taxes 512 767 2,779 1,869 Income before cumulative effect of change in accounting for income taxes 9,034 6,157 22,823 20,199
See notes to consolidated financial statements -5-
Consolidated Statements of Income (unaudited) (continued) Three Months Ended Nine Months Ended July 31, July 31, 1995 1994 1995 1994 (in thousands, except per share figures) Cumulative effect of change in accounting for income taxes - - - 1,300 NET INCOME $9,034 $6,157 $22,823 $21,499 Earnings per share from continuing operations before cumulative effect of change in accounting for income taxes $0.92 $0.57 $2.18 $1.92 Earnings per share from discontinued operations, net of income taxes 0.06 0.08 0.30 0.19 Cumulative effect of change in accounting for income taxes per share - - - 0.14 Earnings per share $0.98 $0.65 $2.48 $2.25 Dividends declared, per share $0.16 $0.15 $0.48 $0.44 Average common shares outstanding 9,250 9,464 9,186 9,536
See notes to consolidated financial statements -6-
Consolidated Statements of Cash Flows (unaudited) Nine Months Ended July 31, 1995 1994 (in thousands) Cash and equivalents (including IB&T), beginning of period $ 34,025 $ 28,655 CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations 20,044 19,630 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Equity in net income of affiliates 1,013 1,450 Deferred income taxes (4,351) 7,779 Cumulative effect of change in accounting for income taxes - (1,300) Amortization of deferred sales commissions 36,830 39,144 Depreciation and other amortization 1,622 1,769 Payments of sales commissions (27,955) (80,635) Capitalized sales charges received 27,755 18,112 Increase (decrease) in accrued income taxes - - Changes in other assets and liabilities (3,752) 4,126 Operating activities of discontinued operations 5,878 2,126 Net cash provided by operating activities $ 57,084 $ 12,201 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in partnerships (88) $ (252) Additions to real estate, equipment and leasehold improvements (927) (1,304) Net repayments of notes and receivables from affiliates (698) (473) Investment in affiliate (4,473) - Net increase in investment companies and other investments (868) (228) Purchase of short-term investment (11,000) - Proceeds from sales of investment securities - 2,901 Spinoff cash transfer (5,737) - Investing activities of discontinued operations 9,601 (157) Net cash provided by (used for) investing activities $(14,190) $ 487
See notes to consolidated financial statements -7-
Consolidated Statements of Cash Flows (unaudited) (continued) Nine Months Ended July 31, 1995 1994 (in thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable - $119,150 Payments on notes payable (261) (106,841) Payment of 10% subordinated debentures - (14,169) Proceeds from the issuance of non-voting common stock 2,186 2,918 Dividends paid (4,403) (3,982) Repurchase of non-voting common stock (1,305) (5,814) Financing activities of discontinued operations (18,130) (14,215) Net cash used for financing activities $(21,913) $(22,953) Net increase (decrease) in cash and equivalents $ 20,981 $(10,265) Cash and equivalents (including IB&T for the nine months ended July 31, 1994), end of period $ 55,006 $ 18,390 NONCASH INVESTING ACTIVITY: Distribution of securities from gold mining partnership $ - $ 3,815 Issuance of non-voting common stock for shares of unconsolidated affiliate $ 2,698 - SUPPLEMENTAL INFORMATION: Interest paid $ 3,604 $ 3,684 Income taxes paid $ 25,622 $ 2,468
See notes to consolidated financial statements -8- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995 1. Acquisitions and Investments in Unconsolidated Affiliates In June, 1995 the Company increased its investment in Lloyd George Management (BVI) Limited ("LGM"), an independent investment management company based in Hong Kong, to 21.0 percent for a combination of cash and non-voting common stock. LGM currently manages a series of emerging market mutual funds sponsored by the Company. The Company has an agreement with LGM which governs the manner in which the stock can be disposed. At July 31, 1995, the excess of the Company's investment over its equity in the underlying net assets of LGM was approximately $6.9 million, which is being amortized over a twenty-year period. The Company recorded an equity loss from LGM of $(20,000), net of amortization of $58,000, for the nine months ended July 31, 1995. During 1995, the Company has received dividends totalling $126,000. The Company's share of undistributed earnings of LGM included in consolidated retained earnings was $38,000 at July 31, 1995. The carrying value of this investment was $8.1 million at July 31, 1995. Summarized unaudited condensed financial information of Lloyd George Management (BVI) Limited in U.S. dollars is as follows (in thousands):
BALANCE SHEET June 30, 1995 ASSETS: Current assets $5,312 Noncurrent assets 3,289 Total $8,601 LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities $3,009 Noncurrent liabilities - Shareholders' equity 5,592 Total $8,601
OPERATING DATA Six months ended June 30, 1995 Revenues $4,917 Expenses 3,993 Net income $ 924
The Company's investment in unconsolidated affiliates also includes a 79 percent general partnership interest in Fulcrum Management Partners, L.P. (F.M.P.) and an 82 percent general partnership interest in Fulcrum Management Partners II, L.P. (F.M.P.II), both Delaware limited partnerships, of which a principal officer of the Company is the other general partner. F.M.P. and F.M.P.II are 20 percent general partners of VenturesTrident, L.P. (V.T.) and VenturesTrident II, L.P. (V.T.II), respectively, both Delaware limited partnerships formed to invest in equity securities of public and private gold-mining ventures. The Company also has a 12 percent limited partnership interest in V.T. and a 3 percent limited partnership interest in V.T.II. -9- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995 Summarized condensed combined financial information of V.T. and V.T.II, both of which are accounted for under the equity method, is as follows (in thousands):
BALANCE SHEET July 31, October 31, 1995 1994 ASSETS: Cash and short-term investments $ 276 $ 615 Investments, at fair value 48,111 55,422 Other assets 252 228 Total $48,639 $56,265 LIABILITIES AND PARTNERS' CAPITAL: Liabilities $ 4,291 $ 3,640 Partners' Capital 44,348 52,625 Total $48,639 $56,265
OPERATING DATA Nine months ended July 31, 1995 1994 Realized and unrealized gains (losses) on investments $(6,727) $ 1,906 Other income (loss) (1,550) (1,717) Net income (loss) $(8,277) $ 189
For the nine months ended July 31, 1995 and 1994, the Company's share of the net losses of V.T. and V.T.II, as accounted for under the equity method and allocated pursuant to the terms of the partnerships' agreements, was $993,000 and $628,000, respectively. At July 31, 1995 and 1994, the Company's investments in V.T. and V.T.II approximated its share of the partners' capital of each partnership. 2. Discontinued Operations On July 12, 1995, the Board of Directors approved in principle the Company's plan to spinoff its 77.3 percent owned subsidiary, Investors Bank & Trust Company (IB&T), in a tax-free distribution of bank shares to the Company's shareholders. The Company has requested a private letter ruling from the Internal Revenue Service on the tax-free status of the distribution and is actively pursuing the necessary regulatory approvals from both Federal and Massachusetts banking authorities. The spinoff is expected to be completed prior to calendar year end after receipt of the necessary regulatory approvals and formal declaration of the distribution by the Board of Directors. The spinoff will result in a reduction of shareholders' equity by an amount which approximates the carrying value of Investors Bank & Trust Company at the time of the spinoff. As a result of the Board action regarding the spinoff, the operations of IB&T have been classified as discontinued for all periods presented. -10- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995 Revenues applicable to discontinued operations for the nine months ended July 31, 1995 and 1994 were $43.7 million and $34.9 million, respectively. Income taxes applicable to discontinued operations for the nine months ended July 31, 1995 and 1994 were $2.2 million and $1.3 million, respectively. The assets and liabilities of IB&T have been reclassified on the balance sheet to separately identify them as net assets of discontinued operations. These net assets consist of the following:
July 31, 1995 Investment securities $ 76,545 Loans, less allowance for loan losses 13,672 Other assets 22,322 Demand and time deposits (88,777) Other liabilities (10,429) Net assets of discontinued operations $ 13,333
(3) Non-Voting Common Stock Options Options to subscribe to shares of non-voting common stock are summarized as follows:
Shares Under Option Option Price Range Balance, October 31, 1993 718,684 $ 8.75 - 33.50 Exercised (141,181) 8.75 - 27.25 Granted 159,970 27.375 - 34.00 Cancelled/Expired (4,725) 27.25 - 34.00 Balance, October 31, 1994 732,748 8.75 - 34.00 Exercised (110,000) 8.75 - 27.25 Granted 133,300 27.75 - 32.25 Cancelled/Expired (14,500) 8.75 - 34.00 Balance, July 31, 1995 741,548 $ 8.75 - 34.00
At July 31, 1995, options for 454,281 shares were exercisable. Options for 287,267 additional shares will become exercisable over the next four years. (4) Net Capital Requirements Two subsidiaries of the Company are subject to the Securities and Exchange Commission uniform net capital rule (Rule 15c3-1) requiring such subsidiaries to maintain a certain level of net capital (as defined). For purposes of this rule, the subsidiaries had net capital of $43,061,000 and -11- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1995 $190,000, respectively, at July 31, 1995, which exceeded the net capital requirements of $230,000 and $5,000, respectively, as of that date. (5) Equipment and Leasehold Improvements Equipment and leasehold improvements at July 31, 1995 (excluding IB&T) and October 31, 1994 follow:
July 31, October 31, 1995 1994 (in thousands) At Cost: Furniture and equipment $ 6,688 $13,036 Leasehold improvements 300 815 Total 6,988 13,851 Less accumulated depreciation 4,081 7,123 Net book value $ 2,907 $ 6,728
At July 31, 1995 net equipment and leasehold improvements of discontinued operations were $3,766,000. (6) Real Estate Investments Real estate investments held at July 31, 1995 and October 31, 1994 follow:
July 31, October 31, 1995 1994 (in thousands) Buildings $27,681 $27,347 Land 2,461 2,465 Total 30,142 29,812 Less: Accumulated depreciation 8,195 7,510 Net book value 21,947 22,302 Share of accumulated losses in excess of partnership interest (206) (129) Total $21,741 $22,173
(7) Investment Securities The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", effective November 1, 1994. SFAS No. 115 requires that certain investments in debt and equity securities be classified as trading, available-for-sale or held-to-maturity. Securities classified as trading are to be reported at fair value with the corresponding unrealized gain or loss included in income. Securities classified as available-for-sale are to be reported at fair value with the corresponding -12- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995 unrealized gain or loss included as a separate component of shareholders' equity. Securities classified as held-to-maturity are to be recorded at amortized cost. Securities classified as available-for-sale are included in the following balance sheet categories at July 31, 1995 (in thousands):
Gross Gross Estimated unrealized unrealized fair value gains losses Cost Current Assets: Short-term investments $11,316 $ 316 $ - $11,000 Investments: Investment companies 7,230 2,413 151 4,968 Other investments 1,205 12 414 1,607 Total $19,751 $ 2,741 $ 565 $17,575
Securities classified as held-to-maturity are included in the following balance sheet category at July 31, 1995 (in thousands):
Gross Gross Estimated unrealized unrealized Amortized fair value gains losses cost Net assets of discontinued operations: U.S. Treasury securities $65,522 $ 198 $ 204 $65,528 Mortgage-backed securities 10,897 36 156 11,017 Total $76,419 $ 234 $ 360 $76,545
The contractual maturities of debt securities held-to-maturity at July 31, 1995 follow (in thousands):
Estimated Amortized fair value cost Due within one year $30,158 $30,231 Due after one year through five years 35,364 35,297 Mortgage-backed securities 10,897 11,017 Total $76,419 $76,545
The adoption of SFAS No. 115 resulted in an increase in shareholders' equity, net of applicable taxes, of $1,170 through July 31, 1995. Prior year's financial statements have not been restated to reflect the change in accounting principle. -13- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995 (8) Legal Proceedings The Company was informed on January 13, 1995, that a National Association of Securities Dealers (NASD) arbitration panel had awarded a former wholesaler for the firm $0.6 million in damages and an additional $1.2 million as punitive damages in response to his claim for wrongful termination of employment. At January 31, 1995, the Company accrued a liability of $2.0 million for these damages. The Company is examining all possible legal steps to overturn the decision. From time to time, the Company is a party to various employment-related claims, including claims of discrimination, before federal, state and local administrative agencies and courts. The Company vigorously defends itself against these claims. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination in one or more pending employment-related claims would have a material adverse effect on the Company's financial position or results of operations. (9) Income Taxes As of October 31, 1994, the Company had a remaining operating loss carryforward of approximately $25 million that can be carried forward to offset future taxable income through 2008. Additionally, the Company has an alternative minimum tax credit carryforward of approximately $2.3 million which can be carried forward to offset future regular tax liabilities through 2006. (10) Earnings Per Common and Common Equivalent Share Earnings per share for the nine months ended July 31, 1995 are based upon the weighted average number of common and non-voting common shares outstanding of 9,186,000. Earnings per share assuming primary and full dilution have not been presented because the dilutive effect is immaterial. Earnings per share for the nine months ended July 31, 1994 are based upon the weighted average number of common, non-voting common and non-voting common equivalent shares outstanding of 9,536,000. Earnings per share assuming full dilution have not been presented because the dilutive effect is immaterial. (11) Employee Benefit Plans - Stock Purchase Plan On January 6, 1995, the Board of Directors of the Company reserved an additional 100,000 shares for issuance under the Employee Stock Purchase Plan. The plan permits all eligible full-time employees to direct up to 15 percent of their salaries toward the purchase of Eaton Vance Corp. non-voting common stock at the lower of 90 percent of the fair market value of the non-voting common stock at the beginning or at the end of each six-month offering period. Through July 31, 1995, 309,499 shares of the total 412,000 shares reserved have been issued pursuant to this plan. (12) Subsequent Events On August 1, 1995, a subsidiary of the Company repaid a maturing mortgage note secured by retail rental property located in Goffstown, New Hampshire. The principal and accrued interest paid were $6.2 million. -14- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) July 31, 1995 (13) Certain prior year amounts have been reclassified to conform to current year presentation. (14) Opinion of Management In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results for the interim periods. -15- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS: The Company's largest sources of revenues are investment adviser fees and distribution fees received from the Eaton Vance funds and separately managed accounts. Such fees are generally based on the net asset value of the investment portfolios managed by the Company and fluctuate with changes in the total value of the assets under management. The Company's expenses other than the amortization of deferred sales commissions include primarily employee compensation, occupancy costs, service fees and other marketing costs. QUARTER ENDED JULY 31, 1995 COMPARED TO QUARTER ENDED JULY 31, 1994: Assets under management of $15.6 billion on July 31, 1995, were 1 percent higher than the $15.4 billion reported a year earlier. Market appreciation and reinvested dividends have contributed to the overall stability of the Company's assets under management. Mutual fund sales of $0.5 billion in the third quarter of 1995 were even with the third quarter of 1994, while redemptions of $0.5 billion in the third quarter of 1995 were up 25 percent from the same quarter a year ago. Monthly net sales, however, have been steadily improving since December, 1994. On July 12, 1995, the Board of Directors approved in principle the Company's plan to spinoff its interest in Investors Bank & Trust Company (IB&T) in a tax-free distribution to the Company's shareholders. The purpose of the distribution is to remove IB&T from certain regulatory restrictions under the Competitive Equality Banking Act of 1987 (CEBA) and to enhance the opportunities for IB&T's global custody and administrative services by making IB&T an independent company. The Company has requested a private letter ruling from the Internal Revenue Service on the tax-free status of the distribution and is actively pursuing the necessary regulatory approvals from both Federal and Massachusetts banking authorities. Management anticipates that the spinoff will be completed by calendar year end after receipt of the necessary regulatory approvals and formal declaration of the distribution by the Board of Directors. The consolidated statements of operations and cash flows have been restated to reflect the bank as a discontinued operation for all periods presented. Total revenue from continuing operations increased $0.2 million to $42.7 million in the third quarter of 1995 from $42.5 million in the third quarter of 1994. Investment adviser and distribution fees increased $0.1 million in the third quarter of 1995 to $41.5 million from $41.4 million a year earlier. The overall stability in investment adviser and distribution fees can primarily be attributed to stable average assets under management in comparison with the same quarter a year ago and steadily improving net sales of mutual fund shares. Total operating expenses of $30.1 million in the third quarter of 1995 were even with operating expenses a year earlier. Compensation expense increased by 23 percent in the third quarter of 1995, primarily due to higher salaries and benefits and a reclass of other personnel costs in the third quarter of 1994. Decreases in the average dollar value of assets in spread commission funds resulted in a decrease in the amortization of deferred sales commissions of 10 percent. Other expenses of $7.5 million in the third quarter of 1995 were even with the $7.7 million reported a year earlier. -16- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) After accounting for management fees, operating expenses and income taxes, the Company's gold mining and energy operations contributed a gain of $0.09 per share in the third quarter of 1995, compared to a loss of $0.13 per share in the third quarter of 1994. The gain in the third quarter of 1995 can primarily be attributed to the realization of previously unrealized losses for tax purposes. The realization of these losses resulted in a significant decrease in the Company's effective tax rate on income from continuing operations, from 31 percent for the third quarter of 1995 to 47 percent for the third quarter of 1994. Income from discontinued banking operations, net of taxes, decreased by 33 percent from $767,000, or $0.08 per share, in the third quarter of 1994 to $512,000, or $0.06 per share, in the third quarter of 1995. The decrease in income from discontinued banking operations can primarily be attributed to a temporary decrease in bank fee income following the sale of certain custodied UIT assets to the Bank of New York in the second quarter of 1995. Net income from continuing operations of the Company amounted to $8.5 million in the third quarter of 1995 compared to $5.4 million in the second quarter of 1994. Earnings per share from continuing operations were $0.92 and $0.57 for the third quarters of 1995 and 1994, respectively. NINE MONTHS ENDED JULY 31, 1995 COMPARED TO NINE MONTHS ENDED JULY 31, 1994: Mutual fund sales for the first nine months of 1995 of $1.1 billion were 62 percent below the $2.9 billion reported in the first nine months of 1994. Redemptions of $1.6 billion in the first nine months of 1995 were 23 percent above the $1.3 billion in the first nine months of 1994. Total revenue from continuing operations decreased $2.8 million to $125.0 million in the first nine months of 1995. Investment adviser and distribution fees decreased by $2.5 million in the first nine months of 1995 to $121.5 million from $124.0 million a year earlier. The decrease in investment adviser and distribution fees can be attributed primarily to lower average assets under management in comparison with the same period a year ago and redemptions in excess of new mutual fund sales for the nine month period. The impact of the decrease in mutual fund sales on distribution fees was partially offset by an increase in contingent deferred sales charges received on early redemptions. Total operating expenses decreased $0.9 million to $90.2 million in the first nine months of 1995. Compensation expense of $29.2 million was consistent with the prior year's expense of $29.7 million for the comparable period. A decrease in the average dollar value of assets in spread commission funds resulted in a decrease in the amortization of deferred sales commissions of $2.5 million. Other expenses rose $2.0 million, primarily due to the accrual of a National Association of Securities Dealers (NASD) arbitration panel award of $2.0 million in the first quarter of 1995. The Company is currently vigorously pursuing all appropriate legal steps to overturn the arbitration panel's decision. -17- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company's two gold mining partnerships contributed losses of $1.0 million and $0.6 million during the first nine months of 1995 and 1994, respectively. These losses resulted primarily from fluctuations in the portfolio valuations of the two partnerships. After accounting for management fees, operating expenses and income taxes, the Company's gold mining and energy operations contributed losses of $0.04 and $0.11 per share for the first nine months of 1995 and 1994, respectively. The increase can be primarily attributed to the realization of previously unrealized losses for tax purposes. The realization of these losses resulted in a significant decrease in the Company's effective tax rate on income from continuing operations, from 43 percent in 1994 to 37 percent in 1995. Income from discontinued banking operations, net of taxes, increased by 47 percent from $1.9 million, or $0.19 per share, for the nine months ended July 31, 1994 to $2.8 million, or $0.30 per share, for the nine months ended July 31, 1995. The increase can primarily be attributed to an increase in the assets custodied and administered by IB&T. These assets totalled $86.7 billion at July 31, 1995, an increase of $16.8 billion over July 31, 1994. Net income from continuing operations of the Company amounted to $20.0 million in the first nine months of 1995, compared to $18.3 million in the first nine months of 1994. Earnings per share from continuing operations were $2.18 and $1.92 for the first nine months of 1995 and 1994, respectively. Net income for the first nine months of 1994 includes a gain of $1.3 million, or $0.14 per share, associated with the implementation of Statement of Financial Accounting Standards (SFAS) No. 109 effective November 1, 1993. Total assets, excluding discontinued banking operations, increased to $345.8 million at July 31, 1995 from $327.9 million at October 31, 1994. Cash and cash equivalents and short-term investments increased by $41.6 million to $66.3 million at July 31, 1995. Investments in affiliates increased by $6.2 million, primarily due to an increase in the Company's investment in Lloyd George Management (BVI) Limited, an independent investment management company based in Hong Kong. Deferred sales commissions decreased $36.8 million to $219.5 million at July 31, 1995. The decrease in deferred sales commissions can primarily be attributed to amortization and redemptions in excess of new sales in spread commission funds in the first nine months of 1995. The increase in investments in investment companies and other investments of $2.5 million can primarily be attributed to the adoption of Statement of Financial Accounting Standards (SFAS) No. 115, effective November 1, 1994 and subsequent portfolio adjustments. SFAS No. 115 requires that investment securities classified as "available-for-sale" be carried at fair value on the Company's balance sheet. The unrealized holding gains and losses for these securities are excluded from earnings and reported as a separate component of shareholders' equity, net of applicable taxes, until realized. LIQUIDITY AND CAPITAL RESOURCES: Cash and cash equivalents, excluding discontinued banking operations, increased by $30.3 million to $55.0 million at July 31, 1995. -18- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company generated $51.2 million in cash from continuing operating activities in the nine months ended July 31, 1995. The Company's primary sources of cash flows from continuing operating activities were net income from continuing operations of $20.0 million and capitalized sales charges received on early redemptions of spread-commission funds of $27.8 million. The primary use of capital was for the payment of $28.0 million in commissions associated with the sales of spread-commission mutual funds. The Company anticipates that the primary use of cash will continue to be the payment of sales commissions on sales of the Company's spread-commission funds and anticipates funding the payment of these commissions with cash flows generated from operating activities and, if necessary, with borrowings. Investing activities of continuing operations reduced cash and cash equivalents by $18.1 million in the first nine months of 1995. The decrease was primarily due to the purchase of $11.0 million in short term investments and the acquisition of additional shares of Lloyd George Management (BVI) Limited. The Company paid $4.5 million in cash and issued non-voting common stock valued at $2.7 million as consideration for the additional Lloyd George Management shares acquired in the third quarter. Financing activities of continuing operations reduced cash and cash equivalents by $3.8 million in the first nine months of 1995, primarily due to the use of $1.3 million to repurchase 50,000 shares of the Company's stock on the open market at an average price per share of $26.00 and the payment of $4.4 million in dividends to the Company's shareholders. These reductions were offset by net proceeds of $2.2 million from the issuance of new stock to employees under stock purchase and stock option plans. On August 1, 1995, a subsidiary of the Company repaid a maturing mortgage note secured by retail rental property located in Goffstown, New Hampshire. The principal and accrued interest paid were $6.2 million. In July 1995, the Board of Directors approved in principle the Company's plan to spinoff its interest in IB&T in a tax-free distribution to the Company's shareholders. The spinoff will result in a reduction of shareholders' equity by an amount which approximates the carrying value of IB&T at the time of the spinoff. The carrying value of IB&T was $13.3 million at July 31, 1995. Management anticipates that the spinoff will be completed by the end of the calendar year. In January of 1995, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's non-voting common stock. There have been no share repurchases to date under this plan. The 50,000 shares repurchased in the first quarter of 1995 were repurchased under a previously authorized plan. At July 31, 1995, the Company had no borrowings under its $75.0 million bank credit facility. -19- PART II OTHER INFORMATION -20- Item 1. Legal Proceedings From time to time, the Company is a party to various employment-related claims, including claims of discrimination, before federal, state and local administrative agencies and courts. The Company vigorously defends itself against these claims. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination in one or more pending employment-related claims would have a material adverse effect on the Company's financial position or results of operations. -21- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EATON VANCE CORP. (Registrant) DATE: September 5, 1995 /s/William M. Steul (Signature) William M. Steul Chief Financial Officer DATE: September 5, 1995 /s/John P. Rynne (Signature) John P. Rynne Corporate Controller -22- EX-27 2
5 3-MOS OCT-31-1995 JUL-31-1995 55006 11316 3936 0 0 89915 2907 0 359090 24551 0 580 0 0 187682 359090 0 124961 0 0 90156 0 3666 31951 11907 20044 2779 0 0 22823 2.48 2.48
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