Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
This Item includes statements that are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding our expectations, intentions or strategies regarding the future. All statements, other
than statements of historical facts, included in this Form 10-Q regarding our financial position, business strategy and other plans and objectives for
future operations are forward-looking statements. Although we believe that the assumptions and expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations reflected in such forward-looking statements will prove to have been correct
or that we will take any actions that may presently be planned. Certain important factors that could cause actual results to differ materially from our
expectations are disclosed in the Risk Factors section of this form 10-Q. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors.
General
The Companys principal business is managing investment
funds and separate accounts for retail investors and providing investment management and counseling services to high-net-worth individuals and
institutions. The Companys long-term strategy is to develop value-added core competencies in a range of investment disciplines and to offer
industry-leading investment products and services across multiple distribution channels. In executing this strategy, the Company has developed a
broadly diversified product line and a powerful marketing, distribution and customer service capability.
The Company is a market leader in a number of investment areas,
including tax-managed equity, value equity, equity income, floating-rate bank loan, municipal bond, investment grade and high-yield bond investing. The
diversified offerings of Eaton Vance and its affiliates offer fund shareholders, retail managed account investors, institutional investors and
high-net-worth clients a wide range of products and services designed and managed to generate attractive risk-adjusted returns over the long
term.
The Companys principal marketing strategy is to distribute
its retail products (including funds and retail managed accounts) primarily through financial intermediaries in the advice channel. The Company has a
broad reach in this marketplace, with distribution partners including national and regional broker/dealers, independent broker/dealers, independent
financial advisory firms, banks and insurance companies. Eaton Vance supports these distribution partners with a team of more than 150 regional and
Boston-based sales professionals serving the needs of the Companys partners and clients across the United States, Latin America and Europe.
Specialized sales and marketing teams provide the increasingly sophisticated information required for distributing the Companys privately placed
funds, retail managed accounts, retirement products and charitable giving vehicles.
The Company is also committed to serving institutional and
high-net-worth clients who access investment advice outside of traditional retail broker/dealer channels. The Company and its majority-owned
subsidiaries, including Atlanta Capital Management Company, LLC (Atlanta Capital), Fox Asset Management LLC (Fox Asset
Management) and Parametric Portfolio Associates LLC (Parametric Portfolio Associates), have a broad range of clients in the
institutional and high-net-worth marketplace, including corporations, endowments, foundations, family offices and public and private employee
retirement plans. Specialized sales teams at each of the Companys affiliates focus on developing relationships in this market and deal directly
with these clients, often on the basis of independent referrals.
18
The Companys revenue is derived primarily from investment
adviser, administration, distribution and service fees received from Eaton Vance funds and investment adviser fees received from separate accounts.
Fees paid to the Company are based primarily on the value of the investment portfolios managed by the Company and fluctuate with changes in the total
value of the assets under management. Such fees are recognized over the period that the Company manages these assets. The Companys major expenses
are employee compensation, amortization of deferred sales commissions and distribution-related expenses.
The discussion and analysis of the Companys financial
condition and results of operations are based upon the Companys consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and
liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to deferred sales commissions, goodwill and intangible
assets, income taxes, investments, stock-based compensation and litigation. The Company bases its estimates on historical experience and on various
other assumptions that it believes to be reasonable under current circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Assets Under Management
Assets under management of $135.5 billion on January 31, 2007
were 20 percent higher than the $113.3 billion reported a year earlier. Long-term fund net inflows contributed $13.7 billion to growth in assets under
management over the last twelve months, including $10.6 billion of open-end and private fund net inflows and $3.1 billion of closed-end fund net
inflows. Separate account net outflows totaled $0.1 billion, reflecting $1.7 billion of retail managed account net inflows offset by $1.8 billion of
institutional and high-net-worth net outflows. Market price appreciation, reflecting favorable equity markets, contributed $8.1 billion and an increase
in money market assets added $0.5 billion to assets under management.
Ending Assets Under Management by Investment Objective(1)
|
|
|
|
January 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Equity
assets |
|
|
|
$ |
84.1 |
|
|
$ |
70.3 |
|
|
|
20 |
% |
Fixed income
assets |
|
|
|
|
30.0 |
|
|
|
23.9 |
|
|
|
26 |
% |
Floating-rate bank loan assets |
|
|
|
|
21.4 |
|
|
|
19.1 |
|
|
|
12 |
% |
Total |
|
|
|
$ |
135.5 |
|
|
$ |
113.3 |
|
|
|
20 |
% |
(1) Includes funds and separate accounts.
Equity assets represented 62 percent of total assets under
management on both January 31, 2007 and 2006. Assets in equity funds managed for after-tax returns totaled $44.1 billion and $36.5 billion on January
31, 2007 and 2006, respectively. Fixed income assets, including money market funds, represented 22 percent of total assets under management on January
31, 2007, compared to 21 percent on January 31, 2006. Fixed income assets included $15.8 billion and $12.1 billion of tax-exempt municipal bond funds
and $1.3 billion and $0.8 billion of money market fund assets on January 31, 2007 and 2006, respectively. Floating-rate bank loan assets represented 16
percent of total assets under management on January 31, 2007, compared to 17 percent on January 31, 2006.
19
Long-Term Fund and Separate Account Net
Flows
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Long-term
funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end
funds |
|
|
|
$ |
2.8 |
|
|
$ |
0.1 |
|
|
|
NM |
(2) |
Open-end
funds |
|
|
|
|
2.2 |
|
|
|
0.7 |
|
|
|
214 |
% |
Private funds |
|
|
|
|
0.9 |
|
|
|
(0.5 |
) |
|
|
NM |
|
Total long-term fund net inflows (outflows) |
|
|
|
|
5.9 |
|
|
|
0.3 |
|
|
|
NM |
|
Institutional/HNW(1) accounts |
|
|
|
|
(0.5 |
) |
|
|
(0.9 |
) |
|
|
NM |
|
Retail managed accounts |
|
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
100 |
% |
Total separate account net inflows (outflows) |
|
|
|
|
0.1 |
|
|
|
(0.6 |
) |
|
|
NM |
|
Total net inflows (outflows) |
|
|
|
$ |
6.0 |
|
|
$ |
(0.3 |
) |
|
|
NM |
|
(1) High-net-worth (HNW)
(2) Not meaningful (NM)
Long-term fund net inflows totaled $5.9 billion in the first
quarter of fiscal 2007 compared to $0.3 billion in the first quarter of fiscal 2006. Closed-end fund offerings contributed significantly to net inflows
in the first quarter of fiscal 2007, with $2.8 billion in closed-end fund assets added compared to $0.1 billion added in the first quarter of fiscal
2006. Open-end fund net inflows of $2.2 billion and $0.7 billion in the first three months of fiscal 2007 and 2006, respectively, reflect gross inflows
of $4.9 billion and $3.0 billion, respectively, an increase of 63 percent year over year. Open-end fund redemptions totaled $2.7 billion and $2.3
billion for the first quarter of fiscal 2007 and 2006, respectively, an increase of 17 percent year over year. Private funds, which include privately
offered equity and bank loan funds as well as collateralized debt obligation entities, contributed net inflows of $0.9 billion in the first quarter of
fiscal 2007 compared to net outflows of $0.5 billion in the first quarter of fiscal 2006.
The Company experienced net inflows of separate account assets of
$0.1 billion in the first quarter of fiscal 2007, compared to net outflows of $0.6 billion in the first quarter of fiscal 2006. Retail managed account
net inflows totaled $0.6 billion in the first quarter of fiscal 2007, compared to $0.3 billion in the first quarter of fiscal 2006. Retail managed
account net inflows in fiscal 2007 reflect strong net sales of Parametric Portfolio Associates tax efficient overlay and core equity products and
Eaton Vance Managements (EVMs) large cap value and municipal bond products. Institutional and high-net-worth net outflows
totaled $0.5 billion in the first quarter of fiscal 2007 compared to net outflows of $0.9 billion in the first quarter of fiscal 2006. Institutional
and high-net-worth account net outflows in the first quarter of fiscal 2007 reflect withdrawals of assets by a bank loan institutional account and
withdrawals by certain Atlanta Capital institutional clients.
Money market fund assets, which are not included in long-term
fund net flows because of their short-term nature, increased to $1.3 billion on January 31, 2007 from $0.8 billion on January 31, 2006. The increase in
money market fund assets in the first quarter of fiscal 2007 compared to the first quarter of fiscal 2006 can be primarily attributed to the
introduction of a cash collateral fund managed by the Company in the second quarter of fiscal 2006. The cash collateral fund was introduced in
conjunction with a securities lending program in which certain of the Companys sponsored funds participate.
The following table summarizes the asset flows by investment
objective for the three-month periods ended January 31, 2007 and 2006:
20
Asset Flows
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Equity fund
assets beginning |
|
|
|
$ |
53.2 |
|
|
$ |
45.2 |
|
|
|
18 |
% |
Sales/inflows |
|
|
|
|
6.0 |
|
|
|
1.6 |
|
|
|
275 |
% |
Redemptions/outflows |
|
|
|
|
(1.7 |
) |
|
|
(1.4 |
) |
|
|
21 |
% |
Exchanges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value change |
|
|
|
|
1.8 |
|
|
|
2.7 |
|
|
|
33 |
% |
Equity fund assets ending |
|
|
|
|
59.3 |
|
|
|
48.1 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income
fund assets beginning |
|
|
|
|
21.5 |
|
|
|
18.2 |
|
|
|
18 |
% |
Sales/inflows |
|
|
|
|
1.9 |
|
|
|
0.9 |
|
|
|
111 |
% |
Redemptions/outflows |
|
|
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
17 |
% |
Exchanges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value change |
|
|
|
|
|
|
|
|
0.1 |
|
|
|
NM |
|
Fixed income fund assets ending |
|
|
|
|
22.9 |
|
|
|
18.6 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating-rate
bank loan fund assets beginning |
|
|
|
|
20.0 |
|
|
|
16.8 |
|
|
|
19 |
% |
Sales/inflows |
|
|
|
|
1.7 |
|
|
|
1.2 |
|
|
|
42 |
% |
Redemptions/outflows |
|
|
|
|
(1.5 |
) |
|
|
(1.4 |
) |
|
|
7 |
% |
Exchanges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value change |
|
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
50 |
% |
Floating-rate bank loan fund assets ending |
|
|
|
|
20.3 |
|
|
|
16.8 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term fund assets beginning |
|
|
|
|
94.7 |
|
|
|
80.2 |
|
|
|
18 |
% |
Sales/inflows |
|
|
|
|
9.6 |
|
|
|
3.7 |
|
|
|
159 |
% |
Redemptions/outflows |
|
|
|
|
(3.7 |
) |
|
|
(3.4 |
) |
|
|
9 |
% |
Exchanges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value change |
|
|
|
|
1.9 |
|
|
|
3.0 |
|
|
|
37 |
% |
Total long-term fund assets ending |
|
|
|
|
102.5 |
|
|
|
83.5 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate
accounts beginning |
|
|
|
|
30.5 |
|
|
|
27.6 |
|
|
|
11 |
% |
Inflows
HNW and institutional |
|
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
14 |
% |
Outflows
HNW and institutional |
|
|
|
|
(1.2 |
) |
|
|
(1.6 |
) |
|
|
25 |
% |
Inflows
retail managed accounts |
|
|
|
|
1.1 |
|
|
|
0.7 |
|
|
|
57 |
% |
Outflows
retail managed accounts |
|
|
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
|
25 |
% |
Market value
change |
|
|
|
|
1.2 |
|
|
|
1.6 |
|
|
|
25 |
% |
Assets acquired |
|
|
|
|
|
|
|
|
0.4 |
|
|
|
NM |
|
Separate accounts ending |
|
|
|
|
31.7 |
|
|
|
29.0 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund assets ending |
|
|
|
|
1.3 |
|
|
|
0.8 |
|
|
|
63 |
% |
Assets under management ending |
|
|
|
$ |
135.5 |
|
|
$ |
113.3 |
|
|
|
20 |
% |
21
Ending Assets Under Management by Asset
Class
|
|
|
|
January 31,
|
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Class A (1) |
|
|
|
$ |
29.7 |
|
|
$ |
20.5 |
|
|
|
45 |
% |
Class B (2) |
|
|
|
|
6.7 |
|
|
|
7.6 |
|
|
|
12 |
% |
Class C (3) |
|
|
|
|
9.0 |
|
|
|
7.6 |
|
|
|
18 |
% |
Class I (4) |
|
|
|
|
2.4 |
|
|
|
1.8 |
|
|
|
33 |
% |
Private funds
(5) |
|
|
|
|
27.6 |
|
|
|
22.4 |
|
|
|
23 |
% |
Closed-end
funds |
|
|
|
|
25.8 |
|
|
|
21.8 |
|
|
|
18 |
% |
Other (6) |
|
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
|
|
Total fund assets |
|
|
|
|
103.8 |
|
|
|
84.3 |
|
|
|
23 |
% |
HNW and
institutional account assets |
|
|
|
|
21.1 |
|
|
|
21.1 |
|
|
|
|
|
Retail managed account assets |
|
|
|
|
10.6 |
|
|
|
7.9 |
|
|
|
34 |
% |
Total separate account assets |
|
|
|
|
31.7 |
|
|
|
29.0 |
|
|
|
9 |
% |
Total |
|
|
|
$ |
135.5 |
|
|
$ |
113.3 |
|
|
|
20 |
% |
(1) Includes Eaton Vance Advisers Senior Floating-Rate Fund, an
interval fund.
(2) Includes Eaton Vance Prime Rate Reserves, an interval
fund.
(3) Includes EV Classic Senior Floating-Rate Fund, an interval fund.
(4) Includes Eaton Vance Institutional Senior Floating-Rate Fund, an interval fund.
(5) Includes privately offered equity and bank loan funds and CDO entities.
(6) Includes other classes of open-end funds and non-Eaton Vance
funds subadvised by Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates.
The Company currently sells its sponsored mutual funds under four
primary pricing structures: front-end load commission (Class A); spread-load commission (Class B); level-load commission
(Class C); and institutional no-load (Class I). The Company waives the sales load on Class A shares when sold under a fee-based
broker/dealer program. In such cases, the shares are sold at net asset value.
Fund assets represented 77 percent of total assets under
management on January 31, 2007, compared to 74 percent on January 31, 2006. Class A share assets increased to 22 percent of total assets under
management on January 31, 2007 from 18 percent on January 31, 2006, while Class B share assets dropped to 5 percent on January 31, 2007 from 7 percent
on January 31, 2006. The shift from Class B share assets to Class A share assets reflects the overall increasing popularity of Class A shares in the
industry and the declining popularity of Class B shares in broker/dealer distribution systems. Class C share assets represented 7 percent of total
assets under management on both January 31, 2007 and 2006, while Class I share assets represented 2 percent of total assets under management on both
January 31, 2007 and 2006. Private funds and closed-end funds collectively represented 39 percent of the Companys total assets under management
on both January 31, 2007 and 2006.
Separate account assets, including high-net-worth, institutional
and retail managed account assets, totaled $31.7 billion on January 31, 2007, up from $29.0 billion on January 31, 2006. High-net-worth and
institutional account assets were flat year over year, while retail managed account assets increased by 34 percent over the same period last year. As
noted above, high-net-worth and institutional net inflows were negatively impacted in the first quarter of fiscal 2007 by the withdrawal of assets by
an EVM bank loan institutional account and withdrawals by certain Atlanta Capital institutional clients. Retail managed account assets were positively
impacted in the first quarter of fiscal 2007 by strong net sales of Parametric Portfolio Associates tax-efficient overlay and core equity
products and EVMs large-cap value and municipal bond products.
22
The average assets under management presented in the following
table represent a monthly average by asset class. This table is intended to provide useful information in the analysis of the Companys revenue
and asset-based distribution expenses. With the exception of the Companys separate account investment adviser fees, which are generally
calculated as a percentage of either beginning, average or ending quarterly assets, the Companys investment adviser, administration, distribution
and service fees are calculated as a percentage of average daily assets.
Average Assets Under Management by Asset Class (1)
|
|
|
|
For the Three Months Ended January 31,
|
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Class A (2) |
|
|
|
$ |
28.4 |
|
|
$ |
19.6 |
|
|
|
45 |
% |
Class B (3) |
|
|
|
|
6.7 |
|
|
|
7.7 |
|
|
|
13 |
% |
Class C (4) |
|
|
|
|
8.7 |
|
|
|
7.5 |
|
|
|
16 |
% |
Class I (5) |
|
|
|
|
2.7 |
|
|
|
1.6 |
|
|
|
69 |
% |
Private funds
(6) |
|
|
|
|
27.0 |
|
|
|
22.2 |
|
|
|
22 |
% |
Closed-end
funds |
|
|
|
|
24.7 |
|
|
|
21.4 |
|
|
|
15 |
% |
Other (7) |
|
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
8 |
% |
Total fund assets |
|
|
|
|
100.9 |
|
|
|
82.5 |
|
|
|
22 |
% |
HNW and
institutional account assets |
|
|
|
|
21.1 |
|
|
|
21.1 |
|
|
|
|
|
Retail managed account assets |
|
|
|
|
10.1 |
|
|
|
7.5 |
|
|
|
35 |
% |
Total separate account assets |
|
|
|
|
31.2 |
|
|
|
28.6 |
|
|
|
9 |
% |
Total |
|
|
|
$ |
132.1 |
|
|
$ |
111.1 |
|
|
|
19 |
% |
(1) Assets under management attributable to acquisitions that
closed during the relevant periods are included on a weighted average basis for the period from their respective closing dates.
(2)
Includes Eaton Vance Advisers Senior Floating-Rate Fund, an interval fund.
(3) Includes Eaton Vance Prime Rate Reserves, an interval
fund.
(4) Includes EV Classic Senior Floating-Rate Fund, an interval fund.
(5) Includes
Eaton Vance Institutional Senior Floating-Rate Fund, an interval fund.
(6) Includes privately
offered equity and bank loan funds and CDO entities.
(7) Includes other classes of open-end funds and non-Eaton Vance funds
subadvised by Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates.
Results of Operations
The Company reported net income of $2.6 million or $0.02 per
diluted share in the first three months of fiscal 2007 compared to $39.1 million or $0.28 per diluted share in the first three months of fiscal 2006.
Operating results for the first quarter of fiscal 2007 include $52.2 million in payments made to Merrill Lynch, Pierce, Fenner & Smith and A.G.
Edwards & Sons, Inc. to terminate certain closed-end fund compensation agreements under which the Company made recurring payments over time based
on the assets of the respective closed-end funds. These payments, which are included in distribution expense, reduced first quarter diluted earnings by
approximately $0.24 per share. The termination of those agreements by a one-time payment will have the result of reducing the Companys
distribution expense each year in the future by approximately $9.0 million, the amount of the compensation that it would otherwise have paid to the two
parties under those agreements. Operating results for the first quarter of fiscal 2007 also include the payment of $17.1 million in
one-time structuring fees and $4.7 million in marketing
incentives related to the offering of Eaton Vance Tax-Managed Diversified Equity Income
23
Fund, a $2.8 billion closed-end fund. These payments, which are
included in distribution expense and compensation expense, respectively, reduced first quarter earnings by approximately $0.10 per
share.
Results of Operations
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Operating
income |
|
|
|
$ |
1,997 |
|
|
$ |
64,079 |
|
|
|
97 |
% |
Net
income |
|
|
|
$ |
2,559 |
|
|
$ |
39,131 |
|
|
|
93 |
% |
Earnings per
share before cumulative effect of change in accounting principle: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.02 |
|
|
$ |
0.31 |
|
|
|
94 |
% |
Diluted |
|
|
|
$ |
0.02 |
|
|
$ |
0.29 |
|
|
|
93 |
% |
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.02 |
|
|
$ |
0.30 |
|
|
|
93 |
% |
Diluted |
|
|
|
$ |
0.02 |
|
|
$ |
0.28 |
|
|
|
93 |
% |
In evaluating operating performance, the Company considers
operating income and net income, which are calculated on a basis consistent with accounting principles generally accepted in the United States
(GAAP), as well as adjusted operating income, a non-GAAP performance measure. Adjusted operating income is defined as operating income plus
closed-end fund structuring fees and one-time payments, stock-based compensation and the write-off of any intangible assets associated with the
Companys acquisitions. The Company believes that adjusted operating income is a key indicator of the Companys ongoing profitability and
therefore uses this measure as the basis for calculating performance-based management incentives. Adjusted operating income is not, and should not be
construed to be, a substitute for operating income computed in accordance with GAAP. However, in assessing the performance of the business, Management
and the Board of Directors look at adjusted operating income as a measure of underlying performance, since amounts resulting from one-time events
(e.g., the offering of a closed-end fund) do not necessarily represent normal results of operations. In addition, when assessing performance,
Management and the Board look at performance both with and without stock-based compensation.
The following table provides a reconciliation of operating income
to adjusted operating income:
Reconciliation of Operating Income to Adjusted Operating
Income
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Operating
income |
|
|
|
$ |
1,997 |
|
|
$ |
64,079 |
|
|
|
97 |
% |
Closed-end
fund structuring fees |
|
|
|
|
17,115 |
|
|
|
|
|
|
|
NM |
|
Payments to
terminate closed-end fund compensation agreements |
|
|
|
|
52,178 |
|
|
|
|
|
|
|
NM |
|
Stock-based
compensation |
|
|
|
|
14,223 |
|
|
|
12,522 |
|
|
|
14 |
% |
Adjusted
operating income |
|
|
|
$ |
85,513 |
|
|
$ |
76,601 |
|
|
|
12 |
% |
24
Revenue
The Companys effective fee rate (total revenue as a
percentage of average assets under management) was 74 basis points in both the first quarter of fiscal 2007 and 2006.
Revenue
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Investment
adviser and administration fees |
|
|
|
$ |
169,397 |
|
|
$ |
142,069 |
|
|
|
19 |
% |
Distribution
and underwriter fees |
|
|
|
|
36,578 |
|
|
|
35,367 |
|
|
|
3 |
% |
Service
fees |
|
|
|
|
35,346 |
|
|
|
28,657 |
|
|
|
23 |
% |
Other revenue |
|
|
|
|
1,855 |
|
|
|
447 |
|
|
|
315 |
% |
Total revenue |
|
|
|
$ |
243,176 |
|
|
$ |
206,540 |
|
|
|
18 |
% |
Investment adviser and administration
fees
Investment adviser and administration fees are generally
determined by contractual agreements with the Companys sponsored funds and separate accounts and are generally based upon a percentage of the
market value of assets under management. Net asset flows and changes in the market value of managed assets affect the amount of investment adviser and
administration fees earned, while shifts in asset mix affect the Companys effective fee rate.
The increase in investment adviser and administration fees of 19
percent in the first quarter of fiscal 2007 over the same period a year earlier can be attributed primarily to a 19 percent increase in average assets
under management. While fund effective fee rates remained stable at 57 basis points for both periods presented, separately managed account effective
fee rates declined to 33 basis points in the first quarter of fiscal 2007 from 34 basis points in the first quarter of fiscal 2006.
Distribution and underwriter fees
Distribution plan payments, which are made under contractual
agreements with the Companys sponsored funds, are calculated as a percentage of average assets under management in specific share classes of the
Companys mutual funds (principally Class B and Class C), as well as certain private funds. These fees fluctuate with both the level of average
assets under management and the relative mix of assets. Underwriter commissions are earned on the sale of shares of the Companys sponsored mutual
funds on which investors pay a sales charge at the time of purchase (Class A share sales). Sales charges and underwriter commissions are waived or
reduced on sales that exceed specified minimum amounts and on fee-based account sales. Underwriter commissions fluctuate with the level of Class A
share sales and the mix of Class A shares offered with and without sales charges.
Distribution and underwriter fees increased by 3 percent in the
first quarter of fiscal 2007 compared to the same period a year ago. Distribution plan payments increased 2 percent to $33.3 million in the first
quarter of fiscal 2007 from $32.7 million in the first quarter of fiscal 2006, reflecting an increase in average Class C and certain private fund
assets subject to distribution fees partly offset by a decrease in average Class B share assets under management. As noted in the table Average
Assets Under Management by Asset Class, average Class B share assets under management declined 13 percent year-over-year in the first quarter of
fiscal 2007, while average Class C share and private fund assets under management subject to distribution fees increased by 16 percent and 13 percent,
respectively. Underwriter fees and other distribution income increased 27 percent to $3.3 million in the first quarter of
25
fiscal 2007 from $2.6 million
in the first quarter of fiscal 2006, primarily reflecting a 58 percent increase in Class A share sales.
Service fees
Service plan payments, which are made under contractual
agreements with the Companys sponsored funds, are calculated as a percent of average assets under management in specific share classes of
the
Companys mutual funds (principally Classes A, B and C)
as well as certain private funds. Service fees represent payments made by sponsored funds to the principal underwriter (Eaton Vance Distributors, Inc.,
a wholly owned subsidiary of EVM) for personal service and/or the maintenance of shareholder accounts.
Service fee revenue increased by 23 percent in the first quarter
of fiscal 2007 over the same period a year ago, primarily reflecting a 24 percent increase in average assets under management in Class A, B, and C
shares and private funds subject to distribution fees.
Other revenue
Other revenue, which consists primarily of shareholder service
fees, miscellaneous dealer income, custody fees, and investment income earned by consolidated funds, increased by $1.4 million or 315 percent in the
first quarter of fiscal 2007 over the same period a year ago. The increase in other revenue can be primarily attributed to increases in shareholder
service fees and miscellaneous dealer income totaling $0.9 million as well as an increase in investment income related to sponsored funds consolidated
by the Company. Other revenue for the first quarter of fiscal 2007 and 2006 includes $0.5 million and $0.1 million, respectively, of investment income
related to consolidated funds for the periods during which they were consolidated.
Expenses
Operating expenses increased by 69 percent in the first quarter
of fiscal 2007, primarily reflecting increases in compensation, service fees, distribution and other expenses.
Expenses
|
|
|
|
For the Three Months Ended January 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Compensation
of officers and employees |
|
|
|
$ |
77,982 |
|
|
$ |
61,448 |
|
|
|
27 |
% |
Amortization
of deferred sales commissions |
|
|
|
|
13,419 |
|
|
|
13,741 |
|
|
|
2 |
% |
Service fee
expense |
|
|
|
|
27,218 |
|
|
|
22,862 |
|
|
|
19 |
% |
Distribution
expense |
|
|
|
|
99,510 |
|
|
|
26,315 |
|
|
|
278 |
% |
Fund
expenses |
|
|
|
|
4,219 |
|
|
|
3,860 |
|
|
|
9 |
% |
Other expenses |
|
|
|
|
18,831 |
|
|
|
14,235 |
|
|
|
32 |
% |
Total expenses |
|
|
|
$ |
241,179 |
|
|
$ |
142,461 |
|
|
|
69 |
% |
Compensation of officers and employees
Compensation
expense increased by 27 percent in the first quarter
of fiscal 2007 compared to the first quarter of fiscal 2006. The increase in compensation expense can be primarily attributed to a 9 percent increase
in headcount, higher stock-based compensation expense and base compensation expense associated with the increase in headcount, higher adjusted
operating income-based employee incentives, higher marketing incentives associated with the Companys separately managed account business, and
higher marketing incentives associated with the increase in long-term fund sales. The increase in
26
headcount over the last twelve months reflects
additions to the Companys investment management, marketing and operations teams required to support the significant growth in assets under
management.
Stock-based compensation included in Compensation of
officers and employees was $14.2 million in the first quarter of fiscal 2007 compared to $12.5 million in the first quarter of fiscal
2006.
The Companys current retirement policy provides that an
employee is eligible for retirement at age 65, or for early retirement when the employee reaches age 55 and has a combined age plus years of service
to the Company of at least 75 years or with the Companys
consent. Because many of the Companys outstanding stock options allow for accelerated vesting of options upon retirement, the adoption of SFAS
No. 123R resulted in the immediate recognition of compensation expense at grant date for all awards granted to retirement-eligible employees on or
after the adoption of SFAS No. 123R on November 1, 2005. For awards granted to employees approaching retirement eligibility, the adoption of SFAS No.
123R resulted in compensation expense on a straight-line basis over the period from the grant date through the retirement eligibility date. Stock-based
compensation expense for employees who are not retirement eligible is recognized on a straight-line basis over the service or vesting period of the
option (generally five years). Prior to the implementation of SFAS No. 123R, and consistent with SFAS No. 123, it had been the Companys policy to
recognize all stock-based compensation expense over the vesting period without regard to retirement eligibility.
The accelerated recognition of compensation cost for employees
who are retirement-eligible or are nearing retirement eligibility under the Companys existing retirement policy is applicable for all grants made
on or after the Companys adoption of SFAS No. 123R (November 1, 2005). The accelerated recognition of compensation expense associated with stock
option grants to retirement-eligible employees in the quarter when the options are granted will reduce the associated stock-based compensation expense
recognized in subsequent quarters.
Amortization of deferred sales
commissions
Amortization of deferred sales commissions decreased by 2 percent
in the first quarter of fiscal 2007 compared to the first quarter of fiscal 2006. Amortization expense is affected by ongoing sales and redemptions of
mutual fund Class B shares, Class C shares and certain private funds. As amortization expense is a function of the Companys fund sales mix, a
continuing shift away from Class B shares to other classes over time, particularly Class A shares, will most likely result in further reductions in
amortization expense.
Service fees
Service fees the Company receives from sponsored funds are
generally retained by the Company in the first year and paid to broker/dealers after the first year pursuant to third-party service arrangements. These
fees are calculated as a percent of average assets under management in specific share classes of the Companys mutual funds (principally Classes
A, B, and C) and certain private funds. Service fee expense increased by 19 percent in the first quarter of fiscal 2007 over the same period a year
earlier, reflecting increases in average long-term fund assets retained more than one year in funds and share classes that are subject to service
fees.
27
Distribution expense
Distribution expense consists primarily of payments made to
distribution partners pursuant to third-party distribution arrangements (for certain Class C share and closed-end fund assets, calculated as a
percentage of average assets under management), commissions paid to broker/dealers on the sale of Class A shares at net asset value and other marketing
expenses, including marketing expenses associated with revenue sharing arrangements with the Companys distribution partners. Distribution expense
increased by $73.2 million or 278 percent in the first quarter of fiscal 2007 over the same period a year earlier primarily as the result of $52.2
million in aforementioned payments made in the first quarter of fiscal 2007 to Merrill Lynch, Pierce, Fenner & Smith and A.G. Edwards & Sons,
Inc. and structuring fee expenses of $17.1 million recognized in the first quarter of fiscal 2007 related to the offering of a $2.8 billion closed-end
fund.
Fund expenses
Fund expenses consist primarily of subadvisory fees, compliance
costs and other fund-related expenses incurred by the Company. Fund expenses increased by 9 percent in the first quarter of fiscal 2007 over the same
period a year ago primarily as a result of an 11 percent increase in subadvisory fees and a 24 percent increase in other fund-related expenses. The
increase in subadvisory fees can be attributed to the increase in average assets under management in funds subadvised by external investment advisers.
The increase in other fund-related expenses can be attributed to an increase in the recognition of fund expenses for certain institutional funds for
which the Company is paid an all-in management fee.
Other expenses
Other expenses consist primarily of travel, facilities,
information technology, consulting, communications and other corporate expenses, including the amortization of intangible assets.
Other expenses increased by 32 percent, or $4.6 million, in the
first quarter of fiscal 2007 over the first quarter of fiscal 2006, primarily reflecting increases in travel expense of $0.8 million,
facilities-related expenses of $1.4 million, and information technology expense of $2.7 million. The increase in facilities-related expenses can be
attributed to an increase in rent and insurance associated with additional office space leased by the Company to support the 9 percent increase in
headcount and an increase in the amortization of leasehold improvements associated with the acceleration of amortization schedules in anticipation of
the Companys move to new corporate headquarters in Boston in fiscal 2009. The increase in information technology expense can be attributed to an
overall increase in outside data services and consulting costs incurred in conjunction with several significant system implementations over the last
twelve months.
28
Other Income and Expense
|
|
|
|
For
the Three Months Ended
January 31,
|
|
|
|
(in
thousands)
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
Interest
income |
|
|
|
$ |
2,277 |
|
|
$ |
1,721 |
|
|
|
32 |
% |
Interest
expense |
|
|
|
|
(27 |
) |
|
|
(365 |
) |
|
|
93 |
% |
Gain
on investments |
|
|
|
|
708 |
|
|
|
662 |
|
|
|
7 |
% |
Foreign
currency loss |
|
|
|
|
(72 |
) |
|
|
(56 |
) |
|
|
29 |
% |
Impairment loss on investments |
|
|
|
|
|
|
|
|
(592 |
) |
|
|
NM |
|
Total other income (expense) |
|
|
|
$ |
2,886 |
|
|
$ |
1,370 |
|
|
|
111 |
% |
Interest income increased by 32 percent in the first quarter of
fiscal 2007 over the same period a year ago, primarily due to an increase in short-term interest rates.
Interest expense decreased by 93 percent in the first quarter of
fiscal 2007 over the same period a year ago, primarily due to the retirement of all of the Companys long-term debt in August
2006.
The Company recognized impairment losses of $0.6 million in the
first quarter of fiscal 2006 related to its investments in one CDO entity. The impairment loss resulted from the effect of tightening credit spreads
and higher than forecasted prepayment rates on the entitys investments.
Income Taxes
The Companys effective tax rate (income taxes as a
percentage of income before income taxes, minority interest, equity in net income of affiliates, and the cumulative effect of a change in accounting
principle) was 38 percent in the first quarter of fiscal 2007 and 2006.
The Companys policy for accounting for income taxes
includes monitoring its business activities and tax policies to ensure that the Company is in compliance with federal, state and foreign tax laws. In
the ordinary course of business, various taxing authorities may not agree with certain tax positions taken by the Company, or applicable law may not be
clear. The Company periodically reviews these tax positions and provides for and adjusts as necessary estimated liabilities relating to such positions
as part of its overall tax provision.
Minority Interest
Minority interest decreased by 6 percent in the first quarter of
fiscal 2007 over the same period a year ago. Minority interest is not adjusted for taxes due to the underlying tax status of the Companys
majority-owned subsidiaries. Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates are limited liability companies that are treated
as partnerships for tax purposes. Funds consolidated by the Company are registered investment companies or private funds that are treated as
pass-through entities for tax purposes.
29
Equity in Net Income of Affiliates, Net of
Tax
Equity in net income of affiliates, net of tax, at January 31,
2007 reflects the Companys 20 percent minority equity interest in Lloyd George Management and a 7 percent minority equity interest in a private
equity partnership. Equity in net income of affiliates, net of tax, was flat in the first quarter of fiscal 2007 compared to the first quarter of
fiscal 2006.
Changes in Financial Condition and Liquidity and Capital
Resources
The following table summarizes certain key financial data
relating to the Companys liquidity and capital resources on January 31, 2007 and 2006 and for the three-month periods then
ended:
Balance Sheet and Cash Flow Data
(in
thousands)
|
|
|
|
January
31,
2007
|
|
October
31,
2006
|
|
%
Change
|
Balance
sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
$ |
132,535 |
|
|
$ |
206,705 |
|
|
|
36 |
% |
Short-term
investments |
|
|
|
|
18,477 |
|
|
|
20,669 |
|
|
|
11 |
% |
Long-term
investments |
|
|
|
|
77,411 |
|
|
|
73,075 |
|
|
|
6 |
% |
Deferred
sales commissions |
|
|
|
|
110,415 |
|
|
|
112,314 |
|
|
|
2 |
% |
Deferred
income taxes |
|
|
|
|
21,290 |
|
|
|
22,520 |
|
|
|
5 |
% |
| |
|
|
For the Three Months Ended January 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Cash flow
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
cash flows |
|
|
|
$ |
(39,986 |
) |
|
$ |
18,651 |
|
|
|
NM |
|
Investing
cash flows |
|
|
|
|
(4,293 |
) |
|
|
(4,262 |
) |
|
|
1 |
% |
Financing
cash flows |
|
|
|
|
(29,920 |
) |
|
|
(35,443 |
) |
|
|
16 |
% |
The Companys financial condition is highly liquid, with a
significant percentage of the Companys assets represented by cash, cash equivalents and short-term investments. Short-term investments include
investments in the Companys sponsored money market and short-term income funds. Long-term investments consist principally of investments in
certain of the Companys sponsored mutual funds, investments in affiliates and minority equity investments in CDO entities.
Deferred sales commissions paid to broker/dealers in connection
with the distribution of the Companys Class B and Class C fund shares, as well as certain private funds, decreased by 2 percent in the first
quarter of fiscal 2007, primarily reflecting the ongoing decline in Class B share sales and assets. Deferred income taxes, which relate principally to
the deferred tax liability for deferred sales commissions offset by the deferred tax benefit for stock-based compensation, decreased by 6 percent in
the first quarter of fiscal 2007.
30
The following table details the Companys future contractual
obligations:
Contractual Obligations
|
|
Payments due
|
(in millions)
|
|
|
|
Total
|
|
Less than 1 Year
|
|
13 Years
|
|
45 Years
|
|
After 5 Years
|
Operating
leases facilities and equipment |
|
|
|
$ |
201.2 |
|
|
$ |
9.8 |
|
|
$ |
21.8 |
|
|
$ |
25.3 |
|
|
$ |
144.3 |
|
Investment in
private equity partnership |
|
|
|
$ |
9.4 |
|
|
|
|
|
|
$ |
9.4 |
|
|
|
|
|
|
|
|
|
In July 2006, the Company committed to invest up to $15.0 million
in a private equity partnership that invests in companies in the financial services industry. Through January 31, 2007, the Company has invested $5.6
million of the total $15.0 million of committed capital.
In September 2006, the Company signed a long-term lease to move
the Companys corporate headquarters to a new location in Boston. The lease will commence in May 2009.
Excluded from the table above are future payments to be made by
the Company to purchase the minority interests retained by minority investors in Atlanta Capital, Fox Asset Management and Parametric Portfolio
Associates. The Companys acquisition agreements provide the minority shareholders the right to require the Company to purchase these retained
interests at specific intervals over time. These agreements also provide the Company with the right to require the minority shareholders to sell their
retained equity interests to the Company at specific intervals over time, as well as upon certain events such as death and permanent disability. These
purchases and sales will occur at varying times at varying amounts over the next 6 years and will generally be based upon a multiple of earnings before
interest and taxes, a measure which is intended to represent fair market value. Although the timing and amounts of these purchases cannot be predicted
with certainty, the Company anticipates that the purchase of the remaining minority interests in its majority-owned subsidiaries may be a significant
use of cash in future years.
The Company maintains a revolving credit facility with several
banks, which expires on December 21, 2009. It provides that the Company may borrow up to $180 million at LIBOR-based rates of interest that vary
depending on the level of usage of the facility and the Companys credit ratings. The agreement contains financial covenants with respect to
leverage and interest coverage and requires the Company to pay an annual commitment fee on any unused portion. On January 31, 2007, the Company had no
outstanding borrowings under its revolving credit facility.
Operating Cash Flows
Operating cash flows of the Company are calculated by adjusting
the net income to reflect changes in current assets and liabilities, deferred sales commissions, stock-based compensation, deferred income taxes and
investments classified as trading. Cash provided by (used for) operating activities totaled ($40.0) million and $18.7 million for the three months
ended January 31, 2007 and 2006, respectively. The decrease in cash provided by operating activities in the first quarter of fiscal 2007 can be
attributed primarily to the $52.2 million in payments made by the Company to terminate certain closed-end fund compensation agreements and $17.1
million in structuring fee payments made by the Company related to the offering of Eaton Vance Tax-Managed Diversified Equity Income Fund in the first
quarter of fiscal 2007.
31
It should be noted that the Company will make additional
structuring fee payments of approximately $46.3 million in the second quarter of fiscal 2007 in conjunction with the initial public offering of Eaton
Vance Tax-Managed Global Diversified Income Fund, a $5.5 billion closed-end fund offered in February 2007.
Capitalized sales commissions paid to financial intermediaries
for the distribution of the Companys Class B and Class C fund shares and certain private funds increased by $4.3 million in the first quarter of
fiscal 2007 compared to the first quarter of fiscal 2006 due primarily to a 77 percent increase in Class C share sales. The Company anticipates that
the payment of capitalized sales commissions will continue to be a significant use of cash in the future.
Investing Cash Flows
Investing activities consist primarily of the purchase of
equipment and leasehold improvements and the purchase and sale of investments in Company-sponsored mutual funds that the Company does not consolidate.
Cash used for investing activities totaled $4.3 million for the three months ended January 31, 2007 and 2006, respectively. Additions to equipment and
leasehold improvements in both the first quarter of fiscal 2007 and 2006 primarily reflect additional leasehold improvements made in conjunction with
additional office space leased to accommodate an increase in headcount.
Financing Cash Flows
Financing cash flows primarily reflect the issuance and repayment
of long-term debt, the issuance and repurchase of the Companys non-voting common stock and the payment of dividends to the Companys
shareholders. Financing cash flows also include proceeds from the issuance of capital stock by the Companys consolidated investment companies and
cash paid to meet redemptions by minority shareholders of these funds. Cash used for financing activities totaled $29.9 million and $35.4 million for
the three months ended January 31, 2007 and 2006, respectively.
In the first quarter of fiscal 2007, the Company repurchased a
total of 0.9 million shares of its non-voting common stock for $29.6 million under its authorized repurchase program and issued 0.9 million shares of
non-voting common stock in connection with the exercise of stock options and employee stock purchases for total proceeds of $14.0 million. The Company
has authorization to purchase an additional 5.4 million shares under its present share repurchase authorization and anticipates that future repurchases
will continue to be a significant use of cash. The Companys dividends per share were $0.12 in the first quarter of fiscal 2007 compared to $0.10
in the first quarter of fiscal 2006.
The Company believes that cash provided by operating activities
and borrowings available under the Companys $180 million credit facility will provide the Company with sufficient liquidity to meet its
short-term and long-term cash demands.
Off-Balance Sheet Arrangements
The Company does not invest in any off-balance sheet vehicles
that provide financing, liquidity, market or credit risk support or engage in any leasing activities that expose the Company to any liability that is
not reflected in the Consolidated Financial Statements.
Critical Accounting Policies
Management believes the following critical accounting policies,
among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
32
Deferred Sales Commissions
Sales commissions paid by the Company to broker/dealers in
connection with the sale of certain classes of shares of open-end funds, bank loan interval funds and private funds are generally capitalized and
amortized over the period during which the shareholder is subject to a contingent deferred sales charge, which does not exceed six years. Distribution
plan payments received by the Company from these funds are recorded in revenue as earned. Contingent deferred sales charges and early withdrawal
charges received by the Company from redeeming shareholders of open-end and bank loan interval funds reduce unamortized deferred sales commissions.
Should the Company lose its ability to recover such sales commissions through distribution plan payments and contingent deferred sales charges, the
value of these assets would immediately decline, as would future cash flows. The Company periodically reviews the recoverability of deferred sales
commission assets as events or changes in circumstances indicate that the carrying amount of deferred sales commission assets may not be recoverable
and adjusts the deferred sales commission assets accordingly.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of the Companys
investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the dates of acquisition. The
Company attributes all goodwill associated with the acquisitions of Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates to a
single reporting unit. Goodwill is not amortized but is tested at least annually for impairment by comparing the fair value of the reporting unit to
its carrying amount, including goodwill. The Company establishes fair value for the purpose of impairment testing using discounted cash flow analyses
and appropriate market multiples. In this process, the Company makes assumptions related to projected future earnings and cash flow, market multiples
and applicable discount rates. Changes in these estimates could materially affect the Companys impairment conclusion.
Identifiable intangible assets generally represent the cost of
client relationships and management contracts acquired. In valuing these assets, the Company makes assumptions regarding useful lives and projected
growth rates and significant judgment is required. In most instances, the Company engages third party consultants to perform these valuations. The
Company periodically reviews identifiable intangibles for impairment as events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to
measure the amount of the impairment loss, if any.
Deferred Income Taxes
Deferred income taxes reflect the expected future tax
consequences of temporary differences between the carrying amounts and tax bases of the Companys assets and liabilities. The Companys
deferred taxes relate principally to stock-based compensation expense and capitalized sales commissions paid to broker/dealers. Under IRS regulations,
capitalized sales commission payments are deductible for tax purposes at the time of payment. While the Company has considered future taxable income
and ongoing tax planning in assessing its taxes, changes in tax laws may result in a change to the Companys tax position and effective tax
rate.
33
Investments in CDO Entities
The Company acts as collateral manager for a number of CDO
entities pursuant to collateral management agreements between the Company and each CDO entity. At January 31, 2007, combined assets under management in
the collateral pools of these CDO entities plus warehoused assets upon which the Company earns a management fee were approximately $3.1 billion. The
Company had combined minority equity investments of $6.5 million in three of these entities on January 31, 2007.
The Company accounts for its investments in CDO entities under
Emerging Issues Task Force (EITF) 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests
in Securitized Financial Assets. The excess of future cash flows over the initial investment at the date of purchase is recognized as interest
income over the life of the investment using the effective yield method. The Company reviews cash flow estimates throughout the life of each CDO
investment pool to determine whether an impairment of its equity investments should be recognized. Cash flow estimates are based on the underlying pool
of collateral securities and take into account the overall credit quality of the issuers of the collateral securities, the forecasted default rate of
the collateral securities and the Companys past experience in managing similar securities. If the updated estimate of future cash flows (taking
into account both timing and amounts) is less than the last revised estimate, an impairment loss is recognized based on the excess of the carrying
amount of the investment over its fair value. Fair value is determined using current information, notably market yields and projected cash flows based
on forecasted default and recovery rates that a market participant would use in determining the current fair value of the equity interest. Market
yields, default rates and recovery rates used in the Companys estimate of fair value vary based on the nature of the investments in the
underlying collateral pools. In periods of rising credit default rates and lower debt recovery rates, the fair value, and therefore carrying value, of
the Companys investments in these CDO entities may be adversely affected. The Companys risk of loss in the CDO entities is limited to the
$6.5 million carrying value of the minority equity investments on the Companys Consolidated Balance Sheet at January 31, 2007.
A CDO entity issues non-recourse debt securities, which are sold
in a private offering by an underwriter to institutional and high-net-worth investors. The CDO debt securities issued by the CDO entity are secured by
collateral in the form of high-yield bonds and/or floating-rate income instruments that the CDO entity purchases. The Company manages the collateral
securities for a fee and, in most cases, is a minority investor in the equity interests of the CDO entity. An equity interest in a CDO entity is
subordinated to all other interests in the CDO entity and entitles the investor to receive the residual cash flows, if any, from the CDO entity. As a
result, the Companys equity investment in a CDO entity is sensitive to changes in the credit quality of the issuers of the collateral securities,
including changes in the forecasted default rates and any declines in anticipated recovery rates. The Companys financial exposure to the CDO
entities it manages is limited to its equity interests in the CDO entities as reflected in the Companys Consolidated Balance
Sheet.
Stock-Based Compensation
Stock-based compensation expense reflects the fair value of
stock-based awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The
fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation
model incorporates assumptions as to dividend yield, volatility, an appropriate risk-free interest rate and the expected life of the option. Many of
these assumptions require managements judgment. Management must also apply judgment in developing an expectation of awards that may be forfeited.
If actual experience differs significantly from these estimates, stock-based compensation expense and the Companys results of operations could be
materially affected.
34
Loss Contingencies
The Company continuously reviews any investor, employee or vendor
complaints and pending or threatened litigation. The likelihood that a loss contingency exists is evaluated under the criteria of Statement of
Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, through consultation with legal counsel and a loss
contingency is recorded if the contingency is probable and reasonably estimable at the date of the financial statements. There are no losses of this
nature that are probable and reasonably estimable, and thus none have been recorded in the financial statements included in this
report.
Inflation
The Companys assets are, to a large extent, liquid in
nature and therefore the Company does not believe that inflation has had a material impact on the Companys results of operations. To the extent
that inflation, or the expectation thereof, results in rising interest rates, it may adversely affect the Companys financial condition and
results of operations. A substantial decline in the value of fixed-income or equity investments could adversely affect the net asset value of funds and
accounts the Company manages, which in turn would result in a decline in investment advisory revenue.
Accounting Developments
In February 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The
objective of the statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS No.
159 are effective for fiscal years beginning after November 15, 2007. Management is currently evaluating this standard and its impact, if any, on the
Companys consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements but does not in itself
require any new fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Management is currently evaluating this standard and its impact, if any, on the Companys consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and
132(R). SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a defined postretirement plan in its statement of
financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement
also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The provisions of SFAS
No. 158 are effective for fiscal years ending after December 15, 2006 for employers with publicly traded equity securities. The Company does not
anticipate that the provisions of SFAS No. 158 will have an impact on the Companys consolidated financial statements because the Company does not
maintain any defined benefit, pension or other post-retirement plans.
35
In June 2006, the FASB issued interpretation No. 48,
Accounting for the Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies certain
aspects of accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. The provisions
of FIN 48 are effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the potential impact of the adoption of
this interpretation.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company is subjected to different types of risk, including
market risk. Market risk is the risk that the Company will incur losses due to adverse changes in equity and bond prices, interest rates, credit risk,
or currency exchange rates.
The Companys primary direct exposure to equity price risk
arises from its investments in sponsored equity funds and equity securities held by sponsored funds the Company consolidates. The Companys
investments in sponsored equity funds and equity securities are carried at fair value on the Companys Consolidated Balance Sheets. Equity price
risk as it relates to these investments represents the potential future loss of value that would result from a decline in the fair values of the fund
shares or underlying equity securities. The following is a summary of the effect that a 10 percent increase or decrease in equity prices would have on
the Companys investments subject to equity price fluctuation at January 31, 2007:
(in thousands)
|
|
|
|
Carrying value
|
|
Carrying value assuming a 10% increase
|
|
Carrying value assuming a 10% decrease
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities |
|
|
|
$ |
14,205 |
|
|
$ |
15,626 |
|
|
$ |
12,785 |
|
Available for
sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored
funds |
|
|
|
|
35,323 |
|
|
|
38,855 |
|
|
|
31,791 |
|
Total |
|
|
|
$ |
49,528 |
|
|
$ |
54,481 |
|
|
$ |
44,576 |
|
The Companys primary direct exposure to falling interest
rates arises from its investment in sponsored funds and debt securities held by sponsored funds the Company consolidates. The Company considered the
negative effect on pre-tax interest income of a 50 basis point (0.50%) decline in interest rates as of January 31, 2007. A 50 basis point decline in
interest rates is a hypothetical scenario used to demonstrate potential risk and does not represent managements view of future market changes.
The following is a summary of the effect that a 50 basis point percent (0.50%) decline in interest rates would have on the Companys pre-tax net
income as of January 31, 2007:
36
(in thousands)
|
|
|
|
Carrying value
|
|
Pre-tax interest income impact of a 50 basis
point decline in interest rates
|
Trading: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
$ |
658 |
|
|
$ |
3 |
|
Available for
sale securities: |
|
|
|
|
|
|
|
|
|
|
Sponsored
funds |
|
|
|
|
23,539 |
|
|
|
118 |
|
Total |
|
|
|
$ |
24,197 |
|
|
$ |
121 |
|
The Companys primary direct exposure to credit risk arises
from its minority equity interests in three CDO entities that are included in long-term investments in the Companys Consolidated Balance Sheets.
As a minority equity investor in a CDO entity, the Company is entitled to only a residual interest in the CDO entity, making these investments highly
sensitive to the default rates of the underlying issuers of the high-yield bonds or floating-rate income instruments held by the CDO entity. The
Companys minority equity investments are subject to an impairment loss in the event that the cash flows generated by the collateral securities
are not sufficient to allow equity holders to recover their investments. If there is deterioration in the credit quality of the issuers underlying the
collateral securities and a corresponding increase in the number of defaults, cash flows generated by the collateral securities may be adversely
impacted and the Company may be unable to recover its investment. The Companys total investment in minority equity interests in CDO entities is
approximately $6.5 million at January 31, 2007, which represents the total value at risk with respect to such entities as of January 31,
2007.
The Company does not enter into foreign currency transactions for
speculative purposes and currently has no material investments that would expose it to foreign currency exchange risk.
In evaluating market risk, it is also important to note that most
of the Companys revenue is based on the market value of assets under management. As noted in Risk Factors in Item 1A, declines of
financial market values will negatively impact the Companys revenue and net income.
Item 4. Controls and Procedures
As of January 31, 2007, the Company evaluated the effectiveness
of the design and operation of its disclosure controls and procedures. Disclosure controls and procedures are the controls and other procedures that
the Company designed to ensure that it records, processes, summarizes and reports in a timely manner the information it must disclose in reports that
it files with or submits to the SEC. The Companys Chief Executive Officer and Chief Financial Officer participated in this evaluation. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the date of their evaluation, the Companys
disclosure controls and procedures were effective.
There have been no changes in the Companys internal control
over financial reporting that occurred during the Companys first fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
37
Report of Management on Internal Control over Financial
Reporting
The management of the Company is responsible for establishing and
maintaining adequate internal control over the Companys financial reporting. Internal control over financial reporting is the process designed
and effected by the Companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Companys financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America.
There are inherent limitations in the effectiveness of internal
control over financial reporting, including the possibility that misstatements may not be prevented or detected. Accordingly, even effective internal
controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness
of internal controls can change with circumstances.
Management has evaluated the effectiveness of internal control
over financial reporting as of January 31, 2007 in relation to criteria described in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on managements assessment, management concluded that
the Companys internal control over financial reporting was effective as of January 31, 2007.
38
Part II Other Information
Item 1. Legal Proceedings
There have been no material developments in litigation previously
reported in the Companys SEC filings.
Item 1A. Risk Factors
The Company is subject to substantial competition in all
aspects of its investment management business and there are few barriers to entry. The Companys funds and separate accounts compete
against an ever-increasing number of investment products and services sold to the public by investment management companies, investment dealers, banks,
insurance companies and others. Many institutions competing with the Company have greater resources than the Company. The Company competes with other
providers of investment products on the basis of the products offered, the investment performance of such products, quality of service, fees charged,
the level and type of financial intermediary compensation, the manner in which such products are marketed and distributed, the reputation of the
Company and the services provided to investors. In addition, the Companys ability to market investment products is highly dependent on access to
the various distribution systems of national and regional securities dealer firms, which generally offer competing internally and externally managed
investment products which could limit the distribution of the Companys investment products. There can be no assurance that the Company will be
able to retain access to these channels. The inability to have such access could have a material adverse effect on the Companys business. To the
extent that existing or potential customers, including securities broker/dealers, decide to invest in or broaden distribution relationships with the
Companys competitors, the sales of the Companys products as well as the Companys market share, revenues and net income could
decline.
The Company derives almost all of its revenue from
investment adviser and administration fees and distribution income received from the Eaton Vance funds and separate accounts. As a result, the
Company is dependent upon management contracts, administration contracts, distribution contracts, underwriting contracts or service contracts under
which these fees and income are paid. Generally, these contracts are terminable upon 30 to 60 days notice without penalty. If any of these
contracts are terminated, not renewed, or amended to reduce fees, the Companys financial results could be adversely affected.
The Companys assets under management, which impact
revenue, are subject to significant fluctuations. The major sources of revenue for the Company (i.e., investment adviser, administration,
distribution, and service fees) are calculated as percentages of assets under management. A decline in securities prices or in the sale of investment
products or an increase in fund redemptions or client withdrawals generally would reduce fee income. Financial market declines or adverse changes in
interest rates would generally negatively impact the level of the Companys assets under management and consequently its revenue and net income. A
recession or other economic or political events could also adversely impact the Companys revenue if it led to a decreased demand for products, a
higher redemption rate, or a decline in securities prices. Any decrease in the level of assets under management resulting from price declines, interest
rate volatility or uncertainty or other factors could negatively impact the Companys revenue and net income.
39
Poor investment performance of the Companys products
could affect the Companys sales or reduce the amount of assets under management, potentially negatively impacting revenue and net income.
Investment performance, along with achieving and maintaining superior distribution and client service, is critical to the Companys success. While
strong investment performance could stimulate sales of the Companys investment products, poor investment performance as compared to third-party
benchmarks or competitive products could lead to a decrease in sales and stimulate higher redemptions, thereby lowering the amount of assets under
management and reducing the investment adviser fees the Company earns. Past or present investment performance in the investment products the Company
manages is not indicative of future performance.
The Companys success depends on key personnel and the
Companys financial performance could be negatively affected by the loss of their services. The Companys success depends upon the
Companys ability to attract, retain and motivate qualified portfolio managers, analysts, investment counselors, sales and management personnel
and other key professionals including the Companys executive officers. Financial services professionals are in high demand, and the Company faces
strong competition for qualified personnel. The Companys key employees do not have employment contracts and may voluntarily terminate their
employment with the Company at any time. Certain senior executives and directors are subject to the Companys mandatory retirement policy. The
loss of the services of key personnel or the Companys failure to attract replacement or additional qualified personnel could negatively affect
the Companys financial performance. Any increase in compensation made by the Company in order to attract or retain key personnel could result in
a decrease in net income.
The Companys expenses are subject to fluctuations
that could materially affect the Companys operating results. The Companys results of operations are dependent on the level of
expenses, which can vary significantly. The Companys expenses may fluctuate as a result of variations in the level of total compensation expense,
future impairments of intangible assets or goodwill, expenses incurred to enhance the Companys infrastructure (including technology and
compliance) and other expenses incurred to support distribution of the Companys investment products.
The Companys reputation could be damaged.
Eaton Vance Corp. has spent over 80 years building a reputation based on strong investment performance, a high level of integrity and superior client
service. The Companys reputation is extremely important to its success. Any damage to the Companys reputation could result in client
withdrawals from funds or separate accounts that are advised by the Company and ultimately impede the Companys ability to attract and retain key
personnel. The loss of either client relationships or key personnel could reduce the amount of assets under management and cause the Company to suffer
a loss in revenue or net income.
The Company is subject to federal securities laws, state
laws regarding securities fraud, other federal and state laws and rules and regulations of certain regulatory and self-regulatory organizations,
including, among others, the Securities and Exchange Commission, the NASD and the New York Stock Exchange. In addition, financial reporting
requirements are comprehensive and complex. While the Company has focused significant attention and resources on the development and implementation of
compliance policies, procedures and practices, non-compliance with applicable laws, rules or regulations, either in the United States or abroad, or the
Companys inability to adapt to a complex and ever-changing regulatory environment could result in sanctions against the Company, which could
adversely affect the Companys reputation, prospects, revenue, and earnings.
40
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
The following table sets forth information regarding the
Companys purchases of its non-voting common stock on a monthly basis during the first three months of fiscal 2007:
Issuer Repurchases of Equity Securities
Period
|
|
|
|
(a) Total Number of Shares Purchased
|
|
(b) Average price paid per share
|
|
(c) Total Number of Shares Purchased of
Publicly Announced Plans or Programs1
|
|
(d) Maximum Number of Shares that May Yet
Be Purchased under the Plans or Programs
|
November 1,
2006 through November 30, 2006 |
|
|
|
|
315,988 |
|
|
$ |
30.64 |
|
|
|
315,988 |
|
|
|
5,964,317 |
|
December 1,
2006 through December 31, 2006 |
|
|
|
|
378,903 |
|
|
$ |
32.75 |
|
|
|
378,903 |
|
|
|
5,585,414 |
|
January 1,
2007 through January 31, 2007 |
|
|
|
|
221,219 |
|
|
$ |
34.11 |
|
|
|
221,219 |
|
|
|
5,364,195 |
|
Total |
|
|
|
|
916,110 |
|
|
$ |
32.35 |
|
|
|
916,110 |
|
|
|
5,364,195 |
|
1 The Companys share repurchase program was announced on July 12, 2006. The Board authorized management to repurchase
8,000,000 shares of its non-voting common stock in the open market and in private transactions in accordance with applicable securities laws. The
Companys stock repurchase plan is not subject to an expiration date.
Item 4. Submission of Matters to a Vote of Security
Holders
An annual meeting of holders of Voting Common Stock of Eaton
Vance Corp. was held at the principal office of the Company on January 10, 2007. All of the outstanding Voting Common Stock, 309,760 shares,
was represented in person or by proxy 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, 2006. |
41
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: |
Ann E. Berman
Thomas E. Faust
Jr.
James B. Hawkes
Leo I. Higdon, Jr.
Vincent M. OReilly
Dorothy E. Puhy
Winthrop H. Smith, Jr.
3) |
|
The selection of the firm of Deloitte & Touche LLP as the
independent registered public accounting firm of the Company for its fiscal year ended October 31, 2007. |
4) |
|
The ratification of the acts of the Directors since the previous
meeting of Shareholders held on January 11, 2006. |
Item 6. Exhibits
(a) Exhibits
Exhibit No.
|
|
|
|
Description
|
31.1 |
|
|
|
Certification of Chief Executive Officer |
31.2 |
|
|
|
Certification of Chief Financial Officer |
32.1 |
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
32.2 |
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
(b) Reports on Form 8-K
The Company filed a Form 8-K with the SEC on November 14, 2006,
regarding Mr. Hawkes speech at an investors conference.
The Company filed a Form 8-K with the SEC on November 21, 2006,
regarding the Companys press release of its results of operations for the quarter ended October 31, 2006.
The Company filed a Form 8-K with the SEC on November 28, 2006,
regarding the Companys sponsorship of the initial public offering of Eaton Vance Tax-Managed Diversified Income Fund.
The Company filed a Form 8-K with the SEC on December 14, 2006,
regarding the termination of additional compensation arrangements with Merrill Lynch, Pierce, Fenner and Smith in connection with the closed-end
funds.
The Company filed a Form 8-K with the SEC on January 16, 2007,
regarding the Companys press release of its preliminary assets under management for the quarter ended January 31, 2007.
The Company filed a Form 8-K with the SEC on January 29, 2007,
regarding the termination of additional compensation arrangements with A.G. Edwards & Sons, Inc. in connection with the closed-end
funds.
42
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 9,
2007 |
|
/s/William M. Steul |
|
|
|
(Signature) William M. Steul Chief Financial Officer |
|
|
|
|
|
|
|
|
|
DATE: March 9,
2007 |
|
/s/Laurie G. Hylton |
|
|
|
(Signature) Laurie G. Hylton Chief Accounting Officer |
|
43
EX-31.1
2
ex31-1.htm
Exhibit 31.1
CERTIFICATION
I, James B. Hawkes, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Eaton
Vance Corp.; |
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
|
Designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
DATE: March 9,
2007 |
|
|
|
/s/James B. Hawkes |
|
|
|
|
(Signature) James B. Hawkes Chairman, Director and Chief Executive Officer |
44
EX-31.2
3
ex31-2.htm
Exhibit 31.2
CERTIFICATION
I, William M. Steul, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Eaton
Vance Corp.; |
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
|
Designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
DATE: March 9,
2007 |
|
|
|
/s/William M. Steul |
|
|
|
|
(Signature) William M. Steul Chief Financial Officer |
45
EX-32.1
4
ex32-1.htm
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Eaton Vance Corp. (the
Company) on Form 10-Q for the period ending January 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, James B. Hawkes, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company. |
DATE: March 9,
2007 |
|
|
|
/s/James B. Hawkes |
|
|
|
|
(Signature) James B. Hawkes Chairman, President and Chief Executive Officer |
46
EX-32.2
5
ex32-2.htm
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Eaton Vance Corp. (the
Company) on Form 10-Q for the period ending January 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, William M. Steul, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company. |
DATE: March 9,
2007 |
|
|
|
/s/William M. Steul |
|
|
|
|
(Signature) William M. Steul Chief Financial Officer |
47
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