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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
Commission file no. 1-8100
EATON VANCE CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 04-2718215
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
255 STATE STREET, BOSTON, MASSACHUSETTS 02109
---------------------------------------------
(617) 482-8260
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes[X] No[ ]
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 April 30, 2003:
Voting Common Stock - 154,880 shares
Non-Voting Common Stock - 68,993,224 shares
Page 1 of 35 pages
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PART I
FINANCIAL INFORMATION
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited)
April 30, October 31,
2003 2002
---------------------------------------
ASSETS (in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 140,728 $ 144,078
Short-term investments 97,590 43,886
Investment adviser fees and other receivables 21,287 19,502
Other current assets 3,329 6,101
---------------------------------------
Total current assets 262,934 213,567
---------------------------------------
OTHER ASSETS:
Deferred sales commissions 216,615 239,048
Goodwill 69,467 69,467
Other intangible assets, net 37,094 37,296
Long-term investments 31,323 39,982
Equipment and leasehold improvements, net 12,768 13,897
Other assets 3,191 3,362
---------------------------------------
Total other assets 370,458 403,052
---------------------------------------
Total assets $ 633,392 $ 616,619
=======================================
See notes to consolidated financial statements.
3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated Balance Sheets (unaudited) (continued)
April 30, October 31,
2003 2002
------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands, except share figures)
CURRENT LIABILITIES:
Accrued compensation $ 14,993 $ 31,899
Accounts payable and accrued expenses 17,538 16,324
Current portion of long-term debt 7,143 7,143
Dividend payable 5,519 5,522
Other current liabilities 8,767 7,382
------------------------------------------
Total current liabilities 53,960 68,270
------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 117,844 124,118
Deferred income taxes 39,588 50,531
------------------------------------------
Total long-term liabilities 157,432 174,649
------------------------------------------
Total liabilities 211,392 242,919
------------------------------------------
Minority interest 18,339 1,398
------------------------------------------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY:
Common stock, par value $0.0078125 per share:
Authorized, 640,000 shares
Issued, 154,880 shares 1 1
Non-voting common stock, par value $0.0078125
per share:
Authorized, 95,360,000 shares
Issued, 68,993,224 and 69,102,459 shares, respectively 539 540
Notes receivable from stock option exercises (3,279) (3,530)
Deferred compensation (1,550) (2,100)
Accumulated other comprehensive income 943 2,585
Retained earnings 407,007 374,806
------------------------------------------
Total shareholders' equity 403,661 372,302
------------------------------------------
Total liabilities and shareholders' equity $ 633,392 $ 616,619
==========================================
See notes to consolidated financial statements.
4
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
2003 2002 2003 2002
-------------------------------------------------------------------
REVENUE: (in thousands, except per share figures)
Investment adviser and administration fees $ 67,935 $ 71,511 $ 137,009 $ 143,378
Distribution and underwriter fees 34,223 40,722 71,228 83,964
Service fees 17,354 20,225 35,279 40,287
Other revenue 1,364 366 2,294 865
-------------- --------------- -------------- --------------
Total revenue 120,876 132,824 245,810 268,494
-------------- --------------- -------------- --------------
EXPENSES:
Compensation of officers and employees 24,118 23,729 50,521 51,789
Amortization of deferred sales commissions 21,635 21,034 43,029 42,437
Service fee expense 15,477 16,767 31,230 33,118
Distribution fee expense 7,643 7,894 15,326 15,784
Other expenses 13,387 13,474 28,700 25,922
-------------- --------------- -------------- --------------
Total expenses 82,260 82,898 168,806 169,050
-------------- --------------- -------------- --------------
OPERATING INCOME 38,616 49,926 77,004 99,444
OTHER INCOME (EXPENSE):
Interest income 1,406 1,815 2,937 3,504
Interest expense (1,471) (1,091) (2,904) (2,178)
Gain on investments 76 - 1,950 1,383
Foreign currency gain 135 - 40 -
Equity in net income (loss) of affiliates 15 150 (211) 19
-------------- --------------- -------------- --------------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 38,777 50,800 78,816 102,172
MINORITY INTEREST IN EARNINGS (293) (283) (473) (589)
-------------- --------------- -------------- --------------
INCOME BEFORE INCOME TAXES 38,484 50,517 78,343 101,583
INCOME TAXES 13,470 17,682 27,420 35,555
-------------- --------------- -------------- --------------
NET INCOME $ 25,014 $ 32,835 $ 50,923 $ 66,028
============== =============== ============== ==============
EARNINGS PER SHARE:
Basic $ 0.36 $ 0.47 $ 0.74 $ 0.95
============== =============== ============== ==============
Diluted $ 0.36 $ 0.46 $ 0.73 $ 0.92
============== =============== ============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 68,967 69,352 69,096 69,245
============== =============== ============== ==============
Diluted 69,979 72,097 70,230 72,013
============== =============== ============== ==============
See notes to consolidated financial statements.
5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended
April 30,
2003 2002
--------------------------------------
(in thousands)
Cash and cash equivalents, beginning of period $ 144,078 $ 115,681
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 50,923 66,028
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Gain on sale of investments (1,932) (1,383)
Equity in net loss of affiliate 211 (19)
Minority interest in earnings 473 589
Translation adjustment (12) -
Interest on long-term debt 1,039 1,490
Deferred income taxes (9,982) (8,976)
Tax benefit of stock option exercises 456 4,192
Compensation related to restricted stock issuance 550 550
Depreciation and other amortization 2,650 2,654
Amortization of deferred sales commissions 43,029 42,437
Payment of capitalized sales commissions (33,672) (47,573)
Contingent deferred sales charges received 13,076 14,113
Proceeds from the sale of trading investments 150 1,043
Mutual fund subsidiary's investment in short-term
income securities (67,506) -
Changes in other assets and liabilities:
Investment adviser fees and other receivables (1,785) (139)
Other current assets 2,772 298
Other assets 281 (382)
Accrued compensation (16,906) (21,333)
Accounts payable and accrued expenses 1,214 (2,798)
Other current liabilities 1,385 (5,633)
--------------------------------------
Net cash provided by (used for) operating activities (13,586) 45,158
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (521) (1,085)
Net decrease in notes receivable from affiliates 251 231
Proceeds from sale of available-for-sale investments 24,638 50,252
Purchase of available-for-sale investments (3,478) (53,980)
Purchase of management contracts (797) -
--------------------------------------
Net cash provided by (used for) investing activities 20,093 (4,582)
--------------------------------------
See notes to consolidated financial statements.
6
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated Statements of Cash Flows (unaudited) (continued)
Six Months Ended
April 30,
2003 2002
---------------------------------------
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (7,143) (7,143)
Long-term debt issuance costs - (554)
Distributions to minority shareholders (532) (231)
Proceeds from the issuance of non-voting
common stock 6,594 12,450
Repurchase of non-voting common stock (14,725) (27,456)
Dividend paid (11,051) (9,990)
Proceeds from the issuance of mutual fund subsidiary's
capital stock 17,000 -
-------------------------------------
Net cash used for financing activities (9,857) (32,924)
-------------------------------------
Net increase (decrease) in cash and cash equivalents (3,350) 7,652
-------------------------------------
Cash and cash equivalents, end of period $ 140,728 $ 123,333
=====================================
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,917 $ 743
=====================================
Income taxes paid (refunded) $ 31,998 $ 44,390
=====================================
See notes to consolidated financial statements.
7
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim consolidated
financial statements of Eaton Vance Corp. (the Company) include all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
results for the interim periods in accordance with accounting principles
generally accepted in the United States of America. Such financial statements
have been prepared in accordance with the instructions to Form 10-Q pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures have been omitted pursuant to such
rules and regulations. As a result, these financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in the Company's latest annual report on Form 10-K.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Eaton Vance Corp.
and its wholly and majority owned subsidiaries. The equity method of accounting
is used for investments in affiliates in which the Company's ownership ranges
from 20 to 50 percent. The Company consolidates all investments in affiliates in
which the Company's ownership exceeds 50 percent and provides for minority
interests in consolidated companies for which the Company's ownership is less
than 100 percent. All intercompany accounts and transactions have been
eliminated.
(3) ACCOUNTING DEVELOPMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets and amends
Accounting Research Bulletin (ARB) No. 51, "Consolidating Financial Statements,"
by eliminating the exception to consolidation for a subsidiary for which control
is likely to be temporary. The Company adopted SFAS No. 144 on November 1, 2002.
The adoption of SFAS No. 144 did not have a material effect on the results of
operations or the consolidated financial position of the Company. However,
during the quarter ended April 30, 2003, the Company acquired a controlling
financial interest in a newly created Company-sponsored mutual fund and,
accordingly, the Company has consolidated the sponsored fund which had $67.5
million of total assets and $0.3 million of total liabilities as of April 30,
2003.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 addresses the classification of gains and losses from the early
extinguishment of debt and the accounting for certain lease arrangements. The
Company elected to adopt the provisions of SFAS No. 145 on August 1, 2002, prior
to the Company's required adoption date of November 1, 2002. The adoption of
SFAS No. 145 did not have a material effect on the results of operations or the
consolidated financial position of the Company.
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(3) ACCOUNTING DEVELOPMENTS (CONTINUED)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company continues to use the intrinsic value
method as described in APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, the transition provisions of SFAS No. 148 will not
apply to the Company. The disclosure requirements are effective for interim
periods starting after December 15, 2002 and are presented in footnote 7. The
adoption of SFAS No. 148 did not have a material effect on the results of
operations or the consolidated financial position of the Company.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 149 is effective for the Company's fiscal quarter
beginning August 1, 2003. The Company is currently assessing the impact SFAS No.
149 will have upon adoption.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
addresses the standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity and
requires the issuer to classify a financial instrument that is within the scope
of a liability (or asset in some circumstances). SFAS No. 150 is effective for
the Company's fiscal quarter beginning August 1, 2003. The Company is currently
assessing the impact SFAS No. 150 will have upon adoption.
In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others." This Interpretation addresses obligations
and disclosures required for certain guarantees. This Interpretation applies to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN No. 45 did not have a
material effect on the results of operations or the consolidated financial
position of the Company.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 addresses reporting and disclosure requirements for
Variable Interest Entities (VIEs) and defines a VIE as an entity that either
does not have equity investors with voting rights or has equity investors that
do not provide sufficient financial resources for the entity to support its
activities. The Company acts as an investment adviser regarding collateral for
collateralized debt obligations (CDOs) issued by certain entities (CDO
entities). These CDO entities might qualify as VIEs. FIN No. 46 requires
consolidation of a VIE by the enterprise that has the majority of the risks and
rewards of ownership, referred to as the "primary beneficiary." It also requires
additional disclosures for an enterprise that holds a significant variable
interest in a VIE, but is not the primary beneficiary. The consolidation and
disclosure provisions of FIN No. 46 are effective immediately for VIEs created
after January 31, 2003, and for interim or annual reporting periods beginning
after June 15, 2003 for VIEs created before February 1, 2003. FIN No. 46 also
requires interim disclosures in all financial statements issued after January
31, 2003, regardless of the date on which the VIE was created. The provisions of
FIN No. 46 are complex. The Company and its advisers are studying whether or not
these CDO entities are VIEs and whether FIN No. 46 would apply to such entities.
If the Company determines that FIN No. 46 is applicable, it would either
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(3) ACCOUNTING DEVELOPMENTS (CONTINUED)
consolidate or disclose additional information about these CDO entities when FIN
No. 46 becomes effective for the Company's fiscal quarter beginning August 1,
2003. The Company has provided the necessary disclosure information regarding
such CDO entities in footnote 5.
(4) GOODWILL AND OTHER INTANGIBLES
The following is a summary of other intangible assets at April 30, 2003 and
October 31, 2002:
APRIL 30, 2003 WEIGHTED-AVERAGE
AMORTIZATION GROSS
PERIOD CARRYING ACCUMULATED
(dollars in thousands) (IN YEARS) AMOUNT AMORTIZATION
- ----------------------------------------------- ----------------- -------------- ------------------
AMORTIZED INTANGIBLE ASSETS:
Client relationships acquired 17.6 $38,937 $3,154
NON-AMORTIZED INTANGIBLE ASSETS:
Mutual fund management
contract acquired - 1,311 -
- ----------------------------------------------- ----------------- -------------- ------------------
Total $40,248 $3,154
=============================================== ================= ============== ==================
OCTOBER 31, 2002 WEIGHTED-AVERAGE
AMORTIZATION GROSS
PERIOD CARRYING ACCUMULATED
(dollars in thousands) (IN YEARS) AMOUNT AMORTIZATION
- ----------------------------------------------- ----------------- -------------- ------------------
AMORTIZED INTANGIBLE ASSETS:
Client relationships acquired 18.2 $38,140 $2,155
NON-AMORTIZED INTANGIBLE ASSETS:
Mutual fund management
contract acquired - 1,311 -
- ----------------------------------------------- ----------------- -------------- ------------------
Total $39,451 $2,155
=============================================== ================= ============== ==================
Additions to amortized intangible assets of $797,000 during the six months ended
April 30, 2003 represent management contracts acquired by one of the Company's
majority owned subsidiaries.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(5) INVESTMENTS
The following is a summary of investments at April 30, 2003, and October 31,
2002:
APRIL 30, OCTOBER 31,
(in thousands) 2003 2002
- --------------------------------------------------- ---------------- -----------------
SHORT-TERM INVESTMENTS:
Sponsored funds:
Available-for-sale $30,227 $43,886
Trading 67,363 -
- --------------------------------------------------- ---------------- -----------------
Total $97,590 $43,886
=================================================== ================ =================
LONG-TERM INVESTMENTS:
Sponsored funds:
Available-for-sale $10,638 $18,826
Collateralized debt obligation entities 12,968 13,228
Investment in affiliates 6,798 7,009
Other investments 919 919
- --------------------------------------------------- ---------------- -----------------
Total $31,323 $39,982
=================================================== ================ =================
Investments classified as trading, including those held by the Company's newly
created mutual fund subsidiary or held in connection with the Company's
activities as principal underwriter, consist primarily of investments in
sponsored funds and short-term debt securities and are carried at fair value.
Net unrealized holding gains or losses on these investments, as well as realized
gains or losses, are reflected as a component of Other revenue in the
Consolidated Statements of Income. Interest income earned by the Company's
mutual fund subsidiary is also reflected as a component of Other revenue. The
average cost method is used to determine the cost of securities sold for all
investments except those held by the Company's mutual fund subsidiary, which
uses the first-in-first-out method to determine the cost of securities sold.
INVESTMENTS IN COLLATERALIZED DEBT OBLIGATION ISSUERS
The Company provides investment management services for, and has made
investments in, a number of entities that have issued CDOs (CDO entities). The
Company's minority equity ownership interests in the CDO entities are reported
at lower of cost or fair value. The Company earns investment management fees,
including subordinated management fees in some cases, for managing the
collateral for the CDOs, as well as incentive fees that are contingent on
certain performance conditions. At April 30, 2003, combined assets under
management in the collateral pools of these CDO entities were approximately $1.6
billion, and the Company's maximum exposure to loss as a result of these
investments was approximately $13.0 million, which is reflected in the Company's
Consolidated Balance Sheet at April 30, 2003. Investors in CDOs have no recourse
against the Company for any losses sustained in any CDO structure. As noted in
footnote 3, the Company and its advisers are studying whether or not these CDO
entities are VIEs and whether FIN No. 46 would apply to such entities. If the
Company determines that FIN No. 46 is applicable, it would either consolidate or
disclose additional information about these CDO entities when FIN No. 46 becomes
effective for the Company's fiscal quarter beginning August 1, 2003.
11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(6) DEBT
The following is a summary of the carrying value of long-term debt at April 30,
2003 and October 31, 2002:
APRIL 30, OCTOBER 31,
(in thousands) 2003 2002
- ---------------------------------------------- --------------------- ---------------------
6.22% senior notes due 2004 $ 7,143 $ 14,286
1.5% zero-coupon exchangeable senior
notes due 2031 117,844 116,975
- ---------------------------------------------- --------------------- ---------------------
Total 124,987 131,261
Less: current maturities (7,143) (7,143)
- ---------------------------------------------- --------------------- ---------------------
Total long-term debt $117,844 $124,118
============================================== ===================== =====================
(7) STOCK-BASED COMPENSATION PLANS
The Company continues to apply APB Opinion No. 25 in accounting for stock-based
compensation arrangements. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with the fair value method as
described in SFAS No. 123, the Company's net income and earnings per share for
the six months ended April 30, 2003 and 2002 would have been reduced to the
following pro forma amounts:
- --------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
APRIL 30, APRIL 30,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------------
(net income figures in thousands)
Net income as reported $25,014 $32,835 $50,923 $66,028
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax 2,363 2,109 5,239 4,272
--------------------------------------------------------------------
Pro forma net income $22,651 $30,726 $45,684 $61,756
====================================================================
Earnings per share:
Basic - as reported $0.36 $0.47 $0.74 $0.95
====================================================================
Basic - pro forma $0.33 $0.44 $0.66 $0.89
====================================================================
Diluted - as reported $0.36 $0.46 $0.73 $0.92
====================================================================
Diluted - pro forma $0.32 $0.43 $0.65 $0.86
====================================================================
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(7) STOCK-BASED COMPENSATION PLAN (CONTINUED)
The fair value of each option grant included in the pro forma net income shown
above is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants for the
six months ended April 30, 2003 and 2002:
- --------------------------------------------------------------------------
APRIL 30,
2003 2002
- --------------------------------------------------------------------------
Dividend yield 1.07% 1.11%
Volatility 31% 30%
Risk-free interest rate 3.9% 4.0%
Expected life of options 8 years 8 years
RESTRICTED STOCK PLAN
The Company recorded compensation expense of $0.6 million for the six months
ended April 30, 2003 and 2002 relating to shares of restricted stock granted in
2001 and 2000.
(8) COMMON STOCK REPURCHASES
On October 17, 2001, the Company's Board of Directors authorized the purchase by
the Company of up to 4,000,000 shares of the Company's non-voting common stock.
In the first six months of fiscal 2003, the Company purchased 524,000 shares of
its non-voting common stock under this share repurchase authorization.
Approximately 1,824,000 shares remain under the current authorization.
(9) REGULATORY REQUIREMENTS
Eaton Vance Distributors, Inc. (EVD), a wholly owned subsidiary of the Company
and principal underwriter of the Eaton Vance Funds, is subject to the SEC
Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum
net capital. For purposes of this rule, EVD had net capital of $54.2 million,
which exceeded its minimum net capital requirement of $2.1 million at April 30,
2003. The ratio of aggregate indebtedness to net capital at April 30, 2003 was
..58 to 1.
(10) INCOME TAXES
The Company, for interim reporting purposes, estimates its effective tax rate
for the year and applies this rate to its reported pre-tax income. The Company's
effective tax rate was 35 percent for the three months ended April 30, 2003 and
2002.
In addition, the exercise of non-qualified stock options resulted in a reduction
of taxes payable of approximately $0.5 million and $3.2 million for the six
months ended April 30, 2003 and 2002. Such benefit has been reflected in
shareholders' equity.
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(11) COMPREHENSIVE INCOME
Total comprehensive income includes net income and other comprehensive income or
(loss), net of tax. The components of comprehensive income (loss) at April 30,
2003 and 2002 are as follows:
- -------------------------------------------------------------------------------------------------------------------
APRIL 30,
(IN THOUSANDS) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net income $ 50,923 $ 66,028
Net unrealized loss on available-for-sale securities, net of
income tax benefit of ($963) and ($654), respectively (1,625) (1,019)
Foreign currency translation adjustments, net of income
taxes of ($5) and ($0) (17) -
------------------------------------------
Comprehensive income $ 49,281 $ 65,009
==========================================
(12) COMMITMENTS AND CONTINGENCIES
In the normal course of its business, the Company enters into agreements that
include indemnities in favor of third parties, such as engagement letters with
advisors and consultants, information technology agreements, distribution
agreements and service agreements. The Company has also agreed to indemnify its
directors and certain of its officers and employees in accordance with the
Company's by-laws. Certain agreements do not contain any limits on the Company's
liability and, therefore, it is not possible to estimate the Company's potential
liability under these indemnities. In certain cases, the Company has recourse
against third parties with respect to these indemnities. Further, the Company
maintains insurance policies that may provide coverage against certain claims
under these indemnities.
The Company and its subsidiaries are subject to various legal proceedings. In
the opinion of management, after discussions with legal counsel, the ultimate
resolution of these matters will not have a material adverse effect on the
consolidated financial condition or results of operations of the Company.
(13) SUBSEQUENT EVENT
On June 5, 2003 the Company announced the signing of a definitive agreement to
acquire 80 percent of Parametric Portfolio Associates (Parametric) for an
initial payment of $28.0 million in cash. Parametric is a leading investment
management firm in Seattle, Washington, with $4.7 billion in assets under
management. Under the agreement, Parametric will become a subsidiary of Eaton
Vance Corp. and will operate as a distinct business unit.
Under the terms of the acquisition agreement, Parametric's shareholders will
continue to hold 20 percent of the equity of Parametric through 2006. Beginning
in 2006, Parametric's shareholders will have annual rights to sell and the
Company will also have certain rights to purchase the remaining 20 percent of
Parametric stock over an eight-year period. The price for acquiring the
remaining 20 percent of Parametric will be based on a multiple of prior year's
earnings before interest and taxes in those years.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's principal business is creating, marketing and managing investment
companies (funds) and providing investment management and counseling services to
institutions and individuals. The Company distributes its funds through
third-party broker/dealers, independent financial institutions and investment
advisers.
The Company's revenue is primarily derived from investment adviser,
administration, distribution and service fees received from the Eaton Vance
funds and adviser fees received from separate accounts. Generally, these fees
are based on the net asset value of the investment portfolios managed by the
Company and fluctuate with changes in the total value of the assets under
management. Such fees are recognized over the period such assets are under
management. The Company's major expenses are the amortization of deferred sales
commissions, employee compensation, and distribution and service fee expenses.
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's 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, revenues and expenses and related disclosures of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to investments, deferred sales
commissions, intangible assets, income taxes and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are
believed 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 apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
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.
Sales commissions paid to broker/dealers in connection with the sale of shares
of open-end and bank loan interval funds are capitalized and amortized over the
period during which the shareholder is subject to a contingent deferred sales
charge, none of which exceeds six years. Distribution plan payments received
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 first, with any remaining amount recorded in income.
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 amortization period for deferred sales commission
assets as events or changes in circumstances indicate that the carrying amount
of deferred sales commission assets may not be recoverable over their
amortization period and makes periodic accounting adjustments as required.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Identifiable intangible assets generally represent the cost of management
contracts acquired. 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. Goodwill represents the excess of
the cost of the Company's investment in the net assets of acquired companies
over the fair value of the underlying identifiable net assets at the dates of
acquisition. Goodwill is not amortized but is tested at least annually for
impairment by comparing the fair values of the companies acquired to their
carrying amounts, including goodwill. If the carrying amounts of the companies
exceed their respective fair values, additional impairment tests will be
performed to measure the amount of the impairment loss, if any.
Deferred income taxes reflect the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of the Company's assets
and liabilities. Such deferred taxes relate principally to capitalized sales
commissions paid to broker/dealers. Prior to January 1, 2001, these commissions
were deducted as paid for tax purposes. Since January 1, 2001, sales commissions
are deducted for income tax purposes over their estimated useful lives,
consistent with guidelines established by the Internal Revenue Service, rather
than at the time of payment. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing its
taxes, changes in tax laws or the inability of the Company to meet the criteria
for mutual fund state tax incentives may result in a change to the Company's tax
position and effective tax rate.
The Company accounts for its investments in collateralized debt obligation (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 loss relating to 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 Company's 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. In periods of rising credit default rates and lower debt recovery
rates, the carrying value of the Company's investments in these CDO entities may
be adversely affected by unfavorable changes in cash flow estimates and expected
returns.
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 with proceeds from its issuance of non-recourse debt
securities. 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 Company's 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 Company's financial exposure to the
CDOs it manages is limited to its equity interests in the CDO entities as
reflected in the Company's Consolidated Balance Sheet, totaling approximately
$13.0 million at April 30, 2003.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 SFAS No. 5, "Accounting for Contingencies,"
with legal counsel and a loss contingency is recorded if the contingency is
probable and reasonably estimable at the date of the financial statements. No
losses of this nature have been recorded in the financial statements included in
this report.
RESULTS OF OPERATIONS FOR QUARTER ENDED APRIL 30, 2003 COMPARED TO QUARTER ENDED
APRIL 30, 2002
The Company reported earnings of $25.0 million or $0.36 per diluted share in the
second quarter of fiscal 2003 compared to $32.8 million or $0.46 per diluted
share in the second quarter of fiscal 2002.
ASSET HIGHLIGHTS
Assets under management of $57.9 billion on April 30, 2003 were 2 percent lower
than the $59.2 billion reported a year earlier. The Company's assets under
management were negatively affected by $5.2 billion of market depreciation over
the past 12 months resulting from weak equity markets. Average assets under
management were $56.1 billion in the second quarter of fiscal 2003, 5 percent
lower than the $59.3 billion in the second quarter of last year.
Despite difficult market conditions, the Company had positive net inflows in
both the second quarter of fiscal 2003 and 2002. Net inflows of long-term fund
assets in the second quarter of fiscal 2003 were $0.3 billion compared to $0.5
billion in the second quarter of last year. Net inflows of long-term fund assets
decreased in the second quarter of 2003 compared to the second quarter of fiscal
2002 as a result of a decrease in equity private placements in the second
quarter of fiscal 2003 compared to a year earlier. Net outflows of separate
account assets were $0.1 billion in the second quarter of fiscal 2003 compared
to net inflows of $0.1 billion in the second quarter of fiscal 2002. The
following table summarizes the asset flows for each of the quarters ended April
30, 2003 and 2002:
ASSET FLOWS
THREE MONTHS ENDED
(IN BILLIONS) APRIL 30, 2003 APRIL 30, 2002
- --------------------------------------------------------- --------------------- --------------------
Long-term fund assets - beginning of period $ 44.3 $ 47.0
Sales/inflows 1.8 2.0
Redemptions/outflows (1.5) (1.5)
Exchanges - -
Market value change 1.5 (0.7)
--------------------- --------------------
Long-term fund assets - end of period $ 46.1 $ 46.8
--------------------- --------------------
Separate accounts - beginning of period $ 10.9 $ 11.3
Net flows - Institutional and high net worth (0.2) (0.1)
Net flows - Retail managed accounts 0.1 0.2
Market value change 0.6 -
--------------------- --------------------
Separate accounts - end of period $ 11.4 $ 11.4
--------------------- --------------------
Money market fund assets - end of period 0.4 1.0
--------------------- --------------------
Total assets under management - end of period $ 57.9 $ 59.2
===================== ====================
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Equity assets under management comprised 54 percent of total assets under
management on April 30, 2003 compared to 60 percent on April 30, 2002. Fixed
income assets under management increased to 33 percent of total assets under
management from 25 percent a year ago and floating-rate income assets decreased
to 13 percent of total assets under management from 15 percent a year ago.
ASSETS UNDER MANAGEMENT BY INVESTMENT OBJECTIVE
(IN BILLIONS) APRIL 30, 2003 APRIL 30, 2002
- --------------------------------------------------------- -------------------- ---------------------
Equity $ 31.1 $ 35.4
Fixed income 19.1 14.9
Floating-rate income 7.7 8.9
-------------------- ---------------------
Total $ 57.9 $ 59.2
==================== =====================
REVENUE
The Company reported revenue of $120.9 million in the second quarter of fiscal
2003 compared to $132.8 million in the second quarter of fiscal 2002, a decrease
of 9 percent.
Investment adviser and administration fees are generally calculated under
contractual agreements with the Company's sponsored funds and separate accounts
and are based primarily upon a percentage of the market value of assets under
management. Shifts in the mix and changes in the market value of managed assets
affect the composition and amount of investment adviser and administration fees.
Investment adviser and administration fees decreased by 5 percent to $67.9
million in the second quarter of fiscal 2003 from $71.5 million in the second
quarter of fiscal 2002, consistent with the 5 percent decline in average
long-term fund assets under management.
For the quarter ended April 30, 2003, distribution and underwriting fees
decreased by $6.5 million, or 16 percent, to $34.2 million from $40.7 million a
year earlier. The Company currently sells its sponsored funds that are
registered as investment companies (registered funds) under 5 primary pricing
structures: 1) front-end load commission (Class A); 2) spread-load commission
(Class B); 3) level-load commission (Class C); 4) modified spread-load
commission (Class D); and 5) institutional no-load (Class I). Under certain
conditions, the Company waives the sales load on Class A shares. In such cases,
the shares are sold at net asset value. Changes in the Company's mix of assets
under management alter the composition and amount of distribution income
received. Over the past year, the Company has experienced a gradual shift in its
registered fund asset mix from spread-load commission (Class B) assets under
management to front-end load (Class A) assets under management, resulting in a
reduction in distribution income since spread-load commission (Class B) assets
have higher distribution fees than front-end load (Class A) assets. The decrease
in distribution income also reflects a decrease in the market value of the
Company's spread-load (Class B) and level-load (Class C) share assets under
management compared to a year earlier and a decrease in early withdrawal charges
received in conjunction with bank loan interval fund redemptions.
Service fee revenue, which is also based upon a percentage of the market value
of fund assets under management, decreased to $17.4 million for the quarter
ended April 30, 2003 from $20.2 million for the quarter ended April 30, 2002, as
a result of the decrease in average long-term fund assets under management.
Other revenue increased 272 percent to $1.3 million from $0.4 million a year
earlier primarily as a result of the reimbursement of shareholder services now
performed by the Company, and interest income from a consolidated investment
company in which the Company is the majority shareholder.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
EXPENSES
Compensation expense decreased 2 percent to $24.1 million in the second quarter
of fiscal 2003 from $23.7 million the second quarter of fiscal 2002 because of
lower marketing and sales incentives and lower operating income-based bonus
expense due to a decrease in operating income.
Amortization of deferred sales commissions increased 3 percent to $21.6 million
in the second quarter of 2003 from $21.0 million for the quarter ended April 30,
2002. Amortization is impacted by ongoing sales of mutual fund Class B shares,
Class C shares and equity fund private placements, and the residual effect of
accounting changes mandated by the SEC in fiscal 1998 and 1999. For a nine-month
period ending April 30, 1999, deferred sales commissions for certain funds were
required to be expensed rather than capitalized, extinguishing future
amortization charges. Subsequent to April 30, 1999, and pursuant to the
implementation of new distribution plans, commission payments on new sales of
these funds were once again capitalized and amortized. The Company anticipates
that the ongoing effect of these accounting changes will diminish over time. As
noted above, the Company has experienced an overall shift in sales from Class B
shares to Class A shares. As amortization expense is ultimately a function of
the Company's product mix, a shift from Class B sales to Class A sales may
result in a reduction in amortization expense in the future. Amortization of
deferred sales commissions was increased by approximately $0.4 million in the
first three months of fiscal 2003 to better match the amortization expense of
deferred sales commissions with the projected distribution fee revenue the
deferred sales commission assets generate over their estimated useful lives.
Service fees the Company receives from the funds are retained by the Company in
the first year and paid to broker/dealers after the first year. Service fee
expense decreased 8 percent to $15.5 million in the second quarter of fiscal
2003 from $16.8 million a year earlier. The decrease in service fee expense can
be attributed to the decrease in average long-term fund assets retained more
than one year.
Distribution fee expense primarily represents additional costs associated with
the distribution of Class C shares and is calculated as a percentage of the
market value of Class C assets under management. Distribution fee expense
decreased 3 percent to $7.6 million in the second quarter of fiscal 2003 from
$7.9 million a year earlier primarily as a result of a decrease in average Class
C assets under management.
Other operating expenses decreased 1 percent to $13.4 million in the second
quarter of fiscal 2003 from $13.5 million a year ago, primarily as a result of
decreases in travel and promotion expenses.
OTHER INCOME AND EXPENSE
Interest income decreased 22 percent to $1.4 million in the second quarter of
fiscal 2003 from $1.8 million a year ago primarily as a result of lower
short-term interest rates year-over-year.
Interest expense increased to $1.5 million in the second quarter of 2003 from
$1.1 million a year ago, primarily as a result of additional interest expense
related to the Company's 1.5% zero-coupon exchangeable senior notes issued by a
wholly owned subsidiary of the Company, Eaton Vance Management. Note holders
will receive an incremental cash interest payment of 1.672 percent per year from
November 13, 2002 to August 13, 2004.
INCOME TAXES
The Company's effective tax rate was 35 percent during the second quarter of
fiscal 2003 and 2002.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS SIX MONTHS ENDED APRIL 30, 2003 COMPARED TO THE SIX MONTHS
ENDED APRIL 30, 2002
The Company reported earnings of $50.9 million or $0.73 per diluted share in the
first six months of fiscal 2003 compared to $66.0 million or $0.92 per diluted
share in the first six months of fiscal 2002.
ASSET HIGHLIGHTS
Despite difficult market conditions, the Company had positive net inflows in
both the first six months of fiscal 2003 and 2002. Net inflows of long-term fund
assets in the first six months of fiscal 2003 were $1.2 billion compared to $1.1
billion in the first six months of last year. Net inflows in the first six
months of 2003 benefited from the successful offering of nine closed-end
municipal bond funds that added $0.7 billion of new assets. The successful
offering of the closed-end municipal bond funds offset a reduction in core
mutual fund sales year-over-year. Net inflows of separate account assets were
$0.2 billion in the first six months of fiscal 2003 compared to net inflows of
$0.5 billion in the first six months of fiscal 2002. The following table
summarizes the asset flows for each of the six months ended April 30, 2003 and
2002:
ASSET FLOWS
SIX MONTHS ENDED
(IN BILLIONS) APRIL 30, 2003 APRIL 30, 2002
- --------------------------------------------------------- --------------------- --------------------
Long-term fund assets - beginning of period $ 43.9 $ 45.0
Sales/inflows 4.3 4.1
Redemptions/outflows (3.1) (3.0)
Exchanges - 0.1
Market value change 1.0 0.6
---------------- --------------------
Long-term fund assets - end of period $ 46.1 $ 46.8
---------------- --------------------
Separate accounts - beginning of period 10.8 $ 10.5
Net flows - Institutional and high net worth (0.1) 0.2
Net flows - Retail managed accounts 0.3 0.3
Market value change 0.4 0.4
---------------- --------------------
Separate accounts - end of period $ 11.4 11.4
---------------- --------------------
Money market fund assets - end of period $ 0.4 $ 1.0
---------------- --------------------
Total assets under management - end of period $ 57.9 $ 59.2
================ ====================
REVENUE
The Company reported revenue of $245.8 million in the first six months of fiscal
2003 compared to $268.5 million in the first six months of fiscal 2002, a
decrease of 8 percent.
Investment adviser and administration fees decreased by 4 percent to $137.0
million in the first six months of fiscal 2003 from $143.4 million in the first
six months of fiscal 2002, consistent with the 4 percent decline in average
long-term fund assets under management.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For the six months ended April 30, 2003, distribution and underwriting fees
decreased by $12.8 million, or 15 percent, to $71.2 million from $84.0 million a
year earlier. The decrease in distribution income reflects the gradual shift in
the Company's registered fund asset mix from spread-load commission (Class B)
assets under management to front-end load (Class A) assets under management, a
decrease in the market value of the Company's Class B and C share assets under
management compared to a year earlier and a decrease in early withdrawal charges
received in conjunction with bank loan interval fund redemptions.
Service fee revenue, which is also based upon a percentage of the market value
of fund assets under management, decreased to $35.3 million for the six months
ended April 30, 2003 from $40.3 million for the six months ended April 30, 2002,
consistent with the decrease in average long-term fund assets under management.
Other revenue increased 165 percent to $2.3 million a year earlier primarily as
a result of the reimbursement of shareholder services now performed by the
Company, and interest income from a consolidated investment company in which the
Company is the majority shareholder.
EXPENSES
Compensation expense decreased 2 percent to $50.5 million in the first six
months of fiscal 2003 from $51.8 million in the first six months of fiscal 2002
because of lower marketing and sales incentives and lower operating income-based
bonus expense due to a decrease in operating income.
Amortization of deferred sales commissions increased 1 percent to $43.0 million
in the first six months of fiscal 2003 from $42.4 million a year earlier,
primarily due to on-going sales of Class B shares, Class C shares and equity
private placements and the residual effect of accounting changes mandated by the
SEC in fiscal 1998 and 1999. Amortization of deferred sales commissions was
increased by approximately $0.9 million in the first six months of fiscal 2003
to better match the amortization expense of deferred sales commissions with the
projected distribution fee revenue the deferred sales commission assets generate
over their estimated useful lives.
Service fee expense decreased 6 percent to $31.2 million in the first six months
of fiscal 2003 from $33.1 million a year earlier. The decrease in service fee
expense can be attributed to the decrease in average long-term fund assets
retained more than one year.
Distribution fee expense decreased 3 percent to $15.3 million in the first six
months of fiscal 2003 from $15.8 million a year earlier primarily as a result of
a decrease in average Class C share assets under management.
Other operating expenses increased 11 percent to $28.7 million in the first six
months of fiscal 2003 from $25.9 million a year ago, primarily as a result of
$1.8 million of offering expenses relating to new closed-end municipal bond
funds, as well as increases in travel, consulting and fund expenses.
OTHER INCOME AND EXPENSE
Interest income decreased 16 percent to $2.9 million in the first six months of
fiscal 2003 from $3.5 million a year ago primarily as a result of lower
short-term interest rates year-over-year.
Interest expense increased to $2.9 million in the first six months of fiscal
2003 from $2.2 million a year ago, primarily as a result of additional interest
expense related to the Company's 1.5% zero-coupon exchangeable senior notes
issued by Eaton Vance Management. Note holders will receive an incremental cash
interest payment of 1.672 percent per year from November 13, 2002 to August 13,
2004.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INCOME TAXES
The Company's effective tax rate was 35 percent during the first six months of
fiscal 2003 and 2002.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments aggregated $238.3 million at
April 30, 2003, an increase of $50.3 million from October 31, 2002.
The Company has met its cash requirements primarily through cash generated by
operating activities. The Company's principal uses of cash have been to pay
sales commissions, operating expenses, income taxes, enhance technology
infrastructure, purchase investments, pay shareholder dividends, repay and
service debt and repurchase shares of the Company's non-voting common stock. The
Company expects the principal uses of cash for the foreseeable future will be
for sales commissions, operating expenses, income taxes, enhancements to
technology infrastructure, additional investments, acquisitions, shareholder
dividends, repayment and servicing of debt and the repurchase of shares of the
Company's non-voting common stock. The Company is scheduled to repay
approximately $7.1 million in principal related to its 6.22 percent senior notes
in March 2004. Eaton Vance Management does not expect to repurchase any of its
zero-coupon exchangeable senior notes (Notes) in fiscal 2003.
The Company expects to generate cash through its short-term funding resources
including operating cash flows and its line of credit. Operating cash flows are
affected by changes in securities markets. For a further discussion of market
risk please see the section regarding "Certain Factors That May Affect Future
Results" below. The Company anticipates that cash flows from operations and
available debt will be sufficient to meet the Company's foreseeable cash
requirements and provide the Company with the financial resources to take
advantage of strategic growth opportunities.
The Company's financial condition is highly liquid with a significant percentage
of the Company's assets represented by cash and short-term investments. The
Company's receivables and payables represent transactions that arise and settle
in the normal course of business. Short-term investments increased to $97.6
million at April 30, 2003 as a result of the Company acquiring a controlling
financial interest in a newly created Company-sponsored mutual fund. Deferred
sales commissions paid to broker/dealers in connection with the sale of open-end
and bank loan interval funds decreased $22.4 million to $216.6 million at April
30, 2003 from $239.0 million at October 31, 2002 primarily as a result of a
decrease in Class B share sales. For further discussion of the components of the
Company's deferred sales commissions please see the "Operating Cash Flows"
section below. Long-term investments decreased to $31.3 million at April 30,
2003 as a result of the sale of available-for-sale securities. Accrued
compensation decreased to $15.0 million at April 30, 2003 from $31.9 million at
October 31, 2002 as a result of the payment of fiscal year-end bonuses in
November 2002. Long-term debt decreased primarily as a result of the August 13,
2002 repurchase of $87.0 million of the Company's Notes at accreted value
($134.l million principal amount at maturity). Please see the "Financing Cash
Flows" section below for further discussion of the Company's debt and liquidity.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OPERATING CASH FLOWS
Operating activities reduced cash and cash equivalents by $13.6 million in the
first six months of fiscal 2003. The Company generated $45.2 million of cash
from operations in the first six-month of fiscal 2002. The decrease in cash from
operations in the first six months of 2003 from a year earlier is primarily a
result of the consolidation of the Company's investment in a sponsored mutual
fund. The Company was required to consolidate its investment in Eaton Vance
Short-term Income Fund (EVSI) when it became the fund's majority investor. The
purchase of $67.5 million of investments included in operating cash flows
primarily represents EVSI's purchase of short-term securities. Capitalized sales
commissions paid to financial intermediaries for the distribution of the
Company's Class B and Class C fund shares, as well as the Company's equity fund
private placements, decreased by $13.9 million due to a decline in Class B and
Class C fund sales. Although these commission payments decreased to $33.7
million in the first six months of 2003 from $47.6 million in the first six
months of 2002, they continue to be a significant use of cash. Effective January
1, 2001, the Company capitalizes sales commissions for tax purposes and deducts
them over their estimated useful lives. Commission payments made prior to
January 1, 2001, were deducted for tax purposes at the time of payment. Although
this change in the timing of the deduction of commission payments has had the
effect of increasing current income tax payments and reducing deferred income
taxes, thereby increasing the use of current cash resources, it has not and will
not have an impact on the Company's effective tax rate.
INVESTING CASH FLOWS
Investing activities, consisting primarily of the purchase and sale of
available-for-sale investments, increased cash and cash equivalents by $20.1
million in the first six months of fiscal 2003. Investing activities reduced
cash and cash equivalents by $4.6 million in the first six months of fiscal
2002. Cash generated from investing activities in the first six months of fiscal
2003 reflects the purchase of $3.5 million of available-for-sale investments and
$24.6 million of proceeds received from the sale of available-for-sale
investments.
FINANCING CASH FLOWS
Financing activities reduced cash and cash equivalents by $9.9 million in the
first six months of fiscal 2003 compared to $32.9 million in the first six
months of fiscal 2002. The decrease in cash used for financing activities in the
first six months of fiscal 2003 from a year earlier is primarily a result of
proceeds from the issuance of EVSI's capital stock.
The Company repurchased a total of 524,000 shares of its non-voting common stock
for $14.7 million in the first six month of fiscal 2003 under its authorized
repurchase program and issued 415,000 shares or $6.6 million of non-voting
common stock in connection with the exercise of stock options and employee stock
purchases in the first six months of fiscal 2003. The Company has authorization
to purchase approximately 1.8 million additional shares under its present share
repurchase authorization program and anticipates that future repurchases will be
a principal use of cash. The Company's dividend was $0.160 per share in the
first six months of fiscal 2003 compared to $0.145 in the first six months of
fiscal 2002.
The following table details the Company's contractual obligations under its
senior notes and lease arrangements:
- -----------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATION PAYMENTS DUE
- -----------------------------------------------------------------------------------------------------------
LESS THAN 1 1-3 4-5 AFTER 5
(IN MILLIONS) TOTAL YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------------------------------------------------
6.22% senior notes due 2004 $7.1 $7.1 - - -
- -----------------------------------------------------------------------------------------------------------
Operating leases $33.3 $5.2 $10.5 $10.0 $7.6
- -----------------------------------------------------------------------------------------------------------
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Excluded from the table above are Eaton Vance Management's (EVM's) Notes. On
August 13, 2001, EVM issued the Notes at a principal amount of $314.0 million
due August 13, 2031, resulting in gross proceeds of approximately $200.6
million. The net proceeds of the offering were approximately $195.5 million
after payment of debt issuance costs. The Notes were issued in a private
placement to qualified institutional buyers at an initial offering price of
$638.70 per $1,000 principal amount at maturity. The discounted price reflects a
yield to maturity of 1.5 percent per year. Upon certain events, each Note is
exchangeable into 14.3657 shares of the Company's non-voting common stock,
subject to adjustment. EVM may redeem the Notes for cash on or after August 13,
2006, at their accreted value. At the option of Note holders, EVM may be
required to repurchase the Notes at their accreted value on various dates
beginning on the first, third and fifth anniversaries of the issue date and at
five-year intervals thereafter until maturity. At the option of the Note
holders, EVM may also be required to repurchase the Notes at their accreted
value if the credit rating of the Notes is decreased by three or more rating
subcategories below its initial rating by either Moody's or Standard & Poor's.
Such repurchases can be paid in cash or, shares of the Company's non-voting
common stock, or a combination of both. EVM may be required to repurchase Notes
with an accreted value of up to $120.1 million on the next scheduled repurchase
date, August 13, 2004.
On November 12, 2002, EVM amended the terms of its Notes to provide that each
holder electing not to require EVM to repurchase the holder's Notes on November
13, 2002 would receive cash interest payments equal to 1.672 percent per year of
each Note's principal amount at maturity for a period of 21 months. The first
interest payment due on February 13, 2003, was paid for the three-month period
ending on that date. The three remaining interest payments will be made on a
semiannual basis in arrears on their respective payment dates. No Notes were
tendered for repurchase on November 13, 2002.
In December 2001, EVM executed a revolving credit facility with several banks.
This facility, which expires December 21, 2004, provides that EVM may borrow up
to $170 million at market rates of interest that vary depending on the level of
usage of the facility and credit ratings of the Notes. The agreement contains
financial covenants with respect to leverage and interest coverage and requires
EVM to pay an annual commitment fee on any unused portion. At April 30, 2003,
EVM had no borrowings outstanding under its revolving credit facility.
On June 5, 2003 the Company announced the signing of a definitive agreement to
acquire 80 percent of Parametric Portfolio Associates (Parametric) for an
initial payment of $28.0 million in cash. Parametric is a leading investment
management firm in Seattle, Washington, with $4.7 billion in assets under
management. Under the agreement, Parametric will become a subsidiary of Eaton
Vance Corp. and will operate as a distinct business unit.
Under the terms of the acquisition agreement, Parametric's shareholders will
continue to hold 20 percent of the equity of Parametric through 2006. Beginning
in 2006, Parametric's shareholders will have annual rights to sell and the
Company will also have certain rights to purchase the remaining 20 percent of
Parametric stock over an eight-year period. The price for acquiring the
remaining 20 percent of Parametric will be based on a multiple of prior year's
earnings before interest and taxes in those years.
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.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ACCOUNTING CHANGES
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures about the method
of accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company continues to use the intrinsic value
method as described in APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, the transition provision of SFAS No. 148 will not apply
to the Company. The disclosure requirements are effective for interim periods
starting after December 15, 2002. The adoption of SFAS No. 148 did not have a
material effect on the results of operations or the consolidated financial
position of the Company.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 149 is effective for the Company's fiscal quarter
beginning August 1, 2003. The Company is currently assessing the impact SFAS No.
149 will have upon adoption.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
addresses the standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity and
requires the issuer to classify a financial instrument that is within the scope
of a liability (or asset in some circumstances). SFAS No. 150 is effective for
the Company's fiscal quarter beginning August 1, 2003. The Company is currently
assessing the impact SFAS No. 150 will have upon adoption.
In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others." This Interpretation addresses obligations
and disclosures required for certain guarantees. This interpretation applies to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN No. 45 did not have a
material effect on the results of operations or the consolidated financial
position of the Company.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 addresses reporting and disclosure requirements for
Variable Interest Entities (VIEs) and defines a VIE as an entity that either
does not have equity investors with voting rights or has equity investors that
do not provide sufficient financial resources for the entity to support its
activities. The Company acts as an investment adviser regarding collateral for
collateralized debt obligations (CDOs) by certain entities (CDO entities). These
CDO entities might qualify as VIEs. FIN No. 46 requires consolidation of a VIE
by the enterprise that has the majority of the risks and rewards of ownership,
referred to as the "primary beneficiary." It also requires additional
disclosures for an enterprise that holds a significant variable interest in a
VIE, but is not the primary beneficiary. The consolidation and disclosure
provisions of FIN No. 46 are effective immediately for VIEs created after
January 31, 2003, and for interim or annual reporting periods beginning after
June 15, 2003 for VIEs created before February 1, 2003. FIN No. 46 also requires
interim disclosures in all financial statements issued after January 31, 2003,
regardless of the date on which the VIE was created. The provisions of FIN No.
46 are complex. The Company and its advisers are studying whether or not these
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CDO entities are VIEs and whether FIN No. 46 would apply to such entities. If
the Company determines that FIN No. 46 is applicable, it would either
consolidate or disclose additional information about these CDO entities when FIN
No. 46 becomes effective. The Company has provided the necessary disclosure
information regarding such CDO issuers in footnote 5.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or information included
in its filings with the Securities and Exchange Commission (SEC) (including this
Quarterly Report on Form 10-Q) may contain statements, which are not historical
facts, for this purpose referred to as "forward-looking statements." The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the factors discussed below.
The Company is subject to substantial competition in all aspects of its
business. The Company's ability to market investment products is highly
dependent on access to the various distribution systems of national and regional
securities dealer firms, which generally offer competing internally and
externally managed investment products. Although the Company has historically
been successful in maintaining access to these channels, there can be no
assurance that it will continue to do so. The inability to have such access
could have a material adverse effect on the Company's business.
There are few barriers to entry in the investment management business. The
Company's funds and separate accounts compete against an ever-increasing number
of investment products sold to the public by investment dealers, banks,
insurance companies and others that sell tax-free or tax-advantaged investments,
taxable income funds, equity funds and other investment products. Many
institutions competing with the Company have greater resources than the Company.
The Company competes with other providers of investment products on the basis of
the 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,
and the services provided to investors.
The Company derives almost all of its revenue from investment adviser and
administration fees and distribution income received from the Eaton Vance funds,
other pooled investment vehicles and separate accounts. As a result, the Company
is dependent upon management contracts, administration contracts, underwriting
contracts or service contracts under which these fees and income are paid. If
any of these contracts are terminated, not renewed, or amended to reduce fees,
the Company's financial results may be adversely affected.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 generally would reduce
fee income. Financial market declines or adverse changes in interest rates would
generally negatively impact the level of the Company's assets under management
and consequently its revenue and net income. A recession or other economic or
political events could also adversely impact the Company's revenues if it led to
a decreased demand for products, a higher redemption rate, or a decline in
securities prices. Like other businesses, the Company's actual results could be
affected by the loss of key managerial personnel through competition or
retirement. The Company's operations and actual results could also be affected
by increased expenses due to such factors as greater competition for personnel,
higher costs for distribution of mutual funds and other investment products, or
costs for insurance and other services by outside providers, or by the
disruption of services such as power, communications, information technology,
fund transfer agency or fund administration.
The Company's business is subject to substantial governmental regulation.
Changes in legal, regulatory, accounting, tax and compliance requirements could
have a significant effect on the Company's operations and results, including but
not limited to increased expenses and reduced investor interest in certain funds
and other investment products offered by the Company. The Company continually
monitors legislative, tax, regulatory, accounting, and compliance developments
that could impact its business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is routinely 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 prices, interest rates, credit risk, or currency exchange
rates.
The Company's primary exposure to equity price risk arises from its investments
in sponsored equity funds. 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. The Company's investments in sponsored
equity funds totaled $8.8 million at April 30, 2003, and are carried at fair
value on the Company's Consolidated Balance Sheets.
The Company's primary exposure to interest rate risk arises from its investment
in fixed-and floating-rate income funds sponsored by the Company. The negative
effect on the Company's pre-tax interest income of a 50 basis point decline in
interest rates would be approximately $0.4 million based on fixed-income and
floating-rate income investments of $81.5 million as of April 30, 2003. A 50
basis point decline in interest rates is a hypothetical scenario used to
demonstrate potential risk and does not represent management's view of future
market changes. The Company is not exposed to interest rate risk in its debt
instruments as all of the Company's funded debt instruments carry fixed interest
rates.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
The Company's primary exposure to credit risk arises from its minority equity
interests in several CDO entities that are included in "Long-term investments"
in the Company's Consolidated Balance Sheets. As a minority equity investor in a
CDO entity, the Company is only entitled to a residual interest in the CDO
entity, making these investments 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 Company's 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 a 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 Company's
total investment in minority equity interests in CDO entities is approximately
$13.0 million at April 30, 2003, and represents the total value at risk as of
April 30, 2003.
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
Company's revenue is based on the market value of assets under management. As
noted in "Certain Factors That May Affect Future Results," declines of financial
market values will negatively impact revenue and net income.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
Within 90 days prior to the filing this report, 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. James B. Hawkes, Chairman,
Director and Chief Executive Officer, and William M. Steul, Treasurer and Chief
Financial Officer, reviewed and participated in this evaluation. Based on this
evaluation, Messrs. Hawkes and Steul concluded that, as of the date of their
evaluation, the Company's disclosure controls and procedures were effective.
Since the date of the evaluation described above, there have not been any
significant changes in the Company's internal accounting controls or in other
factors that could significantly affect those controls.
28
PART II
OTHER INFORMATION
29
ITEM 1. LEGAL PROCEEDINGS
On October 15, 2001, a consolidated complaint was filed in the United States
District Court for the District of Massachusetts against Eaton Vance Classic
Senior Floating-Rate Fund, Eaton Vance Prime Rate Reserves, Eaton Vance
Institutional Senior Floating-Rate Fund, Eaton Vance Advisers Senior
Floating-Rate Fund (collectively, the "Funds"), their trustees and certain
officers of the Funds; Eaton Vance Management (EVM), the Funds' administrator;
Boston Management and Research (BMR), the Funds' investment adviser; and the
Company, the parent of EVM and BMR. The complaint, framed as a class action,
alleges that for the period between May 25, 1998 and March 5, 2001, the Funds'
assets were incorrectly valued and certain matters were not properly disclosed,
in violation of the federal securities laws. The complaint seeks unspecified
damages. The Company and the other named defendants believe that the complaint
is without merit and are vigorously contesting the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No items were submitted to a vote in the second quarter of fiscal 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
99.1 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
99.2 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 February 26, 2003, regarding the
Company's press release of its results of operations for the quarter ended
January 31, 2003.
30
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: June 11, 2003 /s/ William M. Steul
--------------------------------
(Signature)
William M. Steul
Chief Financial Officer
DATE: June 11, 2003 /s/ Laurie G. Hylton
--------------------------------
(Signature)
Laurie G. Hylton
Chief Financial Officer
31
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: June 11, 2003 /s/ James B. Hawkes
--------------------------------
(Signature)
James B. Hawkes
Chief Executive Officer
32
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: June 11, 2003 /s/William M. Steul
--------------------------------
(Signature)
William M. Steul
Chief Financial Officer
33
EXHIBIT 99.1
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 April 30, 2003 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. ss. 1350, as
adopted pursuant to ss. 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: June 11, 2003 /s/ James B. Hawkes
--------------------------------
(Signature)
James B. Hawkes
Chairman, President and
Chief Executive Officer
34
EXHIBIT 99.2
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 April 30, 2003 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. ss. 1350,
as adopted pursuant to ss. 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: June 11, 2003 /s/ William M. Steul
--------------------------------
(Signature)
William M. Steul
Chief Financial Officer
35