UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| (Mark One) | |
| [X] | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2004 |
| or | |
| [ ] | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ |
Commission file no. 1-8100
EATON VANCE
CORP.
(Exact name of registrant as specified in its charter)
| Maryland (State or other jurisdiction of incorporation or organization) |
04-2718215 (I.R.S. Employer Identification No.) |
255 State
Street, Boston, Massachusetts 02109
(Address of principal executive offices) (zip code)
(617)
482-8260
(Registrant's telephone number, including area code)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes[X] No[ ]
Shares
outstanding as of April 30, 2004:
Voting Common Stock – 154,880 shares
Non-Voting
Common Stock – 67,500,405 shares
Page 1 of 37 pages
Eaton
Vance Corp.
Form 10-Q
For the Three Months and Six Months Ended April 30, 2004
Index
| Required Information |
Page Number Reference |
|||
| Part I | Financial Information | |||
| Item 1. | Financial Statements | 3 | ||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 | ||
| Item 4. | Disclosure Controls and Procedures | 30 | ||
| Part II | Other Information | |||
| Item 1. | Legal Proceedings | 31 | ||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 31 | ||
| Item 4. | Submission of Matters to a Vote of Securities Holders | 31 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 32 | ||
| Signatures | 33 |
2
PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
| (in thousands) | April
30, 2004 |
October
31, 2003 |
||
| Assets | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 152,734 | $ 138,328 | ||
| Short-term investments | 155,610 | 104,484 | ||
| Investment adviser fees and other receivables | 28,761 | 25,922 | ||
| Other current assets | 25,870 | 3,583 | ||
| Total current assets | 362,975 | 272,317 | ||
| Other Assets: | ||||
| Deferred sales commissions | 182,349 | 199,322 | ||
| Goodwill | 89,281 | 88,879 | ||
| Other intangible assets, net | 44,971 | 46,193 | ||
| Long-term investments | 37,877 | 36,490 | ||
| Equipment and leasehold improvements, net | 12,215 | 12,411 | ||
| Other assets | 2,929 | 3,090 | ||
| Total other assets | 369,622 | 386,385 | ||
| Total assets | $ 732,597 | $ 658,702 |
See notes to consolidated financial statements.
3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (in thousands, except share figures) | April
30, 2004 |
October
31, 2003 |
||||||
| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accrued compensation | $ | 26,925 | $ | 35,339 | ||||
| Accounts payable and accrued expenses | 21,296 | 23,822 | ||||||
| Dividend payable | 8,098 | 8,189 | ||||||
| Current portion of long-term debt | — | 7,143 | ||||||
| Other current liabilities | 7,354 | 8,302 | ||||||
| Total current liabilities | 63,673 | 82,795 | ||||||
| Long-term Liabilities: | ||||||||
| Long-term debt | 119,621 | 118,736 | ||||||
| Deferred income taxes | 65,619 | 33,203 | ||||||
| Total long-term liabilities | 185,240 | 151,939 | ||||||
| Total liabilities | 248,913 | 234,734 | ||||||
| Minority interest | 51,582 | 7,691 | ||||||
| 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, 67,500,405 and 68,250,464 shares, respectively | 527 | 533 | ||||||
| Notes receivable from stock option exercises | (2,891 | ) | (2,995 | ) | ||||
| Deferred compensation | (3,200 | ) | (1,000 | ) | ||||
| Accumulated other comprehensive income | 1,688 | 1,245 | ||||||
| Retained earnings | 435,977 | 418,493 | ||||||
| Total shareholders’ equity | 432,102 | 416,277 | ||||||
| Total liabilities and shareholders’ equity | $ | 732,597 | $ | 658,702 | ||||
See notes to consolidated financial statements.
4
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Three
Months Ended April 30, |
Six
Months Ended April 30, |
|||||||||||||||
| (in thousands, except per share figures) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
| Revenue: | ||||||||||||||||
| Investment adviser and administration fees | $ | 101,162 | $ | 67,935 | $ | 194,912 | $ | 137,009 | ||||||||
| Distribution and underwriter fees | 39,637 | 34,223 | 79,513 | 71,228 | ||||||||||||
| Service fees | 23,017 | 17,354 | 44,926 | 35,279 | ||||||||||||
| Other revenue | 1,475 | 1,364 | 2,913 | 2,294 | ||||||||||||
| Total revenue | 165,291 | 120,876 | 322,264 | 245,810 | ||||||||||||
| Expenses: | ||||||||||||||||
| Compensation of officers and employees | 36,793 | 24,118 | 74,292 | 50,521 | ||||||||||||
| Amortization of deferred sales commissions | 21,869 | 21,635 | 42,632 | 43,029 | ||||||||||||
| Service fee expense | 18,879 | 14,916 | 37,511 | 30,189 | ||||||||||||
| Distribution expense | 19,695 | 11,961 | 38,474 | 24,380 | ||||||||||||
| Other expenses | 11,880 | 9,630 | 23,077 | 20,687 | ||||||||||||
| Total expenses | 109,116 | 82,260 | 215,986 | 168,806 | ||||||||||||
| Operating income | 56,175 | 38,616 | 106,278 | 77,004 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 661 | 1,406 | 1,449 | 2,937 | ||||||||||||
| Interest expense | (1,364 | ) | (1,471 | ) | (3,015 | ) | (2,904 | ) | ||||||||
| Gain (loss) on investments | (83 | ) | 76 | (78 | ) | 1,950 | ||||||||||
| Foreign currency gain (loss) | (29 | ) | 135 | (47 | ) | 40 | ||||||||||
| Equity in net income (loss) of affiliates | 623 | 15 | 638 | (211 | ) | |||||||||||
| Income before income taxes and minority interest | 55,983 | 38,777 | 105,225 | 78,816 | ||||||||||||
| Income taxes | 20,154 | 13,572 | 37,881 | 27,585 | ||||||||||||
| Minority interest, net of tax | 660 | 191 | 1,362 | 308 | ||||||||||||
| Net income | $ | 35,169 | $ | 25,014 | $ | 65,982 | $ | 50,923 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.52 | $ | 0.36 | $ | 0.97 | $ | 0.74 | ||||||||
| Diluted | $ | 0.50 | $ | 0.36 | $ | 0.94 | $ | 0.73 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 67,766 | 68,967 | 67,976 | 69,096 | ||||||||||||
| Diluted | 70,111 | 69,979 | 70,225 | 70,230 | ||||||||||||
| Dividends declared, per share | $ | 0.12 | $ | 0.08 | $ | 0.24 | $ | 0.16 | ||||||||
See notes to consolidated financial statements.
5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Six
Months Ended April 30, |
||||||||
| (in thousands) | 2004 | 2003 | ||||||
| Cash and cash equivalents, beginning of period | $ | 138,328 | $ | 144,078 | ||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 65,982 | $ | 50,923 | ||||
| Adjustments to reconcile net income to net cash provided | ||||||||
| by (used for) operating activities: | ||||||||
| (Gain) loss on sale of investments | 13 | (1,932 | ) | |||||
| Equity in net (income) loss of affiliate | (638 | ) | 211 | |||||
| Minority interest | 2,128 | 473 | ||||||
| Translation adjustment | 44 | (12 | ) | |||||
| Interest on long-term debt | 1,050 | 1,039 | ||||||
| Deferred income taxes | 32,237 | (9,982 | ) | |||||
| Tax benefit of stock option exercises | 894 | 456 | ||||||
| Compensation related to restricted stock issuance | 800 | 550 | ||||||
| Depreciation and other amortization | 3,298 | 2,650 | ||||||
| Amortization of deferred sales commissions | 42,632 | 43,029 | ||||||
| Payment of capitalized sales commissions | (35,976 | ) | (33,672 | ) | ||||
| Contingent deferred sales charges received | 10,317 | 13,076 | ||||||
| Proceeds from the sale of trading securities | 18,924 | 150 | ||||||
| Purchase of trading securities | (70,015 | ) | (67,506 | ) | ||||
| Changes in other assets and liabilities: | ||||||||
| Investment adviser fees and other receivables | (2,839 | ) | (1,785 | ) | ||||
| Other current assets | (22,353 | ) | 2,772 | |||||
| Other assets | 709 | 281 | ||||||
| Accrued compensation | (8,414 | ) | (16,906 | ) | ||||
| Accounts payable and accrued expenses | (2,526 | ) | 1,214 | |||||
| Other current liabilities | (972 | ) | 1,385 | |||||
| Net cash provided by (used for) operating activities | 35,295 | (13,586 | ) | |||||
| Cash Flows From Investing Activities: | ||||||||
| Additions to equipment and leasehold improvements | (1,635 | ) | (521 | ) | ||||
| Net decrease in notes receivable from affiliates | 104 | 251 | ||||||
| Acquisition of subsidiaries | (402 | ) | — | |||||
| Proceeds from sale of available-for-sale investments | 745 | 24,638 | ||||||
| Purchase of available-for-sale investments | (1,587 | ) | (3,478 | ) | ||||
| Purchase of management contracts | (245 | ) | (797 | ) | ||||
| Net cash provided by (used for) investing activities | (3,020 | ) | 20,093 | |||||
See notes to consolidated financial statements.
6
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Six
Months Ended April 30, |
||||||||
| (in thousands) | 2004 | 2003 | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of debt | (7,143 | ) | (7,143 | ) | ||||
| Distributions to minority shareholders | (1,225 | ) | (532 | ) | ||||
| Proceeds from the issuance of non-voting common stock | 6,703 | 6,594 | ||||||
| Repurchase of non-voting common stock | (42,851 | ) | (14,725 | ) | ||||
| Dividend paid | (16,341 | ) | (11,051 | ) | ||||
| Proceeds from the issuance of mutual fund subsidiaries’ capital stock | 61,018 | 17,000 | ||||||
| Redemption of mutual fund subsidiaries’ capital stock | (18,030 | ) | — | |||||
| Net cash used for financing activities | (17,869 | ) | (9,857 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 14,406 | (3,350 | ) | |||||
| Cash and cash equivalents, end of period | $ | 152,734 | $ | 140,728 | ||||
| Supplemental Information: | ||||||||
| Interest paid | $ | 1,817 | $ | 1,917 | ||||
| Income taxes paid | $ | 26,492 | $ | 31,998 | ||||
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 only 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 period amounts have been reclassified to conform to the current period 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) Goodwill and Other Intangibles
The following is a summary of other intangible assets at April 30, 2004:
| April 30, 2004 | Weighted- |
|||||
| (dollars in thousands) | average amortization period (in years) |
Gross carrying amount |
Accumulated amortization |
|||
| Amortizing intangible assets: | ||||||
| Client relationships acquired | 16.4 | $49,430 | $5,770 | |||
| Non-amortizing intangible assets: | ||||||
| Mutual fund management | ||||||
| contract acquired | — | 1,311 | — | |||
| Total | $50,741 | $5,770 |
8
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) Investments
The following is a summary of investments at April 30, 2004:
| (in thousands) | April
30, 2004 |
|
| Short-term investments: | ||
| Sponsored funds | $ | 1,325 |
| Short-term debt securities | 154,285 | |
| Total | $ | 155,610 |
| Long-term investments: | ||
| Sponsored funds | $ | 14,410 |
| Collateralized debt obligation entities | 15,053 | |
| Investment in affiliates | 7,495 | |
| Other investments | 919 | |
| Total | $ | 37,877 |
(5) Debt
The following is a summary of the carrying value of long-term debt at April 30, 2004:
| (in thousands) | April
30, 2004 |
| 1.5% zero-coupon exchangeable senior notes due 2031 | $119,621 |
| Total | 119,621 |
| Less: current maturities | — |
| Total long-term debt | $119,621 |
9
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) 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 Statement of Financial Accounting Standards (“SFAS”) No. 123, the Company’s net income and earnings per share for the three and six month periods ended April 30, 2004 and 2003 would have been reduced to the following pro forma amounts:
| For
the three months ended April 30, |
For
the six months ended April 30, |
|||||||||||||||
| (in thousands, except per share figures) | 2004 |
2003 | 2004 | 2003 | ||||||||||||
| Net income as reported | $ | 35,169 | $ | 25,014 | $ | 65,982 | $ | 50,923 | ||||||||
Add:
Stock-based employee compensation expense included in reported net income,
net of related tax effects |
256 | 179 | 512 | 358 | ||||||||||||
Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects |
(4,879 | ) | (2,542 | ) | (9,318 | ) | (5,597 | ) | ||||||||
| Pro forma net income | $ | 30,546 | $ | 22,651 | $ | 57,176 | $ | 45,684 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic – as reported | $ | 0.52 | $ | 0.36 | $ | 0.97 | $ | 0.74 | ||||||||
| Basic – pro forma | $ | 0.45 | $ | 0.33 | $ | 0.84 | $ | 0.66 | ||||||||
| Diluted – as reported | $ | 0.50 | $ | 0.36 | $ | 0.94 | $ | 0.73 | ||||||||
| Diluted – pro forma | $ | 0.44 | $ | 0.32 | $ | 0.81 | $ | 0.65 | ||||||||
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, 2004 and 2003:
| April 30, | |||
| 2004 | 2003 | ||
| Dividend yield | 1.31% | 1.07% | |
| Volatility | 30% | 31% | |
| Risk-free interest rate | 4.5% | 3.9% | |
| Expected life of options | 8 years | 8 years | |
The Company calculates compensation as if all instruments granted are expected to vest and recognizes the effect of actual forfeitures as they occur.
In the first six months of fiscal 2004, 85,665 shares were issued pursuant to the plan. No such shares were issued in the first six months of fiscal 2003. Because these shares are contingently forfeitable, compensation expense is recorded over the forfeiture period. The Company recorded compensation expense of $0.8 million and $0.6 million for the six months ended April 30, 2004 and 2003, respectively.
10
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) Common Stock Repurchases
The Company’s share repurchase program was announced on October 22, 2003. The Board authorized management to repurchase 4,000,000 of its non-voting common stock on the open market and in private transactions in accordance with applicable securities laws. The Company’s stock repurchase plan is not subject to an expiration date.
In the first six months of fiscal 2004, the Company purchased 1.2 million shares of its non-voting common stock under this share repurchase authorization. Approximately 2.7 million shares may be repurchased under the current authorization.
(8) 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 $20.6 million, which exceeded its minimum net capital requirement of $0.9 million at April 30, 2004. The ratio of aggregate indebtedness to net capital at April 30, 2004 was .68 to 1.
(9) 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 for the quarters ended April 30, 2004 and 2003 was 36 percent and 35 percent, respectively. The change in tax rate is primarily due to an increase in state tax rates.
In January 2004, the Internal Revenue Service issued a new regulation that changed the tax treatment of deferred sales commissions. The new tax regulation, which allows for the immediate deduction of 12b-1 commissions when paid, has been applied prospectively to commissions paid in fiscal year 2004 and retroactively to 12b-1 commissions paid during fiscal years 2003 and 2002. Sales commission payments made in fiscal years 2003 and 2002 were previously capitalized for tax purposes and deducted over their useful lives. Unamortized balances relating to fiscal years 2003 and 2002 will be deducted for tax purposes in fiscal 2004. The change in tax accounting treatment will not require amendments to prior year returns.
In addition, the exercise of non-qualified stock options resulted in a reduction of taxes payable of approximately $0.9 million and $0.5 million for the six months ended April 30, 2004 and 2003. Such benefit has been reflected in shareholders’ equity.
11
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) Comprehensive Income
Total comprehensive income includes net income and other comprehensive income or (loss), net of tax. The components of comprehensive income (loss) for the six months ended April 30, 2004 and 2003 are as follows:
| April 30, | |||||
| (in thousands) | 2004 |
2003 | |||
| Net income | $ 65,982 | $ 50,923 | |||
Net
unrealized gain (loss) on available-for-sale securities, net of income
tax (benefit) of $228 and ($963), respectively |
417 | (1,625 | ) | ||
|
Foreign
currency translation adjustments, net of income tax (benefit) of ($18) and ($5) |
26 | (17 | ) | ||
| Comprehensive income | $ 66,425 | $ 49,281 | |||
(11) Commitments and Contingencies
In the normal course of 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.
12
ITEM 2. MANAGEMENT’S 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 “Competitive Conditions and 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.
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 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 Company’s major expenses are employee compensation, the amortization of deferred sales commissions 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, revenue 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 available from other sources. Actual results may differ from these estimates.
The Company’s fund asset mix shifted significantly in the last twelve months, with equity fund assets representing 54 percent of total fund assets under management at April 30, 2004, up from 50 percent at April 30, 2003. Fixed income fund assets (including money market fund assets) represented 28 percent of total fund assets under management at April 30, 2004, down from 34 percent a year ago. Floating-rate income fund assets represented 18 percent of total fund assets under management at April 30, 2004, up from 16 percent a year ago. The Company believes that these developments reflect investor response to recovering equity markets and investor fears about rising interest rates. The following table summarizes ending assets under management by investment objective at April 30, 2004 and 2003:
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
| April 30, | |||||||
| (in billions) | 2004 | 2003 | % Change | ||||
| Equity funds | $ 34.5 | $ 23.4 | 47% | ||||
| Fixed income funds | 17.7 | 15.5 | 14% | ||||
| Floating-rate income funds | 11.8 | 7.2 | 64% | ||||
| Money market funds | 0.4 | 0.4 | NM | ** | |||
| Total funds | 64.4 | 46.5 | 38% | ||||
| HNW* and institutional accounts | 16.4 | 10.2 | 61% | ||||
| Retail managed accounts | 4.3 | 1.2 | 258% | ||||
| Total separate account assets | 20.7 | 11.4 | 82% | ||||
| Total | $ 85.1 | $ 57.9 | 47% | ||||
| * | High-net-worth (“HNW”) |
| ** | Not meaningful (“NM”) |
Assets under management of $85.1 billion on April 30, 2004 were 47 percent higher than the $57.9 billion reported a year earlier. The Company experienced significant growth in both long-term fund assets and separately managed accounts in the last twelve months, reflecting recovering equity markets, successful closed-end fund offerings, strong net sales of the Company’s open-end mutual funds and the acquisition of Parametric Portfolio Associates (“Parametric”) in September of 2003.
The Company had positive net inflows in both long-term funds and separate accounts in the three and six month periods ended April 30, 2004. The following table summarizes the asset flows for the three and six month periods ended April 30, 2004 and 2003:
(The remainder of this page is intentionally left blank.)
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
| For
the Three Months Ended April 30, |
For
the Six Months Ended April 30, |
|||||||||||||||
| (in billions) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | ||||||||||
| Equity fund assets – beginning | $ 33.2 | $ 22.4 | 48% | $ 28.9 | $ 22.9 | 26% | ||||||||||
| Sales/inflows | 2.3 | 0.5 | 360% | 5.7 | 1.2 | 375% | ||||||||||
| Redemptions/outflows | (0.9 | ) | (0.6 | ) | 50% | (1.6 | ) | (1.3 | ) | 23% | ||||||
| Exchanges | — | (0.1 | ) | -100% | 0.1 | — | NM | |||||||||
| Market value change | (0.1 | ) | 1.2 | -108% | 1.4 | 0.6 | 133% | |||||||||
| Equity fund assets – ending | 34.5 | 23.4 | 47% | 34.5 | 23.4 | 47% | ||||||||||
| Fixed income fund assets – beginning | 18.2 | 14.6 | 25% | 17.8 | 13.3 | 34% | ||||||||||
| Sales/inflows | 0.7 | 1.1 | -36% | 1.4 | 2.7 | -48% | ||||||||||
| Redemptions/outflows | (0.7 | ) | (0.5 | ) | 40% | (1.2 | ) | (0.9 | ) | 33% | ||||||
| Exchanges | — | — | NM | (0.2 | ) | 0.1 | -NM | |||||||||
| Market value change | (0.5 | ) | 0.3 | -267% | (0.1 | ) | 0.3 | -133% | ||||||||
| Fixed income fund assets – ending | 17.7 | 15.5 | 14% | 17.7 | 15.5 | 14% | ||||||||||
| Floating-rate fund assets – beginning | 11.2 | 7.3 | 53% | 9.5 | 7.7 | 23% | ||||||||||
| Sales/inflows | 1.2 | 0.2 | 500% | 3.2 | 0.4 | 700% | ||||||||||
| Redemptions/outflows | (0.7 | ) | (0.4 | ) | 75% | (1.1 | ) | (0.9 | ) | 22% | ||||||
| Exchanges | — | 0.1 | NM | 0.1 | (0.1 | ) | NM | |||||||||
| Market value change | 0.1 | — | NM | 0.1 | 0.1 | NM | ||||||||||
| Floating-rate fund assets – ending | 11.8 | 7.2 | 64% | 11.8 | 7.2 | 64% | ||||||||||
| Long-term fund assets – beginning | 62.6 | 44.3 | 41% | 56.2 | 43.9 | 28% | ||||||||||
| Sales/inflows | 4.2 | 1.8 | 133% | 10.3 | 4.3 | 140% | ||||||||||
| Redemptions/outflows | (2.3 | ) | (1.5 | ) | 53% | (3.9 | ) | (3.1 | ) | 26% | ||||||
| Exchanges | — | — | NM | — | — | NM | ||||||||||
| Market value change | (0.5 | ) | 1.5 | -133% | 1.4 | 1.0 | 40% | |||||||||
| Long-term fund assets – ending | 64.0 | 46.1 | 39% | 64.0 | 46.1 | 39% | ||||||||||
| Separate accounts – beginning | 20.5 | 10.9 | 88% | 18.4 | 10.8 | 70% | ||||||||||
| Inflows – HNW and institutional | 0.8 | 0.3 | 167% | 1.9 | 0.9 | 111% | ||||||||||
| Outflows – HNW and institutional | (0.5 | ) | (0.5 | ) | NM | (0.8 | ) | (0.9 | ) | -11% | ||||||
| Inflows – retail managed account | 0.5 | 0.1 | 400% | 1.0 | 0.4 | 150% | ||||||||||
| Outflows – retail managed account | (0.3 | ) | — | NM | (0.6 | ) | (0.1 | ) | 500% | |||||||
| Market value change | (0.3 | ) | 0.6 | -150% | 0.8 | 0.3 | 167% | |||||||||
| Separate accounts – ending | 20.7 | 11.4 | 82% | 20.7 | 11.4 | 82% | ||||||||||
| Money market fund assets – ending | 0.4 | 0.4 | NM | 0.4 | 0.4 | NM | ||||||||||
| Assets under management – ending | $ 85.1 | $ 57.9 | 47% | $ 85.1 | $ 57.9 | 47% | ||||||||||
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net inflows of long-term fund assets in the first six months of fiscal 2004 were $6.4 billion compared to $1.2 billion in the first six months of fiscal 2003, an increase of $5.2 billion. Closed-end fund offerings contributed significantly to net inflows in the first six months of fiscal 2004, with $4.3 billion in closed-end fund assets added in the first six months of fiscal 2004 compared to $0.7 billion added in the first six months of fiscal 2003. Excluding closed-end fund offerings, other net inflows totaled $2.1 billion and $0.5 billion in the first six months of fiscal 2004 and 2003, respectively, reflecting a 71 percent increase in open-end mutual fund sales offset by a 16 percent increase in open-end mutual fund redemptions on a larger asset base. Market value changes contributed $1.4 billion to long-term fund assets in the first six months of fiscal 2004 compared to $1.0 billion in the first six months of fiscal 2003.
Net inflows of separate account assets under management were $1.5 billion in the first six months of fiscal 2004, up from $0.3 billion in the first six months of fiscal 2003. Net inflows in separate account assets in fiscal 2004 reflect both the expansion of the Company’s product line resulting from strategic acquisitions made in September 2001 and September 2003 and an increase in the number of retail managed account programs in which the Company and its majority-owned subsidiaries participate. Market value changes contributed $0.8 billion to separate account assets in the first six months of fiscal 2004 and $0.3 billion in the first six months of fiscal 2003.
The Company currently sells its sponsored mutual funds (long-term and money market) 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”). Under certain conditions, the Company waives the sales load on Class A shares. In such cases, the shares are sold at net asset value. The increase in ending long-term fund assets under management at April 30, 2004 compared to April 30, 2003 was primarily a result of record closed-end fund offerings and strong Class A share sales. The growth in separate account assets under management can be attributed to the acquisition of Parametric in September 2003 and strong separate account net inflows in the first half of fiscal 2004. The following table summarizes ending assets under management by asset class at April 30, 2004 and 2003:
| April 30, | |||||||
| (in billions) | 2004 | 2003 | % Change | ||||
| Class A * | $13.9 | $ 6.8 | 104% | ||||
| Class B ** | 9.1 | 12.6 | -28% | ||||
| Class C *** | 6.8 | 5.5 | 24% | ||||
| Private funds | 17.8 | 15.4 | 16% | ||||
| Closed-end funds | 13.4 | 4.8 | 179% | ||||
| Other | 3.4 | 1.4 | 143% | ||||
| Total fund assets | 64.4 | 46.5 | 38% | ||||
| HNW and institutional accounts | 16.4 | 10.2 | 61% | ||||
| Retail managed accounts | 4.3 | 1.2 | 258% | ||||
| Total separate account assets | 20.7 | 11.4 | 82% | ||||
| Total | $85.1 | $57.9 | 47% | ||||
| * | Share class includes Eaton Vance Advisers Senior Floating Rate Fund, an interval fund. | ||
| ** | Share class includes Eaton Vance Prime Rate Reserves, an interval fund. | ||
| *** | Share class includes Eaton Vance Classic Senior Floating Rate Fund, an interval fund. |
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The average assets under management presented below represent a monthly average by asset class. With the exception of the Company’s separate account investment adviser fees, which are calculated as a percentage of either beginning or ending quarterly assets, the Company’s investment adviser, administration, distribution and service fees are calculated primarily as a percentage of average daily assets. This analysis may provide useful information in the analysis of the Company’s revenue, as well as distribution-related expenses tied to asset levels.
| For the Three Months Ended April 30, |
For the Six Months Ended April 30, |
||||||||||||
| (in billions) | 2004 | 2003 | % Change |
2004 | 2003 | % Change |
|||||||
| Class A * | $11.2 | $ 6.4 | 75% | $10.1 | $ 6.4 | 58% | |||||||
| Class B ** | 11.8 | 12.4 | -5% | 12.3 | 12.5 | -2% | |||||||
| Class C *** | 6.7 | 5.3 | 26% | 6.5 | 5.3 | 23% | |||||||
| Private funds | 18.1 | 14.8 | 22% | 17.8 | 15.0 | 19% | |||||||
| Closed-end funds | 12.8 | 4.7 | 172% | 11.6 | 4.5 | 158% | |||||||
| Other | 3.3 | 1.6 | 106% | 3.2 | 1.5 | 113% | |||||||
| Total fund assets | 63.9 | 45.2 | 41% | 61.5 | 45.2 | 36% | |||||||
| HNW and institutional accounts | 16.5 | 9.8 | 68% | 16.0 | 10.1 | 58% | |||||||
| Retail managed accounts | 4.3 | 1.1 | 291% | 4.0 | 1.0 | 300% | |||||||
| Total separate account assets | 20.8 | 10.9 | 91% | 20.0 | 11.1 | 80% | |||||||
| Total | $84.7 | $56.1 | 51% | $81.5 | $56.3 | 45% | |||||||
| * | Share class includes Eaton Vance Advisers Senior Floating Rate Fund, an interval fund. | ||
| ** | Share class includes Eaton Vance Prime Rate Reserves, an interval fund. | ||
| *** | Share class includes Eaton Vance Classic Senior Floating Rate Fund, an interval fund. | ||
| For the Three Months Ended April 30, |
For the Six Months Ended April 30, |
||||||||||||
| (in thousands) | 2004 | 2003 | % Change |
2004 | 2003 | % Change |
|||||||
| Net income | $35,169 | $25,014 | 41% | $65,982 | $50,923 | 30% | |||||||
| Earnings per share: | |||||||||||||
| Basic | $ 0.52 | $ 0.36 | 44% | $ 0.97 | $ 0.74 | 31% | |||||||
| Diluted | $ 0.50 | $ 0.36 | 39% | $ 0.94 | $ 0.73 | 29% | |||||||
| Operating margin | 34% | 32% | NM | 33% | 31% | NM | |||||||
Net income increased by 41 percent and 30 percent in the three and six month periods ended April 30, 2004, respectively, compared to the three and six month periods ended April 30, 2003, reflecting increases in revenue offset by the impact of compensation and distribution-related expenses associated with strong net sales.
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
| For the Three Months Ended April 30, |
For the Six Months Ended April 30, |
||||||||||||
| (in thousands) | 2004 | 2003 | % Change |
2004 | 2003 | % Change |
|||||||
| Investment adviser and administration fees | $101,162 | $ 67,935 | 49% | $194,912 | $137,009 | 42% | |||||||
| Distribution and underwriter fees | 39,637 | 34,223 | 16% | 79,513 | 71,228 | 12% | |||||||
| Service fees | 23,017 | 17,354 | 33% | 44,926 | 35,279 | 27% | |||||||
| Other revenue | 1,475 | 1,364 | 8% | 2,913 | 2,294 | 27% | |||||||
| Total | $165,291 | $120,876 | 37% | $322,264 | $245,810 | 31% | |||||||
Investment
Adviser and Administration Fees
Investment adviser and
administration fees are generally calculated under contractual agreements with
the Company’s sponsored funds and separate account clients and are based
upon a percentage of the market value of assets under management. Changes in the
market value of managed assets can affect the amount of investment adviser and
administration fees earned, while shifts in asset mix can affect the
Company’s effective fee rate.
The increase in investment adviser and administration fees of 49 percent in the second quarter of fiscal 2004 over the same period a year ago can be attributed to a 51 percent increase in average assets under management, tempered by a modest reduction in the Company’s effective fee rate. The decrease in the effective fee rate for the three month period can be primarily attributed to the lower average fee rates of the Parametric assets acquired on September 10, 2003.
The increase in investment adviser and administration fees of 42 percent in the first six months of fiscal 2004 over the same period a year ago can be attributed to a 45 percent increase in average assets under management. The increase in investment adviser and administration fees for the six month period was also affected by the lower average fee rates of the Parametric assets acquired in 2003.
Distribution
and Underwriter Fees
Distribution plan payments,
which are made under contractual agreements with the Company’s sponsored
funds, are calculated as a percentage of average assets under management in
specific share classes of those 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 between share classes.
Underwriter commissions are earned on the sale of shares of the Company’s
sponsored funds on which investors pay a sales charge at the time of purchase
(Class A share sales). Sales charges and underwriter commissions are waived on
sales to shareholders or intermediaries that exceed specified minimum amounts
and on shares that are purchased as part of a fee-based account. Underwriter
commissions fluctuate with both 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 16 percent in the second quarter of fiscal 2004 over the same period a year ago, reflecting a 13 percent increase in average Class B, Class C and private fund assets under management and a significant increase in Class A shares offered with a sales charge. As noted above, ending Class B share assets under management declined 28 percent year-over-year as a result of lower Class B share sales and the implementation of an 8-year Class B to Class A share conversion feature for certain of the Company’s mutual funds in the second quarter of fiscal 2004. The reduction in Class B share assets under management will result in a reduction in annual Class B share distribution income in future periods. With the full impact of this conversion, the Company estimates that
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
distribution and underwriter fee income will decline by approximately 8 to 10 percent or $3.0 to $4.0 million in the third quarter of fiscal 2004 (and in subsequent quarters) in comparison with the second quarter of fiscal 2004.
Distribution and underwriter fees increased by 12 percent in the first six months of fiscal 2004 over the same period a year ago, reflecting a 12 percent increase in average Class B, Class C and private assets under management and a significant increase in Class A share sales.
Service Fees
Service plan payments,
which are made under contractual agreements with the Company’s sponsored
funds, are calculated as a percent of average assets under management in
specific share classes of the Company’s mutual funds (principally Classes
A, B and C) as well as certain private funds.
Service fees increased by 33 percent in the second quarter of fiscal 2004 over the same period a year ago, primarily reflecting a 26 percent increase in average Class A, B, C and private fund assets under management that are subject to service fees.
Services fees increased by 27 percent in the first six months of fiscal 2004 over the same period a year ago, primarily reflecting a 22 percent increase in average Class A, B, C and private fund assets under management that are subject to service fees.
Other Revenue
Other revenue increased by
8 percent in the second quarter of fiscal 2004 over the same period a year ago,
primarily reflecting investment income earned by two majority-owned investment
companies consolidated by the Company. The first of the two funds was
consolidated in the second quarter of fiscal 2003; the second was consolidated
in the first quarter of fiscal 2004. Prior to consolidation, income from the
Company’s minority interest in these entities was recognized in interest
income.
Other revenue increased by 27 percent in the first six months of fiscal 2004 over the same period a year ago, primarily reflecting the consolidation of the two majority-owned mutual funds referenced above.
| For the Three Months Ended April 30, |
For the Six Months Ended April 30, |
||||||||||||
| (in thousands) | 2004 | 2003 | % Change |
2004 | 2003 | % Change |
|||||||
| Compensation of officers and employees | $ 36,793 | $24,118 | 53% | $ 74,292 | $ 50,521 | 47% | |||||||
| Amortization of deferred sales commissions | 21,869 | 21,635 | 1% | 42,632 | 43,029 | -1% | |||||||
| Service fee expense | 18,879 | 14,916 | 27% | 37,511 | 30,189 | 24% | |||||||
| Distribution expense | 19,695 | 11,961 | 65% | 38,474 | 24,380 | 58% | |||||||
| Other expenses | 11,880 | 9,630 | 23% | 23,077 | 20,687 | 12% | |||||||
| Total | $109,116 | $82,260 | 33% | $215,986 | $168,806 | 28% | |||||||
Compensation
of officers and employees
Compensation expense
increased by 53 percent in the second quarter of fiscal 2004 over a year ago,
principally due to marketing incentives associated with the offering of one new
closed-end fund in April of 2004, increases in sales of the Company’s
continuously offered funds and retail managed accounts, inclusion of Parametric
employee compensation and higher operating income-based bonus accruals.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Compensation expense increased by 47 percent in the first six months of fiscal 2004 over a year ago, reflecting marketing incentives associated with the offering of two new closed-end funds in January and April of 2004, increases in sales of the Company’s continuously offered funds and retail managed accounts, inclusion of Parametric employee compensation and higher operating income-based bonus accruals.
Amortization
of deferred sales commissions
Amortization of deferred
sales commissions was flat in both the second quarter and first six months of
fiscal 2004. Amortization expense is affected by ongoing sales and redemptions
of mutual fund Class B shares, Class C shares and private fund shares. The
Company continues to experience an overall shift in sales from Class B shares to
Class A shares. As amortization expense is a function of the Company’s
product mix, a shift from Class B sales to Class A sales over time may result in
a reduction in amortization expense in the future.
Service fee
expense
Service fees the Company
receives from sponsored mutual funds are retained by the Company in the first
year and paid to broker/dealers after the first year. These fees are calculated
as a percent of average assets under management in specific share classes of the
Company’s mutual funds (principally Classes A, B and C) as well as certain
private funds. Service fee expense increased by 27 percent in the second quarter
of fiscal 2004 over a year ago and 24 percent in the first half of fiscal 2004
over a year ago as a result of an increase in average assets under management
retained more than one year that are subject to these fees.
Distribution
expense
Distribution expense
consists primarily of payments made to distribution partners pursuant to
third-party distribution arrangements (calculated as a percentage of average
Class C share and closed-end fund 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 Company’s distribution partners. Distribution expense
increased by 65 percent in the second quarter of fiscal 2004 over a year ago,
largely as a result of increases in average assets under management subject to
third-party distribution and revenue sharing arrangements and an increase in
Class A shares sold at net asset value. Distribution expense increased by 58
percent in the first half of fiscal 2004 over a year ago, reflecting both the
increases in average assets under management subject to third-party distribution
and revenue sharing arrangements and an increase in Class A shares sold at net
asset value.
Other expenses
Other operating expenses
consist primarily of travel, facilities, information technology, consulting,
fund expenses assumed by the Company, communications and other corporate
expenses, including the amortization of intangible assets.
Other operating expenses increased by 23 percent in the second quarter of fiscal 2004 and 12 percent in the first half of fiscal 2004 over the same periods a year ago, primarily reflecting increases in travel associated with the offering of new closed-end funds and facilities, information technology and amortization expense associated with the acquisition of Parametric in the fourth quarter of fiscal 2003. These increases were offset by a reduction in fund-related expenses in both the three and six month periods ended April 30, 2004.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
| For the Three Months Ended April 30, |
For the Six Months Ended April 30, |
||||||||||||
| (in thousands) | 2004 | 2003 | % Change |
2004 | 2003 | % Change |
|||||||
| Interest income | $ 661 | $ 1,406 | -53% | $ 1,449 | $ 2,937 | -51% | |||||||
| Interest expense | (1,364 | ) | (1,471 | ) | -7% | (3,015 | ) | (2,904 | ) | 4% | |||
| Gain (loss) on investments | (83 | ) | 76 | -209% | (78 | ) | 1,950 | -104% | |||||
| Foreign currency gain | (29 | ) | 135 | -121% | (47 | ) | 40 | -218% | |||||
| Equity in net income of affiliates | 623 | 15 | NM | 638 | (211 | ) | NM | ||||||
| Total other income (expense) | $ (192 | ) | $ 161 | -219% | $(1,053 | ) | $ 1,812 | -158% | |||||
Interest income decreased 53 percent in the second quarter of fiscal 2004, primarily due to the Company’s investment in and consolidation of two sponsored mutual funds. Interest and dividend income earned by the two consolidated funds, which invest in short-term debt instruments, is currently recorded in other revenue. The 51 percent decline in interest income for the first six months of fiscal 2004 over a year ago can also be attributed to the consolidation of these two funds.
Interest expense decreased 7 percent in the second quarter of fiscal 2004, primarily reflecting the retirement of the Company’s 6.22 percent senior notes in March 2004.
Interest expense increased 4 percent in the first six months of fiscal 2004, primarily as a result of the recognition of additional interest expense in conjunction with the settlement of the Company’s Internal Revenue Service audits for the fiscal years ending October 31, 1999 and 2000.
The Company’s effective tax rate increased to 36 percent in the first quarter of fiscal 2004 from 35 percent in the first quarter of fiscal 2003 as a result of an increase in state tax rates.
In January 2004, the Internal Revenue Service issued a new regulation that changed the tax treatment of deferred sales commissions. The new tax regulation, which allows for the immediate deduction of 12b-1 commissions when paid, has been applied prospectively to commissions paid in fiscal year 2004 and retroactively to 12b-1 commissions paid during fiscal years 2003 and 2002. Sales commission payments made in fiscal years 2003 and 2002 were previously capitalized for tax purposes and deducted over their useful lives. Unamortized balances relating to fiscal years 2003 and 2002 will be deducted for tax purposes in fiscal 2004. The change in tax accounting treatment will not require amendments to prior year returns.
Minority interest, net of tax, increased by 246 percent in the second quarter of fiscal 2004 over the same period a year ago and by 342 percent in the first half of fiscal 2004 over the same period a year ago. The increases noted in minority interest for both periods can be attributed to the acquisition of Parametric in September of 2003 and the increased profitability of the Company’s other majority-owned subsidiaries.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table summarizes certain key financial data relating to the Company’s liquidity and capital resources as of April 30, 2004 and October 31, 2003:
| (in thousands) | April 30, 2004 |
October 31, 2003 |
||||
| Balance sheet data: | ||||||
| Cash and cash equivalents | $152,734 | $138,328 | ||||
| Short-term investments | 155,610 | 104,484 | ||||
| Long-term investments | 37,877 | 36,490 | ||||
| Deferred sales commissions | 182,349 | 199,322 | ||||
| Current portion of long-term debt | — | 7,143 | ||||
| Long-term debt | 119,621 | 118,736 | ||||
| Deferred income taxes | 65,619 | 33,203 |
| For the Six Months Ended April 30, |
|||||
| (in thousands) | 2004 | 2003 | |||
| Cash flow data: | |||||
| Operating cash flows | $ 35,295 | ($13,586 | ) | ||
| Investing cash flows | (3,020 | ) | 20,093 | ||
| Financing cash flows | (17,869 | ) | (9,857 | ) | |
The Company’s financial condition is highly liquid, with over a third of the Company’s assets represented by cash, cash equivalents and short-term investments. Short-term investments consist principally of short-term debt instruments and investments in the Company’s sponsored mutual funds. Long-term investments consist principally of seed investments in the Company’s sponsored mutual funds and minority equity investments in CDO entities.
Deferred sales commissions paid to broker/dealers in connection with the distribution of the Company’s Class B and Class C fund shares, as well as certain private funds, decreased by 9 percent in the first half of fiscal 2004, primarily reflecting a decrease in Class B share sales, which have historically represented the majority of deferred sales commissions paid to broker/dealers. Deferred income taxes, which relate principally to deferred sales commissions, increased by 98 percent in the first half of fiscal 2004, reflecting a change in the tax treatment of deferred sales commissions. The new tax regulation, which allows for the immediate deduction of 12b-1 sales commissions when paid, has been applied prospectively to sales commissions paid on or after November 1, 2003 and retroactively to 12b-1 sales commissions capitalized during fiscal 2003 and 2002. From January 1, 2001 to November 1, 2003, sales commission payments were capitalized for tax purposes and deducted over their useful lives. The change in the timing of the deduction of sales commission payments has had the effect of reducing current income tax payments and increasing deferred income taxes.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table details the Company’s future contractual obligations under its operating lease arrangements:
| Contractual Obligation | Payments due | ||||||||||
| (in millions) | Total | Less than 1 year |
1-3 years |
4-5 years |
After 5 years |
||||||
| Operating leases | $30.4 | $6.8 | $12.1 | $11.4 | $0.1 | ||||||
Excluded from the table above are Eaton Vance Management’s (“EVM’s”) zero-coupon exchangeable senior notes (“Notes”). On August 13, 2001, EVM, the Company’s operating subsidiary, 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, shares of the Company’s non-voting common stock, or a combination of both. Based upon current market conditions, EVM does not expect to be required to repurchase any of its Notes on August 13, 2004, the next scheduled repurchase date.
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 1.627 percent per year of each Note’s principal amount at maturity (approximately 2.5 percent of each Notes accreted value) for a period of 21 months. With the exception of the first interest payment due on February 13, 2003, which was paid in arrears for the three-month period ending on that date, these interest payments are accrued over the six-month period prior to payment and are recorded in interest expense. 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 LIBOR-based 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, 2004, EVM had no borrowings outstanding under its revolving credit facility.
On September 30, 2001, the Company acquired 70 percent of Atlanta Capital for an aggregate initial payment of $75.0 million, consisting of cash of $60.0 million and Eaton Vance Corp. non-voting common stock valued at $15.0 million. Atlanta Capital’s principals will continue to hold 30 percent of the equity of Atlanta Capital through December 31, 2004. Beginning in calendar 2005, Atlanta Capital’s principals will have the right to sell and the Company will have the right to purchase the remaining 30 percent of Atlanta Capital over a five-year period. The price for acquiring the remaining 30 percent of Atlanta Capital will be based on a multiple of earnings before taxes (a measure that is intended to approximate fair market value) in those years.
On September 30, 2001, the Company also acquired 80 percent of Fox Asset Management for an aggregate initial payment of $32.0 million, consisting of cash of $22.4 million and Eaton Vance Corp.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
non-voting common stock valued at $9.6 million. Additional payments in 2005 and 2006 of up to $30.0 million are contingent upon Fox Asset Management achieving certain financial performance criteria. Fox Asset Management’s current and former principals will continue to hold 20 percent of the equity of Fox Asset Management through December 31, 2007. Beginning in calendar 2008, Fox Asset Management’s principals will have the right to sell and the Company will have the right to purchase the remaining 20 percent of Fox Asset Management over a four-year period. The price for acquiring the remaining 20 percent of Fox Asset Management will be based on a multiple of earnings before interest and taxes (a measure that is intended to approximate fair market value) in those years.
On September 10, 2003, the Company further expanded its separate account business by acquiring an 80 percent capital interest and an 81.2 percent profits interest in Parametric Portfolio Associates (“Parametric”) for an aggregate initial payment of $28.0 million in cash. Beginning in calendar 2005, certain sellers of Parametric will have the right to sell and the Company will have the right to purchase an additional 8.6 percent of the capital of Parametric over a three-year period. Beginning in calendar 2007, certain sellers of Parametric will have the right to sell and the Company will have the right to purchase the remaining 11.4 percent of the capital of Parametric (which entitles the holder to the remaining 18.8 percent profits interest) over a six-year period. The price for acquiring the remaining capital and profits interests in Parametric will be based on a multiple of earnings before interest and taxes (a measure that is intended to approximate fair market value) in those years.
The Company anticipates that the purchase of the remaining minority interests in its majority-owned subsidiaries will likely be a significant use of cash in the future.
Operating cash flows consist primarily of the operating results of the Company adjusted to reflect changes in current assets and liabilities, deferred sales commissions, deferred income taxes and investments classified as trading. Cash provided by operating activities totaled $35.3 million for the first half of fiscal 2004, compared to cash used by operating activities of $13.6 million for the first half of fiscal 2003.
Cash flows associated with the purchase and sale of trading securities included in operating cash flows primarily represent the purchase and sale of short-term debt securities by the two consolidated funds. Cash flows associated with the Company’s investments in sponsored mutual funds that are not consolidated are accounted for in cash flows from investing activities. Net cash used in the purchase and sale of trading securities totaled $51.1 million and $67.4 million for the first six months of fiscal 2004 and 2003, respectively.
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 private funds, increased by 7 percent in the first half of fiscal 2004, primarily due to an increase in Class C share and private fund sales, partially offset by a decrease in Class B share sales. Although the Company anticipates that the payment of capitalized sales commissions will continue to be a significant use of cash in the future, the payment of sales commissions will likely decline over time if sales of Class B shares continue to decline. The amortization of deferred sales commissions and contingent deferred sales charges received will likely be similarly affected.
Deferred income taxes contributed $32.2 million to operating cash flows in the first half of fiscal 2004 compared to a reduction in operating cash flows of $10.0 million in the first half of fiscal 2003, primarily as a result of the change in the tax treatment of deferred sales commissions paid described above. The reduction in cash flows from operating activities attributed to the net change in other current assets can be primarily attributed to the reclassification of income taxes paid in the first quarter of fiscal 2004 as a pre-paid asset in conjunction with the change in the tax treatment of deferred sales commissions.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Investing activities consist primarily of the purchase and sale of investments in the Company’s sponsored mutual funds and the acquisition of majority-owned subsidiaries. Cash used for investing activities totaled $3.0 million in the first half of fiscal 2004 compared to cash generated by investing activities of $20.1 million in the first half of fiscal 2003. The decrease in cash provided by investing activities year-over-year reflects the Company’s investment in two consolidated mutual funds (see discussion of purchase and sale of trading securities described in operating cash flows.)
Financing cash flows primarily reflect the issuance and repayment of long-term debt, the issuance and repurchase of the Company’s non-voting common stock and the payment of dividends to the Company’s shareholders. Cash used for financing activities totaled $17.9 million and $9.9 million for the first six months of fiscal 2004 and 2003, respectively.
The Company repurchased a total of 1,156,000 shares of its non-voting common stock for $42.9 million in the first half of fiscal 2004 under its authorized repurchase program and issued 320,000 shares of non-voting common stock in connection with the exercise of stock options and employee stock purchases for proceeds of $6.7 million. The Company has authorization to purchase an additional 2.7 million shares under its present share repurchase authorization program and anticipates that future repurchases will continue to be a significant use of cash. The Company’s dividend was $0.24 per share in the first half of fiscal 2004 compared to $0.16 per share in the first half of fiscal 2003. The Company increased its quarterly dividend in the third quarter of fiscal 2003 by 50 percent to $0.12 per share in response to a decrease in the federal income tax rate on qualifying dividend income for individual taxpayers.
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.
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.
Deferred Sales
Commissions
Sales commissions paid to
broker/dealers in connection with the sale 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, 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 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 commissions assets accordingly.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Goodwill and
Intangible Assets
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. 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. 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
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. As noted above, new IRS regulations provide that commission
payments made subsequent to November 1, 2003 are deductible for tax purposes 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.
Investments in
Collateralized Debt Obligation Entities
The Company acts as
collateral manager for five collateralized debt obligation entities (“CDO
entities”) pursuant to collateral management agreements between the Company
and each CDO entity. At April 30, 2004, combined assets under management in the
collateral pools of all five of these CDO entities were approximately $1.7
billion. The Company has minority equity investments in three of these entities
totaling $15.1 million at April 30, 2004.
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 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. 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 Company’s 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 Company’s investments in these CDO entities may be adversely affected. The Company’s risk of loss is limited to the $15.1 million carrying value of the minority equity investments on the Company’s Consolidated Balance Sheet at April 30, 2004.
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
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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 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. No losses of this nature have been recorded in the financial
statements included in this report.
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.
The Company’s 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 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 revenue 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 employees 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, costs for insurance and other services by
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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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 $10.0 million at April 30, 2004, 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 and short-term debt securities. The negative effect on the Company’s pre-tax interest income of a 50 basis point decline in interest rates would be approximately $0.8 million based on fixed-income and floating-rate income investments of $156.6 million as of April 30, 2004. 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.
The Company’s primary exposure to credit risk arises from its minority equity interests in three 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 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 $15.1 million at April 30, 2004, which represents the total value at risk with respect to such entities as of April 30, 2004.
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 “Competitive Conditions and Risk Factors” in Item 2, declines of financial market values will negatively impact revenue and net income.
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ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of April 30, 2004, 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 Company’s 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 Company’s disclosure controls and procedures were effective.
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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There have been no material developments in the litigation previously reported in the Company’s Annual Report on Form 10-K for the period ended October 31, 2003 as filed with the SEC on January 21, 2004 and in the Company’s Quarterly Report on Form 10-Q for the period ended January 31, 2004 as filed with the SEC on March 10, 2004.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information regarding the Company’s purchases of its non-voting common stock on a monthly basis during the first six months of 2004:
| 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, 2003 through November 30, 2003 | 93,156 | $35.12 | 93,156 | 3,797,860 | |||||
| December 1, 2003 through December 31, 2003 | 242,606 | $35.65 | 242,606 | 3,555,254 | |||||
| January 1, 2004 through January 31, 2004 | 278,204 | $37.19 | 278,204 | 3,277,050 | |||||
| February 1, 2004 through February 29, 2004 | 55,822 | $37.70 | 55,822 | 3,221,228 | |||||
| March 1, 2004 through March 31, 2004 | 254,654 | $38.29 | 254,654 | 2,966,574 | |||||
| April 1, 2004 through April 30, 2004 |
231,486 | $37.71 | 231,486 | 2,735,088 | |||||
| Total | 1,155,928 | $37.07 | 1,155,928 | 2,735,088 |
1 The Company’s share repurchase program was announced on October 22, 2003. The Board authorized management to repurchase 4,000,000 of its non-voting common stock on the open market and in private transactions in accordance with applicable securities laws. No plans have expired or terminated in the first six months of fiscal 2004. The Company’s stock repurchase plan is not subject to an expiration date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
By unanimous written consent, dated April 8, 2004, the voting trustees entitled to vote of all of the outstanding Voting Common Stock of Eaton Vance Corp. voted to elect Winthrop H. Smith, Jr. as a Director of the corporation, to hold such office until the next annual meeting of the stockholders and until his successor is elected and qualified.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| 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 |
The Company filed a Form 8-K with the SEC on February 25, 2004, regarding the Company’s press release of its results of operations for the quarter ended January 31, 2004.
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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 9, 2004 | /s/ William M. Steul |
||
| (Signature) William M. Steul Chief Financial Officer |
|||
| DATE: June 9, 2004 | /s/ Laurie G. Hylton |
||
| (Signature) Laurie G. Hylton Chief Accounting Officer |
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