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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 23, 2006

EATON VANCE CORP.
(Exact name of registrant as specified in its charter)

                   Maryland                       1-8100                       04-2718215 
(State or other jurisdiction    (Commission File Number)    (IRS Employer Identification No.) 
 of incorporation)         
 
 
                   255 State Street, Boston, Massachusetts                       02109 
                     (Address of principal executive offices)                    (Zip Code) 

Registrant’s telephone number, including area code: (617) 482-8260

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing 
obligation of the registrant under any of the following provisions (see General Instruction A.2. below): 

 

[   ]   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 

   

[   ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 

 

[   ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act 

          (17 CFR 240.14d-2(b)) 

 

[   ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act 

          (17 CFR 240.13e-4(c)) 

Page 1 of 10


INFORMATION INCLUDED IN THE REPORT

Item 9.01.      Financial Statements and Exhibits

Registrant has reported its results of operations for the three and nine months ended July 31, 2006, as described in Registrant’s news release dated August 23, 2006, a copy of which is filed herewith as Exhibit 99.1 and incorporated herein by reference.

Exhibit No.    Document 

 

99.1 

  Press release issued by the Registrant dated August 23, 2006. 

Page 2 of 10


SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

        EATON VANCE CORP. 
        (Registrant) 
 
 
Date:    August 23, 2006    /s/ William M. Steul 
        William M. Steul, Chief Financial Officer 

Page 3 of 10


EXHIBIT INDEX

     Each exhibit is listed in this index according to the number assigned to it in the exhibit table set forth in Item 601 of Regulation S-K. The following exhibit is filed as part of this Report:

Exhibit No.    Description 

 

99.1 

  Copy of Registrant's news release dated August 23, 2006. 

Page 4 of 10


Exhibit 99.1

  NEWS RELEASE


August 23, 2006

FOR IMMEDIATE RELEASE

EATON VANCE CORP.
REPORT FOR THE THREE MONTHS AND NINE MONTHS ENDED
JULY 31, 2006

Boston, MA, August 23, 2006--Eaton Vance Corp. reported diluted earnings per share of $0.31 in the third quarter of fiscal 2006 compared to diluted earnings per share of $0.26 in the third quarter of fiscal 2005, an increase of 19 percent. The Company earned $0.88 per diluted share in the first nine months of fiscal 2006, an increase of 22 percent compared to earnings of $0.72 per diluted share in the first nine months of fiscal 2005.

Assets under management of $120.4 billion at the end of the third quarter of fiscal 2006 were $14.4 billion or 14 percent greater than the $106.0 billion at the end of the third fiscal quarter last year. In the 12-month period ended July 31, 2006, the Company’s assets under management were positively affected by long-term fund and separate account net inflows of $9.1 billion, market price appreciation of $3.0 billion, acquired high-net-worth assets of $0.5 billion and a $1.9 billion increase in money market fund assets. Gross sales and inflows of long-term funds and separate accounts in the last 12 months were $27.3 billion.

Fund and separate account net inflows of $2.6 billion in the third quarter of fiscal 2006 compared to net inflows of $2.4 billion in the third quarter of fiscal 2005. Strong open-end mutual fund net sales in the third quarter more than offset lower closed-end fund sales compared to the same period last year. Private fund net inflows increased to $1.5 billion from $0.3 billion in part due to a new $0.7 billion collateralized debt obligations vehicle.

The Company experienced institutional and high-net-worth separate account net outflows of $0.5 billion in the third quarter of fiscal 2006 compared to net inflows of $0.2 billion in the third quarter of fiscal 2005, primarily because of a bank loan separate account withdrawal. Retail managed account net inflows were $36 million in the third quarter of fiscal 2006 compared to $0.4 billion in the same period last year. Without the loss of a relatively low-fee overlay arrangement at Parametric Portfolio Associates, retail managed account net inflows would have been higher than in the year-ago quarter. Attached tables 1-4 provide more details on assets under management and asset flows.

Page 5 of 10


As a result of higher average assets under management, revenue in the third quarter of fiscal 2006 increased by $25.5 million or 13 percent to $216.3 million compared to revenue in the third quarter of fiscal 2005 of $190.8 million. Investment adviser and administration fees increased 17 percent to $149.8 million, generated by a 16 percent increase in average assets under management. Distribution and underwriter fees decreased 3 percent, reflecting the continuing shift in sales and assets from class B mutual fund shares to other fund share classes and other managed assets with low or no distribution fees. Service fee revenue increased 17 percent due to the increase in average fund assets that pay these fees.

Operating expenses increased 14 percent in the third quarter of fiscal 2006 to $148.4 million compared to operating expenses of $129.9 million in the third quarter of fiscal 2005 because of higher compensation, service fee, distribution and other expenses. Compensation expense increased 20 percent, due primarily to a 15 percent increase in employee headcount, higher marketing incentive compensation from increased mutual fund sales, and increased operating income-based management bonus accruals.

Amortization of deferred sales commissions declined 23 percent in the third quarter of fiscal 2006 compared to the third quarter of fiscal 2005 primarily because of the continuing decline in class B fund share sales and assets. Service fee expense increased 9 percent. Distribution expense increased 19 percent as a result of increases in sales support, class A fund share commissions, class C fund share distribution expenses and closed-end fund fees. Other expenses increased 35 percent primarily because of higher fund-related expenses assumed by the Company and higher information technology, facilities, communications, and travel expenses.

Operating income increased 12 percent to $67.9 million and net income increased 17 percent to $41.8 million in the third quarter of fiscal 2006, compared to $60.8 million and $35.8 million, respectively, in the third quarter of fiscal 2005. Interest income increased 113 percent, primarily because of higher interest and dividends earned on cash and short-term investments. The effective tax rate, before minority interest and equity in net income of affiliates, was 39.2 percent in the third quarter of fiscal 2006 and 41.3 percent in the third quarter of fiscal 2005.

Cash, cash equivalents and short-term investments were $295.7 million on July 31, 2006, and $252.3 million on July 31, 2005. The Company’s strong operating cash flow in the last 12 months enabled it to repurchase 5.3 million shares of its non-voting common stock for $141.0 million and to pay $49.1 million in dividends to shareholders. There are currently no outstanding borrowings against the Company’s $180 million credit facility.

During the first nine months of fiscal 2006, the Company repurchased and retired 4.2 million shares of its non-voting common stock at an average price of $27.04 per share under its current and prior repurchase authorizations. Approximately 7.9 million shares remain of the current 8.0 million share authorization.

Page 6 of 10


On August 17, 2006 a subsidiary of the Company completed its redemption of $76.4 million of its zero-coupon exchangeable notes for cash. Note holders were entitled to exchange each note for 28.73 shares of Eaton Vance Corp. non-voting common stock. The premium value of the shares in excess of the accreted value of the notes was $9.8 million, which was paid to note holders in cash and will be charged to interest expense in the Company’s fiscal fourth quarter income statement. The additional interest expense and write-off of related debt issuance costs will reduce fourth quarter diluted earnings per share by approximately $0.05. Redemption of the notes eliminates all of Eaton Vance Corp.’s outstanding long-term debt and will reduce its diluted shares outstanding by 3.2 million shares or approximately 2.3 percent.

Eaton Vance Corp., a Boston-based investment management firm, is traded on the New York Stock Exchange under the symbol EV.

This news release contains statements that are not historical facts, referred to as “forward- looking statements.” The Company’s actual future results may differ significantly from those stated in any forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and repurchases of fund shares, the continuation of investment advisory, administration, distribution and service contracts, and other risks discussed from time to time in the Company’s filings with the Securities and Exchange Commission.

Page 7 of 10


Eaton Vance Corp.
Summary of Results of Operations
(in thousands, except per share amounts)

        Three Months Ended                   Nine Months Ended     

 
         July 31,      July 31,       %       July 31,      July 31,         %   
           2006       2005    Change           2006       2005     Change   

 
Revenue:                                       
     Investment adviser and administration fees    $ 149,823         $     127,768           17  %    $ 437,176     368,047    $ 19  % 
     Distribution and underwriter fees      34,338           35,238           (3)           104,605         104,107             0   
     Service fees      31,235           26,637           17             89,238           77,253           16   
     Other revenue                   1,108         (17)        3,118             5,629           (45)   

 
     Total revenue               216,315         190,751           13           634,137         555,036           14   

 
Expenses:                                       
     Compensation of officers and employees      61,989           51,782           20           181,926         151,911           20   
     Amortization of deferred sales commissions      12,119           15,694         (23)             39,168           50,641           (23)   
     Service fee expense      24,063           22,087             9             69,896           63,853             9   
     Distribution expense      30,601           25,775           19             84,705           71,888           18   
     Other expenses      19,658           14,610           35             65,861           45,642           44   

 
     Total expenses               148,430         129,948           14           441,556         383,935           15   

 
Operating Income      67,885           60,803           12           192,581         171,101           13   
 
Other Income/(Expense):                                       
     Interest income                   1,030         113        5,938             2,796         112   
     Interest expense         (655)                 78               (1,380)             (1,099)           26   
     Gain on investments                     nm        3,589                 274           nm   
     Foreign currency loss           (55)                   8        (182)                 (26)           nm   
     Impairment loss on investments               -                     -         nm        (592)             (1,840)           nm   

 
Income Before Income Taxes, Minority Interest,                                       
     Equity in Net Income of Affiliates and                                       
     Cumulative Effect of Change in Accounting Principle      69,413           61,602           13           199,954         171,206           17   
 
Income Taxes      (27,233)           (25,452)             7             (77,451)           (66,986)           16   
 
Minority Interest      (1,011)             (1,128)         (10)               (3,830)             (3,736)             3   
 
Equity in Net Income of Affiliates, Net of Tax                     (11)        2,803                 527           nm   

 
Net Income Before Cumulative Effect of Change in                                       
     Accounting Principle      41,819           35,756           17           121,476         101,011           20   
 
Cumulative Effect of Change in Accounting Principle,                                       
     Net of Tax               -                     -         nm        (626)                     -           nm   

 
Net Income    $  41,819         $       35,756           17      $ 120,850     101,011           20   

 
Earnings Per Share Before Cumulative Effect of                                       
     Change in Accounting Principle:                                       
       Basic    $     0.33         $           0.27           22      $  0.95           0.76           25   

       Diluted    $     0.31         $           0.26           19      $  0.88           0.72           22   

 
Earnings Per Share:                                       
       Basic    $     0.33         $           0.27           22      $  0.94           0.76           24   

       Diluted    $     0.31         $           0.26           19      $  0.88           0.72           22   

 
Dividends Declared, Per Share    $     0.10         $           0.08           25      $  0.30           0.24           25   

 
Weighted Average Shares Outstanding:                                       
     Basic               127,211         130,887           (3)           128,292         132,177             (3)   

     Diluted               136,601         139,691           (2)           138,141         140,983             (2)   


                                                                               Page 8 of 10


Eaton Vance Corp.
Balance Sheet
(in thousands, except per share figures)

     July 31,    October 31,     July 31, 
         2006        2005         2005 

 
ASSETS                 
Current Assets:                 
 Cash and cash equivalents    $ 165,771    $    146,389    $ 125,479 
 Short-term investments         129,926        127,858         126,822 
 Investment adviser fees and other receivables           89,391         83,868           82,404 
 Other current assets             6,371         10,473             6,832 

     Total current assets         391,459        368,588         341,537 

 
Other Assets:                 
 Deferred sales commissions         114,825        126,113         132,521 
 Goodwill           94,787         89,634           89,634 
 Other intangible assets, net           36,501         40,644           40,865 
 Long-term investments           61,552         61,766           51,448 
 Equipment and leasehold improvements, net           20,228         12,764           12,677 
 Other assets             2,026           3,035             4,395 

     Total other assets         329,919        333,956         331,540 

 
Total assets    $ 721,378    $    702,544    $ 673,077 

 
LIABILITIES AND SHAREHOLDERS' EQUITY                 
 
Current Liabilities:                 
 Accrued compensation    $ 59,664    $     62,880    $ 46,586 
 Accounts payable and accrued expenses           32,303         27,987           28,650 
 Dividend payable           12,704         12,952           10,431 
 Current portion of long-term debt           76,316             
 Other current liabilities             7,920         12,538             7,674 

     Total current liabilities         188,907        116,357           93,341 

Long-Term Liabilities:                 
 Long-term debt             75,467           75,184 
 Deferred income taxes           26,168         29,804           29,536 

     Total long-term liabilities           26,168        105,271         104,720 

     Total liabilities         215,075        221,628         198,061 

Minority interest             8,996           4,620             4,058 

Commitments and contingencies                 
 
Shareholders' Equity:                 
 Common stock, par value $0.00390625 per share:                 
     Authorized, 1,280,000 shares                 
     Issued, 309,760 shares                     1                   1                     1 
 Non-voting common stock, par value $0.00390625 per share:                 
     Authorized, 190,720,000 shares                 
     Issued, 126,735,035, 129,243,023 and 130,230,370 shares, respectively                 495               505                 509 
 Notes receivable from stock option exercises           (2,043)         (2,741)           (2,843) 
 Accumulated other comprehensive income             2,700           2,566             2,876 
 Retained earnings         496,154        475,965         470,415 

 
     Total shareholders' equity         497,307        476,296         470,958 

 
Total liabilities and shareholders' equity    $ 721,378    $    702,544    $ 673,077 


Page 9 of 10


                               Table 1                   Table 2             
                 Asset Flows (in millions)                   Assets Under Management         
         Twelve Months Ended July 31, 2006        By Investment Objective (in millions)         
 
Assets 7/31/2005 - beginning of period    $ 105,975        July 31,    October 31,     %     July 31,     % 
Long-term fund sales and inflows         21,410         2006       2005    Change     2005    Change 
Long-term fund redemptions and outflows       (12,459)    Equity Funds    $ 49,636    $ 45,146         10%    $ 43,509         14% 
Long-term fund net exchanges             (76)    Fixed Income Funds       20,206       18,603           9%       18,451         10% 
Long-term fund mkt. value change           2,088    Bank Loan Funds       19,511       16,816         16%       16,430         19% 
Institutional/HNW account inflows           2,546    Money Market Funds         2,138           278         669%           271       689% 
Institutional/HNW account outflows         (3,637)    Separate Accounts       28,899       27,650           5%       27,314           6% 
Institutional/HNW account assets acquired 1,2             532    Total    $ 120,390    $ 108,493         11%    $ 105,975         14% 

Retail managed account inflows           3,337                         
Retail managed account outflows         (2,147)                         
Retail managed account assets acquired 1               23                         
Separate account mkt. value change             931                         
Change in money market funds           1,867                         

Net change         14,415                         

Assets 7/31/2006 - end of period    $ 120,390                         

    $ 120,390                         

Table 3
Asset Flows by Investment Objective (in millions)

         Three Months Ended             Nine Months Ended 

     July 31,    July 31,     July 31,  July 31, 
       2006     2005       2006   2005 

Equity fund assets - beginning of period    $ 50,116    $ 39,104    $ 45,146  $ 36,895 
Sales/inflows           2,137         2,625           5,810       6,386 
Redemptions/outflows           (1,432)       (1,060)         (4,093)     (3,244) 
Exchanges               (43)           13               (6)         43 
Market value change           (1,142)         2,827           2,779       3,429 

Net change             (480)         4,405           4,490       6,614 

Equity assets - end of period    $ 49,636    $ 43,509    $ 49,636  $ 43,509 

 
Fixed income fund assets - beginning of period           19,588       17,958         18,603     17,553 
Sales/inflows           1,536           845           4,343       2,671 
Redemptions/outflows             (870)         (574)         (2,698)     (1,761) 
Exchanges                 3             8               (7)         (39) 
Market value change               (51)           214             (35)         27 

Net change             618           493           1,603         898 

Fixed income assets - end of period    $ 20,206    $ 18,451    $ 20,206  $ 18,451 

 
Bank loan fund assets - beginning of period           17,792       16,416         16,816     15,034 
Sales/inflows           2,522           940           5,546       3,831 
Redemptions/outflows             (814)         (927)         (3,095)     (2,425) 
Exchanges               (14)           (27)             (42)         (31) 
Market value change               25           28             286         21 

Net change           1,719           14           2,695       1,396 

Bank loan assets - end of period    $ 19,511    $ 16,430    $ 19,511  $ 16,430 

 
Long-term fund assets - beginning of period           87,496       73,478         80,565     69,482 
Sales/inflows           6,195         4,410         15,699     12,888 
Redemptions/outflows           (3,116)       (2,561)         (9,886)     (7,430) 
Exchanges               (54)             (6)             (55)         (27) 
Market value change           (1,168)         3,069           3,030       3,477 

Net change           1,857         4,912           8,788       8,908 

Total long-term fund assets - end of period    $ 89,353    $ 78,390    $ 89,353  $ 78,390 

 
Separate accounts - beginning of period           30,181       24,983         27,650     24,475 
Institutional/HNW account inflows             381           655           1,730       2,134 
Institutional/HNW account outflows             (904)         (420)         (3,048)     (2,998) 
Institutional/HNW assets acquired 1               -                 427   
Retail managed account inflows             859           665           2,526       2,387 
Retail managed account outflows             (823)         (308)         (1,769)     (1,174) 
Retail managed accounts acquired 1               -                   23   
Separate accounts market value change             (795)         1,739           1,360       2,490 

Net change           (1,282)         2,331           1,249       2,839 

Separate accounts - end of period    $ 28,899    $ 27,314    $ 28,899  $ 27,314 

Money market fund assets - end of period           2,138           271           2,138         271 

Total assets under management - end of period    $ 120,390    $ 105,975    $ 120,390  $ 105,975 


Table 4
Long-Term Fund and Separate Account Net Flows (in millions)

         Three Months Ended                 Nine Months Ended   

     July 31,  July 31,     July 31,    July 31, 
       2006   2005       2006    2005 

Long-term funds:                   
 Open-end and other funds      1,440     378           3,733       1,675 
 Closed-end funds    $   162  $  1,167    $ 269  $     3,076 
 Private funds      1,477     304           1,811         707 
Institutional/HNW accounts      (523)     235         (1,318)       (864) 
Retail managed accounts       36     357             757       1,213 

Total net flows    $  2,592  $  2,441    $ 5,252  $     5,807 


1 Voyageur Asset Management (MA) acquired by Eaton Vance in December 2005.
2Weston Asset Management acquired by Eaton Vance in August 2005.

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