PART I
Item 1. Business
Our principal business is managing investment funds and providing
investment management and counseling services to high-net-worth individuals and institutions. Our long-term strategy is to develop and sustain
value-added core competencies in a range of investment disciplines and to offer industry-leading investment products and services across multiple
distribution channels. In executing this strategy, we have developed a broadly diversified product line and a powerful marketing, distribution and
customer service capability.
We are a market leader in a number of investment areas, including
tax-managed equity, value equity, equity income, emerging market equity, floating-rate bank loan, municipal bond, investment grade and high-yield bond
investing. Our diversified product line offers fund shareholders, retail managed account investors, institutional investors and high-net-worth clients
a wide range of products and services designed and managed to generate attractive risk-adjusted returns over the long term. Our income investment
products cover a broad duration and credit quality range and encompass both taxable and tax-free investments. Our equity products offer a diversity of
investment objectives, risk profiles, income levels and geographic representation. As of October 31, 2007, we had $161.7 billion in assets under
management.
Our principal retail marketing strategy is to distribute funds
and separately managed accounts through financial intermediaries in the advice channel. We have a broad reach in this marketplace, with distribution
partners including national and regional broker/dealers, independent broker/dealers, independent financial advisory firms, banks and insurance
companies. We support these distribution partners with a team of more than 140 Boston-based and regional sales professionals across the U.S. and
internationally. Specialized sales and marketing professionals in our Wealth Management Solutions Group serve as a resource to financial advisors
seeking to help high-net-worth clients address wealth management issues and support the marketing of our products and services tailored to this
marketplace.
We also commit significant resources to serving institutional and
high-net-worth clients who access investment advice outside of traditional retail broker/dealer channels. Through our wholly owned affiliates and
consolidated subsidiaries Atlanta Capital Management Company, LLC (Atlanta Capital), Fox Asset Management LLC (Fox Asset
Management), Parametric Portfolio Associates LLC (Parametric Portfolio Associates) and Parametric Risk Advisors LLC (Parametric
Risk Advisors), we manage investments for a broad range of clients in the institutional and high-net-worth marketplace, including corporations,
endowments, foundations, family offices and public and private employee retirement plans. Specialized sales teams at our affiliates develop
relationships in this market and deal directly with these clients.
Although we distribute a wide range of products and services
(including funds, retail managed accounts, institutional separate accounts and high-net-worth separate accounts) in multiple distribution channels, we
operate in one business segment, namely as an investment adviser managing fund and separate account assets. We conduct our investment management
business through our four wholly owned affiliates, Eaton Vance Management (EVM), Boston Management and Research (BMR), Eaton
Vance Investment Counsel (EVIC), and Eaton Vance Trust Company (EVTC), and four other consolidated subsidiaries, Atlanta
Capital, Fox Asset Management, Parametric Portfolio Associates and Parametric Risk Advisors. EVM, BMR, EVIC, Atlanta Capital, Fox Asset Management,
Parametric Portfolio Associates and Parametric Risk Advisors are all registered with the Securities and Exchange Commission (SEC) as
investment advisers under the Investment Advisers Act of 1940 (the Advisers Act). EVTC, a trust company, is exempt from registration under
the Advisers Act. Eaton Vance Distributors, Inc. (EVD), a wholly owned broker/dealer registered under the Securities Exchange Act of 1934
(the Exchange Act), markets and sells the Eaton Vance funds and retail managed accounts. Eaton Vance Management (International) Limited
(EVMI), a wholly owned financial services company registered under the Financial Services and
3
Market Act in the United Kingdom, markets and sells our
investment products in Europe and certain other international markets. We are headquartered in Boston, Massachusetts, and our subsidiaries have offices
in Atlanta, Georgia; Red Bank, New Jersey; Seattle, Washington; Westport, Connecticut; and London, England. Our sales representatives operate
throughout the United States, and in Europe and Latin America. Eaton Vance Corp. was incorporated in Maryland in 1990.
Company History and Development
We have been in the investment management business for over
eighty years, tracing our history to two Boston-based investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company,
organized in 1934. Historically, our managed assets consisted primarily of open-end mutual funds marketed to retail investors under the Eaton Vance
brand and investment counsel accounts offered directly to high-net-worth and institutional investors. Today, our products and services include open-end
and closed-end funds, private funds for high-net-worth and institutional investors, retail managed accounts and separately managed accounts for
institutional and high-net-worth investors.
We expanded our product and distribution focus in fiscal 2001 to
encompass two potential growth areas: managing assets for institutions, including pension plans, foundations and endowments; and managing retail
managed accounts for clients of our distribution partners who want a more customized form of asset management than provided by mutual funds. In an
effort to build a leadership position in the institutional and retail managed account businesses, we acquired an initial 70 percent of Atlanta Capital
Management and 80 percent of Fox Asset Management, institutional investment management firms focusing, respectively, on growth and value equity
investment styles. These acquisitions, completed on September 30, 2001, provided opportunities to broaden our mix of investment management disciplines,
clients and distribution channels.
In fiscal 2003, we acquired an initial 80 percent interest in
Parametric Portfolio Associates, an innovative investment management firm based in Seattle, Washington. Parametric Portfolio Associates offers two
principal products: core equity investment portfolios that seek to outperform client-specified benchmarks on an after-tax basis through active tax
management; and overlay portfolio management for retail separately managed accounts utilizing proprietary technology to implement multi-manager
portfolios with consolidated trading, reporting and tax management. Parametric Portfolio Associates also offers quantitative active equity portfolio
management, with a primary focus on emerging markets. Parametric Portfolio Associates clients include family offices, individual high-net-worth
investors, financial intermediaries and large financial services organizations.
We completed additional acquisitions in fiscal 2004, 2005 and
2006 aimed at expanding our management of investment portfolios for high-net-worth individuals. In fiscal 2004, we acquired the management contracts of
Deutsche Banks private investment counsel group in Boston, Massachusetts. In conjunction with the transaction, we hired six investment counselors
with an average of 29 years of experience in providing customized investment management services. We acquired the management contracts of Weston Asset
Management in fiscal 2005 and the management contracts of Voyageur Asset Management (MA) Inc. in fiscal 2006.
In May 2007, Parametric Portfolio Associates merged Parametric
Risk Advisors, a newly formed Parametric Portfolio Associates affiliate, with Managed Risk Advisors, LLC, an investment management and
derivatives investment advisory firm based in Westport, Connecticut. The merger extends Parametric Portfolio Associates offerings for the wealth
management market to include investment programs utilizing equity and equity index options and other derivatives. Parametric Risk Advisors is owned 60
percent by its principals and 40 percent by Parametric Portfolio Associates.
4
Sponsored Investment Products
We provide investment advisory services to funds, high-net-worth
separate accounts, institutional separate accounts and retail managed accounts across a broad range of equity and fixed and floating-rate income asset
classes. The following tables show assets under management by product and investment category for the dates indicated:
|
|
|
|
Assets Under Management by Product at October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Fund
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open-end
funds |
|
|
|
$ |
58.5 |
|
|
$ |
49.5 |
|
|
$ |
38.0 |
|
Closed-end
funds |
|
|
|
|
33.6 |
|
|
|
22.5 |
|
|
|
21.1 |
|
Private funds |
|
|
|
|
30.0 |
|
|
|
26.4 |
|
|
|
21.8 |
|
Total fund assets |
|
|
|
|
122.1 |
|
|
|
98.4 |
|
|
|
80.9 |
|
Separate
account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High-net-worth and institutional assets |
|
|
|
|
24.8 |
|
|
|
21.0 |
|
|
|
20.5 |
|
Retail managed account assets |
|
|
|
|
14.8 |
|
|
|
9.5 |
|
|
|
7.1 |
|
Total separate account assets |
|
|
|
|
39.6 |
|
|
|
30.5 |
|
|
|
27.6 |
|
Total |
|
|
|
$ |
161.7 |
|
|
$ |
128.9 |
|
|
$ |
108.5 |
|
|
|
|
|
Assets Under Management by Investment Category at
October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Equity
assets |
|
|
|
$ |
108.4 |
|
|
$ |
76.8 |
|
|
$ |
66.2 |
|
Fixed income
assets |
|
|
|
|
31.9 |
|
|
|
30.8 |
|
|
|
23.2 |
|
Floating-rate income assets |
|
|
|
|
21.4 |
|
|
|
21.3 |
|
|
|
19.1 |
|
Total |
|
|
|
$ |
161.7 |
|
|
$ |
128.9 |
|
|
$ |
108.5 |
|
Open-end funds represented 36 percent of our total assets under
management on October 31, 2007, while closed-end and private funds represented 21 percent and 19 percent, respectively. High-net-worth and
institutional separate account assets and retail managed account assets represented 15 percent and 9 percent of total assets under management,
respectively, on October 31, 2007. As noted in the table above, our asset base is broadly diversified, with 67 percent of our total assets under
management in equity assets, 20 percent in fixed income assets and 13 percent in floating-rate income assets on October 31, 2007. This diversification
provides us with the opportunity to address a wide range of investor needs and to offer products and services suited for all market
environments.
Open-end Funds
As of October 31, 2007, we offered 110 open-end funds, including
12 tax-managed equity funds, 41 state and national municipals funds, ten bank loan funds (including four continuously offered interval funds), 32
non-tax-managed equity funds, ten taxable fixed income funds and five cash management funds.
We are a leading manager of equity funds designed to minimize the
impact of taxes on investment returns, with $55.1 billion in open-end and closed-end tax-managed equity fund assets under management on October 31, 2007.
Our open-end tax-managed equity fund offerings, which represent $31.5 billion of the total $55.1 billion in tax-managed equity fund assets under
management, utilize the management capabilities of our wholly owned subsidiaries, majority owned subsidiaries and strategic partners. We began building
our tax-managed equity fund family in fiscal 1996 with the introduction of Eaton Vance Tax-Managed Growth Fund 1.1, and have since expanded our
tax-managed fund offerings to include a variety of equity styles and market
5
caps, including large-cap value, multi-cap growth, mid-cap
core, small-cap value, small-cap growth, international, emerging markets, equity asset allocation and dividend income.
In addition to our tax-managed equity funds, we offer a family of
municipal bond funds that are an important part of our tax-advantaged fund lineup. At October 31, 2007, our open-end municipal bond funds included four
national and 37 state-specific municipal bond funds in 29 different states. Assets under management in these funds totaled $17.7 billion on October 31,
2007.
We also offer a variety of floating-rate bank loan funds, taxable
fixed-income funds and equity funds for qualified retirement plans and other tax-insensitive investors. We introduced our first bank loan fund in 1989
and are now an industry leader in bank loan funds, with a long track record of generating attractive risk-adjusted returns over multiple credit cycles.
In recent years, we have been able to capitalize on our leading reputation and long-term track record managing retail bank loan funds to develop a
substantial business managing collateralized debt obligation entities focused on bank loans, other private bank loan funds and bank loan separate
accounts for institutional clients. Our non-tax-managed equity fund offerings include large, mid and small-cap funds in value, core and growth styles,
dividend income funds, international, global and emerging markets funds, and sector-specific funds. Our taxable income fund offerings utilize our
investment management capabilities in a broad range of fixed income asset classes, including mortgage-backed securities, global currency and income
investments, high grade bonds and high yield bonds.
In fiscal 2000, we introduced The U.S. Charitable Gift Trust
(Trust) and its Pooled Income Funds, designed to simplify the process of donating to qualified charities and to provide professional
management of pools of donated assets. The Trust was one of the first charities to use professional investment advisers to assist individuals with
their philanthropic, estate and tax planning needs. The Pooled Income Funds sponsored by the Trust are similar to charitable remainder trusts,
providing donors with income during their lifetimes and leaving the principal to the Trust and designated charities upon their deaths. The Trust and
its Pooled Income Funds encourage long-term philanthropy by allowing contributors to avoid the high costs associated with setting up their own
charitable foundations and charitable remainder trusts. Assets under management in the Trust and its Pooled Income Funds totaled $392.7 million at
October 31, 2007.
Closed-end Funds
Since entering the closed-end fund market in 1998, we have
expanded our product array to 38 closed-end funds, including three bank loan funds, three diversified income funds, 11 equity income funds and 21
municipal bond funds. As of October 31, 2007, we managed $33.6 billion in closed-end fund assets and ranked as the third largest manager of closed-end
fund assets, according to Strategic Insight, a fund industry data provider.
We followed the launch of our first closed-end floating-rate bank
loan fund in October 1998 with municipal bond closed-end fund offerings in fiscal 1999, 2002 and 2003. We expanded our closed-end fund product line in
fiscal 2003 with the introduction of Eaton Vance Limited Duration Income Fund, a multi-sector low duration income fund, and Eaton Vance Tax-Advantaged
Dividend Income Fund, an equity income fund designed to take advantage of the lower tax rate on qualified dividends enacted in May 2003. In fiscal
2004, we offered five new closed-end funds: Eaton Vance Senior Floating-Rate Trust and Eaton Vance Floating-Rate Income Trust (investing in
floating-rate bank loans); Eaton Vance Tax-Advantaged Global Dividend Income Fund and Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
(investing globally for tax-advantaged dividend income); and Eaton Vance Enhanced Equity Income Fund (combining equity investing with a systematic
program of writing call options on stocks held). Fiscal 2005 brought an additional five closed-end fund offerings: Eaton Vance Short Duration
Diversified Income Fund (a low duration multi-sector income fund); Eaton Vance Enhanced Equity Income Fund II (an equity income fund writing call
options on stocks held); and Eaton Vance Tax-Managed Buy-Write Income Fund, Eaton Vance Tax-Managed Buy-Write Opportunities Fund and Eaton Vance
Tax-Managed Global Buy-Write Opportunities Fund (tax-managed equity income funds utilizing written index call options).
6
Our activity in the closed-end fund market slowed in fiscal 2006
due to a flattening of the yield curve, tight credit spreads and widening discounts for closed-end funds trading in the secondary market. In May 2006,
we offered Eaton Vance Credit Opportunities Fund, which employs an opportunistic approach to investing in a wide spectrum of fixed and floating-rate
income instruments.
Investor demand for closed-end funds was strong again in fiscal
2007, and we offered three new closed-end funds in the course of the year: Eaton Vance Tax-Managed Diversified Equity Income Fund, Eaton Vance
Tax-Managed Global Diversified Equity Income Fund and Eaton Vance Risk-Managed Diversified Equity Income Fund. Eaton Vance Tax-Managed Global
Diversified Equity Income Fund, which raised $5.8 billion in its February 2007 initial public offering, ranks as the largest closed-end fund initial
public offering in history.
Private Funds
The private fund category includes privately offered equity funds
designed to meet the diversification and tax-management needs of qualifying high-net-worth investors and floating-rate bank loan funds offered to
institutional investors. Our private floating-rate bank loan funds include collateralized debt obligation (CDO) entities and leveraged and
unleveraged institutional senior loan funds. We are recognized as a market leader in the types of privately offered equity funds in which we
specialize, with $23.6 billion in assets under management as of October 31, 2007. Assets under management in private bank loan funds totaled $6.5
billion as of October 31, 2007, including $3.3 billion of CDO entity and leveraged fund assets.
Institutional Separate Accounts
We serve a broad range of clients in the institutional
marketplace, including foundations, endowments and retirement plans for individuals, corporations and municipalities. Our diversity of investment
capabilities allows us to offer institutional investors products across a broad spectrum of equity and fixed and floating-rate income management
styles. Product offerings on the equity side fill out style boxes from value to growth and from small-cap to large-cap, while income offerings include
high grade and high yield fixed income and floating-rate bank loans.
In fiscal 2005, we expanded our institutional product offerings
to include a liability-driven investing strategy, providing customized investment management portfolios to institutional clients seeking to hedge and
outperform their future liabilities. During fiscal 2005, we also chartered a non-depository trust company, EVTC, and used this as a platform to launch
a series of commingled investment vehicles tailored to meet the needs of smaller institutional clients. Establishing the trust company also enabled us
to expand our presence in the retirement market through participation in qualified plan commingled investment platforms offered in the broker/dealer
channel. In addition to its management services, EVTC provides certain custody services and has obtained regulatory approval to provide institutional
trustee services.
In fiscal 2005 and 2006, we committed to building a full-function
institutional marketing and service organization at EVM. In support of this effort, EVM hired a head of institutional sales and created dedicated
consultant relations, marketing, sales and client service teams. The build-out of EVMs institutional sales team is now substantially complete.
Specialized institutional sales teams at EVM, Atlanta Capital and Fox Asset Management develop relationships in this market and deal directly with
institutional clients. Institutional separate account assets under management totaled $12.2 billion at October 31, 2007.
7
High-net-worth Separate Accounts
We offer high-net-worth and family office clients personalized
investment counseling services through EVIC and our majority-owned affiliates. Private investment counselors assist our clients in establishing
long-term financial programs and implementing strategies for achieving them. In fiscal 2004, we acquired the management contracts of Deutsche
Banks private investment counsel group in Boston and hired many of its investment professionals. In fiscal 2005, we acquired the management
contracts of Weston Asset Management and in fiscal 2006 we acquired the management contracts of Voyageur Asset Management (MA) Inc.
In fiscal 2007, Parametric Portfolio Associates formed Parametric
Risk Advisors to extend Parametric Portfolio Associates offerings for the wealth management market to include investment programs utilizing
equity and equity index options and other derivatives.
High-net-worth assets totaled $12.6 billion at October 31,
2007.
Retail Managed Accounts
We have developed our retail managed accounts business by
capitalizing on the management capabilities of EVM, Atlanta Capital, Fox Asset Management, Parametric Portfolio Associates and strategic partners and
leveraging the strengths of our retail marketing organization and our relationships with major distributors. We now participate in more than 50 retail
managed account broker/dealer programs and continue to expand our product offerings in these programs across key platforms. In October 2007, we
combined the functions of our former retail separately managed accounts and alternative investments marketing units into a newly formed Wealth
Management Solutions Group. In conjunction with our field sales representatives, this group provides marketing and service to support our sophisticated
wealth management offerings. Retail managed account assets totaled $14.8 billion at October 31, 2007.
Investment Management and Administrative
Activities
Our wholly owned subsidiaries EVM and BMR are investment advisers
for all but six of the Eaton Vance funds. Lloyd George Management (LGM), an independent investment management company based in Hong Kong in
which we own a 20 percent equity position, is the investment adviser for four of our emerging market equity funds, Eaton Vance Asian Small Companies
Fund, Eaton Vance Emerging Markets Fund, Eaton Vance Greater China Growth Fund and Eaton Vance Greater India Fund. OrbiMed Advisors LLC
(OrbiMed), an independent investment management company based in New York, is the investment adviser for Eaton Vance Worldwide Health
Sciences Fund and Eaton Vance Variable Trust Worldwide Health Sciences Fund. Certain Eaton Vance funds use investment sub-advisers under agreements
between the adviser and the sub-adviser approved by the fund trustees. Eagle Global Advisors L.L.C., an independent investment management company based
in Houston, Texas, acts as a sub-adviser to Eaton Vance Tax-Managed International Equity Fund, Eaton Vance International Equity Fund and Eaton Vance
Global Growth Fund. Rampart Investment Management Company, Inc., a Boston-based independent investment manager, acts as an options program sub-adviser
for Eaton Vance Enhanced Equity Income Fund, Eaton Vance Enhanced Equity Income Fund II, Eaton Vance Tax-Managed Buy-Write Income Fund, Eaton Vance
Tax-Managed Buy-Write Opportunities Fund, Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund, Eaton Vance Tax-Managed Diversified Equity
Income Fund, Eaton Vance Tax-Managed Global Diversified Equity Income Fund, and Eaton Vance Risk-Managed Diversified Equity Income Fund. Atlanta
Capital, Fox Asset Management and Parametric Portfolio Associates also act as sub-advisers to EVM and BMR for ten funds.
EVM provides administrative services, including personnel and
facilities, necessary for the operation of all Eaton Vance funds. These services are provided either through a management agreement with the funds that
also includes investment advisory services, or through a separate administrative services agreement with the funds, as discussed
below.
8
For funds that are registered under the Investment Company Act of
1940 (1940 Act) (Registered Funds), a majority of the independent trustees (i.e., those unaffiliated with us or any adviser
controlled by us and deemed non-interested under the 1940 Act) must review and approve the investment advisory agreements annually. The
fund trustees generally may terminate these agreements upon 30 to 60 days notice without penalty. Shareholders of Registered Funds must approve
any material amendments to the investment advisory agreements.
Investment counselors and separate account portfolio managers
employed by our wholly owned and majority owned subsidiaries make investment decisions for the separate accounts we manage. Investment counselors and
separate account portfolio managers generally use the same research information as fund portfolio managers, but tailor investment decisions to the
needs of particular clients. We receive investment advisory fees for separate accounts quarterly, based on the value of the assets managed on a
particular date, such as the first or last calendar day of a quarter, or, in some instances, on the average assets for the period. These fees generally
range from 10 to 100 basis points annually of assets under management and are generally terminable upon 30 to 60 days notice without
penalty.
The following table shows investment advisory and administration
fees earned for the past three years ended October 31, 2007:
|
|
|
|
Investment Advisory and Administration Fees Year
Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Investment
advisory fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds (1) |
|
|
|
$ |
622,147 |
|
|
$ |
466,122 |
|
|
$ |
391,245 |
|
Separate
accounts (1) |
|
|
|
|
107,929 |
|
|
|
92,708 |
|
|
|
83,308 |
|
Administration fees funds |
|
|
|
|
43,536 |
|
|
|
35,802 |
|
|
|
28,532 |
|
Total |
|
|
|
$ |
773,612 |
|
|
$ |
594,632 |
|
|
$ |
503,085 |
|
(1) |
|
Certain amounts from prior years have been reclassified to
conform to the current year presentation. See footnote 1 in Item 8 for further discussion of this change. |
Investment Management Agreements and Distribution
Plans
The Eaton Vance funds have entered into agreements with EVM or
BMR for investment advisory and/or administrative services. The agreements are of three types: investment advisory agreements, administrative services
agreements and management agreements, which may provide for both advisory and administrative services. Although the specifics of these agreements vary,
the basic terms are similar. Pursuant to the advisory agreements, EVM or BMR provides overall investment management services to each internally advised
fund, subject, in the case of Registered Funds, to the supervision of the funds board of trustees in accordance with the funds investment
objectives and policies. Our investment advisory agreements with the funds provide for fees ranging from 10 to 100 basis points of average assets
annually. Atlanta Capital, Fox Asset Management, Parametric Portfolio Associates or an unaffiliated advisory firm acts as a sub-adviser to EVM and BMR
for certain funds.
EVM provides administrative services to all Eaton Vance funds,
including those advised by LGM and OrbiMed. As administrator, EVM is responsible for managing the business affairs of the funds, subject to the
oversight of each funds board of trustees. Administrative services include recordkeeping, preparing and filing documents required to comply with
federal and state securities laws, legal, fund administration and compliance services, supervising the activities of the funds custodians and
transfer agents, providing assistance in connection with the funds shareholder meetings and other administrative services, including providing
office space and office facilities, equipment and personnel that may be necessary for managing and administering the business affairs of the funds. For
the services provided under the agreements, certain funds
9
pay EVM a monthly fee calculated at an annual rate of up to
25 basis points of average daily net assets. Each agreement remains in effect indefinitely, subject, in the case of Registered Funds, to annual
approval by the funds board of trustees.
In addition, certain funds have adopted distribution plans, as
permitted by the 1940 Act, which provide for payment of ongoing distribution fees (so-called 12b-1 fees) for the sale and distribution of
shares, and service fees for personal and/or shareholder account services. Distribution fees reimburse us for sales commissions paid to retail
distribution firms and for distribution services provided. Each distribution plan and distribution agreement with EVD for the Registered Funds is
initially approved and its subsequent continuance must be approved annually by the board of trustees of the respective funds, including a majority of
the independent trustees.
Each fund generally bears all expenses associated with its
operation and the issuance and redemption or repurchase of its securities, except for the compensation of trustees and officers of the fund who are
employed by us. Under some circumstances, particularly in connection with the introduction of new funds, EVM or BMR may waive a portion of its
management fee and/or pay some expenses of the fund.
Either EVM, BMR, EVIC, Atlanta Capital, Fox Asset Management,
Parametric Portfolio Associates or Parametric Risk Advisors has entered into an investment advisory agreement for each separately managed account and
retail managed account program, which sets forth the accounts investment objectives and fee schedule, and provides for management of assets in
the account in accordance with the stated investment objectives. Our separate account portfolio managers may assist clients in formulating investment
strategies.
EVTC is the trustee for each collective investment trust that is
maintained by it and is responsible for designing and implementing the trusts investment program, including day-to-day management of the
trusts investment portfolio. As trustee, EVTC also provides certain administrative and accounting services to the trust. For services provided
under each trusts declaration of trust, EVTC receives a monthly fee calculated at an annual rate of up to 65 basis points of average daily net
assets of the trust.
EVM has entered into an investment advisory and administrative
agreement with The U.S. Charitable Gift Trust. In addition, the Trust and its Pooled Income Funds have entered into distribution agreements with EVD
that provide for reimbursement of the costs of fundraising and servicing donor accounts.
Marketing and Distribution of Fund Shares
We market and distribute shares of Eaton Vance funds through EVD.
EVD sells fund shares through a network of financial intermediaries, including national and regional broker/dealers, banks, insurance companies and
financial planning firms. Although the firms in our retail distribution network have each entered into selling agreements with EVD, these agreements
(which generally are terminable by either party) do not legally obligate the firms to sell any specific amount of our investment products. For the
2007, 2006 and 2005 fiscal years, the five dealer firms responsible for the largest volume of open-end fund sales accounted for approximately 37
percent, 35 percent and 34 percent, respectively, of our open-end fund sales volume. EVD currently maintains a sales force of more than 140 external
and internal wholesalers and other marketing professionals. External and internal wholesalers work closely with investment advisers in the retail
distribution network to assist in marketing Eaton Vance funds.
EVD currently sells Eaton Vance mutual funds under four primary
pricing structures: front-end load commission (Class A); spread-load commission (Class B); level-load commission (Class
C); and institutional no-load (Class I). For Class A shares, the shareholder may be required to pay a sales charge to the selling
broker-dealer of up to four percent and an underwriting commission to EVD of up to 75 basis points of the dollar value of the shares sold. Under
certain conditions, we waive the sales load on Class A shares and the shares are sold at net asset value. EVD generally receives (and then pays to
authorized firms after one year) distribution and service fees of up to 25 basis points of average net assets annually, and in the case of certain
funds, also may receive and pay to authorized firms a distribution fee not to exceed 50 basis
10
points annually of average daily net assets. In recent years,
a growing percentage of the Companys sales of Class A shares have been made on a load-waived basis through various fee-based programs. EVD does
not receive underwriting commissions on such sales.
Class B shares are offered at net asset value, with EVD paying a
commission to the dealer at the time of sale from its own funds, which may be borrowed. Such payments are capitalized and amortized over the period
during which the shareholder is subject to a contingent deferred sales charge, which does not exceed six years. EVD recovers the dealer commissions
paid on behalf of the shareholder through distribution plan payments limited to an annual rate of 75 basis points of the average net assets of the fund
or class of shares in accordance with a distribution plan adopted by the fund pursuant to Rule 12b-1 under the 1940 Act. The SEC has taken the position
that Rule 12b-1 would not permit a fund to continue making compensation payments to EVD after termination of the plan and that any continuance of such
payments may subject the fund to legal action. Distribution plans are terminable at any time without notice or penalty. In addition, EVD receives (and
then pays to authorized firms after one year) a service fee not to exceed 25 basis points annually of average net assets. Class B shares automatically
convert to Class A shares after eight years of ownership.
For Class C shares, the shareholder pays no front-end commissions
and no contingent deferred sales charges on redemptions after the first year. EVD pays a commission and the first years service fees to the
dealer at the time of sale. The fund makes monthly distribution plan and service fee payments to EVD similar to those for Class B shares, at an annual
rate up to 75 basis points and 25 basis points, respectively, of average net assets of the Class. EVD pays the distribution and service fee to the
dealer after one year.
Class I shares are offered to certain types of investors at net
asset value and are not subject to any sales charges, underwriter commissions, distribution fees or service fees. For Class I shares, a minimum
investment of $250,000 or higher is normally required.
From time to time we sponsor unregistered equity funds that are
privately placed by EVD, as placement agent, and by various sub-agents to whom EVD and the subscribing shareholders make sales commission payments. The
privately placed equity funds are managed by EVM and BMR.
EVM and BMR also manage the Eaton Vance Emerald Funds, a family
of funds for non-U.S. investors. The Emerald Funds are Undertakings for Collective Investments in Transferable Securities (UCITS) funds
domiciled in Ireland and are sold by EVMI through certain dealer firms to investors who are citizens of member nations of the European Union and other
countries. We earn distribution, administration and advisory fees directly or indirectly from the Emerald Funds.
Reference is made to Note 17 of the Notes to Consolidated
Financial Statements contained in Item 8 of this document for a description of the major customers that provided over 10 percent of our total
revenue.
Regulation
EVM, BMR, EVIC, Atlanta Capital, Fox Asset Management, Parametric
Portfolio Associates and Parametric Risk Advisors are each registered with the SEC under the Advisers Act. The Advisers Act imposes numerous
obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements, operational requirements and disclosure
obligations. Most Eaton Vance funds are registered with the SEC under the 1940 Act. Except for privately offered funds exempt from registration, each
U.S. fund is also required to make notice filings with all states where it is offered for sale. Virtually all aspects of our investment management
business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to benefit shareholders of
the funds and separate account clients and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or
restrict us from carrying on our investment management business in the event we fail to comply with such laws and regulations. In such event, the
possible sanctions that may be imposed include the suspension of individual employees, limitations on EVM, BMR, EVIC, Atlanta Capital, Fox Asset
Management,
11
Parametric Portfolio Associates or Parametric Risk Advisors
engaging in the investment management business for specified periods of time, the revocation of any such companys registration as an investment
adviser, and other censures or fines.
EVD is registered as a broker/dealer under the Securities
Exchange Act of 1934 and is subject to regulation by the Financial Industry Reporting Authority (FINRA), the SEC and other federal and
state agencies. EVD is subject to the SECs net capital rule designed to enforce minimum standards regarding the general financial condition and
liquidity of broker/dealers. Under certain circumstances, this rule may limit our ability to make withdrawals of capital and receive dividends from
EVD. EVDs regulatory net capital consistently exceeded minimum net capital requirements during fiscal 2007. The securities industry is one of the
most highly regulated in the United States, and failure to comply with related laws and regulations can result in the revocation of broker/dealer
licenses, the imposition of censures or fines and the suspension or expulsion from the securities business of a firm, its officers or
employees.
EVMI has the permission of the Financial Services Authority
(FSA) to conduct a regulated business in the United Kingdom. EVMIs primary business purpose is to distribute our investment products
in Europe and certain other international markets. Under the Financial Services and Markets Act of the United Kingdom, EVMI is subject to certain
liquidity and capital requirements. Such requirements may limit our ability to make withdrawals of capital from EVMI. In addition, failure to comply
with such requirements could jeopardize EVMIs approval to conduct business in the United Kingdom. There were no violations by EVMI of the
liquidity and capital requirements in fiscal 2007 or prior years.
Our officers, directors and employees may from time to time own
securities that are held by one or more of the funds. Our internal policies with respect to individual investments by investment professionals and
other employees with access to investment information require prior clearance of most types of transactions and reporting of all securities
transactions, and restrict certain transactions to avoid the possibility of conflicts of interest. All employees are required to comply with all
prospectus restrictions and limitations on purchases, sales or exchanges of our mutual fund shares and to pre-clear purchases and sales of shares of
our exchange-listed closed-end funds.
Competition
The investment management business is a highly competitive global
industry and we are subject to substantial competition in each of our principal product categories and distribution channels. There are few barriers to
entry for new firms and consolidation within the industry continues to alter the competitive landscape. According to the Investment Company Institute,
there were approximately 500 investment managers at the end of calendar 2006 that competed in the U.S. market. We compete with these firms, many of
whom have substantially greater resources, on the basis of investment performance, diversity of products, distribution capability, scope and quality of
service, and the ability to develop new investment strategies and products to meet the changing needs of investors.
In the retail fund channel, we compete with other mutual fund
management, distribution and service companies that distribute investment products through affiliated and unaffiliated sales forces, broker/dealers and
direct sales to the public. According to the Investment Company Institute, at the end of calendar 2006 there were more than 8,700 open-end investment
companies of varying sizes and investment objectives whose shares were being offered to the public in the United States alone. We rely primarily on
intermediaries to distribute our products and continue to pursue sales relationships with all types of intermediaries to broaden our distribution
network. A failure to maintain strong relationships with intermediaries who distribute our products in the retail fund channel could have a negative
effect on our level of assets under management, revenue and financial condition.
12
We are also subject to substantial competition in the retail
managed account channel from other investment management firms seeking to participate as managers in wrap-fee programs. Sponsors of
wrap-fee programs limit the number of approved managers within their programs and firms compete based on investment performance to win and maintain
slots in these programs.
In the high-net-worth and institutional separate account
channels, we compete with other investment management firms based on the breadth of product offerings, investment performance, strength of reputation
and the scope and quality of client service.
Employees
On October 31, 2007, we and our majority-owned subsidiaries had
953 full-time and part-time employees. On October 31, 2006, the comparable number was 869.
Available Information
We make available free of charge our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 12(a) and 15(d) of
the Exchange Act as soon as reasonably practicable after such filing has been made with the SEC. Reports may be viewed and obtained on our website,
www.eatonvance.com, or by calling Investor Relations at 617-482-8260.
The public may read and copy any of the materials we file with
the SEC at the SECs Public Reference Room at 100 F Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxies and information
statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Item 1A. Risk Factors
We are subject to substantial competition in all aspects of
our investment management business and there are few barriers to entry. Our funds and separate accounts compete against an increasing number of
investment products and services sold to the public by investment management companies, investment dealers, banks, insurance companies and others. Many
institutions we compete with have greater financial resources than us. We compete 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, reputation and the services provided to investors. In addition, our
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 affiliated and externally managed investment products that could limit the distribution of our investment
products. There can be no assurance that we will be able to retain access to these channels. The inability to have such access could have a material
adverse effect on our business. To the extent that existing or potential customers, including securities broker/dealers, decide to invest in or broaden
distribution relationships with our competitors, the sales of our products as well as our market share, revenue and net income could
decline.
We derive almost all of our revenue from investment
advisory and administration fees, distribution income and service fees received from the Eaton Vance funds and separate accounts. As a result,
we are dependent upon management contracts, administration contracts, distribution contracts, underwriting contracts or service contracts under which
these fees and income are paid. Generally, these contracts are terminable upon 30 to 60 days notice without penalty. If any of these contracts
are terminated, not renewed, or amended to reduce fees, our financial results could be adversely affected.
13
Our assets under management, which impact revenue, are
subject to significant fluctuations. Our major sources of revenue (i.e., investment advisory, administration, distribution, and service fees)
are calculated as percentages of assets under management. A decline in securities prices or the sale of investment products or an increase in fund
redemptions or client withdrawals generally would reduce fee income. Financial market declines or adverse changes in interest rates would generally
negatively impact the level of our assets under management and consequently our revenue and net income. A recession or other economic or political
events could also adversely impact our revenue if it led to a decreased demand for products, a higher redemption rate, or a decline in securities
prices. Any decrease in the level of assets under management resulting from price declines, interest rate volatility or uncertainty or other factors
could negatively impact our revenue and net income.
Poor investment performance of our products could affect
our sales or reduce the amount of assets under management, potentially negatively impacting revenue and net income. Investment performance,
along with achieving and maintaining superior distribution and client service, is critical to our success. While strong investment performance could
stimulate sales of our investment products, poor investment performance as compared to third-party benchmarks or competitive products could lead to a
decrease in sales and stimulate higher redemptions, thereby lowering the amount of assets under management and reducing the investment advisory fees we
earn. Past or present performance in the investment products we manage is not indicative of future performance.
Our success depends on key personnel and our financial
performance could be negatively affected by the loss of their services. Our success depends upon our ability to attract, retain and motivate
qualified portfolio managers, analysts, investment counselors, sales and management personnel and other key professionals including our executive
officers. Investment professionals are in high demand, and we face strong competition for qualified personnel. Our key employees do not have employment
contracts and may voluntarily terminate their employment at any time. Certain senior executives and directors are subject to our mandatory retirement
policy. The loss of the services of key personnel or our failure to attract replacement or additional qualified personnel could negatively affect our
financial performance. An increase in compensation made to attract or retain personnel could result in a decrease in net income.
Our expenses are subject to fluctuations that could
materially affect our operating results. Our results of operations are dependent on the level of expenses, which can vary significantly. Our
expenses may fluctuate as a result of variations in the level of total compensation expense, expenses incurred to support distribution of our
investment products, expenses incurred to enhance our infrastructure (including technology and compliance) and impairments of intangible assets or
goodwill.
Our reputation could be damaged. We have spent over
80 years building a reputation based on strong investment performance, a high level of integrity and superior client service. Our reputation is
extremely important to our success. Any damage to our reputation could result in client withdrawals from funds or separate accounts that are advised by
us and ultimately impede our ability to attract and retain key personnel. The loss of either client relationships or key personnel could reduce the
amount of assets under management and cause us to suffer a loss in revenue or net income.
We are subject to federal securities laws, state laws
regarding securities fraud, other federal and state laws and rules, and regulations of certain regulatory and self-regulatory organizations, including,
among others, the SEC, FINRA, the FSA and the New York Stock Exchange. In addition, financial reporting requirements are comprehensive and
complex. While we have focused significant attention and resources on the development and implementation of compliance policies, procedures and
practices, non-compliance with applicable laws, rules or regulations, either in the United States or abroad, or our inability to adapt to a complex and
ever-changing regulatory environment could result in sanctions against us, which could adversely affect our reputation, prospects, revenue, and
earnings.
14
We could be impacted by changes in tax policy due to our
tax-managed focus. Changes in U.S. tax policy may affect us to a greater degree than many of our competitors because we emphasize managing
funds and separate accounts with an after-tax return objective. We believe an increase in overall tax rates could have a positive impact on our
municipal income and tax-managed equity businesses that seek to minimize realized capital gains and/or maximize realized capital losses. An increase in
the tax rate on qualified dividends could have a negative impact on our tax-advantaged equity income business. Changes in tax policy could also affect
our ability to introduce new privately offered equity funds.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We conduct our principal operations through leased offices
located in Boston, Massachusetts. The leased offices of our subsidiaries are in Atlanta, Georgia; Red Bank, New Jersey; Seattle, Washington; Westport,
Connecticut; and London, England. In September 2006, we signed a long-term lease to move our corporate headquarters to a new location in Boston. The
lease will commence in May 2009. For more information see Note 7 of our Notes to Consolidated Financial Statements included in this
Report.
Item 3. Legal Proceedings
As previously disclosed in SEC filings, on June 9, 2004, a
lawsuit, captioned In Re Eaton Vance Mutual Funds Fee Litigation (the Lawsuit), was filed in the United States District Court for
the Southern District of New York (the Court), against Eaton Vance Corp., Eaton Vance Management, Boston Management and Research, Eaton
Vance, Inc., Eaton Vance Distributors, Inc., Lloyd George Investment Management (Bermuda) Limited, OrbiMed Advisors LLC, Lloyd George Investment
Management (B.V.I.) Limited, nine current or past trustees of 81 Eaton Vance funds named as nominal defendants (the Funds), and twelve
current or past officers and portfolio managers of the Funds. The plaintiffs were seven alleged shareholders of four of the 81 Funds. The Lawsuit, a
purported class action, alleged violations of the Investment Company Act of 1940, the Investment Advisers Act of 1940, New York law and the common law,
and breaches of fiduciary duties to the Funds and their shareholders.
On July 29, 2005, the Court issued an Opinion and Order
dismissing the Lawsuit in its entirety and rejecting the plaintiffs request to amend their complaint. On December 6, 2005, the Court issued an
Opinion and Order in response to plaintiffs motion for reconsideration and motion to file a new amended complaint. The Court adhered to its July
Order and denied the motion to amend. Following an appeal by the plaintiffs, the United States Court of Appeals for the second circuit entered into an
Order on March 15, 2007 affirming the decision of the District Court and dismissing the appeal. That Order is now final.
Item 4. Submission of Matters to a Vote of Security
Holders
On October 24, 2007, the holders of all of the outstanding Voting
Common Stock, by unanimous written consent, approved the following matters:
(1) The 2007 Stock Option
Plan.
15
PART II
Item 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Non-Voting Common Stock, Dividend History and Policy
Our Voting Common Stock, $0.00390625 par value, is not publicly
traded and was held as of October 31, 2007 by 18 Voting Trustees pursuant to the Voting Trust described in paragraph (A) of Item 12 hereof, which
paragraph (A) is incorporated herein by reference. Dividends on our Voting Common Stock are paid quarterly and are equal to the dividends paid on our
Non-Voting Common Stock (see below).
Our Non-Voting Common Stock, $0.00390625 par value, is traded on
the New York Stock Exchange under the symbol EV. The approximate number of registered holders of record of our Non-Voting Common Stock at October 31,
2007 was 1,600. The high and low common stock prices and dividends per share were as follows:
|
|
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
|
|
|
|
High Price
|
|
Low Price
|
|
Dividend Per Share
|
|
High Price
|
|
Low Price
|
|
Dividend Per Share
|
Quarter
Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31 |
|
|
|
$ |
35.05 |
|
|
$ |
29.55 |
|
|
$ |
0.12 |
|
|
$ |
28.83 |
|
|
$ |
24.15 |
|
|
$ |
0.10 |
|
April
30 |
|
|
|
$ |
38.66 |
|
|
$ |
32.92 |
|
|
$ |
0.12 |
|
|
$ |
30.55 |
|
|
$ |
26.48 |
|
|
$ |
0.10 |
|
July
31 |
|
|
|
$ |
47.69 |
|
|
$ |
37.55 |
|
|
$ |
0.12 |
|
|
$ |
28.50 |
|
|
$ |
23.83 |
|
|
$ |
0.10 |
|
October
31 |
|
|
|
$ |
50.03 |
|
|
$ |
35.16 |
|
|
$ |
0.15 |
|
|
$ |
31.32 |
|
|
$ |
24.13 |
|
|
$ |
0.12 |
|
We currently expect to declare and pay comparable dividends per
share on our Voting and Non-Voting Common Stock on a quarterly basis.
The following table sets forth certain information concerning our
equity compensation plans at October 31, 2007:
Securities Authorized for Issuance Under
Equity Compensation Plans
|
|
Plan category
|
|
|
|
(a)
(1) Number of securities to be issued upon the exercise of outstanding options, warrants and rights
|
|
(b) Weighted-average exercise price of
outstanding options, warrants and rights
|
|
(c)
(2) Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|
Equity
compensation plans approved by security holders |
|
|
|
|
27,579,000 |
|
|
$ |
19.99 |
|
|
|
7,351,000 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
27,579,000 |
|
|
$ |
19.99 |
|
|
|
7,351,000 |
|
(1) |
|
The amount appearing under the Number of securities to
be issued upon the exercise of outstanding options, warrants and rights represents 27,579,000 shares related to the Companys 1998 Stock
Option Plan. |
(2) |
|
The amount appearing under Number of securities
remaining available for future issuance under equity compensation plans includes 2,228,000 shares related to the Companys 1998 Stock Option
Plan, 4,000,000 shares related to the Companys 2007 Stock Option Plan and 1,123,000 shares related to the Companys Restricted Stock
Plan. |
16
Performance Graph
The graph below compares the cumulative total return on our Non-Voting Common Stock for the period from November 1, 2002 through October 31, 2007 to that of the Morningstar Financial Services Sector Index and the Standard & Poors 500 Stock Index over the same period. The comparison assumes $100 was invested on October 31, 2002 in our Non-Voting Common Stock and the foregoing indices at the closing price on that day and assumes reinvestments of all dividends paid over the period.
Comparison of Five Year Cumulative Total Return
(The remainder of this page is intentionally left blank)
17
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
The table below sets forth information regarding purchases of our
Non-Voting Common Stock on a monthly basis during the fourth quarter of fiscal 2007:
Period
|
|
|
|
(a) Total Number of Shares Purchased
|
|
(b) Average Price Paid Per Share
|
|
(c) Total Number of Shares Purchased as
Part of Publicly Announced Plans or Programs(1)
|
|
(d) Maximum Number of Shares that May Yet
Be Purchased under the Plans or Programs
|
August 1,
2007 through August 31, 2007 |
|
|
|
|
865,618 |
|
|
$ |
40.41 |
|
|
|
865,618 |
|
|
|
5,884,129 |
|
September 1,
2007 through September 30, 2007 |
|
|
|
|
1,730,000 |
|
|
$ |
38.31 |
|
|
|
1,730,000 |
|
|
|
4,154,129 |
|
October 1, 2007 through October 31, 2007 |
|
|
|
|
3,123,333 |
|
|
$ |
43.69 |
|
|
|
3,123,333 |
|
|
|
7,205,100 |
|
Total |
|
|
|
|
5,718,951 |
|
|
$ |
41.57 |
|
|
|
5,718,951 |
|
|
|
7,205,100 |
|
(1) |
|
We announced a share repurchase program on July 11, 2007, which
authorized the repurchase of up to 8,000,000 shares of our Non-Voting Common Stock in the open market and in private transactions in accordance with
applicable securities laws. The plan was terminated on October 24, 2007. A total of 6,174,304 shares were repurchased under the plan prior to
termination.
We announced a second share repurchase program on October 24, 2007, which authorized the repurchase of up to 8,000,000 shares of our
Non-Voting Common Stock in the open market and in private transactions in accordance with applicable securities laws. This repurchase plan is not
subject to an expiration date. |
(The remainder of this page is intentionally left
blank)
18
Item 6. Selected Financial Data
The following table contains selected financial data for the last
five years. This data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 and our Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K.
Financial Highlights
(1)
|
|
|
|
For the Years Ended October 31, |
|
(in thousands, except per share data)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
Income
Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(2) |
|
|
|
$ |
1,084,100 |
|
|
$ |
862,194 |
|
|
$ |
753,175 |
|
|
$ |
661,813 |
|
|
$ |
523,133 |
|
Net
income(3) |
|
|
|
|
142,811 |
|
|
|
159,377 |
|
|
|
138,706 |
|
|
|
121,962 |
|
|
|
94,810 |
|
|
Balance
Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
|
$ |
966,831 |
|
|
$ |
668,195 |
|
|
$ |
702,544 |
|
|
$ |
743,566 |
|
|
$ |
658,702 |
|
Long-term
debt(4) |
|
|
|
|
500,000 |
|
|
|
|
|
|
|
75,467 |
|
|
|
74,347 |
|
|
|
118,736 |
|
Shareholders equity |
|
|
|
|
229,168 |
|
|
|
496,485 |
|
|
|
476,296 |
|
|
|
464,328 |
|
|
|
426,511 |
|
|
Per Share
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning per
share before cumulative effect of change in accounting principle: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
|
$ |
0.90 |
|
|
$ |
0.69 |
|
Diluted
earnings |
|
|
|
|
1.06 |
|
|
|
1.18 |
|
|
|
0.99 |
|
|
|
0.87 |
|
|
|
0.67 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings |
|
|
|
|
1.15 |
|
|
|
1.25 |
|
|
|
1.05 |
|
|
|
0.90 |
|
|
|
0.69 |
|
Diluted
earnings |
|
|
|
|
1.06 |
|
|
|
1.17 |
|
|
|
0.99 |
|
|
|
0.87 |
|
|
|
0.67 |
|
Cash
dividends declared |
|
|
|
|
0.51 |
|
|
|
0.42 |
|
|
|
0.34 |
|
|
|
0.28 |
|
|
|
0.20 |
|
Shareholders equity |
|
|
|
|
1.94 |
|
|
|
3.93 |
|
|
|
3.68 |
|
|
|
3.48 |
|
|
|
3.12 |
|
(1) |
|
In fiscal 2006, the Company adopted SFAS No. 123R,
Share-Based Payment, using the modified version of retrospective application and adjusted its financial statements for all periods
presented on a basis consistent with the pro forma disclosures previously made under SFAS No. 123. Please see Note 8 in Item 8 for further discussion
of this change. |
(2) |
|
Certain amounts from prior years have been reclassified to
conform to the current year presentation. See Note 1 in Item 8 for further discussion of this change. |
(3) |
|
Net income includes structuring fees of $76.0 million, $1.6
million and $9.3 million in fiscal 2007, 2006 and 2005, respectively, associated with closed-end fund offerings in each of those years. In fiscal 2007,
the Company made payments totaling $52.2 million to terminate compensation agreements in respect of certain previously offered closed-end
funds. |
(4) |
|
In fiscal 2007, the Company offered $500.0 million of 6.5
percent ten-year senior notes. In fiscal 2006, EVM retired its outstanding zero-coupon exchangeable notes. Please see Note 6 in Item 8 for further
discussion of these transactions. |
19
Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
This Item includes statements that are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding our expectations, intentions or strategies regarding the future. All statements, other
than statements of historical facts, included in this Form 10-K 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 Item 1A, Risk Factors. All subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by such factors.
General
Our principal business is managing investment funds and providing
investment management and counseling services to high-net-worth individuals and institutions. Our long-term strategy is to develop and sustain
value-added core competencies in a range of investment disciplines and to offer industry-leading investment products and services across multiple
distribution channels. In executing this strategy, we have developed a broadly diversified product line and a powerful marketing, distribution and
customer service capability.
We are a market leader in a number of investment areas, including
tax-managed equity, value equity, equity income, emerging market equity, floating-rate bank loan, municipal bond, investment grade and high-yield bond
investing. Our diversified product line offers fund shareholders, retail managed account investors, institutional investors and high-net-worth clients
a wide range of products and services designed and managed to generate attractive risk-adjusted returns over the long term.
Our principal retail marketing strategy is to distribute funds
and separately managed accounts through financial intermediaries in the advice channel. We have a broad reach in this marketplace, with distribution
partners including national and regional broker/dealers, independent broker/dealers, independent financial advisory firms, banks and insurance
companies. We support these distribution partners with a team of more than 140 Boston-based and regional sales professionals across the U.S. and
internationally. Specialized sales and marketing professionals in our Wealth Management Solutions Group serve as a resource to financial advisors
seeking to help high-net-worth clients address wealth management issues and support the marketing of our products and services tailored to this
marketplace.
We also commit significant resources to serving institutional and
high-net-worth clients who access investment advice outside of traditional retail broker/dealer channels. Through our wholly owned affiliates and
consolidated subsidiaries Atlanta Capital Management Company, LLC (Atlanta Capital), Fox Asset Management LLC (Fox Asset
Management), Parametric Portfolio Associates LLC (Parametric Portfolio Associates) and Parametric Risk Advisors LLC (Parametric
Risk Advisors), we manage investments for a broad range of clients in the institutional and high-net-worth marketplace, including corporations,
endowments, foundations, family offices and public and private employee retirement plans. Specialized sales teams at our affiliates develop
relationships in this market and deal directly with these clients.
20
Our revenue is derived primarily from investment advisory,
administration, distribution and service fees received from Eaton Vance funds and investment advisory fees received from separate accounts. Our fees
are based primarily on the value of the investment portfolios we manage and fluctuate with changes in the total value and mix of assets under
management. Such fees are recognized over the period that we manage these assets. Our major expenses are employee compensation, distribution-related
expenses and amortization of deferred sales commissions.
Our discussion and analysis of our financial condition and
results of operations are based upon our 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 us 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, we
evaluate our estimates, including those related to deferred sales commissions, goodwill and intangible assets, income taxes, investments, stock-based
compensation and litigation. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under current
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
available from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Assets Under Management
Assets under management of $161.7 billion on October 31, 2007
were 25 percent higher than the $128.9 billion reported a year earlier. Long-term fund net inflows contributed $19.2 billion to growth in assets under
management over the last twelve months, including $10.0 billion of closed-end fund net inflows and $9.2 billion of open-end and private fund net
inflows. Retail managed account net inflows contributed $3.7 billion to growth in assets under management, while institutional and high-net-worth
acquisitions contributed an additional $0.3 billion. Market price appreciation, reflecting favorable equity markets, contributed $11.9 billion, while a
decrease in cash management assets reduced assets under management by $2.1 billion.
Ending Assets Under Management by Investment Category(1)
|
|
|
|
October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Equity
assets |
|
|
|
$ |
108.4 |
|
|
$ |
76.8 |
|
|
$ |
66.2 |
|
|
|
41 |
% |
|
|
16 |
% |
Fixed income
assets |
|
|
|
|
31.9 |
|
|
|
30.8 |
|
|
|
23.2 |
|
|
|
4 |
% |
|
|
33 |
% |
Floating-rate bank loan assets |
|
|
|
|
21.4 |
|
|
|
21.3 |
|
|
|
19.1 |
|
|
|
0 |
% |
|
|
12 |
% |
Total |
|
|
|
$ |
161.7 |
|
|
$ |
128.9 |
|
|
$ |
108.5 |
|
|
|
25 |
% |
|
|
19 |
% |
(1) Includes funds and separate accounts.
Equity assets represented 67 percent of total assets under
management on October 31, 2007, compared to 60 percent on October 31, 2006 and 61 percent on October 31, 2005. Assets in equity funds managed for
after-tax returns totaled $55.1 billion, $39.1 billion and $34.6 billion on October 31, 2007, 2006 and 2005, respectively. Fixed income assets,
including cash management funds, represented 20 percent of total assets under management on October 31, 2007, compared to 24 percent on October 31,
2006 and 21 percent on October 31, 2005. Fixed income assets included $17.7 billion, $14.8 billion and $11.7 billion of tax-exempt municipal bond
assets and $1.6 billion, $3.7 billion and $0.7 billion of cash management fund assets on October 31, 2007, 2006 and 2005, respectively. Floating-rate
bank loan assets represented 13 percent of total assets under management on October 31, 2007, compared to 16 percent on October 31, 2006 and 18 percent
October 31, 2005.
21
Long-Term Fund and Separate Account Net
Flows
|
|
|
|
For the Years Ended October 31,
|
|
2007 vs. |
|
2006 vs. |
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Long-term
funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end
funds |
|
|
|
$ |
10.0 |
|
|
$ |
0.3 |
|
|
$ |
5.0 |
|
|
|
NM |
(3) |
|
|
94 |
% |
Open-end
funds (1) |
|
|
|
|
7.6 |
|
|
|
5.6 |
|
|
|
2.2 |
|
|
|
36 |
% |
|
|
155 |
% |
Private funds |
|
|
|
|
1.6 |
|
|
|
2.2 |
|
|
|
1.2 |
|
|
|
27 |
% |
|
|
83 |
% |
Total long-term fund net inflows |
|
|
|
|
19.2 |
|
|
|
8.1 |
|
|
|
8.4 |
|
|
|
137 |
% |
|
|
4 |
% |
Institutional/HNW(2) accounts |
|
|
|
|
|
|
|
|
(2.1 |
) |
|
|
(0.6 |
) |
|
|
NM |
|
|
|
250 |
% |
Retail managed accounts |
|
|
|
|
3.7 |
|
|
|
1.4 |
|
|
|
1.6 |
|
|
|
164 |
% |
|
|
13 |
% |
Total separate account net inflows (outflows) |
|
|
|
|
3.7 |
|
|
|
(0.7 |
) |
|
|
1.0 |
|
|
|
NM |
|
|
|
170 |
% |
Total net inflows |
|
|
|
$ |
22.9 |
|
|
$ |
7.4 |
|
|
$ |
9.4 |
|
|
|
209 |
% |
|
|
21 |
% |
(1) |
|
Includes net flows of bank loan interval
funds. |
(2) |
|
High-net-worth (HNW) |
(3) |
|
Not meaningful (NM) |
Long-term fund net inflows totaled $19.2 billion in fiscal 2007
compared to $8.1 billion in fiscal 2006 and $8.4 billion in fiscal 2005. Closed-end fund offerings contributed significantly to net inflows in fiscal
2007, with $10.0 billion in closed-end fund assets added compared to contributions of $0.3 billion and $5.0 billion in fiscal 2006 and fiscal 2005,
respectively. Open-end fund net inflows of $7.6 billion, $5.6 billion and $2.2 billion for fiscal 2007, 2006 and 2005, respectively, reflect gross
inflows of $21.1 billion, $15.0 billion and $10.4 billion and redemptions of $13.5 billion, $9.4 billion and $8.2 billion in fiscal 2007, 2006 and
2005, respectively. Private funds, which include privately offered equity and bank loan funds as well as collateralized debt obligation entities, had
net inflows of $1.6 billion, $2.2 billion and $1.2 billion in fiscal 2007, 2006 and 2005, respectively.
Separate accounts contributed net inflows of $3.7 billion in
fiscal 2007, compared to net outflows of $0.7 billion in fiscal 2006 and net inflows of $1.0 billion fiscal 2005. Retail managed account net inflows
increased to $3.7 billion in fiscal 2007 from $1.4 billion and $1.6 billion in fiscal 2006 and 2005, respectively, reflecting strong net sales of
Parametric Portfolio Associates overlay and tax-efficient core equity products and Eaton Vance Managements (EVMs) large
cap value product. Institutional and high-net-worth gross inflows of $4.4 billion in fiscal 2007 were offset by outflows of $4.4 billion, reflecting
primarily withdrawals from certain low-fee institutional relationships at Atlanta Capital. Institutional and high-net-worth net outflows totaled $2.1
billion and $0.6 billion in fiscal 2006 and 2005, respectively.
Cash management fund assets, which are not included in long-term
fund net flows because of their short-term characteristics, decreased to $1.6 billion on October 31, 2007 from $3.7 billion on October 31, 2006 and
$0.7 billion on October 31, 2005. The decrease in cash management fund assets in fiscal 2007 can be primarily attributed to an increase in short-term
treasury fund redemptions by institutional clients. The increase in cash management fund assets in fiscal 2006 can be primarily attributed to
investments by institutional clients in our sponsored short-term income funds and the introduction of a cash collateral fund accompanying a securities
lending program in which certain of our sponsored funds participate.
22
The following table summarizes the asset flows by investment
category for fiscal years ended October 31, 2007, 2006 and 2005:
Asset Flows
|
|
|
|
For the Years Ended October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Equity fund
assets beginning |
|
|
|
$ |
53.2 |
|
|
$ |
45.2 |
|
|
$ |
36.9 |
|
|
|
18 |
% |
|
|
22 |
% |
Sales/inflows |
|
|
|
|
21.7 |
|
|
|
7.8 |
|
|
|
9.7 |
|
|
|
178 |
% |
|
|
20 |
% |
Redemptions/outflows |
|
|
|
|
(6.9 |
) |
|
|
(5.4 |
) |
|
|
(4.3 |
) |
|
|
28 |
% |
|
|
26 |
% |
Exchanges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value change |
|
|
|
|
7.5 |
|
|
|
5.6 |
|
|
|
2.9 |
|
|
|
34 |
% |
|
|
93 |
% |
Equity fund assets ending |
|
|
|
|
75.5 |
|
|
|
53.2 |
|
|
|
45.2 |
|
|
|
42 |
% |
|
|
18 |
% |
|
Fixed income
fund assets beginning |
|
|
|
|
21.5 |
|
|
|
18.2 |
|
|
|
17.4 |
|
|
|
18 |
% |
|
|
5 |
% |
Sales/inflows |
|
|
|
|
7.5 |
|
|
|
5.1 |
|
|
|
3.2 |
|
|
|
47 |
% |
|
|
59 |
% |
Redemptions/outflows |
|
|
|
|
(3.5 |
) |
|
|
(2.2 |
) |
|
|
(2.0 |
) |
|
|
59 |
% |
|
|
10 |
% |
Exchanges |
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
NM |
|
|
|
100 |
% |
Market value change |
|
|
|
|
(0.8 |
) |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
NM |
|
|
|
NM |
|
Fixed income fund assets ending |
|
|
|
|
24.6 |
|
|
|
21.5 |
|
|
|
18.2 |
|
|
|
14 |
% |
|
|
18 |
% |
|
Floating-rate
bank loan fund assets beginning |
|
|
|
|
20.0 |
|
|
|
16.8 |
|
|
|
15.0 |
|
|
|
19 |
% |
|
|
12 |
% |
Sales/inflows |
|
|
|
|
6.6 |
|
|
|
7.0 |
|
|
|
5.2 |
|
|
|
6 |
% |
|
|
35 |
% |
Redemptions/outflows |
|
|
|
|
(6.2 |
) |
|
|
(4.2 |
) |
|
|
(3.3 |
) |
|
|
48 |
% |
|
|
27 |
% |
Exchanges |
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
0 |
% |
|
|
NM |
|
Market value change |
|
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
80 |
% |
|
|
NM |
|
Floating-rate bank loan fund assets ending |
|
|
|
|
20.4 |
|
|
|
20.0 |
|
|
|
16.8 |
|
|
|
2 |
% |
|
|
19 |
% |
|
Total
long-term fund assets beginning |
|
|
|
|
94.7 |
|
|
|
80.2 |
|
|
|
69.3 |
|
|
|
18 |
% |
|
|
16 |
% |
Sales/inflows |
|
|
|
|
35.8 |
|
|
|
19.9 |
|
|
|
18.1 |
|
|
|
80 |
% |
|
|
10 |
% |
Redemptions/outflows |
|
|
|
|
(16.6 |
) |
|
|
(11.8 |
) |
|
|
(9.6 |
) |
|
|
41 |
% |
|
|
23 |
% |
Exchanges |
|
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
100 |
% |
|
|
0 |
% |
Market value change |
|
|
|
|
6.8 |
|
|
|
6.5 |
|
|
|
2.5 |
|
|
|
5 |
% |
|
|
160 |
% |
Total long-term fund assets ending |
|
|
|
|
120.5 |
|
|
|
94.7 |
|
|
|
80.2 |
|
|
|
27 |
% |
|
|
18 |
% |
|
Separate
accounts beginning |
|
|
|
|
30.5 |
|
|
|
27.6 |
|
|
|
24.4 |
|
|
|
11 |
% |
|
|
13 |
% |
Inflows
HNW and institutional |
|
|
|
|
4.4 |
|
|
|
2.3 |
|
|
|
2.9 |
|
|
|
91 |
% |
|
|
21 |
% |
Outflows
HNW and institutional |
|
|
|
|
(4.4 |
) |
|
|
(4.4 |
) |
|
|
(3.5 |
) |
|
|
0 |
% |
|
|
26 |
% |
Inflows
retail managed accounts |
|
|
|
|
6.1 |
|
|
|
3.6 |
|
|
|
3.2 |
|
|
|
69 |
% |
|
|
13 |
% |
Outflows
retail managed accounts |
|
|
|
|
(2.4 |
) |
|
|
(2.2 |
) |
|
|
(1.6 |
) |
|
|
9 |
% |
|
|
38 |
% |
Market value
change |
|
|
|
|
5.1 |
|
|
|
3.1 |
|
|
|
2.1 |
|
|
|
65 |
% |
|
|
48 |
% |
Assets acquired |
|
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
40 |
% |
|
|
400 |
% |
Separate accounts ending |
|
|
|
|
39.6 |
|
|
|
30.5 |
|
|
|
27.6 |
|
|
|
30 |
% |
|
|
11 |
% |
|
Cash management fund assets ending |
|
|
|
|
1.6 |
|
|
|
3.7 |
|
|
|
0.7 |
|
|
|
57 |
% |
|
|
429 |
% |
Assets under management ending |
|
|
|
$ |
161.7 |
|
|
$ |
128.9 |
|
|
$ |
108.5 |
|
|
|
25 |
% |
|
|
19 |
% |
23
Ending Assets Under Management by Asset
Class
|
|
|
|
October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Open-end
funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A (1) |
|
|
|
$ |
35.4 |
|
|
$ |
27.0 |
|
|
$ |
18.8 |
|
|
|
31 |
% |
|
|
44 |
% |
Class B (1) |
|
|
|
|
6.0 |
|
|
|
6.8 |
|
|
|
7.7 |
|
|
|
12 |
% |
|
|
12 |
% |
Class C (1) |
|
|
|
|
10.1 |
|
|
|
8.4 |
|
|
|
7.4 |
|
|
|
20 |
% |
|
|
14 |
% |
Class I (1) |
|
|
|
|
3.7 |
|
|
|
4.5 |
|
|
|
1.5 |
|
|
|
18 |
% |
|
|
200 |
% |
Other (2) |
|
|
|
|
3.3 |
|
|
|
2.8 |
|
|
|
2.6 |
|
|
|
18 |
% |
|
|
8 |
% |
Total open-end funds |
|
|
|
|
58.5 |
|
|
|
49.5 |
|
|
|
38.0 |
|
|
|
18 |
% |
|
|
30 |
% |
Private funds
(3) |
|
|
|
|
30.0 |
|
|
|
26.4 |
|
|
|
21.8 |
|
|
|
14 |
% |
|
|
21 |
% |
Closed-end funds |
|
|
|
|
33.6 |
|
|
|
22.5 |
|
|
|
21.1 |
|
|
|
49 |
% |
|
|
7 |
% |
Total fund assets |
|
|
|
|
122.1 |
|
|
|
98.4 |
|
|
|
80.9 |
|
|
|
24 |
% |
|
|
22 |
% |
HNW and
institutional account assets |
|
|
|
|
24.8 |
|
|
|
21.0 |
|
|
|
20.5 |
|
|
|
18 |
% |
|
|
2 |
% |
Retail managed account assets |
|
|
|
|
14.8 |
|
|
|
9.5 |
|
|
|
7.1 |
|
|
|
56 |
% |
|
|
34 |
% |
Total separate account assets |
|
|
|
|
39.6 |
|
|
|
30.5 |
|
|
|
27.6 |
|
|
|
30 |
% |
|
|
11 |
% |
Total |
|
|
|
$ |
161.7 |
|
|
$ |
128.9 |
|
|
$ |
108.5 |
|
|
|
25 |
% |
|
|
19 |
% |
(1) |
|
Includes bank loan interval funds with similar pricing
structures. |
(2) |
|
Includes other classes of Eaton Vance open-end funds and
non-Eaton Vance funds subadvised by Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates. |
(3) |
|
Includes privately offered equity and bank loan funds and CDO
entities. |
We currently sell our sponsored open-end mutual funds under four
primary pricing structures: front-end load commission (Class A); spread-load commission (Class B); level-load commission
(Class C); and institutional no-load (Class I). We waive the sales load on Class A shares under certain circumstances. In such
cases, the shares are sold at net asset value.
Fund assets represented 76 percent of total assets under
management at October 31, 2007, compared to 76 percent and 75 percent at October 31, 2006 and 2005, respectively. Class A share assets increased to 22
percent of total assets under management at October 31, 2007 from 21 percent and 17 percent at October 31, 2006 and 2005, respectively, while Class B
shares dropped to 4 percent at October 31, 2007 from 5 percent and 7 percent at October 31, 2006 and 2005, respectively. The shift from Class B share
assets to Class A share assets reflects the overall increasing popularity of Class A shares and the declining popularity of Class B shares in
broker/dealer distribution systems. Class C share assets represented 6 percent of total assets under management on October 31, 2007, and 7 percent on
both October 31, 2006 and 2005, while Class I share assets represented 2 percent of total assets under management on October 31, 2007, compared to 3
percent on October 31, 2006 and 1 percent on October 31, 2005. Private funds represented 19 percent of total assets under management at October 31,
2007, compared to 20 percent on both October 31, 2006 and 2005. Closed-end funds increased to 21 percent of the Companys total assets under
management on October 31, 2007, up from 17 percent on October 31, 2006 and 19 percent on October 31, 2005.
Separate account assets, including high-net-worth, institutional
and retail managed account assets, totaled $39.6 billion at October 31, 2007, up from $30.5 billion and $27.6 billion at October 31, 2006 and 2005,
respectively. High-net-worth and institutional account assets increased by 18 percent and 2 percent in fiscal 2007 and 2006, respectively, while retail
managed account assets increased by 56 percent and 34 percent in the same periods. Retail managed account assets were positively impacted in both
fiscal 2007 and 2006 by strong net sales of Parametric Portfolio Associates overlay and tax-efficient core equity products and EVMs
large-cap value product.
24
The average assets under management presented in the following
table represent a monthly average by asset class. This table is intended to provide useful information in the analysis of our asset-based revenue and
distribution expenses. With the exception of our separate account investment advisory fees, which are generally calculated as a percentage of either
beginning, average or ending quarterly assets, our investment advisory, administration, distribution and service fees are calculated as a percentage of
average daily assets.
Average Assets Under Management by Asset Class (1)
|
|
|
|
For the Years Ended October 31,
|
|
(in billions)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Open-end
funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A (2) |
|
|
|
$ |
31.8 |
|
|
$ |
22.7 |
|
|
$ |
17.2 |
|
|
|
40 |
% |
|
|
32 |
% |
Class B (2) |
|
|
|
|
6.4 |
|
|
|
7.3 |
|
|
|
8.3 |
|
|
|
12 |
% |
|
|
12 |
% |
Class C (2) |
|
|
|
|
9.4 |
|
|
|
7.8 |
|
|
|
7.3 |
|
|
|
21 |
% |
|
|
7 |
% |
Class I (2) |
|
|
|
|
3.0 |
|
|
|
2.4 |
|
|
|
1.2 |
|
|
|
25 |
% |
|
|
100 |
% |
Other (3) |
|
|
|
|
2.8 |
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
12 |
% |
|
|
9 |
% |
Total open-end funds |
|
|
|
|
53.4 |
|
|
|
42.7 |
|
|
|
36.3 |
|
|
|
25 |
% |
|
|
18 |
% |
Private funds
(4) |
|
|
|
|
28.5 |
|
|
|
23.7 |
|
|
|
20.9 |
|
|
|
20 |
% |
|
|
13 |
% |
Closed-end funds |
|
|
|
|
29.9 |
|
|
|
21.8 |
|
|
|
18.2 |
|
|
|
37 |
% |
|
|
20 |
% |
Total fund assets |
|
|
|
|
111.8 |
|
|
|
88.2 |
|
|
|
75.4 |
|
|
|
27 |
% |
|
|
17 |
% |
HNW and
institutional account assets |
|
|
|
|
22.2 |
|
|
|
21.0 |
|
|
|
20.0 |
|
|
|
6 |
% |
|
|
5 |
% |
Retail managed account assets |
|
|
|
|
12.0 |
|
|
|
8.2 |
|
|
|
6.1 |
|
|
|
46 |
% |
|
|
34 |
% |
Total separate account assets |
|
|
|
|
34.2 |
|
|
|
29.2 |
|
|
|
26.1 |
|
|
|
17 |
% |
|
|
12 |
% |
Total |
|
|
|
$ |
146.0 |
|
|
$ |
117.4 |
|
|
$ |
101.5 |
|
|
|
24 |
% |
|
|
16 |
% |
(1) |
|
Assets under management attributable to acquisitions that
closed during the relevant periods are included on a weighted average basis for the period from their respective closing dates. |
(2) |
|
Includes bank loan interval funds with similar pricing
structures. |
(3) |
|
Includes other classes of Eaton Vance open-end funds and
non-Eaton Vance funds subadvised by Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates. |
(4) |
|
Includes privately offered equity and bank loan funds and CDO
entities. |
Results of Operations
We reported net income of $142.8 million, or $1.06 per diluted
share, in fiscal 2007 compared to $159.4 million, or $1.17 per diluted share, in fiscal 2006 and $138.7 million, or $0.99 per diluted share, in fiscal
2005. Operating results for fiscal 2007 reflect the payment of $76.0 million in one-time structuring fees and $14.8 million in marketing incentives
related to three closed-end funds offered during the fiscal year. These one-time structuring fees and marketing incentives, which are included in
distribution expense and compensation expense, respectively, reduced fiscal 2007 earnings by $0.41 per diluted share. Operating results for fiscal 2007
also include payments totaling $52.2 million to Merrill, Lynch, Pierce, Fenner & Smith and A.G. Edwards & Sons, Inc. to terminate compensation
agreements in respect of certain of our previously offered closed-end funds under which we were obligated to make payments over time based on the
assets of the respective closed-end funds. These one-time termination payments, which are included in distribution expense, reduced diluted earnings
for fiscal 2007 by approximately $0.24 per share. Earnings for the fiscal year were also reduced by $3.9 million, or $0.02 per diluted share, by costs
associated with the management reorganization of Eaton Vance Distributors, Inc. (EVD) announced in October and a loss of $6.7 million, or
$0.03 per diluted share, realized on an interest rate lock entered into in connection with the offering of senior notes.
25
Fiscal 2006 results include the acceleration of non-cash
amortization to write off intangible assets of $8.9 million, or $0.04 per diluted share, relating to the termination of certain institutional and
high-net-worth asset management contracts at Fox Asset Management, as well as the recognition of $9.8 million in interest expense and the write-off of
$1.5 million of deferred financing fees associated with the retirement of EVMs zero-coupon exchangeable notes in August 2006. The additional
interest expense and the write-off of the deferred financing fees reduced fiscal 2006 earnings by $0.06 per diluted share.
In conjunction with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123R, Share-Based Payment, in the first quarter of fiscal 2006, we recognized a cumulative
effect of change in accounting principle. In our calculations of stock option expense for the purposes of pro forma disclosure in previous filings, we
chose to recognize forfeitures when they occurred rather than estimate them at grant date. Upon adoption of SFAS No. 123R, we were required to
recognize the difference between actual forfeitures of awards granted prior to adoption and the calculation of expected forfeitures for these awards as
an adjustment to compensation cost. The cumulative effect, net of tax, was $0.6 million.
Results of Operations
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands, except per share data)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Net
income |
|
|
|
$ |
142,811 |
|
|
$ |
159,377 |
|
|
$ |
138,706 |
|
|
|
10 |
% |
|
|
15 |
% |
Earnings per
share before cumulative effect of change in accounting principle: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
|
|
8 |
% |
|
|
19 |
% |
Diluted |
|
|
|
$ |
1.06 |
|
|
$ |
1.18 |
|
|
$ |
0.99 |
|
|
|
10 |
% |
|
|
19 |
% |
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
|
|
8 |
% |
|
|
19 |
% |
Diluted |
|
|
|
$ |
1.06 |
|
|
$ |
1.17 |
|
|
$ |
0.99 |
|
|
|
9 |
% |
|
|
18 |
% |
Operating
margin |
|
|
|
|
21 |
% |
|
|
31 |
% |
|
|
31 |
% |
|
|
NM |
|
|
|
NM |
|
In evaluating operating performance we consider operating income
and net income, which are calculated on a basis consistent with accounting principles generally accepted in the United States of America
(GAAP), as well as adjusted operating income, an internally derived non-GAAP performance measure. We define adjusted operating income as
operating income plus closed-end fund structuring fees and one-time payments, stock-based compensation and any write-off of intangible assets or
goodwill. We believe that adjusted operating income is a key indicator of our ongoing profitability and therefore use this measure as the basis for
calculating performance-based management incentives. Adjusted operating income is not, and should not be construed to be, a substitute for operating
income computed in accordance with GAAP. However, in assessing the performance of the business, our management and the Board of Directors look at
adjusted operating income as a measure of underlying performance, since amounts resulting from one-time events (e.g., the offering of a closed-end
fund) do not necessarily represent normal results of operations. In addition, when assessing performance, management and the Board look at performance
both with and without stock-based compensation.
26
The following table provides a reconciliation of operating income
to adjusted operating income:
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Operating
income |
|
|
|
$ |
232,937 |
|
|
$ |
264,966 |
|
|
$ |
232,607 |
|
|
|
12 |
% |
|
|
14 |
% |
Closed-end
fund structuring fees |
|
|
|
|
75,998 |
|
|
|
1,610 |
|
|
|
9,290 |
|
|
|
NM |
|
|
|
83 |
% |
Payments to
terminate closed-end fund compensation agreements |
|
|
|
|
52,178 |
|
|
|
|
|
|
|
|
|
|
|
NM |
|
|
|
NM |
|
Write-off of
intangible assets |
|
|
|
|
|
|
|
|
8,876 |
|
|
|
|
|
|
|
NM |
|
|
|
NM |
|
Stock-based compensation |
|
|
|
|
43,304 |
|
|
|
36,314 |
|
|
|
28,655 |
|
|
|
19 |
% |
|
|
27 |
% |
Adjusted operating income |
|
|
|
$ |
404,417 |
|
|
$ |
311,766 |
|
|
$ |
270,552 |
|
|
|
30 |
% |
|
|
15 |
% |
Adjusted operating margin |
|
|
|
|
37 |
% |
|
|
36 |
% |
|
|
36 |
% |
|
|
|
|
|
|
|
|
Revenue
Our average effective fee rate (total revenue as a percentage of
average assets under management) was 74 basis points in fiscal 2007 compared to 73 basis points in fiscal 2006 and 74 basis points in fiscal
2005.
Revenue
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Investment
advisory and administration fees |
|
|
|
$ |
773,612 |
|
|
$ |
594,632 |
|
|
$ |
503,085 |
|
|
|
30 |
% |
|
|
18 |
% |
Distribution
and underwriter fees (1) |
|
|
|
|
148,369 |
|
|
|
139,111 |
|
|
|
138,485 |
|
|
|
7 |
% |
|
|
0 |
% |
Service fees
(1) |
|
|
|
|
154,736 |
|
|
|
124,025 |
|
|
|
105,202 |
|
|
|
25 |
% |
|
|
18 |
% |
Other revenue |
|
|
|
|
7,383 |
|
|
|
4,426 |
|
|
|
6,403 |
|
|
|
67 |
% |
|
|
31 |
% |
Total revenue |
|
|
|
$ |
1,084,100 |
|
|
$ |
862,194 |
|
|
$ |
753,175 |
|
|
|
26 |
% |
|
|
14 |
% |
(1) |
|
Certain amounts from prior years have been reclassified to
conform to the current year presentation. See footnote 1 in Item 8 for further discussion of this change. |
Investment advisory and administration
fees
Investment advisory and administration fees are determined by
contractual agreements with our sponsored funds and separate accounts and are generally based upon a percentage of the market value of assets under
management. Net asset flows and changes in the market value of managed assets affect the amount of managed assets on which investment advisory and
administration fees are earned, while shifts in asset mix affect the Companys average effective fee rate.
The increase in investment advisory and administration fees of 30
percent and 18 percent in fiscal 2007 and 2006, respectively, over the same periods a year earlier can be attributed primarily to an increase in
average assets under management, which increased by 24 percent and 16 percent in fiscal 2007 and 2006, respectively, and a modest increase in our
average effective investment advisory and administration fee rates. Fund average effective fee rates increased to 59 basis points in fiscal 2007 from
57 basis points and 56 basis points in fiscal 2006 and 2005, respectively. Separately managed account average effective fee rates were 32 basis points
in fiscal 2007, 2006 and 2005.
27
Distribution and underwriter fees
Distribution plan payments, which are made under contractual
agreements with our sponsored funds, are calculated as a percentage of average assets under management in specific share classes of our mutual funds,
as well as certain private funds. These fees fluctuate with both the level of average assets under management and the relative mix of assets.
Underwriter commissions are earned on the sale of shares of our sponsored mutual funds on which investors pay a sales charge at the time of purchase
(Class A share sales). Sales charges and underwriter commissions are waived or reduced on sales that exceed specified minimum amounts and on certain
categories of sales. Underwriter commissions fluctuate with the level of Class A share sales and the mix of Class A shares offered with and without
sales charges.
Distribution plan payments increased 6 percent, or $7.1 million,
to $133.3 million in fiscal 2007, reflecting an increase in average Class A, Class C and certain private fund assets subject to distribution fees,
partially offset by a decrease in average Class B share assets. Class A share distribution fees increased by 124 percent to $2.3 million, reflecting a
131 percent increase in average Class A share assets that are subject to distribution fees (primarily in funds advised by Lloyd George Management).
Class C and certain private fund distribution fees increased by 21 percent and 15 percent to $67.5 million and $13.7 million, respectively, reflecting
increases in average assets subject to distribution fees of 20 percent and 12 percent, respectively. Class B share distribution fees decreased by 14
percent to $49.5 million, reflecting a decrease in average Class B share assets under management of 12 percent year-over-year. Underwriter fees and
other distribution income increased 17 percent, or $2.2 million, to $15.0 million in fiscal 2007, primarily reflecting an increase of $0.4 million in
underwriter fees received on sales of Class A shares and an increase of $1.3 million in contingent deferred sales charges received on certain Class A
share redemptions.
Distribution plan payments decreased 4 percent, or $4.8 million,
to $126.3 million in fiscal 2006, reflecting a decrease in average Class B share assets subject to distribution fees, partially offset by an increase
in average Class A, Class C and certain private fund assets subject to distribution fees. Class B share distribution fees decreased by 13 percent to
$57.7 million, reflecting a decrease in average Class B share assets under management of 12 percent. Class A share distribution fees increased by 44
percent to $1.0 million, reflecting a 56 percent increase in average Class A share assets under management subject to distribution fees. Class C and
certain private fund distribution fees increased by 5 percent and 14 percent to $55.6 million and $11.9 million, respectively, reflecting increases in
average assets subject to distribution fees of 6 percent and 7 percent, respectively. Underwriter fees and other distribution income increased 61
percent, or $4.8 million, to $12.8 million in fiscal 2006, primarily reflecting an increase of $3.3 million in underwriter fees received on sales of
Class A shares and an increase of $1.0 million in contingent deferred sales charges received on certain Class A share redemptions.
Service fees
Service plan payments, which are made under contractual
agreements with our sponsored funds, are calculated as a percent of average assets under management in specific share classes of our mutual funds
(principally Classes A, B and C) as well as certain private funds. Service fees represent payments made by sponsored funds to EVD as principal
underwriter for service and/or the maintenance of shareholder accounts.
Service fee revenue increased by 25 percent in fiscal 2007,
primarily reflecting a 23 percent increase in average assets under management in Class A, B, and C shares and private funds that pay service fees.
Service fee revenue increased by 18 percent in fiscal 2006, reflecting a 15 percent increase in average Class A, B, C and certain private fund assets
under management.
28
Other revenue
Other revenue, which consists primarily of shareholder service
fees, miscellaneous dealer income, custody fees, and investment income earned by consolidated funds, increased by 67 percent in fiscal 2007. The
increase in other revenue in fiscal 2007 can be attributed primarily to realized and unrealized gains and losses on securities classified as trading.
The 31 percent decrease in other revenue in fiscal 2006 can be attributed primarily to a decrease in investment income related to Eaton Vance
Institutional Short Term Income Fund and Eaton Vance Institutional Short Term Treasury Fund, which we stopped consolidating in April 2005 and April
2006, respectively. Other revenue for fiscal 2007, 2006 and 2005 includes $1.5 million, $1.2 million and $2.2 million, respectively, of investment
income related to consolidated funds and certain limited partnerships for the periods during which they were consolidated.
Expenses
Operating expenses increased by 43 percent in fiscal 2007,
primarily reflecting increases in compensation and distribution expense driven
by the offering of $10.0 billion in new closed-end funds in fiscal 2007,
current year payments to terminate certain closed-end fund compensation
agreements,
an increase in adjusted operating income-based incentives driven by increased profitability, an increase in asset-based distribution expenses driven by
an increase in average assets under management and an increase in other operating expenses as described below. Operating expenses increased by 15
percent in fiscal 2006, primarily reflecting increases in stock-based compensation associated with the implementation of SFAS No. 123R, increases in
asset-based distribution expenses associated with an increase in average assets under management and increases in fund and other operating expenses as
described below.
Expenses
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Compensation
of officers and employees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
compensation |
|
|
|
$ |
273,659 |
|
|
$ |
208,306 |
|
|
$ |
177,008 |
|
|
|
31 |
% |
|
|
18 |
% |
Stock-based compensation |
|
|
|
|
43,304 |
|
|
|
36,314 |
|
|
|
28,655 |
|
|
|
19 |
% |
|
|
27 |
% |
Total compensation of officers and employees |
|
|
|
|
316,963 |
|
|
|
244,620 |
|
|
|
205,663 |
|
|
|
30 |
% |
|
|
19 |
% |
Distribution
expense (1) |
|
|
|
|
253,344 |
|
|
|
114,052 |
|
|
|
101,661 |
|
|
|
122 |
% |
|
|
12 |
% |
Service fee
expense (1) |
|
|
|
|
121,748 |
|
|
|
98,262 |
|
|
|
87,983 |
|
|
|
24 |
% |
|
|
12 |
% |
Amortization
of deferred sales commissions |
|
|
|
|
55,060 |
|
|
|
52,048 |
|
|
|
63,535 |
|
|
|
6 |
% |
|
|
18 |
% |
Fund
expenses |
|
|
|
|
19,974 |
|
|
|
16,589 |
|
|
|
12,019 |
|
|
|
20 |
% |
|
|
38 |
% |
Other expenses |
|
|
|
|
84,074 |
|
|
|
71,657 |
|
|
|
49,707 |
|
|
|
17 |
% |
|
|
44 |
% |
Total expenses |
|
|
|
$ |
851,163 |
|
|
$ |
597,228 |
|
|
$ |
520,568 |
|
|
|
43 |
% |
|
|
15 |
% |
(1) |
|
Certain amounts from prior years have been reclassified to
conform to the current year presentation. See footnote 1 in Item 8 for further discussion of this change. |
Compensation of officers and employees
Compensation expense increased by 30 percent in fiscal 2007,
reflecting increases in both cash and stock-based compensation expense. The increase in cash compensation expense of 31 percent, or $65.4 million, can
be primarily attributed to $14.8 million in closed-end fund incentive compensation paid; an increase in other sales incentives of $10.0 million,
reflecting the increase in open-end fund and retail managed account sales; an increase in base compensation, employee benefits and payroll taxes of 14
percent, or $14.0 million, reflecting an 11 percent increase in average headcount; an increase in severance costs of $3.9 million associated with the
reorganization of EVD in October 2007; and an increase in adjusted operating income-based incentives of 36 percent or, $23.5 million, primarily
reflecting a 30 percent increase in adjusted
29
operating income. The increase in headcount in fiscal 2007 reflects additions to our investment
management, marketing and operations teams. Stock-based compensation
increased by 19 percent or $7.0 million, reflecting an 11 percent increase in average headcount and the acceleration of the recognition of stock-based
compensation expense associated with option grants made to retirement-eligible employees.
Compensation expense increased by 19 percent in fiscal 2006
reflecting an 18 percent, or $31.3 million, increase in cash compensation expense and a 27 percent, or $7.7 million, increase in stock-based
compensation expense. The increase in cash compensation expense can be primarily attributed to an increase in base compensation, employee benefits and
income taxes of 19 percent, or $12.6 million, reflecting a 15 percent increase in average headcount and an increase in adjusted operating income-based
incentives of 29 percent, or $14.7 million, reflecting in part a 15 percent increase in adjusted operating income. Stock-based compensation increased
by 27 percent, or $7.7 million, reflecting in part a 15 percent increase in average headcount and the acceleration of the recognition of stock-based
compensation associated with option grants made to retirement-eligible employees.
Our retirement policy provides that an employee is eligible for
retirement at age 65, or for early retirement when the employee reaches age 55 and has a combined age plus years of service of at least 75 years or
with our consent. Because many of our outstanding stock options allow for nonforfeiture of options upon retirement, the adoption of SFAS No. 123R on
November 1, 2005 resulted in the immediate recognition of compensation expense at grant date for all awards granted to retirement-eligible employees on
or after the adoption of SFAS No. 123R. For awards granted to employees approaching retirement eligibility, the adoption of SFAS No. 123R resulted in
compensation expense on a straight-line basis over the period from the grant date through the retirement eligibility date. Stock-based compensation
expense for employees who will not become retirement eligible during the vesting period of the options (five years) is recognized on a straight-line
basis. Prior to the implementation of SFAS No. 123R, and consistent with SFAS No. 123, it had been our policy to recognize all stock-based compensation
expense over the vesting period without regard to retirement eligibility.
The accelerated recognition of compensation cost for employees
who are retirement-eligible or are nearing retirement eligibility under our retirement policy is applicable for all grants made on or after our
adoption of SAFS No. 123R (November 1, 2005). The accelerated recognition of compensation expense associated with stock option grants to
retirement-eligible employees in the quarter when the options are granted (the first quarter of each fiscal year) reduces the associated stock-based
compensation expense recognized in subsequent quarters.
Distribution expense
Distribution expense consists primarily of ongoing payments made
to distribution partners pursuant to third-party distribution arrangements for certain Class C share and closed-end fund assets, calculated as a
percentage of average assets under management, commissions paid to broker/dealers on the sale of Class A shares at net asset value, structuring fees
paid on new closed-end fund offerings and other marketing expenses, including marketing expenses associated with revenue sharing arrangements with our
distribution partners.
Distribution expense increased by 122 percent, or $139.3 million,
in fiscal 2007, primarily reflecting the payment of $76.0 million in one-time structuring fees associated with the offering of three closed-end funds:
Eaton Vance Tax-Managed Diversified Equity Fund in the first quarter of fiscal 2007, Eaton Vance Tax-Managed Global Diversified Equity Income Fund in
the second quarter of fiscal 2007, and Eaton Vance Risk-Managed Diversified Equity Income Fund in the third quarter of fiscal 2007. Distribution
expense for fiscal 2007 also includes $52.2 million in payments made to Merrill Lynch, Pierce, Fenner & Smith and A.G. Edwards & Sons, Inc. to
terminate certain closed-end fund compensation agreements under which we were obligated to make recurring payments over time based on the assets of the
respective closed-end funds. Class C distribution fees increased by $6.2 million to $46.1 million in fiscal
30
2007, reflecting the increase in Class C share sales and
assets year-over-year. Marketing expenses associated with revenue sharing arrangements with our distribution partners increased by $6.7 million to
$26.1 million in fiscal 2007, reflecting the increase in sales and assets under management that are subject to these arrangements.
Distribution expense increased by 12 percent in fiscal 2006,
largely as a result of increases in average closed-end fund assets and other assets subject to third-party distribution and revenue-sharing
arrangements.
Service fee expense
Service fees we receive from sponsored funds are generally
retained in the first year and paid to broker/dealers after the first year pursuant to third-party service arrangements. These fees are calculated as a
percent of average assets under management in specific share classes of our mutual funds (principally Classes A, B, and C) as well as certain private
funds. Service fee expense increased by 24 percent in fiscal 2007 and 12 percent in fiscal 2006, reflecting increases in average fund assets retained
more than one year in funds and share classes that are subject to service fees.
Amortization of deferred sales
commissions
Amortization expense is affected by ongoing sales and redemptions
of mutual fund Class B shares, Class C shares and certain private funds. Amortization of deferred sales commissions increased by 6 percent in fiscal
2007 due to the increase in Class C share deferred sales commissions, which are amortized over a 12 month period, offset by a decrease in Class B share
deferred sales commissions, which are amortized over a period not to exceed six years. Class C share sales increased by 38 percent in fiscal 2007,
while Class B share sales declined by 24 percent. As a result of this change in product mix, amortization of deferred sales commissions as a percentage
of average deferred sales commission assets increased to 51 percent in fiscal 2007 from 44 percent in fiscal 2006.
Amortization expense in fiscal 2006 decreased by 18 percent,
primarily reflecting a decrease in Class B share deferred sales commissions.
Fund expenses
Fund expenses consist primarily of fees paid to subadvisors,
compliance costs and other fund-related expenses we incurred. Fund expenses increased by 20 percent in fiscal 2007 and 38 percent in fiscal 2006,
primarily reflecting increases in subadvisory fees and other fund-related expenses. The increase in subadvisory fees can be attributed to the increase
in average assets under management in funds for which external investment advisors act as subadvisors. The increase in other fund-related expenses can
be attributed to an increase in fund expenses for certain institutional funds for which we are paid an all-in management fee and bear the funds
non-advisory expenses.
Other expenses
Other expenses consist primarily of travel, facilities,
information technology, consulting, communications and other corporate expenses, including the amortization of intangible assets.
Other expenses increased by 17 percent, or $12.4 million, in
fiscal 2007, primarily reflecting increases in travel expense of $2.8 million, facilities-related expenses of $5.9 million, information technology
expense of $8.9 million and consulting expense of $3.2 million offset by a decrease in the amortization of intangible assets of $9.0 million. The
increase in travel expense can be attributed primarily to additional travel costs incurred in connection with the three closed-end fund offerings
during the fiscal year. The increase in facilities-related expenses can be attributed to an increase in rent and insurance associated with additional
office space leased to support the growth in headcount and accelerated amortization of leasehold improvements in anticipation of our move to new
corporate headquarters in Boston in fiscal 2009. The increase in information technology expense can be attributed to an increase in outside data
services and consulting costs incurred in conjunction with several significant system implementations. The increase in consulting costs can be
attributed primarily to increases in recruiting, other general consulting and audit costs
31
in fiscal 2007. The decrease in the amortization of
intangible assets reflects the $8.9 million write-off of intangible assets relating to the termination of certain institutional and high-net-worth
asset management contracts at Fox Asset Management in fiscal 2006.
Other expenses increased by 44 percent, or $22.0 million, in
fiscal 2006, primarily reflecting increases in facilities-related expenses of $3.7 million, information technology expense of $8.4 million and
amortization of intangible assets of $7.7 million. The increase in facilities-related expenses can be attributed to an increase in rent associated with
additional office space leased in our existing facilities to support the increase in headcount, additional building expenses associated with the
build-out of that office space and related increases in insurance and depreciation. The increase in information technology expense can be attributed to
an overall increase in data services and costs incurred in fiscal 2006 in conjunction with several significant system implementations.
The increase in the amortization of intangible assets in fiscal
2006 reflects the write-off of intangible assets relating to the termination of certain institutional and high-net-worth asset management contracts at
Fox Asset Management. The write-off, which totaled $8.9 million, or $0.04 per diluted share, was computed by comparing the net present value of the
projected future client cash flows to the carrying value of the intangible asset at April 30, 2006.
Other Income and Expense
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Interest
income |
|
|
|
$ |
10,511 |
|
|
$ |
8,033 |
|
|
$ |
4,354 |
|
|
|
31 |
% |
|
|
84 |
% |
Interest
expense |
|
|
|
|
(2,894 |
) |
|
|
(12,850 |
) |
|
|
(1,464 |
) |
|
|
77 |
% |
|
|
778 |
% |
Gains (loss)
on investments |
|
|
|
|
(1,943 |
) |
|
|
3,667 |
|
|
|
38 |
|
|
|
NM |
|
|
|
NM |
|
Foreign
currency losses |
|
|
|
|
(262 |
) |
|
|
(222 |
) |
|
|
(32 |
) |
|
|
18 |
% |
|
|
594 |
% |
Impairment loss on investments |
|
|
|
|
|
|
|
|
(592 |
) |
|
|
(2,120 |
) |
|
|
NM |
|
|
|
72 |
% |
Total other income (expense) |
|
|
|
$ |
5,412 |
|
|
$ |
(1,964 |
) |
|
$ |
776 |
|
|
|
NM |
|
|
|
NM |
|
Interest income increased by $2.5 million, or 31 percent, in
fiscal 2007, primarily reflecting additional interest income earned on proceeds from our $500.0 million senior notes offering that funded on October 2,
2007. Interest income increased by 84 percent in fiscal 2006, primarily due to an increase in short-term interest rates offset by a decrease in
interest income earned on our minority equity investments in CDO entities.
Interest expense decreased by $10.0 million, or 77 percent, in
fiscal 2007, primarily due to EVMs redemption of its zero-coupon exchangeable senior notes (Exchangeable Notes) in August 2006 offset
by interest accrued on our senior notes issued in October.
Interest expense increased by $11.4 million, or 778 percent, in
fiscal 2006, primarily due to EVMs redemption of the Exchangeable Notes in August 2006. Upon receipt of EVMs notice of its intent to redeem
the Exchangeable Notes for cash, noteholders had the option to exchange the Exchangeable Notes into Eaton Vance Corp. Non-Voting Common Stock. EVM
ultimately had the right to settle the exchange in cash in lieu of shares. As a result of the redemption and resultant settlement in cash, EVM
recognized $9.8 million in additional interest expense representing the premium value of the shares that would have been issued upon exchange in excess
of the accreted value of the Exchangeable Notes on the redemption date. EVM recognized an additional $1.5 million in interest expense representing the
write-off of related remaining debt issuance costs.
32
In fiscal 2007, we incurred net realized losses on investments
totaling $1.9 million, consisting of a $6.7 million loss on the termination of an interest rate lock offset by net investment gains of $3.0 million
realized on the disposition of certain investments in sponsored funds and $1.8 million realized on the liquidation of an investment in a collateralized
debt obligation entity, respectively. The interest rate lock was entered into as a hedge against adverse movements in Treasury rates in anticipation of
the issuance of senior notes with a maturity in excess of ten years. When we determined that we would not issue senior notes with a maturity in excess
of ten years, the interest rate lock was terminated and the net settlement amount was recorded as a loss on investments.
In fiscal 2006, we recognized net gains of $2.2 million upon the
disposition of certain investments in sponsored funds and $1.4 million in gains on liquidation of investments in two CDO entities.
In addition, we recognized an impairment loss of $0.6 million in
fiscal 2006 related to our investments in two CDO entities. The impairment loss resulted from the effect of tightening credit spreads and higher than
forecasted prepayment rates on the entities investments.
Income Taxes
Our effective tax rate (income taxes as a percentage of income
before income taxes, minority interest, equity in net income of affiliates, and the cumulative effect of a change in accounting principle) was 39
percent in fiscal 2007, 2006 and 2005.
Our policy for accounting for income taxes includes monitoring
our business activities and tax policies to ensure that we are in compliance with federal, state and foreign tax laws. In the ordinary course of
business, various taxing authorities may not agree with certain tax positions we have taken, or applicable law may not be clear. We periodically review
these tax positions and provide for and adjust as necessary estimated liabilities relating to such positions as part of our overall tax provision.
There were no significant changes to our overall tax position during fiscal 2007.
Minority Interest
Minority interest increased by 23 percent, 1 percent and 10
percent in fiscal 2007, 2006 and 2005, respectively, primarily due to the increased profitability of majority-owned subsidiaries Atlanta Capital and
Parametric Portfolio Associates.
Minority interest is not adjusted for taxes due to the underlying
tax status of our consolidated subsidiaries. Atlanta Capital, Fox Asset Management, Parametric Portfolio Associates and Parametric Risk Advisors are
limited liability companies that are treated as partnerships for tax purposes. Funds we consolidate are registered investment companies or private
funds that are treated as pass-through entities for tax purposes.
Equity in Net Income of Affiliates, Net of
Tax
Equity in net income of affiliates, net of tax, at October 31,
2007 reflects our 20 percent minority equity interest in Lloyd George Management and a 7 percent minority equity interest in a private equity
partnership. Equity in net income of affiliates, net of tax, decreased by $0.4 million, or 10 percent, in fiscal 2007 primarily due to our sale of
certain investments in sponsored mutual funds that were accounted for under the equity method in prior periods, offset by increases in equity in net
income of both Lloyd George Management and the private equity partnership. Equity in net income of affiliates, net of tax, increased by $3.1 million,
or 253 percent, in fiscal 2006, primarily due to a $2.8 million increase in net income (after tax) attributed to our minority equity investment in
Eaton Vance Institutional Short Term Income Fund.
33
Changes in Financial Condition and Liquidity and Capital
Resources
The following table summarizes certain key financial data
relating to our liquidity and capital resources on October 31, 2007, 2006 and 2005 and for the years then ended:
Balance Sheet and Cash Flow Data
|
|
|
|
October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Balance
sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
434,957 |
|
|
$ |
206,705 |
|
|
$ |
146,389 |
|
|
|
110 |
% |
|
|
41 |
% |
Short-term
investments |
|
|
|
|
50,183 |
|
|
|
20,669 |
|
|
|
127,858 |
|
|
|
143 |
% |
|
|
84 |
% |
Long-term
investments |
|
|
|
|
86,111 |
|
|
|
73,075 |
|
|
|
61,766 |
|
|
|
18 |
% |
|
|
18 |
% |
Deferred
sales commissions |
|
|
|
|
99,670 |
|
|
|
112,314 |
|
|
|
126,113 |
|
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt |
|
|
|
|
500,000 |
|
|
|
|
|
|
|
75,467 |
|
|
|
NM |
|
|
|
100 |
% |
Deferred
income taxes |
|
|
|
|
11,740 |
|
|
|
22,520 |
|
|
|
29,804 |
|
|
|
48 |
% |
|
|
24 |
% |
|
|
|
|
For the Years Ended October 31,
|
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007 vs. 2006
|
|
2006 vs. 2005
|
Cash flow
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
cash flows |
|
|
|
$ |
266,357 |
|
|
$ |
262,851 |
|
|
$ |
104,052 |
|
|
|
1 |
% |
|
|
153 |
% |
Investing
cash flows |
|
|
|
|
(75,354 |
) |
|
|
(26,197 |
) |
|
|
(30,868 |
) |
|
|
188 |
% |
|
|
15 |
% |
Financing
cash flows |
|
|
|
|
37,196 |
|
|
|
(176,407 |
) |
|
|
(73,856 |
) |
|
|
NM |
|
|
|
139 |
% |
Our financial condition is highly liquid, with a significant
percentage of our assets represented by cash and cash equivalents. Short-term investments include investments in our sponsored cash management funds.
Long-term investments consist principally of investments in certain of our sponsored mutual funds, investments in affiliates and investments in CDO
entities.
We had significant demands on our cash flow during fiscal 2007.
Cash outflows included $52.2 million in one-time payments made by the Company to terminate certain closed-end fund compensation agreements, $76.0
million in structuring fee payments related to new closed-end fund offerings and $14.8 million in sales-based incentives related to new closed-end fund
offerings.
Deferred sales commissions paid to broker/dealers in connection
with the distribution of the Companys Class B and Class C fund shares, as well as certain private funds, decreased by 11 percent in both fiscal
2007 and fiscal 2006, primarily reflecting the ongoing decline in Class B share sales and assets. Deferred income taxes, which relate principally to
the deferred tax liability for deferred sales commissions offset by the deferred tax benefit for stock-based compensation, decreased by 48 percent in
fiscal 2007 and 24 percent in fiscal 2006. Upon adoption of SFAS No. 123R in the first quarter of fiscal 2006, the Company established a deferred tax
asset of $21.3 million.
In October 2007, we issued $500.0 million in aggregate principal
amount of 6.5% ten-year senior notes due 2017.
34
The following table details our future contractual obligations as
of October 31, 2007:
Contractual Obligations
|
|
|
|
Payments due
|
|
(in millions)
|
|
|
|
Total
|
|
Less than 1 Year
|
|
13 Years
|
|
45 Years
|
|
After 5 Years
|
Operating
leases facilities and equipment |
|
|
|
$ |
198.9 |
|
|
$ |
10.4 |
|
|
$ |
25.4 |
|
|
$ |
26.1 |
|
|
$ |
137.0 |
|
Senior
notes |
|
|
|
|
500.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.0 |
|
Investment in private equity partnership |
|
|
|
|
7.4 |
|
|
|
|
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
706.3 |
|
|
$ |
10.4 |
|
|
$ |
32.8 |
|
|
$ |
26.1 |
|
|
$ |
637.0 |
|
In July 2006, we committed to invest $15.0 million in a private
equity partnership that invests in companies in the financial services industry. As of October 31, 2007, we had invested $7.6 million of the total
$15.0 million of committed capital.
In September 2006, we signed a long-term lease to move the
Companys corporate headquarters to a new location in Boston. The lease will commence in May 2009.
Excluded from the table above are future payments to be made by
us to purchase the interests retained by minority investors in Atlanta Capital, Fox Asset Management, Parametric Portfolio Associates and Parmetric
Risk Advisors. The acquisition agreements provide the minority shareholders the right to require us to purchase these retained interests at specific
intervals over time. These agreements also provide us with the right to require the minority shareholders to sell their retained equity interests to us
at specific intervals over time, as well as upon the occurrence of certain events such as death and permanent disability. These purchases and sales can
occur at varying times in varying amounts over the next six years, and will generally be based upon a multiple of earnings before interest and taxes, a
measure that is intended to represent fair market value. Although the timing and amounts of these purchases cannot be predicted with certainty, we
anticipate that the purchase of minority interests in our consolidated subsidiaries may be a significant use of cash in future years.
In the third quarter of fiscal 2007, minority shareholders of
Parametric Portfolio Associates exercised a put option whereby units representing a 2 percent capital interest in Parametric Portfolio Associates were
sold to us for $6.1 million, increasing our capital ownership interest from 82 to 84 percent. In addition, we purchased a 3 percent interest in Atlanta
Capital from minority interest holders for $2.9 million upon exercise of a minority investor put option in the third quarter of fiscal 2007, increasing
the Companys ownership interest from 77 percent to 80 percent. The additional purchase price in each case was allocated between intangible assets
and goodwill based on an independent valuation. Minority interest decreased by $0.3 million as a result of these transactions.
In April 2007, Parametric Portfolio Associates announced the
signing of a definitive agreement with Managed Risk Advisors, LLC, an investment management and derivatives investment advisory firm based in Westport,
Connecticut, to merge with Parametric Risk Advisors LLC, a newly formed Parametric Portfolio Associates affiliate. The transaction was completed
on May 1, 2007. Parametric Risk Advisors is owned 60 percent by its principals and 40 percent by Parametric Portfolio Associates. Pursuant to the
acquisition agreements, Parametric Portfolio Associates will have the right to require the other shareholders in Parametric Risk Advisors to sell their
equity interests to Parametric Portfolio Associates at specific intervals over time at a price based upon a multiple of earnings before interest and
taxes, a measure that is intended to represent fair market value.
In fiscal 2006, the Company exercised a call option and purchased
an additional 2 percent interest in Parametric Portfolio Associates from minority interest holders for $4.0 million, increasing the Companys
capital ownership interest from 80 percent to 82 percent. In addition, the Company purchased an additional 7 percent interest in Atlanta Capital from
minority interest holders for $7.2 million upon exercise of a minority
35
investor put option, increasing the Companys ownership
from 70 to 77 percent. The additional purchase price in each case was allocated between intangible assets and goodwill based on independent valuations.
Minority interest decreased by $0.3 million as a result of these transactions.
On July 28, 2006, EVM announced its intention to redeem for cash
all of its outstanding Exchangeable Notes ($110.9 million principal amount at maturity with an accreted value on redemption date of $76.4 million).
Upon receipt of EVMs notice of its intent to redeem, holders of the Exchangeable Notes had the option to exchange the Exchangeable Notes into
Eaton Vance Corp. Non-Voting Common Stock at a rate of 28.7314 shares of common stock per $1,000 principal amount at maturity. All but $6,000 principal
amount at maturity of the Exchangeable Notes were tendered for exchange into the Companys Non-Voting Common Stock. EVM elected to pay the holders
cash in lieu of delivering stock as provided for in the indenture agreement governing the Exchangeable Notes. As a result, EVM paid $86.2 million to
holders who presented their Exchangeable Notes for exchange. The remaining Exchangeable Notes with a principal amount at maturity of $6,000 were
redeemed by the Company for cash in the aggregate amount of $4,130.
The redemption of the Exchangeable Notes described above resulted
in the elimination of all of the Companys then-outstanding long-term debt and reduced its diluted shares outstanding by 3.2 million shares. The
$9.8 million premium value of the shares in excess of the accreted value of the Exchangeable Notes was recorded as interest expense, as was $1.5
million of related debt issuance costs that was written off. Approximately $2.6 million of the premium value was not deductible for tax
purposes.
We maintain a revolving credit facility with several banks, which
expires on August 13, 2012. The facility, which was extended in August 2007, provides that we may borrow up to $200.0 million at LIBOR-based rates of
interest that vary depending on the level of usage of the facility and our credit ratings. The agreement contains financial covenants with respect to
leverage and interest coverage and requires us to pay an annual commitment fee on any unused portion. On October 31, 2007, we had no outstanding
borrowings under our revolving credit facility.
Operating Cash Flows
Our operating cash flows are calculated by adjusting net income
to reflect changes in assets and liabilities, deferred sales commissions, stock-based compensation, deferred income taxes and investments classified as
trading. Cash provided by operating activities totaled $266.4 million, $262.9 million and $104.1 million in the fiscal years ended October 31, 2007,
2006 and 2005, respectively. The increase in cash provided by operating activities in fiscal 2007 can be attributed primarily to an increase in cash
provided by the purchase and sale of trading securities by consolidated mutual funds, which regularly purchase and sell securities. In fiscal 2007, net
proceeds received from the purchase and sale of trading securities by our consolidated funds increased cash by $16.0 million. Net cash provided by
(used for) the purchase and sale of trading securities totaled $30.6 million and ($68.8) million in fiscal 2006 and 2005. Operating cash flows in 2007
were reduced by $52.2 million in payments made to terminate certain closed-end fund compensation agreements and $76.0 million in structuring fee
payments related to the offering of three closed-end funds.
Operating cash flows in 2007 also include the payment of $4.5
million to settle an interest rate lock transaction associated with our ten-year senior note offering. We entered into the interest rate lock to hedge
against movement in ten-year Treasury prices between the time at which the decision was made to issue the debt and the pricing of the securities. At
the time the debt was issued, we terminated the interest rate lock and settled the transaction in cash. At termination, the interest rate lock was
determined to be a fully effective cash flow hedge and the $4.5 million settlement cost was recorded as a component of other comprehensive income. The
amount recorded in other comprehensive income will ultimately be amortized over the life of the senior notes and recorded as a component of interest
expense.
36
Capitalized sales commissions paid to financial intermediaries
for the distribution of our Class B and Class C fund shares and certain private funds increased by $1.9 million in fiscal 2007, due primarily to a 38
percent increase in Class C share sales. Capitalized sales commissions increased by $6.9 million in fiscal 2006 due primarily to a 23 percent increase
in Class C share sales. We anticipate that the payment of capitalized sales commissions will continue to be a significant use of cash in the
future.
Investing Cash Flows
Investing activities consist primarily of the purchase of
equipment and leasehold improvements, the purchase of equity interests from minority investors in our majority owned subsidiaries, and the purchase and
sale of investments in our sponsored mutual funds and other sponsored investment products that we do not consolidate. Cash used for investing
activities totaled $75.4 million, $26.2 million and $30.9 million in fiscal 2007, 2006 and 2005, respectively.
In fiscal 2007, additions to equipment and leasehold improvements
totaled $12.7 million, compared to $12.7 million in fiscal 2006 and $3.4 million in fiscal 2005. Fiscal 2007 and 2006 additions reflect leasehold
improvements made in conjunction with additional office space leased to accommodate the increase in headcount in those years. Investing cash flows in
fiscal 2007 also reflect the purchase of an additional 2 percent interest in Parametric Portfolio Associates and an additional 3 percent interest in
Atlanta Capital for a total of $9.1 million. These purchases increased our ownership interests in Parametric Portfolio Associates and Atlanta Capital
to 84 percent and 80 percent, respectively. Fiscal 2006 and 2005 purchases of additional interests in majority-owned subsidiaries totaled $11.3 million
and $0.4 million, respectively. In fiscal 2007, the purchase and sale of available-for-sale investments resulted in a net use of cash totaling $52.9
million. In fiscal 2006 and 2005, the purchase and sale of available-for-sale investments reduced investing cash flows by $0.5 million and $26.6
million, respectively.
Financing Cash Flows
Financing cash flows primarily reflect the issuance and repayment
of long-term debt, the issuance and repurchase of our Non-Voting Common Stock, excess tax benefits associated with stock option exercises and the
payment of dividends to our shareholders. Financing cash flows also include proceeds from the issuance of capital stock by consolidated investment
companies and cash paid to meet redemptions by minority shareholders of these funds. Cash provided by (used for) financing activities totaled $37.2
million, ($176.4) million and ($73.9) million in fiscal 2007, 2006 and 2005.
In fiscal 2007, we repurchased a total of 10.8 million shares of
our Non-Voting Common Stock for $442.3 million under our authorized repurchase programs and issued 2.5 million shares of Non-Voting Common Stock in
connection with the exercise of stock options and other employee stock purchases for total proceeds of $41.9 million. We have authorization to purchase
an additional 7.2 million shares under our current share repurchase authorization and anticipate that future repurchases will continue to be a
significant use of cash. Our dividends per share were $0.51 in fiscal 2007, $0.42 in fiscal 2006 and $0.34 in fiscal 2005. We increased our quarterly
dividend by 25 percent to $0.15 per share in the fourth quarter of fiscal 2007. We currently expect to continue to declare and pay comparable dividends
on our Voting and Non-Voting Common Stock on a quarterly basis.
In October 2007, we issued $500.0 million in aggregate principal
amount of 6.5% ten year senior notes due 2017. In conjunction with the senior note offering, we paid approximately $5.2 million in debt offering costs
that will be amortized over the life of the notes and recognized as a component of interest expense.
In August 2006, EVM retired in full its then outstanding
Exchangeable Notes with an accreted value on redemption date of $76.4 million. We made no long-term debt payments in fiscal 2005.
We believe that proceeds from our $500.0 million senior note
offering, cash provided by current operating activities and borrowings available under our $200.0 million credit facility will provide us with
sufficient liquidity to meet our short-term and long-term operating needs.
37
Off-Balance Sheet Arrangements
We do 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 us to any liability that is not reflected in the
Consolidated Financial Statements.
Critical Accounting Policies
We believe the following critical accounting policies, among
others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results may differ
from these estimates.
Deferred Sales Commissions
Sales commissions paid to broker/dealers in connection with the
sale of certain classes of shares of open-end funds and private funds are generally capitalized and amortized over the period during which redemptions
by the purchasing shareholder are subject to a contingent deferred sales charge, which does not exceed six years from purchase. Distribution plan
payments received from these funds are recorded in revenue as earned. Contingent deferred sales charges and early withdrawal charges received from
redeeming shareholders of these funds are generally applied to reduce the Companys unamortized deferred sales commission assets. Should we lose
our 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. We periodically review 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 adjust the deferred sales commission
assets accordingly.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of our investment in
the net assets of acquired companies over the fair value of the underlying identifiable net assets at the dates of acquisition. We attribute all
goodwill associated with the acquisitions of Atlanta Capital, Fox Asset Management and Parametric Portfolio Associates to a single reporting unit.
Goodwill is not amortized but is tested at least annually for impairment by comparing the fair value of the reporting unit to its carrying amount,
including goodwill. We establish fair value for the purpose of impairment testing using discounted cash flow analyses and appropriate market multiples.
In this process, we make assumptions related to projected future earnings and cash flow, market multiples and applicable discount rates. Changes in
these estimates could materially affect our impairment conclusion.
Identifiable intangible assets generally represent the cost of
client relationships and management contracts acquired. In valuing these assets, we make assumptions regarding useful lives and projected growth rates,
and significant judgment is required. In most instances, we engage third party consultants to perform these valuations. We periodically review
identifiable intangibles for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amount of the
impairment loss, if any.
38
Accounting for Income Taxes
Our effective tax rate reflects the statutory tax rates of the
many jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions. In
the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain, and we adjust our income tax provision in the
period in which we determine that actual outcomes will likely be different from our estimates. Contingent tax liabilities are established when, despite
our belief that the tax return positions are fully supportable, there is the potential that they may be successfully challenged. These contingent tax
liabilities, as well as the related interest, are adjusted regularly to reflect changing facts and circumstances. While we have considered future
taxable income and ongoing tax planning in assessing our taxes, changes in tax laws may result in a change to our tax position and effective tax rate.
The Company classifies any interest or penalties incurred as a component of income tax expense.
Deferred income taxes reflect the expected future tax
consequences of temporary differences between the carrying amounts and tax bases of our assets and liabilities. Our deferred taxes relate principally
to stock-based compensation expense and capitalized sales commissions paid to broker/dealers. Under IRS regulations, stock-based compensation is
deductible for tax purposes at the time the employee recognizes the income (upon vesting of restricted stock, exercise of non-qualified stock option
grants and any disqualifying dispositions of incentive stock options). Capitalized sales commission payments are deductible for tax purposes at the
time of payment.
As discussed in Accounting Developments below, our
accounting for income taxes will be impacted by the adoption of FASB Interpretation No. 48, Accounting for the Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109 (FIN 48).
Investments in CDO Entities
We act as collateral or investment manager for a number of CDO
entities pursuant to management agreements between us and each CDO entity. At October 31, 2007, combined assets under management in these CDO entities
upon which we earn a management fee were approximately $3.3 billion. We had combined investments of $19.0 million in five of these entities on October
31, 2007.
We account for our 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. We review cash flow estimates throughout the life of each CDO investment pool
to determine whether an impairment of its 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 our 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 interest. Market yields, default rates and recovery rates used
in our 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 our investments in these CDO entities may be adversely affected. Our
risk of loss in the CDO entities is limited to the $19.0 million carrying value of the investments on our Consolidated Balance Sheet at October 31,
2007.
39
A CDO entity issues non-recourse debt and equity securities,
which are sold in a private offering to institutional and high-net-worth investors. The CDO debt securities issued by the CDO entity are secured by
collateral in the form of floating-rate bank loans, high-yield bonds and/or other types of approved securities that the CDO entity purchases. We manage
the collateral securities for a fee and, in most cases, are a minority investor in the equity interests of the CDO entity. An equity interest in a CDO
entity is subordinated to all other interests in the CDO entity and entitles the investor to receive the residual cash flows, if any, from the CDO
entity. As a result, our equity investment in a CDO entity is highly 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. Our financial exposure to the CDO
entities we manage is limited to our interests in the CDO entities as reflected in our Consolidated Balance Sheet.
Stock-Based Compensation
Stock-based compensation expense reflects the fair value of
stock-based awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The
fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation
model incorporates assumptions as to dividend yield, volatility, an appropriate risk-free interest rate and the expected life of the option. Many of
these assumptions require managements judgment. Management must also apply judgment in developing an expectation of awards that may be forfeited.
If actual experience differs significantly from these estimates, stock-based compensation expense and our results of operations could be materially
affected.
Loss Contingencies
We continually review 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. There are no losses of this nature that are currently deemed probable and reasonably estimable, and thus none
have been recorded in the financial statements included in this report.
Inflation
Our assets are, to a large extent, liquid in nature and therefore
we do not believe that inflation has had a material impact on our results of operations. To the extent that inflation or the expectation thereof
results in rising interest rates, it may adversely affect our financial condition and results of operations. A substantial decline in the value of
fixed-income or equity investments could adversely affect the net asset value of funds and accounts we manage, which in turn would result in a decline
in revenue.
Accounting Developments
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51. SFAS No.
160 amends ARB No. 51 to establish accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of
subsidiaries. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as equity in the
consolidated financial statements. The provisions of SFAS No. 160 are effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those fiscal years. SFAS No. 160 is effective for the Companys fiscal year that begins on November 1, 2009. We are currently
evaluating the potential impact, if any, on our consolidated financial statements.
40
In December 2007, the FASB amended SFAS No. 141, Business
Combinations. SFAS No. 141, as amended, establishes principles and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The provisions of SFAS No. 141,
as amended, are effective for fiscal years beginning on or after December 15, 2008. SFAS No. 141, as amended, is effective for the Companys
fiscal year that begins on November 1, 2009. We are currently evaluating the potential impact, if any, on our consolidated financial
statements.
In June 2007, the FASB ratified the consensus reached by the EITF in EITF Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards (EITF 06-11). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend
equivalents that are charged to retained earnings and are paid to employees for equity classified non-vested equity shares, non-vested equity share
units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional
paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to
absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends
on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods
within those fiscal years. EITF 06-11 is effective for the Companys fiscal year that begins on November 1, 2008. We are currently evaluating the
potential impact of EITF 06-11, if any, on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective of the statement is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is effective for
the Companys fiscal year that begins on November 1, 2008. We are currently evaluating this standard and its impact, if any, on our consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure
requirements about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements
but does not in itself require any new fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. SFAS No. 157 is effective for the Companys fiscal year that begins on November 1, 2008.
We are currently evaluating this standard and its impact, if any, on our consolidated financial statements.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), to clarify certain
aspects of accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold for
tax positions, more-likely-than-not (i.e. greater than 50 percent), before being recognized in the financial statements. FIN 48 is effective for
fiscal years beginning after December 15, 2006. We will adopt FIN 48 as of November 1, 2007, as required.
FIN 48 provides that interest recognized as a result of the
application of FIN 48 may be classified as either income taxes or interest expense. FIN 48 further provides that any penalties recognized as a result
of applying FIN 48 may be classified in the financial statements as either income taxes or another expense classification. The classification of these
items is based upon the accounting policy election of the company. Our historical accounting policy with respect to interest and penalties recognized for
tax uncertainties has been to classify these amounts as income taxes. We will continue this classification upon the adoption of FIN
48.
41
We are continuing to evaluate the impact of FIN 48 on our
financial statements and currently anticipate recognizing a charge to retained earnings of approximately $5.0 million upon adoption. In addition, we
anticipate that, upon adoption, our deferred tax assets and income taxes payable will increase by approximately $85.0 million on the Companys Consolidated Balance Sheet.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
In the normal course of business, our financial position is
subject to different types of risk, including market risk. Market risk is the risk that we will incur losses due to adverse changes in equity and bond
prices, interest rates, credit risk or currency exchange rates. Management is responsible for identifying, assessing and managing market and other
risks.
In evaluating market risk, it is important to note that most of
our revenue is based on the market value of assets under management. As noted in Risk Factors in Item 1A, declines of financial market
values will negatively impact our revenue and net income.
Our primary direct exposure to equity price risk arises from our
investments in sponsored equity funds, our equity interest in affiliates and equity securities held by sponsored funds we consolidate. Our investments
in sponsored equity funds and equity securities are carried at fair value on our Consolidated Balance Sheets. Equity price risk as it relates to these
investments represents the potential future loss of value that would result from a decline in the fair values of the fund shares or underlying equity
securities. The following is a summary of the effect that a 10 percent increase or decrease in equity prices would have on our investments subject to
equity price fluctuation at October 31, 2007:
(in thousands)
|
|
|
|
Carrying Value
|
|
Carrying Value assuming a 10%
increase
|
|
Carrying Value assuming a 10%
decrease
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities |
|
|
|
$ |
14,368 |
|
|
$ |
15,805 |
|
|
$ |
12,931 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored
funds |
|
|
|
|
82,627 |
|
|
|
90,890 |
|
|
|
74,364 |
|
Investment in affiliates |
|
|
|
|
16,297 |
|
|
|
17,927 |
|
|
|
14,667 |
|
Total |
|
|
|
$ |
113,292 |
|
|
$ |
124,622 |
|
|
$ |
101,962 |
|
42
Our primary direct exposure to interest rate risk arises from our
investment in fixed and floating-rate income funds sponsored by us and debt securities held by sponsored funds we consolidate. We considered the
negative effect on pre-tax interest income of a 50 basis point (0.50 percent) decline in interest rates as of October 31, 2007. A 50 basis point decline in
interest rates is a hypothetical scenario used to demonstrate potential risk and does not represent our managements view of future market
changes. The following is a summary of the effect that a 50 basis point percent (0.50 percent) decline in interest rates would have on our pre-tax net income
as of October 31, 2007:
(in thousands)
|
|
|
|
Carrying Value
|
|
Pre-tax interest income impact of a 50 basis
point decline in interest rates
|
Trading: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
$ |
770 |
|
|
|
$ 4 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds |
|
|
|
|
2,320 |
|
|
|
12 |
|
Total |
|
|
|
$ |
3,090 |
|
|
|
$16 |
|
From time to time, we seek to offset our exposure to changing
interest rates associated with our debt financing. In October 2007, we issued $500.0 million in aggregate principal amount of 6.5 percent ten year
senior notes due 2017. In conjunction with the offering, we entered into an interest rate lock intended to hedge against adverse Treasury rate
movements between the time at which the decision was made to issue the debt and the pricing of the securities. At the time the debt was issued, we
terminated the lock and settled the transaction in cash. At termination, the lock was determined to be a fully effective cash flow hedge and the $4.5
million settlement cost was recorded as a component of other comprehensive income. There can be no assurance that our hedge instruments will meet their
overall objective of reducing our interest expense or that we will be successful in obtaining hedging contracts on any future debt
offerings.
Our primary direct exposure to credit risk arises from our
interests in CDO entities that are included in long-term investments in our Consolidated Balance Sheets. As an investor in a CDO entity, we are
entitled to only a residual interest in the CDO entity, making these investments highly sensitive to the default rates of the underlying issuers of the
high-yield bonds or floating-rate income instruments held by the CDO entity. Our 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 we may be unable to recover our investment. Our total investment in interests in CDO entities
is approximately $19.0 million at October 31, 2007, which represents our total value at risk with respect to such entities as of October 31,
2007.
We operate primarily in the United States, and accordingly most
of our consolidated revenue and associated expenses are denominated in U.S. dollars. We also provide services and earn revenue outside of the United
States; therefore, the portion of our revenue and expenses denominated in foreign currencies may be impacted by movements in currency exchange rates.
This situation may change in the future as our business continues to grow outside of the United States. We do not enter into foreign currency
transactions for speculative purposes and currently have no material investments that would expose us to foreign currency exchange
risk.
43
Item 8. Financial Statements and Supplementary
Data
Index to Consolidated Financial Statements and
Supplementary Data
For the Fiscal Years Ended October 31, 2007, 2006 and 2005
Contents
|
|
|
|
Page number reference
|
Consolidated
Financial Statements of Eaton Vance Corp.: |
|
|
|
|
|
|
Consolidated
Statements of Income for each of the three years in the period ended October 31, 2007 |
|
|
|
|
45 |
|
Consolidated
Balance Sheets as of October 31, 2007 and 2006 |
|
|
|
|
46 |
|
Consolidated
Statements of Shareholders Equity and Comprehensive Income for each of the three years in the period ended October 31, 2007 |
|
|
|
|
47 |
|
Consolidated
Statements of Cash Flows for each of the three years in the period ended October 31, 2007 |
|
|
|
|
49 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
50 |
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
74 |
|
All schedules have been omitted because they are not required,
are not applicable or the information is otherwise shown in the consolidated financial statements or notes thereto.
44
Consolidated Statements of Income
|
|
|
|
Years Ended October 31, |
|
(in thousands, except per share data)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and administration fees |
|
|
|
$ |
773,612 |
|
|
$ |
594,632 |
|
|
$ |
503,085 |
|
Distribution
and underwriter fees |
|
|
|
|
148,369 |
|
|
|
139,111 |
|
|
|
138,485 |
|
Service
fees |
|
|
|
|
154,736 |
|
|
|
124,025 |
|
|
|
105,202 |
|
Other revenue |
|
|
|
|
7,383 |
|
|
|
4,426 |
|
|
|
6,403 |
|
Total revenue |
|
|
|
|
1,084,100 |
|
|
|
862,194 |
|
|
|
753,175 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
of officers and employees |
|
|
|
|
316,963 |
|
|
|
244,620 |
|
|
|
205,663 |
|
Distribution
expense |
|
|
|
|
253,344 |
|
|
|
114,052 |
|
|
|
101,661 |
|
Service fee
expense |
|
|
|
|
121,748 |
|
|
|
98,262 |
|
|
|
87,983 |
|
Amortization
of deferred sales commissions |
|
|
|
|
55,060 |
|
|
|
52,048 |
|
|
|
63,535 |
|
Fund
expenses |
|
|
|
|
19,974 |
|
|
|
16,589 |
|
|
|
12,019 |
|
Other
expenses |
|
|
|
|
84,074 |
|
|
|
71,657 |
|
|
|
49,707 |
|
Total expenses |
|
|
|
|
851,163 |
|
|
|
597,228 |
|
|
|
520,568 |
|
|
Operating
income |
|
|
|
|
232,937 |
|
|
|
264,966 |
|
|
|
232,607 |
|
|
Other
Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
10,511 |
|
|
|
8,033 |
|
|
|
4,354 |
|
Interest
expense |
|
|
|
|
(2,894 |
) |
|
|
(12,850 |
) |
|
|
(1,464 |
) |
Gains/(losses) on investments |
|
|
|
|
(1,943 |
) |
|
|
3,667 |
|
|
|
38 |
|
Foreign
currency losses |
|
|
|
|
(262 |
) |
|
|
(222 |
) |
|
|
(32 |
) |
Impairment loss on investments |
|
|
|
|
|
|
|
|
(592 |
) |
|
|
(2,120 |
) |
|
Income before
income taxes, minority interest, equity in net income of affiliates and cumulative effect of change in accounting principle |
|
|
|
|
238,349 |
|
|
|
263,002 |
|
|
|
233,383 |
|
Income
taxes |
|
|
|
|
(93,200 |
) |
|
|
(102,245 |
) |
|
|
(90,871 |
) |
Minority
interest |
|
|
|
|
(6,258 |
) |
|
|
(5,103 |
) |
|
|
(5,037 |
) |
Equity in net income of affiliates, net of tax |
|
|
|
|
3,920 |
|
|
|
4,349 |
|
|
|
1,231 |
|
|
Income before
cumulative effect of change in accounting principle |
|
|
|
|
142,811 |
|
|
|
160,003 |
|
|
|
138,706 |
|
Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
|
|
(626 |
) |
|
|
|
|
Net income |
|
|
|
$ |
142,811 |
|
|
$ |
159,377 |
|
|
$ |
138,706 |
|
|
Earnings per
share before cumulative effect of change in accounting principle: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
Diluted |
|
|
|
$ |
1.06 |
|
|
$ |
1.18 |
|
|
$ |
0.99 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
Diluted |
|
|
|
$ |
1.06 |
|
|
$ |
1.17 |
|
|
$ |
0.99 |
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
124,527 |
|
|
|
127,807 |
|
|
|
131,591 |
|
Diluted |
|
|
|
|
135,252 |
|
|
|
137,004 |
|
|
|
140,520 |
|
See notes to consolidated financial
statements.
45
Consolidated Balance Sheets
|
|
|
|
October 31, |
|
(in thousands, except share data)
|
|
|
|
2007
|
|
2006
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Current
Assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
434,957 |
|
|
$ |
206,705 |
|
Short-term
investments |
|
|
|
|
50,183 |
|
|
|
20,669 |
|
Investment
advisory fees and other receivables |
|
|
|
|
116,979 |
|
|
|
94,669 |
|
Other current assets |
|
|
|
|
8,033 |
|
|
|
7,324 |
|
Total current assets |
|
|
|
|
610,152 |
|
|
|
329,367 |
|
|
Other
Assets: |
|
|
|
|
|
|
|
|
|
|
Deferred
sales commissions |
|
|
|
|
99,670 |
|
|
|
112,314 |
|
Goodwill |
|
|
|
|
103,003 |
|
|
|
96,837 |
|
Other
intangible assets, net |
|
|
|
|
35,988 |
|
|
|
34,549 |
|
Long-term
investments |
|
|
|
|
86,111 |
|
|
|
73,075 |
|
Equipment and
leasehold improvements, net |
|
|
|
|
26,247 |
|
|
|
21,495 |
|
Other assets |
|
|
|
|
5,660 |
|
|
|
558 |
|
Total other assets |
|
|
|
|
356,679 |
|
|
|
338,828 |
|
Total assets |
|
|
|
$ |
966,831 |
|
|
$ |
668,195 |
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Accrued
compensation |
|
|
|
$ |
106,167 |
|
|
$ |
80,975 |
|
Accounts
payable and accrued expenses |
|
|
|
|
66,955 |
|
|
|
33,660 |
|
Dividends
payable |
|
|
|
|
17,780 |
|
|
|
15,187 |
|
Other current liabilities |
|
|
|
|
26,797 |
|
|
|
9,823 |
|
Total current liabilities |
|
|
|
|
217,699 |
|
|
|
139,645 |
|
|
Long-Term
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Long-term
debt |
|
|
|
|
500,000 |
|
|
|
|
|
Deferred income taxes |
|
|
|
|
11,740 |
|
|
|
22,520 |
|
Total long-term liabilities |
|
|
|
|
511,740 |
|
|
|
22,520 |
|
Total liabilities |
|
|
|
|
729,439 |
|
|
|
162,165 |
|
|
Minority
interest |
|
|
|
|
8,224 |
|
|
|
9,545 |
|
Commitments and
contingencies (See Note 7) |
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
Voting Common Stock,
par value $0.00390625 per share: |
|
|
|
|
|
|
|
|
|
|
Authorized,
1,280,000 shares |
|
|
|
|
|
|
|
|
|
|
Issued and
outstanding, 371,386 and 309,760 shares, respectively |
|
|
|
|
1 |
|
|
|
1 |
|
Non-Voting
Common Stock, par value $0.00390625 per share: |
|
|
|
|
|
|
|
|
|
|
Authorized,
190,720,000 shares |
|
|
|
|
|
|
|
|
|
|
Issued and
outstanding, 117,798,378 and 126,125,717 shares, respectively |
|
|
|
|
460 |
|
|
|
493 |
|
Notes
receivable from stock option exercises |
|
|
|
|
(2,342 |
) |
|
|
(1,891 |
) |
Accumulated
other comprehensive income |
|
|
|
|
3,193 |
|
|
|
4,383 |
|
Retained earnings |
|
|
|
|
227,856 |
|
|
|
493,499 |
|
Total shareholders equity |
|
|
|
|
229,168 |
|
|
|
496,485 |
|
Total liabilities and shareholders equity |
|
|
|
$ |
966,831 |
|
|
$ |
668,195 |
|
See notes to consolidated financial
statements.
46
Consolidated Statements of Shareholders Equity and
Comprehensive Income
(in thousands, except per share data)
|
|
|
|
Common and Non-Voting Common
Shares
|
|
Common Stock
|
|
Non-Voting Common Stock
|
|
Additional Paid-In Capital
|
|
Notes Receivable From Stock Option
Exercises
|
Balance,
November 1, 2004 |
|
|
|
|
133,581 |
|
|
$ |
1 |
|
|
$ |
521 |
|
|
$ |
|
|
|
$ |
(2,718 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared ($0.34 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
1,075 |
|
|
|
|
|
|
|
4 |
|
|
|
12,623 |
|
|
|
(615 |
) |
Under
employee stock purchase plan |
|
|
|
|
134 |
|
|
|
|
|
|
|
1 |
|
|
|
2,424 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
2,641 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,607 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,434 |
|
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
(5,409 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
(49,729 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592 |
|
Balance,
October 31, 2005 |
|
|
|
|
129,553 |
|
|
|
1 |
|
|
|
505 |
|
|
|
|
|
|
|
(2,741 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared ($0.42 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
2,388 |
|
|
|
|
|
|
|
9 |
|
|
|
22,238 |
|
|
|
(552 |
) |
Under
employee stock purchase plan |
|
|
|
|
134 |
|
|
|
|
|
|
|
1 |
|
|
|
2,910 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
153 |
|
|
|
|
|
|
|
1 |
|
|
|
3,589 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,867 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,073 |
|
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
(5,833 |
) |
|
|
|
|
|
|
(23 |
) |
|
|
(71,677 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,402 |
|
Balance,
October 31, 2006 |
|
|
|
|
126,435 |
|
|
|
1 |
|
|
|
493 |
|
|
|
|
|
|
|
(1,891 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
loss on derivative instrument, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared ($0.51 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Voting Common Stock |
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
2,176 |
|
|
|
|
|
|
|
8 |
|
|
|
34,290 |
|
|
|
(1,291 |
) |
Under
employee stock purchase plan |
|
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
3,311 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
182 |
|
|
|
|
|
|
|
1 |
|
|
|
5,585 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,305 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,915 |
|
|
|
|
|
Repurchase of Voting
Common Stock |
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
(146 |
) |
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
(10,826 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
(96,648 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840 |
|
Balance, October 31, 2007 |
|
|
|
|
118,170 |
|
|
$ |
1 |
|
|
$ |
460 |
|
|
$ |
|
|
|
$ |
(2,342 |
) |
See notes to consolidated financial
statements.
47
Consolidated Statements of Shareholders Equity and
Comprehensive Income (Continued)
(in thousands, except per share data)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Retained Earnings
|
|
Total Shareholders Equity
|
|
Comprehensive Income (Loss)
|
Balance,
November 1, 2004 |
|
|
|
$ |
1,854 |
|
|
$ |
464,670 |
|
|
$ |
464,328 |
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
138,706 |
|
|
|
138,706 |
|
|
$ |
138,706 |
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on investments, net of tax |
|
|
|
|
760 |
|
|
|
|
|
|
|
760 |
|
|
|
760 |
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
(48 |
) |
|
|
|
|
|
|
(48 |
) |
|
|
(48 |
) |
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
139,418 |
|
Dividends
declared ($0.34 per share) |
|
|
|
|
|
|
|
|
(44,539 |
) |
|
|
(44,539 |
) |
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
12,012 |
|
|
|
|
|
Under
employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
2,425 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
|
|
|
|
|
|
|
|
2,641 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
28,607 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
3,434 |
|
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
|
|
|
|
(82,872 |
) |
|
|
(132,622 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
592 |
|
|
|
|
|
Balance,
October 31, 2005 |
|
|
|
|
2,566 |
|
|
|
475,965 |
|
|
|
476,296 |
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
159,377 |
|
|
|
159,377 |
|
|
$ |
159,377 |
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on investments, net of tax |
|
|
|
|
1,754 |
|
|
|
|
|
|
|
1,754 |
|
|
|
1,754 |
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
|
|
63 |
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161,194 |
|
Dividends
declared ($0.42 per share) |
|
|
|
|
|
|
|
|
(53,629 |
) |
|
|
(53,629 |
) |
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
21,695 |
|
|
|
|
|
Under
employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
2,911 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
|
|
|
|
|
|
|
|
3,590 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
36,867 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
6,073 |
|
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
|
|
|
|
(88,214 |
) |
|
|
(159,914 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
1,402 |
|
|
|
|
|
Balance,
October 31, 2006 |
|
|
|
|
4,383 |
|
|
|
493,499 |
|
|
|
496,485 |
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
142,811 |
|
|
|
142,811 |
|
|
$ |
142,811 |
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
loss on derivative instrument, net of tax |
|
|
|
|
(2,872 |
) |
|
|
|
|
|
|
(2,872 |
) |
|
|
(2,872 |
) |
Unrealized
holding gains on investments, net of tax |
|
|
|
|
1,628 |
|
|
|
|
|
|
|
1,628 |
|
|
|
1,628 |
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
54 |
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
141,621 |
|
Dividends
declared ($0.51 per share) |
|
|
|
|
|
|
|
|
(62,893 |
) |
|
|
(62,893 |
) |
|
|
|
|
Issuance of
Voting Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
Issuance of
Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
33,007 |
|
|
|
|
|
Under
employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
3,311 |
|
|
|
|
|
Under
employee incentive plan |
|
|
|
|
|
|
|
|
|
|
|
|
5,586 |
|
|
|
|
|
Under
restricted stock plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
43,305 |
|
|
|
|
|
Tax benefit
of stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
9,915 |
|
|
|
|
|
Repurchase of
Voting Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
(146 |
) |
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
|
|
|
|
(345,561 |
) |
|
|
(442,251 |
) |
|
|
|
|
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
840 |
|
|
|
|
|
Balance, October 31, 2007 |
|
|
|
$ |
3,193 |
|
|
$ |
227,856 |
|
|
$ |
229,168 |
|
|
|
|
|
See notes to consolidated financial
statements.
48
Consolidated Statements of Cash Flows
|
|
|
|
Years Ended October 31, |
|
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Cash and cash
equivalents, beginning of year |
|
|
|
$ |
206,705 |
|
|
$ |
146,389 |
|
|
$ |
147,137 |
|
Cash
Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
142,811 |
|
|
|
159,377 |
|
|
|
138,706 |
|
Adjustments
to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
loss on long-term investments |
|
|
|
|
|
|
|
|
592 |
|
|
|
2,120 |
|
(Gains)
losses on investments |
|
|
|
|
(7,200 |
) |
|
|
(4,256 |
) |
|
|
192 |
|
Amortization
of long-term investments |
|
|
|
|
5,234 |
|
|
|
3,116 |
|
|
|
1,361 |
|
Unamortized
loss on derivative instrument |
|
|
|
|
(4,467 |
) |
|
|
|
|
|
|
|
|
Equity in net
income of affiliates |
|
|
|
|
(6,054 |
) |
|
|
(6,845 |
) |
|
|
(1,958 |
) |
Dividends
received from affiliates |
|
|
|
|
5,048 |
|
|
|
2,734 |
|
|
|
875 |
|
Minority
interest |
|
|
|
|
6,258 |
|
|
|
5,103 |
|
|
|
5,037 |
|
Interest on
long-term debt and amortization of debt issuance costs |
|
|
|
|
161 |
|
|
|
2,551 |
|
|
|
1,282 |
|
Deferred
income taxes |
|
|
|
|
(10,063 |
) |
|
|
(11,206 |
) |
|
|
(14,539 |
) |
Excess tax
benefit of stock option exercises |
|
|
|
|
(9,915 |
) |
|
|
(8,234 |
) |
|
|
(3,542 |
) |
Stock-based
compensation |
|
|
|
|
43,305 |
|
|
|
36,314 |
|
|
|
28,607 |
|
Cumulative
effect of change in accounting principle, net of tax |
|
|
|
|
|
|
|
|
626 |
|
|
|
|
|
Depreciation
and other amortization |
|
|
|
|
10,500 |
|
|
|
15,524 |
|
|
|
6,830 |
|
Amortization
of deferred sales commissions |
|
|
|
|
55,015 |
|
|
|
52,048 |
|
|
|
63,540 |
|
Payment of
capitalized sales commissions |
|
|
|
|
(55,795 |
) |
|
|
(53,848 |
) |
|
|
(46,950 |
) |
Contingent
deferred sales charges received |
|
|
|
|
13,462 |
|
|
|
15,628 |
|
|
|
19,548 |
|
Proceeds from
sale of trading investments |
|
|
|
|
42,453 |
|
|
|
190,725 |
|
|
|
88,762 |
|
Purchase of
trading investments |
|
|
|
|
(26,504 |
) |
|
|
(160,172 |
) |
|
|
(157,562 |
) |
Changes in
assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory fees and other receivables |
|
|
|
|
(22,291 |
) |
|
|
(10,801 |
) |
|
|
(52,356 |
) |
Other current
assets |
|
|
|
|
(875 |
) |
|
|
3,773 |
|
|
|
(4,643 |
) |
Other
assets |
|
|
|
|
|
|
|
|
826 |
|
|
|
1,327 |
|
Accrued
compensation |
|
|
|
|
25,171 |
|
|
|
18,093 |
|
|
|
10,583 |
|
Accounts
payable and accrued expenses |
|
|
|
|
33,216 |
|
|
|
5,666 |
|
|
|
8,199 |
|
Other current liabilities |
|
|
|
|
26,887 |
|
|
|
5,517 |
|
|
|
8,633 |
|
Net cash provided by operating activities |
|
|
|
|
266,357 |
|
|
|
262,851 |
|
|
|
104,052 |
|
Cash
Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
equipment and leasehold improvements |
|
|
|
|
(12,694 |
) |
|
|
(12,721 |
) |
|
|
(3,397 |
) |
Purchase of
minority members interests |
|
|
|
|
(9,055 |
) |
|
|
(11,256 |
) |
|
|
(360 |
) |
Purchase of
management contracts |
|
|
|
|
(716 |
) |
|
|
(1,703 |
) |
|
|
(463 |
) |
Proceeds from
sale of available-for-sale investments |
|
|
|
|
31,085 |
|
|
|
27,048 |
|
|
|
1,441 |
|
Purchase of available-for-sale investments |
|
|
|
|
(83,974 |
) |
|
|
(27,565 |
) |
|
|
(28,089 |
) |
Net cash used for investing activities |
|
|
|
|
(75,354 |
) |
|
|
(26,197 |
) |
|
|
(30,868 |
) |
Cash
Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
to minority shareholders |
|
|
|
|
(8,360 |
) |
|
|
(5,828 |
) |
|
|
(4,379 |
) |
Long-term
debt issuance costs |
|
|
|
|
(5,165 |
) |
|
|
|
|
|
|
(428 |
) |
Proceeds from
issuance of long-term debt |
|
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Repayment of
long-term debt |
|
|
|
|
|
|
|
|
(76,358 |
) |
|
|
|
|
Excess tax
benefit of stock option exercises |
|
|
|
|
9,915 |
|
|
|
8,234 |
|
|
|
3,542 |
|
Proceeds from
issuance of Non-Voting Common Stock |
|
|
|
|
41,904 |
|
|
|
28,196 |
|
|
|
17,078 |
|
Proceeds from
issuance of Voting Common Stock |
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
Repurchase of
Non-Voting Common Stock |
|
|
|
|
(442,251 |
) |
|
|
(159,914 |
) |
|
|
(132,622 |
) |
Repurchase of
Voting Common Stock |
|
|
|
|
(146 |
) |
|
|
|
|
|
|
|
|
Principal
repayments on notes receivable from stock option exercises |
|
|
|
|
840 |
|
|
|
1,402 |
|
|
|
592 |
|
Dividends
paid |
|
|
|
|
(60,300 |
) |
|
|
(51,394 |
) |
|
|
(42,248 |
) |
Proceeds from
the issuance of mutual fund subsidiaries capital stock |
|
|
|
|
371 |
|
|
|
80,000 |
|
|
|
151,500 |
|
Redemption of mutual fund subsidiaries capital stock |
|
|
|
|
|
|
|
|
(745 |
) |
|
|
(66,891 |
) |
Net cash provided by (used for) financing activities |
|
|
|
|
37,196 |
|
|
|
(176,407 |
) |
|
|
(73,856 |
) |
Effect of currency rate changes on cash and cash equivalents |
|
|
|
|
53 |
|
|
|
69 |
|
|
|
(76 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
228,252 |
|
|
|
60,316 |
|
|
|
(748 |
) |
Cash and cash equivalents, end of year |
|
|
|
$ |
434,957 |
|
|
$ |
206,705 |
|
|
$ |
146,389 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
|
$ |
115 |
|
|
$ |
10,022 |
|
|
$ |
182 |
|
Income taxes paid |
|
|
|
$ |
78,238 |
|
|
$ |
107,404 |
|
|
$ |
100,702 |
|
Supplemental Non-Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options through issuance of notes receivable |
|
|
|
$ |
1,291 |
|
|
$ |
552 |
|
|
$ |
615 |
|
See notes to consolidated financial statements.
49
Notes to Consolidated Financial
Statements
1. |
Summary of Significant Accounting Policies |
Business and
Organization
Eaton Vance Corp. and its subsidiaries
(the Company) manage investment funds and provide investment management and counseling services to high-net-worth individuals and
institutions. The Companys principal retail marketing strategy is to distribute funds and separately managed accounts primarily through financial
intermediaries in the advice channel. We also commit significant resources to serving institutional and high-net-worth clients who access investment
advice outside of traditional broker/dealer channels.
Revenue is largely dependent on the
total value and composition of assets under management, which include sponsored funds and other investment portfolios. Accordingly, fluctuations in
financial markets and in the composition of assets under management impact revenue and the results of operations.
Principles of
Consolidation
The consolidated financial statements
include the accounts of the Company and its wholly and majority-owned subsidiaries. The equity method of accounting is used for investments in
affiliates in which the Companys ownership ranges from 20 to 50 percent, or in instances in which the Company is able to exercise significant
influence, but not control, over the investee (such as representation on the investees board of directors). The Company consolidates all
investments in affiliates in which the Companys ownership exceeds 50 percent. The Company provides for minority interests in consolidated
companies for which the Companys ownership is less than 100 percent. All intercompany accounts and transactions have been
eliminated.
Reclassification and
Presentation
Certain prior year amounts have been
reclassified to conform to the current year presentation. Certain service fees have been reclassified from distribution and underwriter fees. Certain
fund related expenses have been reclassified from other expenses to fund expenses. Certain fees earned on Class A shares have been reclassified from
distribution expenses to distribution and underwriter fees.
Segment
Information
Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes disclosure
requirements relating to operating segments in annual and interim financial statements. Management has determined that the Company operates in one
business segment, namely as an investment adviser managing funds and separate accounts.
Although the Company does make some
disclosure regarding assets under management and other asset flows by product (primarily distinguishing between funds and separately managed accounts),
the Companys determination that it operates in one business segment is based on the fact that the Companys chief operating decision maker
(namely the Companys Chief Executive Officer) reviews the Companys financial performance at an aggregate level. All of the products and
services provided by the Company relate to investment management and are subject to a similar regulatory framework. Investment management teams at the
Company are generally not aligned with specific product lines or distribution channels; in many instances, the investment professionals who manage the
Companys funds are the same investment professionals who manage the Companys separately managed accounts.
50
Use of
Estimates
The preparation of the Companys
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP)
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to
the consolidated financial statements. Actual results could differ from those estimates.
Cash, Cash Equivalents and
Short-Term Investments
Cash and cash equivalents consist
principally of cash and short-term, highly liquid investments in sponsored cash management mutual funds and commercial paper, which are readily
convertible to cash. Cash equivalents have original maturities of less than three months on the date of acquisition and are stated at cost, which
approximates market value due to the short-term maturity of these investments. Short-term investments consist of securities with maturities greater
than three months at the time of purchase. Short-term investments are carried at fair value based on quoted market prices.
Investments
Marketable securities classified as
trading consist primarily of investments in debt and equity securities held in the portfolios of sponsored funds consolidated by the Company and other
debt and equity securities held by the Company in separately managed accounts. Securities classified as trading are carried at fair value based on
quoted market prices. Net unrealized holding gains or losses, as well as realized gains or losses, are reflected as a component of other revenue. The
specific identified cost method is used to determine the realized gain or loss on securities sold.
Marketable securities classified as
available-for-sale consist primarily of investments in sponsored funds and are carried at fair value based on quoted market prices. Unrealized holding
gains or losses are reported net of deferred tax as a separate component of accumulated other comprehensive income (loss) until realized. Realized
gains or losses are reflected as a component of gain (loss) on investments. The specific identified cost method is used to determine the realized gain
or loss on the sale of shares of sponsored funds.
The Company evaluates the carrying
value of marketable securities for impairment on a quarterly basis. In its impairment analysis, the Company takes into consideration numerous criteria,
including the duration and extent of any decline in fair value. If the decline in value is determined to be other than temporary, the carrying value of
the security is written down to fair value through net income.
Investments in the equity of
collateralized debt obligation entities (CDO entities) are carried at fair value based on discounted cash flows. The excess of actual and
anticipated 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 entity. 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.
Certain other investments are carried
at the lower of cost or managements estimate of net realizable value owing primarily to restrictions on resale of the
investments.
51
Derivative
Instruments
The Company may utilize derivative
financial instruments to manage foreign currency risk inherent in investments denominated in foreign currencies and to manage interest rate risk
inherent in long-term debt offerings. Derivative financial instruments are not entered into for trading or speculative purposes.
The Company records all derivatives on
the balance sheet at fair value. If a derivative qualifies as a cash flow hedge, the effective portion of the unrealized gain or loss is recorded in
other comprehensive income as a separate component of shareholders equity and is reclassified into earnings over the life of the hedge. To the
extent that the critical terms of the hedged item and the derivative are not identical, hedge ineffectiveness is reported in earnings.
Deferred Sales
Commissions
Sales commissions paid by the Company
to broker/dealers in connection with the sale of certain classes of shares of open-end funds and private funds are generally capitalized and amortized
over the period during which redemptions by the purchasing shareholder are subject to a contingent deferred sales charge, which does not exceed six
years. Distribution plan payments received by the Company from these funds are recorded in revenue as earned. Contingent deferred sales charges and
early withdrawal charges received by the Company from redeeming shareholders of open-end funds are generally applied to reduce the Companys
unamortized deferred sales commission assets.
The Company evaluates the carrying
value of its deferred sales commission asset for impairment on a quarterly basis. In its impairment analysis, the Company compares the carrying value
of the deferred sales commission asset to the undiscounted cash flows expected to be generated by the asset over its remaining useful life to determine
whether impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to fair value based
on discounted cash flows. Impairment adjustments are recognized in operating income as a component of amortization of deferred sales
commissions.
Goodwill and Other Intangible
Assets
Goodwill represents the excess of the
cost of the Companys investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the
dates of acquisition. Goodwill is not amortized, but is tested at least annually for impairment.
Identifiable intangible assets
generally represent the cost of client relationships and management contracts acquired. Identifiable intangible assets with indefinite useful lives are
not amortized. Identifiable intangible assets with discrete useful lives are amortized on a straight-line basis over their weighted average lives. The
Company periodically reviews identifiable intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable.
Equipment and Leasehold
Improvements
Equipment and other fixed assets are
recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which range from three to five years. Accelerated methods
are used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the
term of the lease.
52
Debt Issuance
Costs
Deferred debt issuance costs are
amortized on a straight-line basis over the related term of the debt and are included in other assets. The amortization of deferred debt issuance costs
is included in interest expense.
Revenue
Recognition
Investment advisory, administration,
distribution and service fees for the funds and investment advisory fees for separate accounts managed by the Company are recognized as the services
are performed. Such fees are primarily based on predetermined percentages of the market values of the assets under management. With the exception of
the Companys separate account investment advisory fees, which are calculated generally as a percentage of either beginning, average or ending
quarterly assets, the Companys investment advisory, administration, distribution and service fees are calculated principally as a percentage of
average daily assets. The Company may waive certain fees for investment and administration services at its discretion. Investment advisory and
administration fees are recorded gross of any subadvisory arrangements, with the corresponding fees paid to any subadvisor based on the terms of those
arrangements included in other expenses. In instances where the Company acts as subadvisor or co-manager, investment advisory fees are recorded net.
Distribution and service fees are recorded gross of any third-party distribution and service arrangements; the expenses associated with these
third-party distribution and service arrangements are recorded in distribution and service fee expense, respectively.
Sales of shares of investment companies
in connection with the Companys activities as principal underwriter are accounted for on a settlement date basis, which approximates trade date
basis, with the related commission income and expense recorded on a trade date basis.
Interest income is accrued as earned.
Dividend income is recorded on the ex-dividend date.
Income
Taxes
The Companys effective tax rate
reflects the statutory tax rates of the many jurisdictions in which it operates. Significant judgment is required in determining its effective tax rate
and in evaluating its tax positions. In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. The
Company adjusts its income tax provision in the period in which it determines that actual outcomes will likely be different from its estimates. Tax
reserves are established when, despite the Companys belief that the tax return positions are fully supportable, there is the potential that it
may be successfully challenged. All SFAS No. 5 items have been properly accrued for as applicable. These reserves, as well as the related interest and
potential penalties, are adjusted regularly to reflect changing facts and circumstances. While the Company has considered future taxable income and
ongoing tax planning in assessing its taxes, changes in tax laws may result in a change to the Companys tax position and effective tax rate. The
Company classifies any interest or penalties incurred as a component of income tax expense.
Deferred income taxes reflect the
expected future tax consequences of temporary differences between the carrying amounts and tax bases of the Companys assets and liabilities
measured using rates expected to be in effect when such differences reverse. Deferred taxes relate principally to stock-based compensation expense and
capitalized sales commissions paid to brokers and dealers. Under IRS regulations, stock-based compensation is deductible for tax purposes at the time
the employee recognizes the income (upon vesting of restricted stock, exercise of non-qualified stock options and disqualifying dispositions of
incentive stock options). Capitalized sales commission payments are deductible for tax purposes at the time of payment. To the extent that deferred tax
assets are considered more likely than not to be unrealizable, valuation allowances are provided.
53
As discussed in Accounting
Developments below, the Companys accounting for income taxes in future years will be impacted by the adoption of FASB Interpretation No.
48, Accounting for the Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48).
Earnings Per
Share
Earnings per basic share are based on
the weighted-average number of common shares outstanding during each period less non-vested restricted stock. Earnings per diluted share are based on
basic shares as determined above plus the incremental shares that would be issued upon the assumed exercise of in-the-money stock options, non-vested
restricted stock using the treasury stock method and contingently convertible debt using the if-converted method.
Stock-Based
Compensation
The Company accounts for stock-based
compensation expense using the fair value method. Under the fair value method, stock-based compensation expense reflects the fair value of stock-based
awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The fair value
of each option award is estimated using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as
to dividend yield, volatility, an appropriate risk-free interest rate and the expected life of the option. Stock-based compensation expense for
employees who are not retirement eligible is recognized on a straight-line basis over the service or vesting period of the option (generally five
years). Prior to the implementation of SFAS No. 123R, and consistent with SFAS 123 Accounting for Stock-Based Compensation, it had been the
Companys policy to recognize all stock-based compensation expense over the vesting period without regard to retirement eligibility. The Company
continues to recognize all stock-based compensation expense for awards granted to retirement-eligible employees prior to November 1, 2005 over the
vesting period. The Company immediately recognizes compensation expense at grant date for all awards granted to retirement-eligible employees on or
after adoption of SFAS No. 123R on November 1, 2005. For awards granted to employees approaching retirement eligibility, compensation expense is
recognized on a straight-line basis over the period from the grant date through the retirement eligibility date.
Foreign Currency
Translation
Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at current exchange rates as of the end of the accounting period. Related revenue and expenses are
translated at average exchange rates in effect during the accounting period. Net translation exchange gains and losses are excluded from income and
recorded in accumulated other comprehensive income. Foreign currency transaction gains and losses are reflected in other income currently as they
occur.
Comprehensive
Income
The Company reports all changes in
comprehensive income in the Consolidated Statements of Shareholders Equity and Comprehensive Income. Comprehensive income includes net income,
unrealized gains and losses on investment securities classified as available-for-sale (net of income tax), activity from terminated cash flow hedges
(net of income tax), and foreign currency translation adjustments (net of income tax).
54
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. There are no losses of this nature that are currently deemed
probable and reasonably estimable, and thus none have been recorded in the accompanying consolidated financial statements.
2. |
Accounting Developments |
In December 2007, the Financial
Accounting Standards Board (FASB) issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of
ARB No. 51. SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for noncontrolling interests in subsidiaries and for
the deconsolidation of subsidiaries. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as
equity in the consolidated financial statements. The provisions of SFAS No. 160 are effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years. SFAS No. 160 is effective for the Companys fiscal year that begins on November 1, 2009. Management is
currently evaluating the potential impact, if any, on the Companys consolidated financial statements.
In December 2007, the FASB amended SFAS
No. 141, Business Combinations. SFAS No. 141, as amended, establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The
provisions of SFAS No. 141, as amended, are effective for fiscal years beginning on or after December 15, 2008. SFAS No. 141, as amended, is effective
for the Companys fiscal year that begins on November 1, 2009. Management is currently evaluating the potential impact, if any, on the Companys consolidated
financial statements.
In June 2007, the FASB ratified the
consensus reached by the Emerging Issues Task Force (EITF) in EITF Issue No. 06-11, Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards. Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are
charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding
equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the
realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies
on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified
employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years.
EITF 06-11 is effective for the Companys fiscal year that begins on November 1, 2008. Management is currently evaluating the potential impact of
EITF 06-11, if any, on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective of the statement is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to
apply
55
complex hedge accounting
provisions. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is effective for the
Companys fiscal year that begins on November 1, 2008. Management is currently evaluating this standard and its impact, if any, on the
Companys consolidated financial statements.
In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure
requirements about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements but
does not in itself require any new fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. SFAS No. 157 is effective for the Companys fiscal year that begins on November 1, 2008.
Management is currently evaluating this standard and its impact, if any, on the Companys consolidated financial statements.
In June 2006, the FASB issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), to
clarify certain aspects of accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold for tax positions, more-likely-than-not (i.e. greater than 50 percent), before being recognized in the financial statements.
FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of November 1, 2007, as
required.
FIN 48 provides that interest
recognized as a result of the application of FIN 48 may be classified as either income taxes or interest expense. FIN 48 further provides that any
penalties recognized as a result of applying FIN 48 may be classified in the financial statements as either income taxes or another expense
classification. The classification of these items is based upon the accounting policy election of the company. The Companys historical accounting
policy with respect to interest and penalties recognized for tax uncertainties has been to classify these amounts as income taxes. The Company will
continue this classification upon the adoption of FIN 48.
The Company is continuing to evaluate
the impact of FIN 48 on its financial statements and currently anticipates recognizing a charge to retained earning of approximately $5.0 million
upon adoption. In addition, the Company anticipates that, upon adoption, its deferred tax assets and income taxes payable will increase by
approximately $85.0 million on the Companys Consolidated Balance Sheet.
3. |
Acquisitions, Goodwill and Other Intangible
Assets |
In fiscal 2003, the Company acquired a
majority interest in Parametric Portfolio Associates LLC (Parametric Portfolio Associates). The Company has an 84.3 percent capital and an
81.2 percent profits interest in Parametric Portfolio Associates at October 31, 2007. Certain minority shareholders of Parametric Portfolio Associates
have the right to sell and the Company has the right to purchase an additional 4.3 percent of the capital of Parametric Portfolio Associates based on
the financial results of Parametric Portfolio Associates for the calendar year ending December 31, 2007. Certain minority shareholders of Parametric
Portfolio Associates 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 Portfolio Associates (which entitles the holder to the remaining 18.8 percent profits interest) over a six-year period based on financial
results of Parametric Portfolio Associates for the calendar year ending December 31, 2007 and the next five calendar years. The price for acquiring the
remaining capital and profits interests in Parametric Portfolio Associates will be based on a multiple of earnings before interest and taxes (a measure
that is intended to approximate fair market value).
56
In fiscal 2007, the minority
shareholders of Parametric Portfolio Associates exercised a put option whereby units representing a 2 percent capital ownership interest in Parametric
Portfolio Associates were sold to the Company for $6.1 million based on a multiple of earnings before taxes of Parametric Portfolio Associates for the
calendar year ended December 31, 2006. In conjunction with the purchase, the Company recorded intangible assets of $1.8 million (representing $1.0
million of amortizable intangible assets and $0.8 million of non-amortizable assets) and goodwill of $4.1 million. The remainder of the purchase price
was allocated to minority interest. In fiscal 2006, the Company exercised a call option with the minority shareholders of Parametric Portfolio
Associates whereby units representing a 2 percent capital ownership interest in Parametric were sold to the Company for $4.0 million based on a
multiple of earnings before taxes for the calendar year ended December 31, 2005. In conjunction with the purchase, the Company recorded intangible
assets of $1.4 million (representing $0.7 million of amortizable intangible assets and $0.7 million of non-amortizable intangible assets) and goodwill
of $2.5 million. The remainder of the purchase price was allocated to minority interest.
In fiscal 2001, the Company acquired
majority interests in Atlanta Capital Management, LLC (Atlanta Capital) and Fox Asset Management LLC (Fox Asset Management).
The Company has an 80.4 percent interest in Atlanta Capital and an 80 percent interest in Fox Asset Management at October 31, 2007. Atlanta
Capitals minority shareholders have the right to sell and the Company has the right to purchase the remaining 19.6 percent of Atlanta Capital over a
two-year period based on financial results of Atlanta Capital for the calendar years ending December 31, 2007 and 2008 at a price based on a multiple
of earnings before taxes. Fox Assets Managements minority shareholders have the right to sell and the Company has the right to purchase the
remaining 20 percent of Fox Asset Management over a four-year period based on financial results of Fox Asset Management for the calendar years ending
December 31, 2007 and the next three calendar years at a price based on a multiple of earnings before taxes.
In fiscal 2007, the minority
shareholders of Atlanta Capital exercised a put option whereby units representing a 3 percent ownership interest in Atlanta Capital were sold to the
Company for $2.9 million based on a multiple of earnings before taxes of Atlanta Capital for the calendar year ended December 31, 2006. In conjunction
with the transaction, the Company recorded amortizable intangible assets of $0.8 million representing client relationships acquired and goodwill of
$2.0 million. The remainder of the purchase price was allocated to minority interest. In fiscal 2006, the minority shareholders of Atlanta Capital
exercised a put option whereby units representing a 7 percent ownership interest in Atlanta Capital were sold to the Company for $7.2 million based on
a multiple of earnings of Atlanta Capital before taxes for the calendar year ended December 31, 2005. In conjunction with the transaction, the Company
recorded amortizable intangible assets of $2.4 million representing client relationships acquired and goodwill of $4.7 million. The remainder of the
purchase price was allocated to minority interest.
In April 2007, Parametric Portfolio
Associates announced the signing of a definitive agreement with Managed Risk Advisors, LLC, an investment management and derivatives investment
advisory firm based in Westport, Connecticut, to merge with Parametric Risk Advisors LLC (Parametric Risk Advisors), a newly formed
Parametric Portfolio Associates affiliate. The transaction was completed on May 1, 2007. Parametric Risk Advisors is owned 60 percent by its
principals and 40 percent by Parametric Portfolio Associates. Pursuant to the acquisition agreements, Parametric Portfolio Associates will have the
right to require the other shareholders in Parametric Risk Advisors to sell their equity interests to Parametric Portfolio Associates at specific
intervals over time at a price based upon a multiple of earnings before interest and taxes, a measure that is intended to represent fair market value.
As a result of the transaction, the Company recorded intangible assets of $0.7 million representing client relationships acquired.
57
Any additional payments made to the
minority shareholders of Parametric Portfolio Associates, Atlanta Capital, Fox Asset Management or Parametric Risk Advisors will be treated as
additional purchase price for accounting purposes.
The changes in the carrying amount of
goodwill for the years ended October 31, 2007 and 2006 are as follows:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Balance,
beginning of period |
|
|
|
$ |
96,837 |
|
|
$ |
89,634 |
|
Goodwill acquired |
|
|
|
|
6,166 |
|
|
|
7,203 |
|
Balance, end of period |
|
|
|
$ |
103,003 |
|
|
$ |
96,837 |
|
The following is a summary of other
intangible assets at October 31, 2007 and 2006:
2007
|
|
|
|
(dollars in thousands)
|
|
|
|
Weighted Average Amortization Period
(In Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Amortizing
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client
relationships acquired |
|
|
|
|
12.6 |
|
|
$ |
58,403 |
|
|
|
$25,223 |
|
|
$ |
33,180 |
|
Non-amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund management contracts acquired |
|
|
|
|
|
|
|
|
2,808 |
|
|
|
|
|
|
|
2,808 |
|
Total |
|
|
|
|
|
|
|
$ |
61,211 |
|
|
|
$25,223 |
|
|
$ |
35,988 |
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
Weighted Average Amortization Period
(In Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Amortizing
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client
relationships acquired |
|
|
|
|
13.9 |
|
|
$ |
55,242 |
|
|
|
$ 22,648 |
|
|
$ |
32,594 |
|
Non-amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund management contracts acquired |
|
|
|
|
|
|
|
|
1,955 |
|
|
|
|
|
|
|
1,955 |
|
Total |
|
|
|
|
|
|
|
$ |
57,197 |
|
|
|
$ 22,648 |
|
|
$ |
34,549 |
|
In fiscal 2006 and 2005, the Company
accelerated non-cash amortization by $8.9 million and $0.9 million, respectively, to write-off intangible assets relating to the termination of certain
institutional and high-net-worth asset management contracts at Fox Asset Management. The write-offs were computed by comparing the net present value of
projected future client cash flows to the carrying value of the intangible assets. The write-offs are included in other expenses in the Companys
Consolidated Statements of Income for the years ended October 31, 2006 and 2005.
During fiscal 2007 and 2006, the
Company acquired certain other client relationships for $0.7 million and $1.7 million, respectively.
58
Amortization expense, including the
write-offs of intangible assets noted above, was $2.6 million, $11.5 million and $3.8 million for the years ended October 31, 2007, 2006 and 2005,
respectively. Estimated amortization expense for the next five years is as follows:
Year Ending October 31, (in thousands)
|
|
|
|
Estimated Amortization Expense
|
2008 |
|
|
|
$ |
2,711 |
|
2009 |
|
|
|
|
2,711 |
|
2010 |
|
|
|
|
2,711 |
|
2011 |
|
|
|
|
2,711 |
|
2012 |
|
|
|
|
2,711 |
|
4. Investments
The following is a summary of
investments at October 31, 2007 and 2006:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Short-term
investments: |
|
|
|
|
|
|
|
|
|
|
Sponsored
funds |
|
|
|
$ |
50,183 |
|
|
$ |
|
|
Investment in affiliate |
|
|
|
|
|
|
|
|
20,669 |
|
Total |
|
|
|
$ |
50,183 |
|
|
$ |
20,669 |
|
|
Long-term
investments: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
$ |
770 |
|
|
$ |
761 |
|
Equity
securities |
|
|
|
|
14,368 |
|
|
|
12,775 |
|
Sponsored
funds |
|
|
|
|
34,764 |
|
|
|
36,483 |
|
Collateralized debt obligation entities |
|
|
|
|
18,962 |
|
|
|
9,105 |
|
Investments
in affiliates |
|
|
|
|
16,297 |
|
|
|
13,006 |
|
Other investments |
|
|
|
|
950 |
|
|
|
945 |
|
Total |
|
|
|
$ |
86,111 |
|
|
$ |
73,075 |
|
Investments in sponsored funds
and equity securities classified as available-for-sale
The following is a summary of the cost
and fair value of investments classified as available-for-sale at October 31, 2007 and 2006:
2007
|
|
|
|
|
|
Gross Unrealized
|
|
(in thousands)
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Sponsored fund |
|
|
|
$ |
75,537 |
|
|
$ |
9,524 |
|
|
$ |
(114 |
) |
|
$ |
84,947 |
|
Total |
|
|
|
$ |
75,537 |
|
|
$ |
9,524 |
|
|
$ |
(114 |
) |
|
$ |
84,947 |
|
2006
|
|
|
|
|
|
Gross Unrealized
|
|
(in thousands)
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Equity
securities |
|
|
|
$ |
5,455 |
|
|
$ |
438 |
|
|
$ |
(76 |
) |
|
$ |
5,817 |
|
Sponsored funds |
|
|
|
|
30,051 |
|
|
|
6,446 |
|
|
|
(14 |
) |
|
|
36,483 |
|
Total |
|
|
|
$ |
35,506 |
|
|
$ |
6,884 |
|
|
$ |
(90 |
) |
|
$ |
42,300 |
|
Gross unrealized gains and losses on
investments in sponsored funds and equity securities classified as available-for-sale have been excluded from earnings and reported as a component of
accumulated other comprehensive income, net of deferred taxes. No investment with a gross unrealized loss has been in a loss position for greater than
one year.
59
The Company has reviewed the gross
unrealized losses of $114,000 as of October 31, 2007 and determined that these losses were not other than temporary, primarily because the Company has
the ability and intent to hold the investments for a period of time sufficient to recover such losses. The aggregate fair value of investments
associated with the unrealized losses was $1.5 million at October 31, 2007.
The following is a summary of the
Companys realized gains and (losses) upon disposition of sponsored funds and certain equity securities classified as available-for-sale for the
years ended October 31, 2007, 2006 and 2005. The cost basis for sales of securities is determined on a specific identification basis.
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Gains |
|
|
|
$ |
4,746 |
|
|
$ |
4,252 |
|
|
$ |
267 |
|
Losses |
|
|
|
|
(1 |
) |
|
|
(484 |
) |
|
|
(44 |
) |
Net realized gain |
|
|
|
$ |
4,745 |
|
|
$ |
3,768 |
|
|
$ |
223 |
|
Investments in debt and equity
securities classified as trading
The following is a summary of the cost
and fair value of investments classified as trading at October 31, 2007 and 2006:
2007 (in thousands)
|
|
|
|
Cost
|
|
Fair Value
|
Long-term
investments: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
$ |
773 |
|
|
$ |
770 |
|
Equity securities |
|
|
|
|
13,908 |
|
|
|
14,368 |
|
Total |
|
|
|
$ |
14,681 |
|
|
$ |
15,138 |
|
2006 (in thousands)
|
|
|
|
Cost
|
|
Fair Value
|
Long-term
investments: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
$ |
759 |
|
|
$ |
761 |
|
Equity securities |
|
|
|
|
6,955 |
|
|
|
6,958 |
|
Total |
|
|
|
$ |
7,714 |
|
|
$ |
7,719 |
|
Gross unrealized gains and losses on
debt and equity securities classified as trading investments have been reported in income currently as a component of other revenue.
The Company recognized $2.5 million of
realized gains and $0.4 million of realized losses related to investments classified as trading for the year ended October 31, 2007.
Investments in collateralized
debt obligation entities
The Company provides investment
management services for, and has made investments in, a number of CDO entities. The Companys ownership interests in the CDO entities are reported
at fair value. The Company earns investment management fees, including subordinated management fees in some cases, for managing the collateral for the
CDO entities, as well as incentive fees that are contingent on certain performance conditions. At October 31, 2007, combined assets under management in
the pools of these CDO entities were $3.3 billion. The Companys maximum exposure to loss as a result
60
of its investments in the equity of
CDO entities was $19.0 million, which is the carrying value of these investments at October 31, 2007. Investors in CDO entities have no recourse
against the Company for any losses sustained in the CDO structure. Management has concluded that the Company is not required to consolidate any of the
CDO entities in which it has a minority equity investment.
The Company recognized impairment
losses of $0.6 million and $2.1 million for the years ended October 31, 2006 and 2005, respectively, related to its investments in CDO entities. The
impairment losses resulted from the effect of tightening credit spreads and higher than forecasted prepayment rates on the underlying collateral
pools.
The carrying value of $19.0 million and
$9.1 million at October 31, 2007 and 2006, respectively, for the Companys ownership interests in the CDO entities is their estimated fair
value.
Investments in
affiliates
The Company has a 20 percent equity
interest in Lloyd George Management (BVI) Limited (LGM), an independent investment management company based in Hong Kong that primarily
manages emerging market equity funds and separate accounts, including several funds sponsored by the Company. The Companys investment in LGM was
$9.2 million and $8.3 million at October 31, 2007 and 2006, respectively. At October 31, 2007, the Companys investment exceeded its share of the
underlying net assets of LGM by $3.0 million. The Company considers the excess to be goodwill and therefore does not amortize this
excess.
The Company has a 7 percent equity
interest in a private equity partnership that invests in companies in the financial services industry. The Companys investment in the partnership
was $7.1 million and $4.2 million at October 31, 2007 and 2006, respectively. At October 31, 2007, the Companys investment in the partnership was
equal to its share of the underlying net assets.
At October 31, 2006, the Company had a
20 percent interest in the Eaton Vance Institutional Short Term Income Fund (EVSI), an open-end mutual fund that invests in short-term debt
securities. The Company classified this investment as a short-term investment for financial reporting purposes due to the short-term nature of the
underlying securities in which EVSI invests. The Companys investment in EVSI was $20.7 million at October 31, 2006.
At October 31, 2006, the Company also
had equity interests in excess of 20 percent in various other sponsored investment partnerships and funds. The Companys investment in these
affiliates totaled $0.5 million at October 31, 2006.
The Company reviews its equity method
investments annually for impairment pursuant to Accounting Principles Board (APB) Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock.
Other
investments
Included in other investments are
certain investments carried at cost totaling $1.0 million and $0.9 million at October 31, 2007 and October 31, 2006. Management believes that the fair
value of these investments approximates their carrying value.
61
5. |
Equipment and Leasehold Improvements |
The following is a summary of equipment
and leasehold improvements at October 31, 2007 and 2006:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Equipment |
|
|
|
$ |
37,683 |
|
|
$ |
26,845 |
|
Leasehold improvements |
|
|
|
|
15,771 |
|
|
|
14,649 |
|
Subtotal |
|
|
|
|
53,454 |
|
|
|
41,494 |
|
Less: Accumulated depreciation and amortization |
|
|
|
|
(27,207 |
) |
|
|
(19,999 |
) |
Equipment and leasehold improvements, net |
|
|
|
$ |
26,247 |
|
|
$ |
21,495 |
|
Depreciation and amortization expense
was $7.9 million, $4.0 million and $3.0 million for the years ended October 31, 2007, 2006 and 2005, respectively.
Ten-Year Senior
Notes
On October 2, 2007, the Company issued
$500.0 million in aggregate principal amount of 6.50% ten- year senior notes (Senior Notes) due October 2, 2017, resulting in net proceeds
of approximately $496.1 million after payment of debt issuance costs. Interest is payable semi-annually in arrears on April 2 and October 2 of each
year, commencing on October 2, 2007.
For fair value purposes, the Senior
Notes have been valued utilizing market prices obtained from a third-party valuation firm.
Zero-coupon Exchangeable Senior
Notes
On July 28, 2006, Eaton Vance
Management (EVM), a wholly owned subsidiary of the Company, announced its intention to redeem for cash all of its outstanding zero-coupon
exchangeable senior notes (the Exchangeable Notes), representing $110.9 million principal amount at maturity with an accreted value on
redemption date of $76.4 million. Upon receipt of EVMs notice of its intent to redeem, holders of the Exchangeable Notes had the option to
exchange the Exchangeable Notes into Eaton Vance Corp. Non-Voting Common Stock at a rate of 28.7314 shares of common stock per $1,000 principal amount
at maturity until the close of business on August 10, 2006. As of the close of business on August 10, 2006, all but $6,000 principal amount at maturity
of the Exchangeable Notes were tendered for exchange into the Companys Non-Voting Common Stock. EVM elected to pay the holders cash in lieu of
delivering stock, as provided for in the indenture agreement governing the Exchangeable Notes. As a result, EVM paid $86.2 million to holders of the
Exchangeable Notes who presented their Exchangeable Notes for exchange. The remaining Exchangeable Notes with a principal amount at maturity of $6,000
were redeemed for cash in the aggregate amount of $4,130.
The redemption of the Exchangeable
Notes resulted in a reduction in diluted shares outstanding on the redemption date of 3.2 million shares. The $9.8 million premium value of the shares
in excess of the accreted value of the Exchangeable Notes paid in cash to Exchangeable Note holders was recorded as interest expense in the
Companys 2006 fiscal fourth quarter income statement, in addition to the write-off of $1.5 million of related debt issuance costs. Approximately
$2.6 million of the total premium value was not deductible for tax purposes.
62
Corporate Credit
Facility
The Company amended its revolving
credit facility on August 13, 2007, increasing its borrowing capacity and extending the expiration of the facility to August 13, 2012. Under the
amended facility, the Company may borrow up to $200.0 million at LIBOR-based rates of interest that vary depending on the level of usage of the
facility and credit ratings of the Company. The facility agreement contains financial covenants with respect to leverage and interest coverage, and
requires the Company to pay an annual commitment fee on any unused portion. Neither financial covenants nor fee rates were affected by the amendment.
As of October 31, 2007 and 2006, the Company had no borrowings outstanding under its revolving credit facility and was in compliance with all
covenants.
7. |
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, officers and
employees in accordance with the Companys Articles of Incorporation, as amended. Certain agreements do not contain any limits on the
Companys liability and, therefore, it is not possible to estimate the Companys potential liability under these indemnities. In certain
cases, the Company may have 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
also subject to various legal proceedings. In the opinion of management, after discussions with legal counsel, the ultimate resolution of these matters
would not have a material adverse effect on the consolidated financial condition or results of operations of the Company.
The Company leases certain office space
and equipment under noncancelable operating leases. Rent expense under these leases in 2007, 2006 and 2005 amounted to $9.6 million, $8.2 million and
$6.8 million, respectively. In September 2006, the Company signed a long-term lease to move the Companys corporate headquarters to a new location
in Boston, Massachusetts. The lease will commence in May 2009. Future minimum lease commitments are as follows:
Year Ending October 31, (in thousands)
|
|
|
|
Amount
|
2008 |
|
|
|
$ |
10,406 |
|
2009 |
|
|
|
|
11,926 |
|
2010 |
|
|
|
|
13,508 |
|
2011 |
|
|
|
|
13,190 |
|
2012 thereafter |
|
|
|
|
149,841 |
|
Total |
|
|
|
$ |
198,871 |
|
In July 2006, the Company committed to
invest $15.0 million in a private equity partnership that invests in companies in the financial services industry. The Company had invested $7.6
million of the total $15.0 million of committed capital at October 31, 2007.
63
8. |
Stock-Based Compensation Plans |
Effective November 1, 2005, the Company
adopted SFAS No. 123R, using the modified version of the retrospective transition method. Using this transition method, the Company restated all prior
period results on a basis consistent with the pro forma disclosures previously made under SFAS No. 123. Upon the adoption of SFAS No. 123R under the
modified retrospective method, the Company established a deferred tax asset of $21.3 million and increased retained earnings by $18.7
million.
Under SFAS No. 123, the Company had
previously made the election to recognize actual forfeitures when they occurred rather than estimate them at the grant date. Under SFAS No. 123R, this
election no longer exists. The Company recognized a cumulative effect of a change in accounting principle of $0.6 million on November 1, 2005, the
adoption date, in order to adjust for expected forfeitures in excess of actual forfeitures on all grants made prior to October 31,
2005.
The Company recognized total
compensation expense related to its stock-based compensation plans of $43.3 million, $36.3 million and $28.6 million for the years ended October 31,
2007, 2006 and 2005, respectively. The total income tax benefit recognized for stock-based compensation arrangements was $11.1 million, $10.0 million
and $6.9 million for the years ended October 31, 2007, 2006 and 2005, respectively.
Stock Option
Plan
The Company has a Stock Option Plan
(the 1998 Plan) administered by the Compensation Committee of the Board of Directors under which options to purchase shares of the
Companys Non-Voting Common Stock may be granted to all eligible employees and are automatically granted to independent directors of the Company.
No stock options may be granted under the 1998 Plan with an exercise price that is less than the fair market value of the stock at the time the stock
option is granted. The options granted under the 1998 Plan expire five to ten years from the date of grant and options to employees vest over a
five-year period as stipulated in each grant. The 1998 Plan contains provisions that, in the event of a change of control of the Company, may
accelerate the vesting of awards. A total of 40.0 million shares have been reserved for issuance under the 1998 Plan. Through October 31, 2007, options
to purchase 37.8 million shares have been issued pursuant to the 1998 Plan.
On October 24, 2007, the Board of
Directors approved the 2007 Stock Option Plan (the 2007 Plan). Options granted under the 2007 Plan expire ten years from the date of grant
and vest over five years. The 2007 Plan contains provisions that, in the event of a change of control of the Company, may accelerate the vesting of
awards. No options may be granted under the 2007 Plan with an exercise price that is less than the fair market value of the stock at the time the stock
option is granted. A total of 4.0 million shares have been reserved for issuance under the 2007 Plan. Through October 31, 2007 no options have been
issued pursuant to the 2007 Plan.
The fair value of each stock option
award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates
assumptions as to dividend yield, volatility, an appropriate risk-free interest rate and the expected life of the option. Many of these assumptions
require managements judgment. The Companys stock volatility assumption is based upon its historical stock price fluctuations. The Company
has no reason to believe that its future stock price volatility will differ from the past. The Company uses historical data to estimate option
forfeiture rates. The expected term of options granted is derived using the simplified method in accordance with SEC Staff Accounting Bulletin No. 107
(SAB 107). The simplified method under SAB 107 is applicable to grants of options made through December 31, 2007. Effective for grants
subsequent to December 31, 2007, the Company will use an actual computation for the expected term of options granted. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
64
The weighted average fair values per
share of stock options granted during the years ended October 31, 2007, 2006 and 2005 using the Black-Scholes option pricing model were as
follows:
|
|
|
|
October 31,
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
Weighted
average grant date fair value per share of options granted |
|
|
|
$ |
9.62 |
|
|
$ |
8.35 |
|
|
$ |
7.98 |
|
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
yield |
|
|
|
|
1.1% to 1.5% |
|
|
|
1.4% to 1.6% |
|
|
|
1.61% |
|
Volatility |
|
|
|
|
25% to 27% |
|
|
|
27% to 30% |
|
|
|
28% |
|
Risk-free
interest rate |
|
|
|
|
4.6% to 4.8% |
|
|
|
4.5% to 5.1% |
|
|
|
4.6% |
|
Expected life
of options |
|
|
|
|
6.75 years |
|
|
|
6.75 years |
|
|
|
8.0 years |
|
Stock option transactions under the
1998 Plan and predecessor plans are summarized as follows:
For the Year Ended October 31, 2007
|
|
(share and intrinsic value figures in
thousands)
|
|
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual
Term
|
|
Aggregate Intrinsic Value
|
Options
outstanding, beginning of period |
|
|
|
|
25,640 |
|
|
$ |
17.83 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
4,557 |
|
|
|
30.43 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
(2,176 |
) |
|
|
15.76 |
|
|
|
|
|
|
|
|
|
Forfeited/Expired |
|
|
|
|
(442 |
) |
|
|
23.81 |
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
|
|
27,579 |
|
|
$ |
19.99 |
|
|
|
6.2 |
|
|
$ |
828,605 |
|
Options exercisable, end of period |
|
|
|
|
15,580 |
|
|
$ |
16.41 |
|
|
|
5.1 |
|
|
$ |
523,820 |
|
Vested or expected to vest at October 31, 2007 |
|
|
|
|
27,099 |
|
|
$ |
19.90 |
|
|
|
6.2 |
|
|
$ |
816,414 |
|
The Company received $33.0 million,
$21.7 million and $12.0 million related to the exercise of options under the 1998 Plan for the years ended October 31, 2007, 2006 and 2005,
respectively. Options exercised represent newly issued shares. The total intrinsic value of options exercised during the years ended October 31, 2007,
2006 and 2005 was $47.9 million, $44.5 million and $13.4 million, respectively. The total fair value of options that vested during the year ended
October 31, 2007 was $39.7 million.
The Company recorded compensation
expense of $40.5 million, $34.2 million and $27.2 million for the years ended October 31, 2007, 2006 and 2005, respectively, relating to the 1998 Plan.
As of October 31, 2007, there was $62.7 million of compensation cost related to unvested options granted under the 1998 Plan not yet recognized. That
cost is expected to be recognized over a weighted-average period of 3.0 years.
On November 1, 2007, the Company
granted options for the purchase of an additional 3.3 million shares under the 2007 Plan at a price of $48.39.
65
Restricted Stock
Plan
The Company has a Restricted Stock Plan
administered by the Compensation Committee of the Board of Directors under which restricted stock may be granted to key employees. Shares of the
Companys Non-Voting Common Stock granted under the plan are subject to restrictions on transferability and carry the risk of forfeiture, based in
each case on such considerations as the Compensation Committee shall determine. Unless the Compensation Committee determines otherwise, restricted
stock that is still subject to restrictions upon termination of employment shall be forfeited. Restrictions on shares granted lapse over the period
ending five years from date of grant. A total of 2.0 million shares have been reserved under the plan. Through October 31, 2007, 0.9 million shares
have been issued pursuant to this plan.
In the years ended October 31, 2007,
2006 and 2005, 13,269, 40,209 and 45,546 shares, respectively, were issued pursuant to the plan at a weighted average grant date fair value of $45.22,
$24.87 and $21.96 per share. Because these shares are contingently forfeitable, compensation expense is recorded over the forfeiture period. The
Company recorded compensation expense of $1.0 million, $1.0 million and $0.8 million for the years ended October 31, 2007, 2006 and 2005, respectively,
relating to shares issued pursuant to this plan. As of October 31, 2007, there was $2.2 million of compensation cost related to unvested awards not yet
recognized. That cost is expected to be recognized over a weighted average period of 2.7 years.
A summary of the Companys
restricted stock activity for the year ended October 31, 2007 is presented below:
For the Year Ended October 31, 2007
|
|
(share figures in thousands)
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair
Value
|
Unvested,
beginning of period |
|
|
|
|
210 |
|
|
$ |
19.79 |
|
Granted |
|
|
|
|
13 |
|
|
|
45.22 |
|
Vested |
|
|
|
|
(45 |
) |
|
|
18.84 |
|
Forfeited/expired |
|
|
|
|
|
|
|
|
|
|
Unvested, end of period |
|
|
|
|
178 |
|
|
$ |
21.93 |
|
On November 1, 2007, the Company
granted 29,965 shares of restricted stock under the plan at a price of $48.39.
Employee Stock Purchase
Plan
A total of 9.0 million shares of the
Companys Non-Voting Common Stock have been reserved for issuance under the Employee Stock Purchase Plan. The plan qualifies under Section 423 of
the United States Internal Revenue Code and permits eligible employees to direct up to 15 percent of their salaries to a maximum of $12,500 per
six-month offering period toward the purchase of Eaton Vance Corp. Non-Voting Common Stock at the lower of 90 percent of the market price of the
Non-Voting Common Stock at the beginning or at the end of each six-month offering period. Through October 31, 2007, 7.2 million shares have been issued
pursuant to this plan. The Company recorded compensation
66
expense of $1.0 million, $0.6
million and $0.6 million for the years ended October 31, 2007, 2006 and 2005, respectively, relating to the Employee Stock Purchase Plan. The Company
received $3.3 million, $2.9 million and $2.4 million related to shares issued under the Employee Stock Purchase Plan for the years ended October 31,
2007, 2006 and 2005 respectively.
Incentive Plan Stock
Alternative
A total of 4.8 million shares of the
Companys Non-Voting Common Stock have been reserved for issuance under the Incentive Plan Stock Alternative. The plan permits employees
and officers to direct up to half of their monthly and annual incentive bonuses toward the purchase of Non-Voting Common Stock at 90 percent of the
average market price of the stock for five business days subsequent to the end of the offering period. Through October 31, 2007, 3.1 million shares
have been issued pursuant to this plan. The Company received $5.6 million, $3.6 million and $2.6 million related to shares issued under the Incentive
Plan Stock Alternative for the years ended October 31, 2007, 2006 and 2005, respectively. In accordance with SFAS 123R, the Company recorded
compensation expense of $0.8 million and $0.5 million for the years ended October 31, 2007 and 2006, respectively, relating to the Incentive Plan
Stock Alternative. The Company did not record any compensation cost related to this plan in fiscal 2005, as it was not subject to the provisions
of SFAS No. 123.
Stock Option Income Deferral
Plan
The Company has established an
unfunded, non-qualified Stock Option Income Deferral Plan. The Plan is intended to permit key employees to defer recognition of income upon exercise of
non-qualified stock options previously granted by the Company. As of October 31, 2007, options to purchase 1.3 million shares have been exercised and
placed in trust with the Company.
Employee Loan
Program
The Company has established an Employee
Loan Program under which a program maximum of $10.0 million is available for loans to officers (other than executive officers) and other key employees
of the Company for purposes of financing the exercise of employee stock options. Loans are written for a seven-year period, at varying fixed interest
rates (currently ranging from 2.8 percent to 6.3 percent), are payable in annual installments commencing with the third year in which the loan is
outstanding, and are collateralized by the stock issued upon exercise of the option. Loans outstanding under this program are reflected as notes
receivable from stock option exercises in shareholders equity and amounted to $2.3 million and $1.9 million at October 31, 2007 and 2006,
respectively.
The fair value of loans receivable has
been determined by discounting expected future cash flows using managements estimates of current market interest rates for such receivables. The
fair value of these receivables approximates their carrying value (see Note 15).
9. |
Employee Benefit Plans |
Profit Sharing
Retirement Plan
The Company has a profit sharing
retirement plan for the benefit of substantially all employees. The Company has contributed $10.8 million, $9.9 million and $8.2 million for the years
ended October 31, 2007, 2006 and 2005, respectively, representing 15 percent of eligible employee compensation for each of the three
years.
67
Savings Plan and
Trust
The Company has a Savings Plan and
Trust that is qualified under Section 401 of the Internal Revenue Code. All full-time employees who have met certain age and length of service
requirements are eligible to participate in the plan. This plan allows participating employees to make elective deferrals up to the plans annual
limits. The Company then matches each participants contribution on a dollar-for-dollar basis to a maximum of $1,040 per annum. The Companys
expense under the plan was $0.8 million, $0.6 million and $0.5 million for the years ended October 31, 2007, 2006 and 2005,
respectively.
Supplemental Profit Sharing
Plan
The Company has an unfunded,
non-qualified Supplemental Profit Sharing Plan whereby certain key employees of the Company may receive profit sharing contributions in excess of the
amounts allowed under the profit sharing retirement plan. No employee may receive combined contributions in excess of $33,000 per annum related to the
Profit Sharing Retirement Plan and the Supplemental Profit Sharing Plan. The Companys expense under the supplemental plan for the years ended
October 31, 2007, 2006 and 2005 was $105,000, $77,000 and $55,000, respectively.
All outstanding shares of the
Companys Voting Common Stock are deposited in a voting trust, the trustees of which have unrestricted voting rights with respect to the voting
common stock. The trustees of the voting trust are all officers of the Company. Non-voting common shares do not have voting rights under any
circumstances.
In fiscal 2007, the Company issued
approximately 99,000 shares of its Voting Common Stock and repurchased approximately 37,000 shares of its Voting Common Stock.
The Companys current share
repurchase program was announced on October 24, 2007. The Board authorized management to repurchase up to 8.0 million shares of its Non-Voting Common
Stock on the open market and in private transactions in accordance with applicable securities laws. The Companys stock repurchase plan is not
subject to an expiration date.
In fiscal 2007, the Company purchased
approximately 10.0 million shares of its Non-Voting Common Stock under previous share repurchase authorizations and 0.8 million shares under the
current share repurchase authorization. Approximately 7.2 million additional shares may be repurchased under the current
authorization.
The provision for income taxes for the
years ended October 31, 2007, 2006 and 2005 consists of the following:
(in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
$ |
92,397 |
|
|
$ |
102,297 |
|
|
$ |
94,330 |
|
State |
|
|
|
|
10,866 |
|
|
|
11,153 |
|
|
|
11,080 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
(9,063 |
) |
|
|
(10,228 |
) |
|
|
(12,976 |
) |
State |
|
|
|
|
(1,000 |
) |
|
|
(977 |
) |
|
|
(1,563 |
) |
Total |
|
|
|
$ |
93,200 |
|
|
$ |
102,245 |
|
|
$ |
90,871 |
|
68
Deferred income taxes reflect the
expected future tax consequences of temporary differences between the carrying amounts and tax bases of the Companys assets and liabilities. The
significant components of deferred income taxes are as follows:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Deferred tax
assets: |
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
$ |
33,899 |
|
|
$ |
26,584 |
|
Deferred
rent |
|
|
|
|
676 |
|
|
|
838 |
|
Differences
between book and tax bases of investments |
|
|
|
|
619 |
|
|
|
1,993 |
|
Differences
between book and tax bases of property |
|
|
|
|
1,111 |
|
|
|
160 |
|
Unrealized
losses on derivative instruments |
|
|
|
|
1,558 |
|
|
|
|
|
Other |
|
|
|
|
1,931 |
|
|
|
483 |
|
Total deferred tax asset |
|
|
|
$ |
39,794 |
|
|
$ |
30,058 |
|
|
Deferred tax
liabilities: |
|
|
|
|
|
|
|
|
|
|
Deferred
sales commissions |
|
|
|
$ |
(37,573 |
) |
|
$ |
(41,947 |
) |
Differences
between book and tax bases of goodwill and intangibles |
|
|
|
|
(8,858 |
) |
|
|
(6,371 |
) |
Unrealized net holding gains on investments |
|
|
|
|
(3,600 |
) |
|
|
(2,584 |
) |
Total deferred tax liability |
|
|
|
$ |
(50,031 |
) |
|
$ |
(50,902 |
) |
Net deferred tax liability |
|
|
|
$ |
(10,237 |
) |
|
$ |
(20,844 |
) |
Deferred tax assets and liabilities are
reflected on the Companys Consolidated Balance Sheets at October 31, 2007 and 2006 as follows:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Net current
deferred tax asset, included in other current assets |
|
|
|
$ |
1,503 |
|
|
$ |
1,676 |
|
Net non-current deferred tax liability |
|
|
|
|
(11,740 |
) |
|
|
(22,520 |
) |
Net deferred tax liability |
|
|
|
$ |
(10,237 |
) |
|
$ |
(20,844 |
) |
A reconciliation from the U.S. Federal
statutory income tax rate to the Companys effective income tax rate for the years ended October 31, 2007, 2006 and 2005 is as
follows:
|
|
|
|
2007
|
|
2006
|
|
2005
|
Federal
statutory rate |
|
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and
local income tax, net of federal income tax benefit |
|
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
2.9 |
|
Minority
interest |
|
|
|
|
(0.9 |
) |
|
|
(0.7 |
) |
|
|
(0.8 |
) |
Stock-based
compensation |
|
|
|
|
1.9 |
|
|
|
1.2 |
|
|
|
1.6 |
|
Other |
|
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
0.2 |
|
Effective income tax rate |
|
|
|
|
39.1 |
% |
|
|
38.9 |
% |
|
|
38.9 |
% |
The exercise of non-qualified stock
options resulted in a reduction of taxes payable of approximately $9.9 million, $8.2 million and $3.5 million for the years ended October 31, 2007,
2006 and 2005, respectively. Such benefit has been reflected as a component of shareholders equity.
69
12. |
Derivative Financial Instruments |
In October 2007, the Company issued
$500.0 million in aggregate principal amount of 6.5 percent ten-year senior notes due October 2017. In anticipation of the offering, the Company
entered into an interest rate lock transaction with an aggregate notional amount of $200.0 million intended to hedge against movements in ten-year
Treasury rates between the time at which the decision was made to issue the debt and the pricing of the securities. The prevailing Treasury rate
declined to the time of the pricing of the securities, and the interest rate lock was settled for a payment by the Company of $4.5 million. At
termination, the interest rate lock was determined to be an effective cash flow hedge and the $4.5 million settlement cost was recorded as a loss in
other comprehensive income, net of tax.
The loss recorded in other
comprehensive income will be reclassified to earnings as a component of interest expense over the term of the debt. During the fiscal year ended
October 31, 2007, the Company reclassified $37,000 of the loss on the Treasury lock transaction into interest expense. At October 31, 2007, the
remaining unamortized loss on this transaction was $4.4 million. During fiscal 2008, the Company expects to reclassify approximately $0.4 million of
the loss on the Treasury lock transaction into interest expense.
In addition to the effective cash flow
hedge described above, the Company entered into a second Treasury rate lock transaction with an aggregate notional amount of $200.0 million in
anticipation of the issuance of senior notes with a maturity in excess of ten years. When it was determined that the Company would not issue senior
notes with a maturity in excess of ten years, this interest rate lock was terminated and the net settlement of $6.7 million was recorded as a loss on
investments in the Companys Consolidated Statement of Income.
Total comprehensive income is reported
in the Consolidated Statements of Shareholders Equity and Comprehensive Income and is composed of net income and other comprehensive income
(loss), net of tax.
The components of other comprehensive
income (loss) at October 31, 2007, 2006 and 2005 are as follows:
(in thousands)
|
|
|
|
Gross Amount
|
|
Tax (Expense) or Benefit
|
|
Net Amount
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains on available-for-sale securities |
|
|
|
$ |
2,615 |
|
|
$ |
(987 |
) |
|
$ |
1,628 |
|
Foreign
currency translation adjustments |
|
|
|
|
84 |
|
|
|
(30 |
) |
|
|
54 |
|
Unamortized loss on derivative instruments |
|
|
|
|
(4,430 |
) |
|
|
1,558 |
|
|
|
(2,872 |
) |
Other comprehensive income (loss) |
|
|
|
$ |
(1,731 |
) |
|
$ |
541 |
|
|
$ |
(1,190 |
) |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains on available-for-sale securities |
|
|
|
$ |
2,793 |
|
|
$ |
(1,039 |
) |
|
$ |
1,754 |
|
Foreign currency translation adjustments |
|
|
|
|
99 |
|
|
|
(36 |
) |
|
|
63 |
|
Other comprehensive income (loss) |
|
|
|
$ |
2,892 |
|
|
$ |
(1,075 |
) |
|
$ |
1,817 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains on available-for-sale securities |
|
|
|
$ |
1,201 |
|
|
$ |
(441 |
) |
|
$ |
760 |
|
Foreign currency translation adjustments |
|
|
|
|
(71 |
) |
|
|
23 |
|
|
|
(48 |
) |
Other comprehensive income (loss) |
|
|
|
$ |
1,130 |
|
|
$ |
(418 |
) |
|
$ |
712 |
|
70
During the years ended October 31,
2007, 2006 and 2005, the Company reclassified gains of $2.9 million, $4.1 million and $0.2 million, respectively, from other comprehensive income (loss) to
net income as gains and losses were realized on the sale of available-for-sale securities.
Accumulated other comprehensive income
is reported in the Consolidated Statements of Shareholders Equity and Comprehensive Income. The components of accumulated other comprehensive
income at October 31, 2007 and 2006 are as follows:
(in thousands)
|
|
|
|
2007
|
|
2006
|
Net unrealized
gains on available-for-sale securities, net of tax |
|
|
|
$ |
5,903 |
|
|
$ |
4,275 |
|
Foreign currency
translation adjustments, net of tax |
|
|
|
|
162 |
|
|
|
108 |
|
Unamortized loss on derivative instruments, net of tax |
|
|
|
|
(2,872 |
) |
|
|
|
|
Total |
|
|
|
$ |
3,193 |
|
|
$ |
4,383 |
|
The following table provides a
reconciliation of net income and common shares used in the earnings per basic share and earnings per diluted share computations for the years ended
October 31, 2007, 2006 and 2005:
(in thousands, except per share data)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Net income
basic |
|
|
|
$ |
142,811 |
|
|
$ |
159,377 |
|
|
$ |
138,706 |
|
Interest adjustment related to contingently convertible debt, net of tax |
|
|
|
|
- |
|
|
|
1,512 |
|
|
|
740 |
|
Net income diluted |
|
|
|
$ |
142,811 |
|
|
$ |
160,889 |
|
|
$ |
139,446 |
|
|
Weighted
average shares outstanding basic |
|
|
|
|
124,527 |
|
|
|
127,807 |
|
|
|
131,591 |
|
Incremental
common shares from stock options and restricted stock awards |
|
|
|
|
10,725 |
|
|
|
6,726 |
|
|
|
5,741 |
|
Incremental common shares related to contingently convertible debt |
|
|
|
|
|
|
|
|
2,471 |
|
|
|
3,188 |
|
Weighted average shares outstanding diluted |
|
|
|
|
135,252 |
|
|
|
137,004 |
|
|
|
140,520 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.15 |
|
|
$ |
1.25 |
|
|
$ |
1.05 |
|
Diluted |
|
|
|
$ |
1.06 |
|
|
$ |
1.17 |
|
|
$ |
0.99 |
|
The Company uses the treasury stock
method to account for the dilutive effect of unexercised stock options and unvested restricted stock in earnings diluted per share. Antidilutive
incremental common shares related to stock options excluded from the computation of earnings per share were 73,700, 140,000, and 63,000 for the years
ended October 31, 2007, 2006 and 2005, respectively.
71
15. |
Fair Value of Financial Instruments |
The following is a summary of the
carrying amounts and estimated fair values of the Companys financial instruments at October 31, 2007 and 2006:
|
|
|
|
2007
|
|
2006
|
|
(in thousands)
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Short-term
investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored
fund |
|
|
|
$ |
50,183 |
|
|
$ |
50,183 |
|
|
$ |
|
|
|
$ |
|
|
Investment in
affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
20,669 |
|
|
|
20,669 |
|
Long-term
investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
|
770 |
|
|
|
770 |
|
|
|
761 |
|
|
|
761 |
|
Equity
securities |
|
|
|
|
14,368 |
|
|
|
14,368 |
|
|
|
12,775 |
|
|
|
12,775 |
|
Sponsored
funds |
|
|
|
|
34,764 |
|
|
|
34,764 |
|
|
|
36,483 |
|
|
|
36,483 |
|
Collateralized debt obligation entities |
|
|
|
|
18,962 |
|
|
|
18,962 |
|
|
|
9,105 |
|
|
|
9,105 |
|
Investments
in affiliates |
|
|
|
|
16,297 |
|
|
|
16,297 |
|
|
|
13,006 |
|
|
|
13,006 |
|
Other investments |
|
|
|
|
950 |
|
|
|
950 |
|
|
|
945 |
|
|
|
945 |
|
Total |
|
|
|
$ |
136,294 |
|
|
$ |
136,294 |
|
|
$ |
93,744 |
|
|
$ |
93,744 |
|
Notes receivable from stock option exercises |
|
|
|
$ |
2,342 |
|
|
$ |
2,342 |
|
|
$ |
1,891 |
|
|
$ |
1,891 |
|
Long-term debt |
|
|
|
$ |
500,000 |
|
|
$ |
510,806 |
|
|
$ |
|
|
|
$ |
|
|
Assumptions used in the determination
of fair value have been described in Notes 4, 6 and 8.
16. |
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 Securities and
Exchange Commission 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 $31.1 million, which exceeds its minimum net capital requirement of $1.7 million at October 31, 2007. The ratio of aggregate
indebtedness to net capital at October 31, 2007 was 0.83-to-1.
17. |
Concentration of Credit Risk and Significant
Relationships |
Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents held. The Company maintains cash and cash
equivalents with various financial institutions. Cash deposits maintained at a financial institution may exceed the federally insured
limit.
72
The following portfolio and related
funds provided over 10 percent of the total revenue of the Company:
|
|
|
|
For the Years Ended October 31,
|
|
(dollar figures in thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
Tax-Managed Growth Portfolio and related funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and administration fees, underwriting commissions, distribution plan payments, contingent deferred sales charges and service
fees |
|
|
|
$ |
204,433 |
|
|
$ |
192,109 |
|
|
$ |
190,461 |
|
Percent of
revenue |
|
|
|
|
18.9 |
% |
|
|
22.2 |
% |
|
|
25.3 |
% |
18. |
Comparative Quarterly Financial Information
(Unaudited) |
|
|
|
|
2007
|
|
(in thousands, except per share data)
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Full Year
|
Total
revenue |
|
|
|
$ |
243,176 |
|
|
$ |
260,184 |
|
|
$ |
286,932 |
|
|
$ |
293,808 |
|
|
$ |
1,084,100 |
|
Operating
income |
|
|
|
$ |
1,997 |
|
|
$ |
36,292 |
|
|
$ |
88,858 |
|
|
$ |
105,790 |
|
|
$ |
232,937 |
|
Net
income |
|
|
|
$ |
2,559 |
|
|
$ |
23,093 |
|
|
$ |
55,776 |
|
|
$ |
61,383 |
|
|
$ |
142,811 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.02 |
|
|
$ |
0.18 |
|
|
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
1.15 |
|
Diluted |
|
|
|
$ |
0.02 |
|
|
$ |
0.17 |
|
|
$ |
0.41 |
|
|
$ |
0.47 |
|
|
$ |
1.06 |
|
|
|
|
|
2006
|
|
(in thousands, except per share data)
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Full Year
|
Total
revenue(1) |
|
|
|
$ |
206,540 |
|
|
$ |
211,796 |
|
|
$ |
216,575 |
|
|
$ |
227,283 |
|
|
$ |
862,194 |
|
Operating
income |
|
|
|
$ |
64,079 |
|
|
$ |
60,617 |
|
|
$ |
67,885 |
|
|
$ |
72,385 |
|
|
$ |
264,966 |
|
Net
income |
|
|
|
$ |
39,131 |
|
|
$ |
39,900 |
|
|
$ |
41,819 |
|
|
$ |
38,527 |
|
|
$ |
159,377 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.30 |
|
|
$ |
0.31 |
|
|
$ |
0.33 |
|
|
$ |
0.30 |
|
|
$ |
1.25 |
|
Diluted |
|
|
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
1.17 |
|
(1) |
|
Certain amounts from prior quarters have been reclassified to
conform to the current quarter presentation. See footnote 1 for further discussion of this change. |
73
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Eaton Vance Corp.:
We have audited the accompanying consolidated balance sheets of
Eaton Vance Corp. and subsidiaries (the Company) as of October 31, 2007 and 2006, and the related consolidated statements of income,
shareholders equity and comprehensive income, and cash flows for each of the three years in the period ended October 31, 2007. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Eaton Vance Corp. and subsidiaries as of October 31, 2007 and 2006, and the results of
their operations and their cash flows for each of the three years in the period ended October 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of
October 31, 2007, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated December 20, 2007 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
Boston, Massachusetts
December 20, 2007
74
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and
procedures as of October 31, 2007. Disclosure controls and procedures are designed to ensure that the information we are required to disclose in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the
SECs rule and forms. Disclosure controls and procedures include, without limitation, controls and procedures accumulated and communicated to our
management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding
required disclosure. Our CEO and CFO participated in this evaluation and concluded that, as of the date of their evaluation, our disclosure controls
and procedures were effective.
There have been no changes in our internal control over financial
reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Report of Management on Internal Control over Financial
Reporting
The management of Eaton Vance Corp. and its subsidiaries
(the Company) is responsible for establishing and maintaining adequate internal control over the Companys financial
reporting.
Management has evaluated the effectiveness of internal control
over financial reporting as of October 31, 2007 in relation to criteria described in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on managements assessment, management concluded that
the Companys internal control over financial reporting was effective as of October 31, 2007.
Deloitte & Touche LLP, an independent registered public
accounting firm, has audited the financial statements that are included in this annual report and expressed an opinion thereon. Deloitte & Touche
LLP has also expressed an opinion on managements assessment of and the effective operation of internal control over financial reporting as of
October 31, 2007.
75
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Eaton Vance Corp.:
We have audited managements assessment, included in the
accompanying Report of Management on Internal Control over Financial Reporting, that Eaton Vance Corp. and subsidiaries (the Company)
maintained effective internal control over financial reporting as of October 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing
similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting as of October 31, 2007, is fairly stated, in all material respects, based on the
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October
31, 2007, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
76
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended October 31, 2007 of the
Company and our report dated December 20, 2007 expressed an unqualified opinion on those financial statements.
Boston, Massachusetts
December 20, 2007
77
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
The following table sets forth the name, age and positions of
each of our directors and executive officers at October 31, 2007:
Name
|
|
|
|
Age
|
|
Position
|
James B.
Hawkes |
|
|
|
|
65 |
|
|
Chairman of the Board and Chief Executive Officer |
Thomas E. Faust
Jr. |
|
|
|
|
49 |
|
|
Director, President and Chief Investment Officer |
Ann E.
Berman |
|
|
|
|
55 |
|
|
Director |
Leo I. Higdon,
Jr. |
|
|
|
|
61 |
|
|
Director |
Vincent M.
OReilly |
|
|
|
|
70 |
|
|
Director |
Dorothy E.
Puhy |
|
|
|
|
55 |
|
|
Director |
Winthrop H.
Smith, Jr. |
|
|
|
|
58 |
|
|
Director |
Duncan W.
Richardson |
|
|
|
|
50 |
|
|
Executive Vice President and Chief Equity Investment Officer |
Jeffrey P.
Beale |
|
|
|
|
51 |
|
|
Vice
President and Chief Administrative Officer |
Alan R.
Dynner |
|
|
|
|
67 |
|
|
Vice
President, Secretary and Chief Legal Officer |
Laurie G.
Hylton |
|
|
|
|
41 |
|
|
Vice
President and Chief Accounting Officer |
William M.
Steul |
|
|
|
|
65 |
|
|
Vice
President, Treasurer and Chief Financial Officer |
Eaton Vance Corp. was founded as a holding company by Eaton &
Howard, Vance Sanders, Inc. in February 1981. Eaton & Howard, Vance Sanders, Inc. (renamed Eaton Vance Management, Inc. in June 1984 and
reorganized as Eaton Vance Management in October 1990) was formed at the time of the acquisition of Eaton & Howard, Incorporated by Vance, Sanders
& Company, Inc. on May 1, 1979. In this Item 10, the absence of a corporate name indicates that, depending on the dates involved, the executive
held the indicated titles in a firm in the chain of Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton Vance
Corp.
Mr. Hawkes was elected Chief Executive Officer in October 1996
and Chairman of the Board in October 1997 and served in those capacities until his retirement on October 31, 2007. He was President of the Company from
October 1996 to January 2006, Executive Vice President of the Company from January 1990 to October 1996 and a Vice President of the Company from June
1975 to January 1990. He was a Director from January 1982 until his retirement and served as Chairman of the Executive Committee and Management
Committee established by the Companys Board of Directors. Mr. Hawkes was an officer, trustee or director of all the registered investment
companies for which Eaton Vance Management or Boston Management and Research acts as investment advisor.
Mr. Faust was elected Chief Executive Officer and Chairman of the
Board on November 1, 2007. Mr. Faust was elected President of the Company in January 2006 and served as Chief Investment Officer from November 2001
until October 31, 2007. He was Executive Vice President of the Company from January 2000 through January 2006 and a Vice President of the Company from
December 1987 to January 2000. He has been a Director of the Company since January 2002. Mr. Faust serves as a member of the Executive and Management
Committees established by the Companys Board of Directors.
Ms. Berman has served as a Director of the Company since January
2006. She serves as a member of the Audit and Nominating and Governance Committees established by the Companys Board of Directors. Ms. Berman is
a Senior Advisor at Harvard University and served as Harvards Vice President for Finance and Chief Financial Officer from October 2002 to April
2006. Ms. Berman is also a Director of Loews Corporation.
78
Mr. Higdon has served as a Director of the Company since January
2000. He is Chairman of the Compensation Committee and serves as a member of the Nominating and Governance Committee established by the Companys
Board of Directors. Mr. Higdon has served as the President of Connecticut College since June 2006. Mr. Higdon served as the President of the College of
Charleston from September 2001 to June 2006. Mr. Higdon is also a Director of HealthSouth Corp.
Mr. OReilly has served as a Director of the Company since
April 1998. He is lead independent Director, Chairman of the Audit Committee and serves as a member of the Executive, Compensation and Nominating and Governance
Committees established by the Companys Board of Directors. Mr. OReilly is a faculty member at the Carroll Graduate School of Management at
Boston College. He was formerly a Partner of Coopers and Lybrand. Mr. OReilly is also a director of Teradyne, Inc.
Ms. Puhy has served as a Director of the Company since April
2006. She serves as a member of the Audit, Compensation and Nominating and Governance Committees established by the Companys Board of Directors.
Ms. Puhy is the Executive Vice President and Chief Financial Officer of Dana-Faber Cancer Institute, Inc. Ms. Puhy is also a Director of Abiomed, Inc.,
where she is lead independent Director and Chair of the Audit Committee.
Mr. Smith has served as a Director of the Company since April
2004. He is Chairman of the Nominating and Governance Committee and serves as a member of the Audit and Compensation Committees established by the
Companys Board of Directors. Mr. Smith is a Director of AGF Management Ltd. He was formerly an Executive Vice President of Merrill Lynch &
Co.
Mr. Richardson has been an Executive Vice President of the
Company since January 2006 and Chief Equity Investment Officer since November 2001. He was a Senior Vice President of the Company from October 2000 to
January 2006 and a Vice President of the Company from January 1990 to October 2000. Mr. Richardson serves as a member of the Management Committee
established by the Companys Board of Directors.
Mr. Beale has been a Vice President of the Company since June
1998 and the Chief Administrative Officer of the Company since November 1999. Mr. Beale is a member of the Companys Management
Committee.
Mr. Dynner served as Vice President and Chief Legal Officer of
the Company from November 1996 until his retirement on October 31, 2007. Mr. Dynner also served as Secretary of the Company from January 2000 until his
retirement. Mr. Dynner was a member of the Companys Management Committee and an officer of all the registered investment companies for which
Eaton Vance Management or Boston Management and Research acts as investment adviser.
Ms. Hylton has been a Vice President of the Company since June
1994 and Chief Accounting Officer since October 1997. She was the Internal Auditor of the Company from June 1994 to October 1997.
Mr. Steul served as Vice President, Treasurer and Chief Financial
Officer of the Company from December 1994 until his retirement on October 31, 2007. Mr. Steul was a member of the Companys Management
Committee.
Robert J. Whelan was elected Chief Financial Officer of the
Company effective November 1, 2007. Mr. Whelan became a member of the Companys Management Committee on November 1, 2007. Mr. Whelan served as Vice
President and Director of Finance of the Company from April 2007 to October 2007. Prior to joining the Company, Mr. Whelan served as Chief Financial
Officer of Boston Private Wealth Management Group from December 2004 to March 2007. Prior to joining Boston Private Wealth Management, Mr. Whelan
served as Chief Financial Officer of MFS Investment Management.
79
John E. Pelletier was elected Chief Legal Officer of the Company
effective November 1, 2007. Mr. Pelletier is a member of the Companys Management Committee and an officer of all the registered investment
companies for which Eaton Vance Management or Boston Management and Research acts as investment advisor as of November 1, 2007. Prior to joining the
Company, Mr. Pelletier was Chief Operating Officer at Natixis Global Associates from September 2004 to October 2007. Prior to serving as Chief
Operating Officer, Mr. Pelletier served as General Counsel at Natixis Global Associates.
Matthew J. Whitkos was elected President of Eaton Vance
Distributors, Inc. in May 2007. Mr. Witkos is a member of the Companys Management Committee. Prior to joining the Company, Mr. Wikos served as
Executive Vice-President Global Distribution at IXIS Asset Managers Advisors Group.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and Directors and persons who own more than ten percent of a registered class of the Companys equity securities to file forms
reporting their affiliation with the Company and reports of ownership and changes in ownership of the Companys equity securities with the
Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). These persons and entities are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge, based solely on a review of the copies of
such reports furnished to us, all Section 16(a) filing requirements applicable to such individuals were complied with for fiscal 2007.
Codes of Ethics
We have adopted a Code of Business Conduct and Ethics for
Directors, Officers and Employees that complies with the criteria provided in NYSE rules. The Code of Conduct and Business Ethics is available on our
web-site at www.eatonvance.com or by calling Investor Relations at 617-482-8260.
We have adopted a Code of Ethics for Principal Executive and
Senior Financial Officers that applies to our CEO, CFO and Chief Accounting Officer and complies with the criteria provided in SEC rules. The Code of
Ethics for Principal Executive and Senior Financial Officers is available on our web-site at www.eatonvance.com or by calling Investor Relations at
617-482-8260.
CORPORATE GOVERNANCE AND INFORMATION ABOUT OUR BOARD AND ITS
COMMITTEES
We have memorialized our governance practices in our corporate
governance guidelines and the charters of the three functional committees of our Board of Directors. The governance guidelines and charters are
intended to ensure that our Board will have the necessary authority and practices in place to review and evaluate our business operations and to make
decisions independent of the Companys management. Our governance guidelines also are intended to align the interests of our Directors and
management with those of the Companys shareholders. Our governance guidelines establish the practices our Board will follow with respect to Board
composition and selection, Board meetings and the involvement of senior management, CEO performance evaluation, succession planning, Board committees,
and independent Director compensation. Our Board annually conducts a self-evaluation to assess compliance with our governance guidelines and identify
opportunities to improve Board performance.
Our governance guidelines and committee charters are reviewed
periodically and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. Our governance guidelines were
adopted by our Board effective October 31, 2004 to, among other things, comply with corporate governance requirements contained in the NYSE listing
standards and make other enhancements to our Companys corporate governance policies, including creating the role of lead independent Director.
Vincent M. OReilly serves as the lead independent Director. The lead independent Director is
80
responsible for coordinating the activities of our
non-management Directors, coordinating with our Chairman to set the agenda for Board meetings, chairing meetings of our non-management Directors, and
leading our Boards performance evaluation of our chief executive officer. Our Board has three functional committees: an Audit Committee, a
Compensation Committee and a Nominating and Governance Committee. The Board of Directors also maintains an Executive Committee consisting, as of
October 31, 2007, of Mr. Hawkes as Chairman and CEO, Mr. Faust as President and Chief Investment Officer and Mr. OReilly as lead independent
Director. The Executive Committee may act on behalf of the Board of Directors during circumstances that prevent the full Board from meeting, but is
otherwise inactive. Our governance guidelines, as well as the charter for each functional committee of our Board, are available on our web-site at
www.eatonvance.com or by calling Investor Relations at 617-482-8260.
Committees of the Board
Below is a description of each functional committee of our Board
of Directors. Each committee has the authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its
responsibilities. Our Board of Directors has determined that each member of each such committee meets the standards of independence under the
governance guidelines and applicable NYSE listing standards, including the requirement that each member is free of any relationship that would
interfere with his or her individual exercise of independent judgment.
Audit Committee
Our Audit Committee assists the Board of Directors in their
oversight of the quality and integrity of our accounting, audit and reporting practices. Our Audit Committees role includes assisting our Board
of Directors in its oversight and evaluation of (1) the integrity of our financial reporting processes and resultant financial statements and the
effectiveness of our independent audit thereof; (2) our compliance with legal and regulatory requirements; (3) the qualifications, independence, and
performance of our independent registered public accounting firm; and (4) the performance of our internal audit function. Our Audit Committee relies on
the expertise and knowledge of management, our internal auditors and our independent registered public accounting firm in carrying out its oversight
responsibilities. The specific responsibilities of our Audit Committee are described in our Audit Committee Charter. The charter is available on our
web-site at www.eatonvance.com or by calling Investor Relations at 617-482-8260.
The Audit Committee of our Board of Directors consists of Ann E.
Berman, Dorothy E. Puhy, Vincent M. OReilly and Winthrop H. Smith, Jr. Mr. OReilly serves as Chairman. Each member of our Audit Committee
is independent as defined under the rules of the NYSE and the SEC. Our Board of Directors has determined that each Audit Committee member has
sufficient knowledge in financial and accounting matters to serve on the Committee and that each member is an audit committee financial
expert as defined by SEC rules.
Compensation Committee
The Compensation Committee assists our Board of Directors in
their oversight and evaluation responsibilities relating to compensation matters. The Compensation Committee has overall responsibility for evaluating
and approving the structure, operation and effectiveness of our compensation plans, policies and programs. The specific responsibilities and functions
of our Compensation Committee are described in our Compensation Committee Charter. The charter is available on our web-site at www.eatonvance.com or by
calling Investor Relations at 617-482-8260.
81
The Compensation Committee consists of Leo I. Higdon, Jr.,
Dorothy E. Puhy, Vincent M. OReilly and Winthrop H. Smith, Jr. Mr. Higdon serves as chairman. Each member of the Committee is an outside
director for purposes of Section 162(m) of the Internal Revenue Code and a non-employee director for purposes of Section 16b-3 of the
Securities Exchange Act of 1934.
Nominating and Governance Committee
The principal function of our Nominating and Governance Committee
is to assist our Board of Directors in their responsibilities relating to board membership. The primary responsibilities of our Nominating and
Governance Committee are to (1) identify and recommend qualified individuals to become Directors of our Company; (2) review with our Board the
independence and other qualifications of Directors; (3) review and recommend the composition of Board committees; (4) develop and recommend to our
Board the corporate governance principles applicable to the Company; and (5) lead our Board of Directors in its annual review of their performance and
the annual evaluation of our management. The specific responsibilities and functions of our Nominating and Governance Committee are described in our
Nominating and Governance Committee Charter. The charter is available on our web-site at www.eatonvance.com or by calling Investor Relations at
617-482-8260.
The Nominating and Governance Committee of our Board of Directors
consists of Ann E. Berman, Leo I. Higdon, Jr., Dorothy E. Puhy, Vincent M. OReilly and Winthrop H. Smith, Jr. Mr. Smith serves as Chairman. Each
member of our Nominating and Governance Committee is independent as defined under the rules of the NYSE and the SEC.
Shareholder Communications to the Board
Interested parties may contact an individual Director, the lead
independent Director, or the Board of Directors as a group to report any matters of concern by sending a letter to the address listed below. Each
communication should specify the applicable addressee or addressees to be contacted as well as the general topic of the communication. The letter will
be reviewed first by a non-management Director, and parties may specify if they want only the non-management Directors, and not the full Board of
Directors, to see the letter.
Mail: |
|
Board of Directors c/o Chief Legal Officer Eaton Vance
Corp. 255 State Street Boston, Massachusetts 02109 |
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Item 11. Executive Compensation
Compensation Discussion and Analysis
Compensation Objectives and Philosophy
Our compensation policies and programs are structured to achieve
three primary objectives:
1) |
|
to attract and retain highly qualified employees through a
competitive compensation program; |
2) |
|
to motivate our employees by recognizing and rewarding
achievements, contributions and excellence; and |
3) |
|
to align the interests of our employees with those of the
Companys shareholders. |
Our overriding compensation philosophy is that executive
compensation should be comprised primarily of annual performance-based cash awards and long-term equity awards (e.g., stock options and/or restricted
stock), with base salary representing a lesser component of total compensation. We believe the appropriate combination of performance-based annual
incentives and long-term equity compensation encourages our management to focus on both financial performance and long-term stock price performance,
thereby aligning the interests of management with those of our shareholders. Employees at higher total compensation levels generally receive a greater
percentage of their total compensation payable in equity incentives and a lesser percentage in cash compared to employees who are paid less. We believe
that the proportion of compensation that is at risk (performance-based awards and long-term equity awards) should rise as an
employees level of responsibility rises. In general, executive officers with the highest level of responsibility have the lowest percentage of
their compensation fixed in the form of base salary and the highest percentage of their compensation at risk.
Compensation opportunities in excess of base salary for our Chief
Executive Officer (CEO), Chief Financial Officer, and the three most highly compensated officers in any given year (named executive
officers) are based on measurable goals for the Company. Targeted total compensation is designed to be competitive and is benchmarked against our
peer group. Our emphasis is on total compensation and pay for performance. All of our named executive officers are employed at will, without employment
or severance payment agreements.
In the first quarter of each fiscal year, our CEO presents a set
of corporate goals and objectives for the upcoming year to our Board of Directors. Some of the goals and objectives are consistent from year-to-year
while others may vary, reflecting known initiatives to be undertaken in the current year. In fiscal 2007, the Compensation Committee of our Board (the
Committee) considered the Companys success in light of the following goals and objectives:
|
|
Maintaining strong investment performance across our full
breadth of product offerings; |
|
|
Capitalizing on our strong investment profile and expanded
product offerings to grow our client base in all major distribution channels; |
|
|
Maintaining our position as an industry leader in closed-end
fund issuances; |
|
|
Evaluating the merit of a significant buy-back of the
Companys Non-Voting Common Stock funded by a corporate debt offering and executing if warranted; |
|
|
Facilitating a smooth senior management transition without loss
of momentum. |
83
Individual performance is evaluated based on the executives
role in achieving these goals and objectives and adherence to our core values. Our core values consist of the following:
|
|
Creativity/adaptability |
Compensation Setting Process
Role of our Compensation Committee
The Committee has overall responsibility for evaluating and
approving the structure, operation and effectiveness of our compensation plans, policies and programs for all employees. The Committee consists of Leo
I. Higdon, Jr., Dorothy E. Puhy, Vincent M. OReilly and Winthrop H. Smith, Jr. Mr. Higdon serves as chairman. Each member of the Committee is an
outside director for purposes of Section 162(m) of the Internal Revenue Code and a non-employee director for purposes of
Section 16b-3 of the Securities Exchange Act of 1934. The Committee is specifically charged with the following:
|
|
To review and approve the corporate goals and objectives
relevant to the compensation of our CEO, to evaluate our CEOs performance in light of these goals and objectives, and to set our CEOs
compensation based on this evaluation; |
|
|
To exercise all power and authority of the Board in the
administration of our cash and equity-based incentive compensation plans, including full decision-making power with respect to compensation intended to
be performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code; |
|
|
To review and approve the compensation of other senior
executives (including our other named executive officers and key investment professionals) based on recommendations made by our CEO; and |
|
|
To retain compensation consultants as necessary or desirable to
assist in their evaluation, including competitive benchmarking, of our compensation programs or arrangements. |
The Committee considers the sum of all pay elements when
reviewing and approving annual compensation recommendations for our named executive officers. Although the framework for compensation decision-making
is tied to our overall financial performance and the creation of long-term shareholder value, the Committee retains full discretion to determine
individual compensation based on other significant performance factors such as demonstrated management and leadership capabilities and the achievement
of strategic operating results.
Role of Management
Our CEO evaluates all other named executive officers as part of
our annual review process and makes recommendations to the Committee regarding all elements of executive compensation paid to them. Changes in
executive compensation proposed by our CEO are based on the individual executives performance, the compensation of individuals with comparable
responsibilities in competing or similar organizations, when the information is available and relevant, and the profitability of the Company. At the
Committees request, our CEO and other senior officers attend Committee meetings to provide compensation and other information to the Committee,
including information regarding the design,
84
implementation and administration of our compensation plans. The
Committee also meets in executive sessions without the presence of any executive officer whose compensation the Committee is scheduled to
discuss.
Use of Compensation Consultants in Determining Executive
Compensation
The Committees Charter provides the Committee the authority
to retain an independent outside executive compensation consulting firm to assist in evaluating our policies and practices regarding executive
compensation and provide objective advice regarding the competitive landscape. In fiscal 2007, the Committee relied on third-party executive pay
analyses obtained as described below and did not hire an external consultant to assist them in their evaluation of pay practices for our named
executive officers. The Committee engaged an independent consulting firm, Mercer Consulting, to assist them in evaluating our director compensation
see further discussion under Director Compensation.
Each year our Human Resources department obtains and summarizes
an asset management industry executive pay analysis prepared by McLagan Partners, a compensation consultant that specializes in conducting proprietary
compensation surveys and analyzing executive pay trends in the asset management industry. The companies that are included in the McLagan Partners
analysis represent publicly traded asset managers or asset management subsidiaries of larger financial services firms for which some publicly available
data exists. Our peer group, as defined in this pay analysis, includes:
Affiliated
Managers Group, Inc. |
|
|
|
Janus Capital
Group, Inc. |
AllianceBernstein L.P. |
|
|
|
Legg Mason,
Inc. |
BlackRock
Financial Management, Inc. |
|
|
|
MFS Investment
Management |
Calamos
Investments |
|
|
|
Nuveen
Investments, Inc. |
Federated
Investors, Inc. |
|
|
|
Putnam
Investments, Inc. |
Franklin
Templeton Investments |
|
|
|
T. Rowe Price
Associates, Inc. |
INVESCO
PLC |
|
|
|
|
|
|
We believe the general business profile of these entities (public
companies, or subsidiaries of public companies, with similar lines of business in the asset management industry) make benchmarking comparisons
appropriate. In selecting our peer group, we chose companies that have one or more attributes significantly similar to ours, taking into consideration
size (as defined by revenue, assets under management and market capitalization), product offerings and distribution channels.
As part of our annual executive compensation review process in
October 2007, our CEO, President, Executive Vice President, Chief Administrative Officer and the Director of Human Resources reviewed the results of
this analysis with the Committee, highlighting market trends identified regarding the types of compensation offered to executive officers, the mix of
compensation components and the relationship between company performance and executive pay. In executive session, the Committee reviewed our CEOs
pay as a percentage of total compensation, net income and revenue, respectively.
Elements of Executive Compensation
Total compensation for our named executive officers is comprised
of the following elements:
Base
salary
Annual
performance-based cash incentive awards
Long-term equity
incentive awards
Retirement plan
benefits
Nonqualified
compensation plan benefits
Other benefits and
perquisites
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Base Salary
Base salaries for our named executive officers are intended to
provide a fixed level of cash compensation that is appropriate given the executives role in the organization. Generally, base salaries are
determined by 1) scope of responsibility and complexity of position, 2) performance history, 3) tenure of service, 4) internal equity within the
Companys salary structure, and 4) relative salaries of persons holding similar positions at companies within our designated peer group. Base
salaries are also reviewed at the time of promotion or significant change in job scope and responsibilities. In October 2006, the Committee reviewed
and approved salary increases averaging 3 percent for our named executive officers, generally targeting median base salaries for officers in similar
positions within our designated peer group. Consistent with our desire to have the majority of total compensation paid to named executive officers at
risk in the form of incentive compensation, 6 percent of our total named executive officers compensation (as defined in the Summary Compensation
table) was paid in the form of base salaries.
Annual Performance-based Cash Incentive
Awards
Our annual performance-based cash compensation awards for named
executive officers are designed to advance the interests of the Company and its shareholders by linking the compensation of our senior executives to
performance and the achievement of key financial goals in the current fiscal year. Annual performance-based compensation awards complement our
long-term equity incentive plans, which are designed to reward performance over a multi-year period. A substantial portion of our named executive
officers total compensation is in the form of annual performance-based cash compensation.
We maintain a performance-based incentive pool for all of our
eligible officers, excluding those officers who are compensated under sales-based incentive plans. The performance-based incentive pool is calculated
each year as a percentage of our adjusted operating income, an internally derived non-GAAP performance measure, defined as operating income
plus closed-end fund structuring fees and one-time payments, stock-based compensation and any write-off of intangible assets or goodwill
(adjusted operating income). We believe that adjusted operating income is a key indicator of our ongoing profitability and therefore use
this measure as the basis for calculating performance-based cash incentives for eligible officers. The Committee reviews analyses prepared by
management annually as to the calculation of the performance-based incentive pool, historical trends, and the allocation of the pool between executive
and non-executive officers.
Annual performance-based incentive awards paid to named executive
officers under the Executive Performance-Based Compensation Plan are based upon the achievement of pre-established performance goals for the Company
set by the Committee for the following year. The Committee is responsible for determining eligibility for participation in the Executive
Performance-Based Compensation Plan and will consider, but has no obligation to follow, recommendations from our CEO as to the designation of Executive
Performance-Based Compensation Plan participants. The Committee is also responsible for determining the maximum award potential for each participant,
the objective performance goal(s) against which performance will be measured, certifying whether the performance goals have been met, and, ultimately,
the percentage of the award potential to be paid to each participant upon goal achievement. The maximum award potential for each participant is
generally set as a percentage of adjusted operating income as defined above. Awards made under our Executive Performance-Based Compensation Plan are
capped at $10.0 million for each Executive Performance-Based Compensation Plan participant in respect of each performance period. The actual award paid
to a plan participant may consist of all or a portion of the award potential as the Committee in its sole discretion may determine. The Committee does
not rely on predetermined formulas or weighted factors in determining whether to reduce the maximum award payable to participants or the extent to
which the reward should be reduced, but rather considers a number of factors relative to individual and overall Company performance. Historically, the
Committee has exercised its discretion to reduce the awards paid to named executive officers and has not granted an incentive award to any named
executive officer absent attainment of the relevant performance goal.
86
In October 2006, the Committee established that our named
executive officers, James B. Hawkes, Thomas E. Faust Jr., Duncan W. Richardson, Alan R. Dynner and William M. Steul, were eligible to earn 5 percent,
3.75 percent, 3 percent, 1.5 percent and 1.5 percent, respectively, of adjusted operating income before the performance-based incentive pool in excess
of $76.7 million for the twelve month period ending September 30, 2007. Based on pre-incentive pool adjusted operating income of $465.2 million for the
twelve month period ending September 30, 2007, the maximum award potential for Messrs. Hawkes, Faust, Richardson, Dynner and Steul was $19.4 million,
$14.6 million, $11.7 million, $5.8 million and $5.8 million, respectively. As a result of their evaluation of the absolute and relative performance of
the Company and our executives in October 2007 and the certification that the performance goals had been met, the Committee employed its discretion to
reduce the otherwise formulaic payments and granted performance-based awards of $8.3 million, $5.8 million, $4.1 million, $1.6 million and $1.3 million
to Messrs. Hawkes, Faust, Richardson, Dynner and Steul, respectively.
Long-term Equity Incentive Awards
Our equity-based compensation plans are designed to align the
interests of our executive officers with those of the Companys shareholders, and complement our annual performance-based compensation
awards.
The Committee continually evaluates various forms of long-term
equity incentive compensation for our executive officers, including stock options and restricted stock. To date, the Committee has primarily used stock
options for long-term equity incentive compensation, believing that stock options granted at fair market value with a vesting period of five years and
a term of 10 years encourage our executive officers to focus on long-term financial results. The Committee has issued restricted stock to executive
officers on a selective basis and retains the right to do so more broadly in the future.
Stock options are granted to employees, including named executive
officers, at the regularly scheduled November meeting of the Committee, without regard to the timing of release of material information. The meeting is
typically scheduled for the first business day in November. Grants to new officers are generally made at the first Board meeting following the
employees initial day of employment as detailed in his or her offer of employment. The option exercise price for all grants is equal to the
closing price of the Companys Non-Voting Common Stock on the date of grant.
On November 1, 2006, the Committee recommended, and our Board
approved, grants of options to named executive officers to purchase 783,000 shares of Non-Voting Common Stock (261,000, 210,800, 200,800, 55,200, and
55,200 for Messrs. Hawkes, Faust, Richardson, Dynner and Steul, respectively), representing 18 percent of all options awarded to employees on that
date. In determining the amount of each grant, the Committee took into consideration the existing share ownership of each named executive officer and
prior year grant levels. The Committee did not issue restricted stock to any named executive officers in fiscal 2007.
While our equity-based compensation plans are designed to
encourage long-term stock ownership, we do not have specific stock ownership requirements or guidelines for our executive officers. Given the generally
high level of investment in the Company by our executive officers, we do not believe that such requirements or guidelines are
necessary.
87
Retirement Plan Benefits
We provide retirement benefits through the Eaton Vance Management
Profit Sharing Retirement Plan and the Eaton Vance Management Savings Plan. Our executive officers are entitled to participate in both the Eaton Vance
Management Profit Sharing Retirement Plan and the Eaton Vance Management Savings Plan on the same terms and conditions as other employees. The plans do
not involve any guaranteed minimum or above-market returns, as plan returns depend on actual investment results.
Nonqualified Compensation Plans
Certain of our named executive officers participate in the
Companys unfunded, non-qualified Supplemental Profit Sharing Retirement Plan, which was designed to allow certain key employees to receive profit
sharing contributions in excess of the amounts allowed under the Eaton Vance Management Profit Sharing Plan. Participation in the Supplemental Profit
Sharing Retirement Plan has been frozen and is restricted to employees who qualified as participants on November 1, 2002. We did not make any
contributions to the plan in fiscal 2007. Participants in the Supplemental Profit Sharing Retirement Plan continue to earn investment returns on their
balances commensurate with those earned in the Eaton Vance Management Profit Sharing Plan.
Certain of our named executive officers also participate in the
Companys Stock Option Income Deferral Plan, an unfunded, non-qualified plan intended to permit key employees to defer recognition of income upon
exercise of non-qualified stock options previously granted by the Company. In fiscal 2007, none of our named executive officers elected to defer
recognition of income upon exercise of non-qualified stock options pursuant to the Stock Option Income Deferral Plan. Income earned on balances in the
Stock Option Income Deferral Plan is directly tied to dividend income on the underlying shares of the Companys Non-Voting Common
Stock.
Neither of the plans described above offers preferential
above-market earnings. Additional information about these plans, including aggregate earnings and aggregate balances at the end of fiscal 2007 for each
of our named executive officers, is included in the table under the heading Non-Qualified Deferred Compensation.
Other Benefits and Perquisites
As a general rule, we do not provide significant perquisites or
other personal benefits to our executive officers. Our named executive officers are entitled to participate in benefit programs that entitle them to
medical, dental, life (up to $500,000 coverage for basic life insurance and up to an additional $200,000 coverage in supplemental life insurance) and
long-term disability insurance coverage that are available to all our employees. In addition to the benefits available to all our employees, we provide
certain dining club memberships, executive health screening services, career transition services, spousal travel reimbursement and tax return
preparation services to our named executive officers. Dollar amounts associated with these items are set forth in the All Other Compensation column of
the Summary Compensation table and related footnotes.
Our named executive officers are entitled to participate in the
Companys Employee Stock Purchase Plan and Incentive Plan Stock Alternative on the same terms and conditions as other employees. The
Employee Stock Purchase Plan permits eligible employees to direct up to 15 percent of their salaries to a maximum of $12,500 per offering period toward
the purchase of Eaton Vance Corp. Non-Voting Common Stock at the lower of 90 percent of the market price of the Non-Voting Common Stock at the
beginning or at the end of each six-month offering period. The Incentive Plan Stock Alternative permits employees to direct up to half of their
monthly and annual incentive performance awards toward the purchase of Non-Voting Common Stock at 90 percent of the average market price of the stock
for five business days subsequent to the end of the performance period.
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Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code imposes a general
limit on the amount that a public company may deduct for compensation in excess of $1,000,000 paid to the companys named executive officers in
any one year who are employed as of the end of that year. However, performance-based compensation that meets certain requirements is excluded from this
limitation.
Our executive compensation plans are designed to qualify for this
exclusion and to permit the full deductibility by the Company of compensation paid to our named executive officers under these plans. The Committee
intends to continue to pursue compensation strategies and programs designed to permit the Company to retain federal tax benefits while providing
appropriate performance incentives to its executives. However, the Committee will not necessarily, or in all circumstances, limit executive
compensation to that which is deductible under Section 162(m) of the Internal Revenue Code and has not adopted a policy requiring it to do so. In
fiscal 2007, all compensation paid to our named executive officers was deductible by the Company.
Employment Agreements and Provisions for Change of
Control
Our named executive officers serve at the will of our Board and
do not have individual employment, severance or change of control agreements. Significant elements of compensation, notably stock option and restricted
stock grants, are subject to forfeiture in the event that a named executive officer leaves the Company prior to retirement as defined in our retirement
policy. Our equity incentive plans include provisions that, in the event of a change in control of the Company, as defined in the plan, may accelerate
the vesting of awards for all plan participants.
Executive Compensation in 2008
In October 2007, the Committee approved fiscal 2008 base salaries
for our executive officers, including named executive officers, with increases averaging 6 percent for our named executive officers.
In October 2007, the Committee approved the 2008 performance
goals pursuant to which performance-based incentive awards may be granted to named executive officers under the Companys Executive
Performance-Based Compensation Plan. These awards will be based on our adjusted operating income before the performance-based incentive pool for the
twelve months ended September 30, 2008, calculated in a manner similar to the awards granted for fiscal 2007. Based on the terms of their
performance-based incentive awards, Thomas E. Faust Jr., Duncan W. Richardson, Robert J. Whelan, and Matthew J. Witkos will be eligible to earn 5.0
percent, 3.5 percent, 1.5 percent, and 1.5 percent, respectively, of pre-incentive pool adjusted operating income in excess of $92.0 million for the
twelve months ending September 30, 2008, and John E. Pelletier will be eligible to earn 1.5 percent of pre-incentive pool adjusted operating income in
excess of the target prorated for the eleven months ending September 30, 2008 to reflect his start date as Chief Legal Officer of November 1, 2007. The
Committee approved Mr. Pelletiers 2008 award agreement in November 2007.
On November 1, 2007, the Committee approved grants of options
under the 2007 Stock Option Plan to our named executive officers to purchase 485,400 shares of Non-Voting Common Stock (279,400, 139,700, 15,700,
26,200 and 24,400 for Messrs. Faust, Richardson, Whelan, Witkos, and Pelletier respectively), representing 15 percent of all options awarded to
employees on that date. In determining the amount of each grant, the Committee took into consideration, among other factors, the existing share
ownership of each named executive officer and prior year grant levels. In addition, on November 1, 2007, the Committee approved grants of restricted
stock to named executive officers of 19,633 shares of Non-Voting Common Stock (4,650, 7,750 and 7,233 for Messrs. Whelan, Witkos, and Pelletier,
respectively), representing 66 percent of all restricted stock awarded to employees on that date.
89
Compensation Committee Report
The Committee has reviewed and discussed the Compensation
Discussion and Analysis with management. Based on their review and discussions with management, the Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in this Form 10-K.
Leo I. Higdon, Jr., Chairman
Vincent M.
OReilly
Dorothy E. Puhy
Winthrop H. Smith, Jr.
Summary Compensation Table
The following table summarizes the total compensation paid
or earned by our named executive officers in fiscal 2007. Our named executive officers aggregate base salaries accounted for approximately 6
percent of their total compensation, while total cash compensation accounted for approximately 67 percent of their total compensation. Columns for
Bonus and Change in Pension Value and Non-qualified Deferred Compensation Earnings have been omitted from the following table
as they do not pertain to the Company.
Name and Principal Position
|
|
|
|
Year
|
|
Salary ($)
|
|
Stock Awards ($)(1)
|
|
Option Awards ($)(2)
|
|
Non-Equity Incentive Plan Compensation
($)(4)
|
|
All Other Compensation ($)(5)
|
|
Total ($)
|
James B. Hawkes Chairman and Chief Executive Officer |
|
|
|
|
2007 |
|
|
|
675,000 |
|
|
|
40,751 |
|
|
|
5,159,764 |
(3) |
|
|
8,250,000 |
|
|
|
51,098 |
|
|
|
14,176,613 |
|
Thomas E. Faust Jr. President and Chief Investment Officer |
|
|
|
|
2007 |
|
|
|
450,000 |
|
|
|
59,278 |
|
|
|
1,801,595 |
|
|
|
5,750,000 |
|
|
|
48,794 |
|
|
|
8,109,667 |
|
William M. Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
2007 |
|
|
|
315,000 |
|
|
|
- |
|
|
|
1,048,933 |
(3) |
|
|
1,250,000 |
|
|
|
98,554 |
|
|
|
2,712,487 |
|
Duncan W. Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
2007 |
|
|
|
350,000 |
|
|
|
- |
|
|
|
1,663,839 |
|
|
|
4,100,000 |
|
|
|
47,044 |
|
|
|
6,160,883 |
|
Alan R. Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
2007 |
|
|
|
315,000 |
|
|
|
- |
|
|
|
1,054,435 |
(3) |
|
|
1,600,000 |
|
|
|
97,548 |
|
|
|
3,066,983 |
|
(1) |
|
These figures represent compensation cost recognized for
financial reporting purposes for the fiscal year ended October 31, 2007, in accordance with Statement of Financial Accounting Standards No. 123
(revised 2004) Share-Based Payment (SFAS No. 123R) on discounts from current market value on stock purchased under the Incentive
Plan Stock Alternative. In fiscal 2007, Messrs. Hawkes and Faust elected to have 5 and 10 percent of their fiscal 2006 annual performance-based
cash incentive awards directed to the Incentive Plan Stock Alternative, respectively. |
(2) |
|
These figures represent the option award compensation cost
recognized for financial reporting purposes for the fiscal year ended October 31, 2007, in accordance with SFAS No. 123R and relate to option grants
made to named executive officers in fiscal 2002 through fiscal 2007. The grant date fair value of each award is calculated using the Black-Scholes
option pricing model. There were no forfeitures of any awards by any of the named executive officers during 2007. The following assumptions were used
in the calculation of fair value for the years indicated: |
90
|
|
|
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
Dividend
yield |
|
|
|
1.1% |
|
1.4% |
|
1.5% |
|
1.6% |
|
1.6% |
|
1.5%
|
Volatility |
|
|
|
30% |
|
30% |
|
29% |
|
28% |
|
30% |
|
27% |
Risk-free
interest rate |
|
|
|
4.0% |
|
4.2% |
|
4.1% |
|
4.6% |
|
4.5% |
|
4.6% |
Expected life
of option |
|
|
|
8.0
years |
|
8.0
years |
|
8.0
years |
|
8.0
years |
|
6.75
years |
|
6.75
years |
(3) |
|
For Messrs. Hawkes, Steul and Dynner, the option awards expense
would have been $1,828,915, $365,272 and $364,346, respectively, in fiscal 2007 if the grants had not been subject to accelerated vesting in fiscal
2007 due to the retirement eligibility of the recipient. |
(4) |
|
These figures represent payments made pursuant to the
Companys Executive Performance-Based Compensation Plan earned in fiscal 2007, which were paid in November 2007. Messrs. Faust and Richardson
elected to have 10 and 20 percent of their incentive awards for fiscal 2007 directed to the Incentive Plan Stock Alternative,
respectively. |
(5) |
|
Set forth below is a breakdown of the amounts included in the
column labeled, All Other Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James B. Hawkes |
|
|
|
Thomas E. Faust
Jr. |
|
|
|
William M. Steul |
|
|
|
Duncan W.
Richardson |
|
|
|
Alan R. Dynner |
|
Profit Sharing
Contribution |
|
|
|
$ |
33,000 |
|
|
$ |
33,000 |
|
|
$ |
33,000 |
|
|
$ |
33,000 |
|
|
$ |
33,000 |
|
Savings Plan
Contribution |
|
|
|
|
200 |
|
|
|
1,040 |
|
|
|
800 |
|
|
|
1,040 |
|
|
|
400 |
|
Employee Stock
Purchase Plan Discounts |
|
|
|
|
8,360 |
|
|
|
8,360 |
|
|
|
8,360 |
|
|
|
8,360 |
|
|
|
8,360 |
|
Tax Return
Preparation |
|
|
|
|
4,350 |
|
|
|
4,350 |
|
|
|
4,350 |
|
|
|
4,350 |
|
|
|
3,500 |
|
Career
Transition Services |
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
Other
(a) |
|
|
|
|
5,188 |
|
|
|
2,044 |
|
|
|
2,044 |
|
|
|
294 |
|
|
|
2,288 |
|
Total |
|
|
|
$ |
51,098 |
|
|
$ |
48,794 |
|
|
$ |
98,554 |
|
|
$ |
47,044 |
|
|
$ |
97,548 |
|
(a) |
|
These figures include executive health benefits, dining club
memberships and spousal travel reimbursement. |
91
Grants of Plan-Based Awards Table
The following table provides information concerning each
plan-based award granted in fiscal 2007 to our named executive officers and other information regarding their grants.
|
|
|
|
|
|
Estimated Future Payouts Under Non- Equity Incentive
Plan Awards
|
|
All Other Stock Awards: Number of
Shares of Stock or Units (#)(2)
|
|
All Other Option Awards: Number of
Securities Underlying Options (#)(3)
|
|
Exercise or Base Price of Stock and
Option Awards ($/Share)
|
|
Grant Date Fair Value of Stock and
Option Awards ($)
|
|
Name and Principal Position
|
|
|
|
Grant Date
|
|
Threshold ($)
|
|
Target ($)(1)
|
|
Maximum ($)
|
|
|
|
|
|
|
|
|
James B. Hawkes Chairman and Chief Executive Officer |
|
|
|
|
11/1/2006
11/8/2006 |
|
|
|
|
|
|
|
19,424,000 |
|
|
|
10,000,000 |
|
|
|
11,153 |
|
|
|
261,000 |
|
|
|
30.11 27.74 |
|
2,481,092 309,342 |
|
Thomas E. Faust Jr. President and Chief Investment Officer |
|
|
|
|
11/1/2006
11/8/2006 |
|
|
|
|
|
|
|
14,568,000 |
|
|
|
10,000,000 |
|
|
|
16,224 |
|
|
|
210,800 |
|
|
|
30.11 27.74 |
|
2,003,886 449,992 |
|
William M. Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
11/1/2006 |
|
|
|
|
|
|
|
5,827,000 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
55,200 |
|
|
|
30.11 |
|
524,737 |
|
Duncan W. Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
11/1/2006 |
|
|
|
|
|
|
|
11,655,000 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
200,800 |
|
|
|
30.11 |
|
1,908,825 |
|
Alan R. Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
11/1/2006 |
|
|
|
|
|
|
|
5,827,000 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
55,200 |
|
|
|
30.11 |
|
524,737 |
|
(1) |
|
This column represents the final target figures based on
pre-incentive pool adjusted operating income for the twelve month period ended September 30, 2007. |
(2) |
|
This column reflects stock purchased in fiscal 2007 under the
Incentive Plan Stock Alternative with the allocated portion of the 2006 performance-based incentive award. |
(3) |
|
This column reflects the number of stock options granted under
the 1998 Stock Option Plan, which vest 10% on the first anniversary of the grant, 15% on the second anniversary, 20% on the third anniversary, 25% on
the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death, disability, retirement, or a change in control of
the Company, as defined in the plan. |
92
Outstanding Equity Awards at Fiscal Year-End
2007
The following table reflects outstanding stock options held by
our named executive officers at October 31, 2007:
Name and Principal Position
|
|
|
|
Grant Date
|
|
Number of Securities Underlying
Unexercised Options That are Exercisable (#)
|
|
Number of Securities Underlying
Unexercised Options That are Unexercisable (#)
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
James B.
Hawkes Chairman and Chief Executive Officer |
|
|
|
|
11/1/1999 |
|
|
|
188,400 |
|
|
|
|
|
|
|
8.59 |
|
|
|
11/1/2009 |
|
|
|
|
|
|
11/1/2000 |
|
|
|
311,848 |
|
|
|
|
|
|
|
12.27 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
11/1/2001 |
|
|
|
340,226 |
|
|
|
|
|
|
|
14.34 |
|
|
|
11/1/2011 |
|
|
|
|
|
|
11/1/2002 |
|
|
|
385,528 |
|
|
|
|
|
|
|
14.55 |
|
|
|
11/1/2012 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
5,710 |
(1) |
|
|
|
|
|
|
19.26 |
(8) |
|
|
11/3/2008 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
397,490 |
|
|
|
|
|
|
|
17.51 |
|
|
|
11/3/2013 |
|
|
|
|
|
|
11/1/2004 |
|
|
|
341,600 |
|
|
|
|
|
|
|
21.96 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
11/1/2005 |
|
|
|
277,000 |
|
|
|
|
|
|
|
24.87 |
|
|
|
11/1/2015 |
|
|
|
|
|
|
11/1/2006 |
|
|
|
261,000 |
|
|
|
|
|
|
|
30.11 |
|
|
|
11/1/2016 |
|
Thomas E. Faust
Jr. President and Chief Investment Officer |
|
|
|
|
11/1/1999 |
|
|
|
108,400 |
|
|
|
|
|
|
|
8.59 |
|
|
|
11/1/2009 |
|
|
|
|
|
|
11/1/2000 |
|
|
|
241,848 |
|
|
|
|
|
|
|
12.27 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
11/1/2001 |
|
|
|
270,826 |
|
|
|
|
|
|
|
14.34 |
|
|
|
11/1/2011 |
|
|
|
|
|
|
11/1/2002 |
|
|
|
244,328 |
|
|
|
62,800 |
(3) |
|
|
14.55 |
|
|
|
11/1/2012 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
|
|
|
|
5,710 |
(2) |
|
|
19.26 |
(8) |
|
|
11/3/2008 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
193,560 |
|
|
|
123,330 |
(4) |
|
|
17.51 |
|
|
|
11/3/2013 |
|
|
|
|
|
|
11/1/2004 |
|
|
|
109,280 |
|
|
|
163,920 |
(5) |
|
|
21.96 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
11/1/2005 |
|
|
|
22,160 |
|
|
|
199,440 |
(6) |
|
|
24.87 |
|
|
|
11/1/2015 |
|
|
|
|
|
|
11/1/2006 |
|
|
|
|
|
|
|
210,800 |
(7) |
|
|
30.11 |
|
|
|
11/1/2016 |
|
William M.
Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
11/1/1999 |
|
|
|
60,000 |
|
|
|
|
|
|
|
8.59 |
|
|
|
11/1/2009 |
|
|
|
|
|
|
11/1/2000 |
|
|
|
51,848 |
|
|
|
|
|
|
|
12.27 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
11/1/2001 |
|
|
|
62,426 |
|
|
|
|
|
|
|
14.34 |
|
|
|
11/1/2011 |
|
|
|
|
|
|
11/1/2002 |
|
|
|
71,528 |
|
|
|
|
|
|
|
14.55 |
|
|
|
11/1/2012 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
5,710 |
(1) |
|
|
|
|
|
|
19.26 |
(8) |
|
|
11/3/2008 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
74,890 |
|
|
|
|
|
|
|
17.51 |
|
|
|
11/3/2013 |
|
|
|
|
|
|
11/1/2004 |
|
|
|
68,400 |
|
|
|
|
|
|
|
21.96 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
11/1/2005 |
|
|
|
58,200 |
|
|
|
|
|
|
|
24.87 |
|
|
|
11/1/2015 |
|
|
|
|
|
|
11/1/2006 |
|
|
|
55,200 |
|
|
|
|
|
|
|
30.11 |
|
|
|
11/1/2016 |
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan W.
Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
11/1/1999 |
|
|
|
72,000 |
|
|
|
|
|
|
|
8.59 |
|
|
|
11/1/2009 |
|
|
|
|
|
|
11/1/2000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
12.27 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
|
|
11/1/2001 |
|
|
|
250,000 |
|
|
|
|
|
|
|
14.34 |
|
|
|
11/1/2011 |
|
|
|
|
|
|
11/1/2002 |
|
|
|
226,080 |
|
|
|
56,520 |
(3) |
|
|
14.55 |
|
|
|
11/1/2012 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
163,800 |
|
|
|
109,200 |
(4) |
|
|
17.51 |
|
|
|
11/3/2013 |
|
|
|
|
|
|
11/1/2004 |
|
|
|
103,840 |
|
|
|
155,760 |
(5) |
|
|
21.96 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
11/1/2005 |
|
|
|
21,050 |
|
|
|
189,450 |
(6) |
|
|
24.87 |
|
|
|
11/1/2015 |
|
|
|
|
|
|
11/1/2006 |
|
|
|
|
|
|
|
200,800 |
(7) |
|
|
30.11 |
|
|
|
11/1/2016 |
|
Alan R.
Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
11/1/1999 |
|
|
|
60,000 |
|
|
|
|
|
|
|
8.59 |
|
|
|
11/1/2009 |
|
|
|
|
|
|
11/1/2000 |
|
|
|
51,848 |
|
|
|
|
|
|
|
12.27 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
11/1/2001 |
|
|
|
62,426 |
|
|
|
|
|
|
|
14.34 |
|
|
|
11/1/2011 |
|
|
|
|
|
|
11/1/2002 |
|
|
|
71,528 |
|
|
|
|
|
|
|
14.55 |
|
|
|
11/1/2012 |
|
|
|
|
|
|
11/3/2003 |
|
|
|
80,600 |
|
|
|
|
|
|
|
17.51 |
|
|
|
11/3/2013 |
|
|
|
|
|
|
11/1/2004 |
|
|
|
68,400 |
|
|
|
|
|
|
|
21.96 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
11/1/2005 |
|
|
|
58,200 |
|
|
|
|
|
|
|
24.87 |
|
|
|
11/1/2015 |
|
|
|
|
|
|
11/1/2006 |
|
|
|
55,200 |
|
|
|
|
|
|
|
30.11 |
|
|
|
11/1/2016 |
|
(1) |
|
Amounts represent incentive stock options granted to executive
officers who, at the date of grant, possess more than 10% of the total combined voting power of all classes of stock of the Company. The option grant
expires five years from date of grant and vests over a four year period, subject to accelerated vesting upon death, disability, retirement, or a change
in control of the Company, as defined in the plan. The options granted to Mr. Hawkes and Mr. Steul on November 3, 2003 became fully vested upon their
retirement on October 31, 2007. |
(2) |
|
Amounts represent incentive stock options granted to executive
officers who, at the date of grant, possess more than 10% of the total combined voting power of all classes of stock of the Company. The option grant
expires five years from date of grant and vests over a four year period, subject to accelerated vesting upon death, disability, retirement, or a change
in control of the Company, as defined in the plan. The options were granted on November 3, 2003 and vest on November 3, 2007. |
(3) |
|
Amounts represent incentive stock options and nonqualified
options that are aggregated as one grant for vesting purposes. The original grant vests 10% on the first anniversary of the grant, 15% on the second
anniversary, 20% on the third anniversary, 25% on the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death,
disability, retirement, or a change in control of the Company, as defined in the plan. The options were granted on November 1, 2002, and the final 30%
vests on November 1, 2007. |
(4) |
|
Amounts represent incentive stock options and nonqualified
options that are aggregated as one grant for vesting purposes. The original grant vests 10% on the first anniversary of the grant, 15% on the second
anniversary, 20% on the third anniversary, 25% on the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death,
disability, retirement, or a change in control of the Company, as defined in the plan. The options were granted on November 3, 2003; 25% vests on
November 3, 2007 and the final 30% vests on November 3, 2008. |
94
(5) |
|
Amounts represent incentive stock options and nonqualified
options that are aggregated as one grant for vesting purposes. The original grant vests 10% on the first anniversary of the grant, 15% on the second
anniversary, 20% on the third anniversary, 25% on the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death,
disability, retirement, or a change in control of the Company, as defined in the plan. The options were granted on November 1, 2004; 20% vests on
November 1, 2007, 25% vests on November 1, 2008 and the final 30% vests on November 1, 2009. |
(6) |
|
Amounts represent incentive stock options and nonqualified
options that are aggregated as one grant for vesting purposes. The original grant vests 10% on the first anniversary of the grant, 15% on the second
anniversary, 20% on the third anniversary, 25% on the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death,
disability, retirement, or a change in control of the Company, as defined in the plan. The options were granted on November 1, 2005; 15% vests on
November 1, 2007, 20% vests on November 1, 2008, 25% vests on November 1, 2009 and the final 30% vests on November 1, 2010. |
(7) |
|
Amounts represent incentive stock options and nonqualified
options that are aggregated as one grant for vesting purposes. The original grant vests 10% on the first anniversary of the grant, 15% on the second
anniversary, 20% on the third anniversary, 25% on the fourth anniversary and 30% on the fifth anniversary, subject to accelerated vesting upon death,
disability, retirement, or a change in control of the Company, as defined in the plan. The options were granted on November 1, 2006; 10% vests on
November 1, 2007, 15% vests on November 1, 2008, 20% vests on November 1, 2009, 25% vests on November 1, 2010 and the final 30% vests on November 1,
2011. |
(8) |
|
The grant price is equal to 110% of the market value on the date
of grant. |
Option Exercises in Fiscal 2007
The following table sets forth certain information regarding
stock options exercised by our named executive officers during fiscal 2007.
|
|
|
|
Option Awards
|
|
Name and Principal Position
|
|
|
|
Number of Shares Acquired on Exercise (#)(1)
|
|
Value Realized on Exercise ($)(2)
|
James B. Hawkes Chairman and Chief Executive Officer |
|
|
|
|
6,872 |
|
|
|
183,242 |
|
Thomas E. Faust Jr. President and Chief Investment Officer |
|
|
|
|
6,872 |
|
|
|
212,998 |
|
William M. Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
6,872 |
|
|
|
183,310 |
|
Duncan W. Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
|
|
|
|
|
|
Alan R. Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
6,872 |
|
|
|
191,213 |
|
(1) |
|
For some named executive officers, the number of shares actually
acquired was less than the number presented in the table above as a result of tendering shares for payment of the exercise price. The net shares
acquired were as follows: |
James B.
Hawkes |
|
|
|
4,295 |
Alan R.
Dynner |
|
|
|
4,363 |
(2) |
|
Calculated as the difference between the market value of the
underlying Non-Voting Common Stock at the exercise date of the options and the aggregate exercise price. Actual gains realized on disposition of stock
acquired upon exercise depend on the value of the underlying Non-Voting Common Stock on the date the Non-Voting Common Stock is sold. |
95
Non-Qualified Deferred Compensation
The following table sets forth certain information regarding
interest and dividend income and market appreciation earned in fiscal 2007 by our named executive officers on their balances in the Companys
non-qualified Supplemental Profit Sharing Retirement Plan and the Stock Option Income Deferral Plan, along with aggregate balances as of October 31,
2007.
Name and Principal Position
|
|
|
|
Aggregate Earnings in Fiscal 2007 ($)(1)
|
|
Aggregate Withdrawals/ Distributions ($)
|
|
Aggregate Balance at October 31, 2007
($)
|
James B. Hawkes Chairman and Chief Executive Officer |
|
|
|
|
18,996,454 |
|
|
|
|
|
|
|
50,072,058 |
|
Thomas E. Faust Jr. President and Chief Investment Officer |
|
|
|
|
4,354,010 |
|
|
|
(107,078 |
) |
|
|
11,231,299 |
|
William M. Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
1,656,156 |
|
|
|
|
|
|
|
4,276,028 |
|
Duncan W. Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
7,347 |
|
|
|
|
|
|
|
48,739 |
|
Alan R. Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
8,183 |
|
|
|
|
|
|
|
54,283 |
|
(1) |
|
Amounts represent interest earned on balances in the
non-qualified Supplemental Profit Sharing Retirement Plan for Messrs. Hawkes, Faust, Steul, Richardson and Dynner of $12,063, $10,644, $11,044, $7,347
and $8,183 respectively. Also included is dividend income earned on balances in the Stock Option Income Deferral Plan for Messrs. Hawkes, Faust and
Steul of $519,065, $107,078 and $41,426, respectively. Additionally, the aggregate earnings includes market appreciation of $18,465,326, $4,236,289,
$1,603,686 for Messrs Hawkes, Faust and Steul, respectively. Since investment returns in the Supplemental Profit Sharing Retirement Plan and the Stock
Option Income Deferral Plan are not above-market or preferential, none of the amounts included in this table are reportable in the Summary Compensation
Table. |
Potential Payments upon Termination or Change in
Control
The table below shows the estimated incremental value transfer to
each of our named executive officers under various scenarios relating to a termination of employment. The table below assumes such events occurred on
October 31, 2007. The actual amounts that would be paid to any named executive officer can only be determined at the time of an actual termination and
would vary from those shown below.
96
Acceleration of Equity Awards
Name and Principal Position
|
|
|
|
Change of Control ($)(1)
|
|
Retirement ($)(2)
|
|
Death/ Disability Benefit ($)(3)
|
James B. Hawkes Chairman and Chief Executive Officer |
|
|
|
|
|
|
|
|
25,245,058 |
|
|
|
|
|
Thomas E. Faust Jr. President and Chief Investment Officer |
|
|
|
|
20,233,627 |
|
|
|
|
|
|
|
20,233,627 |
|
William M. Steul Vice President, Treasurer and Chief Financial Officer |
|
|
|
|
|
|
|
|
5,164,436 |
|
|
|
|
|
Duncan W. Richardson Executive Vice President and Chief Equity Investment Officer |
|
|
|
|
18,695,974 |
|
|
|
|
|
|
|
18,695,974 |
|
Alan R. Dynner Vice President, Secretary and Chief Legal Officer |
|
|
|
|
|
|
|
|
5,174,434 |
|
|
|
|
|
(1) |
|
Amounts represent the difference
between the per share market value of Eaton Vance Non-Voting Common Stock on October 31, 2007 ($50.03) and the average exercise price of all
unvested options multiplied by the number of shares underlying the unvested option. Effective October 31, 2007, Messrs. Hawkes, Steul, and Dynner
retired and as such had accelerated vesting of all outstanding unvested options at that time. |
(2) |
|
Only Messrs. Hawkes, Steul, and Dynner had met the age and
service requirements under the retirement eligibility clause of the Companys equity programs. Amounts represent the difference between the per
share market value of Eaton Vance Non-Voting Common Stock on October 31, 2007 ($50.03) and the average exercise price of all accelerated options upon
retirement multiplied by the number of shares underlying the accelerated options. |
(3) |
|
Amounts represent the difference between the per share market
value of Eaton Vance Non-Voting Common Stock on October 31, 2007 ($50.03) and the average exercise price of all unvested options multiplied by the
number of shares underlying the unvested option. Effective October 31, 2007, Messrs. Hawkes, Steul, and Dynner retired and as such had accelerated
vesting of all outstanding unvested options at that time. |
Change of Control
A change of control of the Company is defined
as:
1) |
|
the acquisition of beneficial ownership of 25% or more of either
the then outstanding Non-Voting Common Stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors; |
2) |
|
individuals who, as of October 25, 2006, constitute the
Companys Board of Directors cease for any reason to constitute at least a majority of the Board; provided that any individual becoming a director
of the Company subsequent to that date based upon approval by at least a majority of the then Directors shall be considered a member of the incumbent
board; |
3) |
|
approval by the shareholders of the Company of a reorganization,
merger or consolidation; or |
4) |
|
approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, the sale or other disposition of all or substantially all of the assets of the Company, the sale or
disposition of substantially all of the assets of Eaton Vance Management, or an assignment of the Company of investment advisory agreements pertaining
to more than 50% of the aggregate assets under management. |
97
As discussed previously, our named executive officers do
not have employment, severance or change in control agreements. Each of the outstanding agreements pursuant to which stock options and restricted stock
awards were granted to our named executive officers contains provisions for acceleration of vesting of stock options in connection with a change in
control.
Retirement
Our current retirement policy provides that an employee is
eligible for retirement at age 65 and for early retirement when the employee reaches age 55 and has a combined age plus years of service to the Company
equal to at least 75 years, or otherwise with the Companys consent. All stock options granted prior to November 1, 2007 provided for full vesting
of the awards upon retirement.
Death/Disability
Our current option program provides that options become
immediately vested and exercisable upon the optionees death or termination of service with the Company due to disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code, as amended from time to time.
Director Compensation
In fiscal 2007, the Committee engaged an independent consulting
firm, Mercer Consulting, to assist in evaluating director compensation to ensure the competitiveness of our compensation program for directors relative
to companies within our peer group. The analysis provided by Mercer includes data on total compensation for directors as well as the individual
elements of director compensation, including annual retainers, meeting fees and equity awards.
In line with our philosophy regarding executive compensation, it
is the Committees objective to align the goals of our director compensation with the goals of our shareholders. To that end, a significant
portion of our director compensation is paid in the form of equity awards linked to an increase in shareholder value. Each year, our non-employee
directors are granted options with a Black-Scholes value of $80,000 on the first business day in November. In addition, each new director receives an
option grant with a Black-Scholes value of $80,000 at the first Board meeting following his or her election. Based upon an analysis prepared by Mercer
Consulting of the competitive market environment, the Committee approved an increase in the value of initial and annual non-employee director option
awards from $80,000 to $100,000, effective for fiscal 2008. All options granted to non-employee directors are immediately exercisable.
In addition to the equity-based compensation described above, our
non-employee directors receive the following cash compensation:
|
|
an annual fee of $47,500 for their service as a director. Based
upon an analysis prepared by Mercer Consulting of the competitive market environment, the Committee approved an increase in the annual fee from $47,500
to $50,000 for service as a director, effective for fiscal 2008. |
|
|
meeting fees of $2,500 for attending a Board meeting ($1,750 for
participating in a Board meeting via telephone) |
|
|
$1,500 for attending a committee meeting ($1,100 for
participating in a committee meeting via telephone) |
98
The Chairs of Board Committees and the lead independent
Director receive additional annual retainers as follows:
Chair of the Audit Committee:
$20,000
Chair of the Compensation, Nominating and
Governance Committees: $5,000
Members of the Audit Committee, excluding
the Chair: $5,000
Lead independent Director:
$25,000
Our directors are reimbursed for their reasonable travel
and related expenses incurred in attending our Board and Committee meetings. Employee directors of the Company receive no additional compensation for
their service as directors.
While our equity-based compensation plans are designed to
encourage long-term stock ownership, we do not have specific stock ownership requirements or guidelines for our outside directors.
The following table sets forth information regarding the
compensation earned by our non-employee directors in fiscal 2007.
Name
|
|
|
|
Fees Earned or Paid in Cash ($)
|
|
Option Awards ($)(1)(2)
|
|
Total ($)
|
Ann E.
Berman |
|
|
|
|
80,850 |
|
|
|
95,219 |
|
|
|
176,069 |
|
John G.L.
Cabot |
|
|
|
|
12,100 |
|
|
|
140,424 |
|
|
|
152,524 |
|
Leo I.
Higdon, Jr. |
|
|
|
|
71,750 |
|
|
|
140,424 |
|
|
|
212,174 |
|
Vincent M.
OReilly |
|
|
|
|
126,950 |
|
|
|
140,424 |
|
|
|
267,374 |
|
Dorothy E.
Puhy |
|
|
|
|
84,250 |
|
|
|
76,049 |
|
|
|
160,299 |
|
Winthrop H.
Smith, Jr. |
|
|
|
|
92,950 |
|
|
|
139,126 |
|
|
|
232,076 |
|
(1) |
|
These figures represent expense recognized during fiscal 2007 for
financial reporting purposes in accordance with SFAS No. 123R. The assumptions used in the calculation of these amounts are included in Note 8 of the Notes to Consolidated Financial Statements contained in Item 8 of this document. |
(2) |
|
As of October 31, 2007, each director has the following number of
options outstanding (all vested and unvested): |
Ann E.
Berman |
|
|
|
16,500 |
John G.L.
Cabot |
|
|
|
31,200 |
Leo I. Higdon,
Jr. |
|
|
|
77,244 |
Vincent M.
OReilly |
|
|
|
55,200 |
Dorothy E.
Puhy |
|
|
|
13,700 |
Winthrop H.
Smith, Jr. |
|
|
|
40,200 |
99
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
(A) Common Stock
All outstanding shares of our Voting Common Stock, $0.00390625
par value (which is the only class of our stock having voting rights) are deposited in a Voting Trust, of which the Voting Trustees were, as of October
31, 2007, Jeffery P. Beale, Cynthia J. Clemson, Alan R. Dynner, Thomas E. Faust Jr., James B. Hawkes, Lisa Jones, Michael R. Mach, Robert B. MacIntosh,
Thomas M. Metzold, Scott H. Page, Duncan W. Richardson, G. West Saltonstall, Judith A. Saryan, William M. Steul, Payson F. Swaffield, Michael W.
Weilheimer, Robert J. Whelan and Matthew J. Witkos. The Voting Trust has a term that expires on October 31, 2010. Each holder of Voting Common Stock is
a Voting Trustee. Inasmuch as the eighteen Voting Trustees of the Voting Trust have unrestricted voting rights with respect to the Voting Common Stock
(except that the Voting Trust Agreement provides that the Voting Trustees shall not vote such Stock in favor of the sale, mortgage or pledge of all or
substantially all of the Companys assets, any change in the capital structure or powers of the Company, in connection with a merger,
consolidation, reorganization or dissolution of the Company, the termination of the Voting Trust, the addition of a Voting Trustee, the removal of a
Voting Trustee by the other Voting Trustees or the renewal of the term of the Voting Trust without the written consent of the holders of Voting Trust
Receipts representing at least a majority of such Stock subject at the time to the Voting Trust Agreement), they may be deemed to be the beneficial
owners of all of the Companys outstanding Voting Common Stock by virtue of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934. The Voting
Trust Agreement provides that the Voting Trustees shall act by a majority if there are six or more Voting Trustees; otherwise they shall act
unanimously except as otherwise provided in the Voting Trust Agreement. The address of the Voting Trustees is 255 State Street, Boston, Massachusetts
02109.
The following table sets forth the beneficial owners at October
31, 2007, of the Voting Trust Receipts issued under said Voting Trust Agreement, which Receipts cover the aggregate of 371,386 shares of the Voting
Common Stock then outstanding:
Title of Class
|
|
|
|
Name and address of Beneficial Holder(1)
|
|
Number of Shares of Voting Common Stock Covered
by Receipts
|
|
Percentage of Class
|
Voting Common
Stock |
|
|
|
James B.
Hawkes |
|
|
74,240 |
|
|
|
19.99 |
% |
Voting Common
Stock |
|
|
|
Thomas E. Faust
Jr. |
|
|
55,812 |
|
|
|
15.02 |
% |
Voting Common
Stock |
|
|
|
Alan R.
Dynner |
|
|
37,116 |
|
|
|
9.99 |
% |
Voting Common
Stock |
|
|
|
William M.
Steul |
|
|
37,116 |
|
|
|
9.99 |
% |
Voting Common
Stock |
|
|
|
Duncan W.
Richardson |
|
|
30,356 |
|
|
|
8.17 |
% |
Voting Common
Stock |
|
|
|
Jeffrey P.
Beale |
|
|
24,618 |
|
|
|
6.62 |
% |
Voting Common
Stock |
|
|
|
Cynthia J.
Clemson |
|
|
9,344 |
|
|
|
2.52 |
% |
Voting Common
Stock |
|
|
|
Lisa
Jones |
|
|
9,344 |
|
|
|
2.52 |
% |
Voting Common
Stock |
|
|
|
Michael R.
Mach |
|
|
9,344 |
|
|
|
2.52 |
% |
100
Title of Class
|
|
|
|
Name and address of Beneficial Holder(1)
|
|
Number of Shares of Voting Common Stock Covered
by Receipts
|
|
Percentage of Class
|
Voting Common
Stock |
|
|
|
Robert B.
MacIntosh |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Thomas M.
Metzold |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Scott H.
Page |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
G. West
Saltonstall |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Judith A.
Saryan |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Payson F.
Swaffield |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Michael W.
Weilheimer |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Robert J.
Whelan |
|
9,344 |
|
2.52% |
Voting Common
Stock |
|
|
|
Matthew J.
Witkos |
|
9,344 |
|
2.52% |
(1) |
|
The address for each Beneficial Holder is c/o Eaton Vance Corp.,
The Eaton Vance Building, 255 State Street, Boston, MA 02109. |
Mr. Hawkes was an officer and Director of the Company and
Voting Trustee of the Voting Trust until his retirement on October 31, 2007; Mr. Faust is an officer and Director of the Company and Voting Trustee of
the Voting Trust; Messrs. Dynner and Steul were officers of the Company and Voting Trustees of the Voting Trust until their retirement on October 31,
2007; Messrs. Beale, Richardson and Witkos are officers of the Company and Voting Trustees of the Voting Trust; Ms. Clemson, Ms. Jones and Ms. Saryan
and Messrs. Mach, MacIntosh, Metzold, Page, Saltonstall, Swaffield, Weilheimer, and Whelan are officers of Eaton Vance Management and Voting Trustees
of the Voting Trust. No transfer of any kind of the Voting Trust Receipts issued under the Voting Trust may be made at any time unless they have first
been offered to the Company at book value. In the event of the death or termination of employment with the Company or a subsidiary of a holder of the
Voting Trust Receipts, the shares represented by such Voting Trust Receipts must be offered to the Company at book value. Similar restrictions exist
with respect to the Voting Common Stock, all shares of which are deposited and held of record in the Voting Trust.
(B) Non-Voting Common Stock
The Articles of Incorporation of the Company provide that our
Non-Voting Common Stock, $0.00390625 par value, shall have no voting rights under any circumstances whatsoever. As of October 31, 2007, the officers
and Directors of the Company, as a group, beneficially owned 15,579,736 shares of such Non-Voting Common Stock (including, as noted, options
exercisable within 60 days to purchase such stock and shares held in the trust of the Stock Option Income Deferral Plan), or 12.4 percent of the
117,798,378 shares then outstanding plus 6,966,417 shares subject to options exercisable within 60 days and 1,271,902 held in the trust of the Stock
Option Income Deferral Plan based upon information furnished by the officers and Directors.
101
The following table sets forth the beneficial ownership of our
Non-Voting Common Stock including unexercised options to purchase such stock by (i) each person known by the Company to own beneficially more than 5
percent of the outstanding shares of Non-Voting Common Stock, (ii) each Director of the Company, and (iii) each of the named executive officers of the
Company (as defined in Item 11, Executive Compensation) as of October 31, 2007 (such investment power being sole unless otherwise
indicated):
Title of Class
|
|
|
|
Beneficial Owners
|
|
Amount of Beneficial Ownership (a)
|
|
Percentage of Class (b)
|
Non-Voting
Common Stock |
|
|
|
James
B. Hawkes |
|
|
7,602,733 |
|
(c)(d) (e) |
|
|
|
|
6.27% |
Non-Voting
Common Stock |
|
|
|
Thomas E. Faust Jr. |
|
|
3,226,716 |
|
(c)(e) |
|
|
|
|
2.70% |
Non-Voting
Common Stock |
|
|
|
Duncan W. Richardson |
|
|
1,717,100 |
|
(c) |
|
|
|
|
1.44% |
Non-Voting
Common Stock |
|
|
|
William M. Steul |
|
|
1,089,888 |
|
(c)(e) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Alan
R. Dynner |
|
|
953,695 |
|
(c) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Leo
I. Higdon, Jr. |
|
|
87,876 |
|
(c) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Vincent M. OReilly |
|
|
57,274 |
|
(c) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Winthrop H. Smith, Jr. |
|
|
36,800 |
|
(c) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Dorothy E. Puhy |
|
|
22,900 |
|
(c) |
|
|
|
|
* |
Non-Voting
Common Stock |
|
|
|
Ann
E. Berman |
|
|
17,825 |
|
(c) |
|
|
|
|
* |
All
current directors and executive officers as a group (14 individuals)
|
|
15,579,736 |
|
|
|
|
|
|
|
* |
|
Percentage of class owned is less than 1 percent. |
(a) |
|
Based solely upon information furnished by the
individuals. |
(b) |
|
Based on 117,798,378 outstanding shares plus options exercisable
within 60 days of 2,508,802 for Mr. Hawkes, 1,426,682 for Mr. Faust, 1,251,465 for Mr. Richardson, 508,202 for Mr. Steul, 508,202 for Mr. Dynner,
76,844 for Mr. Higdon, 54,800 for Mr. OReilly, 36,800 for Mr. Smith, 20,400 for Ms. Puhy, and 16,825 for Ms. Berman. |
(c) |
|
Includes shares subject to options exercisable within 60 days
granted to, but not exercised by, each named executive officer above. |
(d) |
|
Includes 195,440 shares owned by Mr. Hawkes spouse and
125,502 shares held by Mr. Hawkes daughter. |
(e) |
|
Includes shares held in the trust of the Stock Option Income
Deferral Plan of 961,881 shares for Mr. Hawkes, 223,080 shares for Mr. Faust and 86,941 for Mr. Steul. |
Securities Authorized for Issuance under Equity Compensation
Plans
Information has been provided under Item 5 in this Annual
Report of Form 10-K.
102
Item 13. Certain Relationships and Related Transactions and
Director Independence
Transactions with Related Persons
We have established an Employee Loan Program under which a
maximum of $10.0 million is available to our officers (other than our executive officers since 2002) and other key employees for purposes of financing
their exercise of stock options for shares of our Non-Voting Common Stock. Loans are written for a seven-year period, at varying fixed interest rates
(currently ranging from 2.8 percent to 6.3 percent), are payable in annual installments commencing with the third year in which the loan is outstanding
and are collateralized by stock issued upon exercise of the option. We ceased making new loans under a previous loan program to our executive officers
and our Directors in conformity with a federal law effective October 30, 2002. Loans outstanding under our program amounted to $2.3 million at October
31, 2007.
The following table sets forth our executive officers and
Directors who were indebted to the Company under the foregoing loan program at any time since November 1, 2006, in an aggregate amount in excess of
$120,000:
Name
|
|
|
|
Relationship
|
|
Largest Amount of Loans Outstanding
Since 11/1/2006
|
|
Loans Outstanding as of 10/31/07
|
|
Rate of Interest Charged on Loans as of
10/31/2007
|
|
Alan R.
Dynner |
|
|
|
|
Vice President, Secretary and Chief Legal Officer |
|
|
$ |
399,892 |
|
|
$ |
309,912 |
|
|
|
4.96%4.98% |
(1) |
|
|
(1) |
|
4.96% interest payable on $239,964 principal amount and 4.98%
interest payable on $69,948 principal amount. |
During fiscal 2007, Mr. Dynner made payments totaling $89,981 and
$18,310 in principal and interest, respectively, on the loans referenced above.
As a general policy all transactions with related party
transactions are prohibited unless approved by the Board of Directors or pursuant to the Code of Business Conduct and Ethics for Directors, Officers
and Employees.
Director Independence
As of October 31, 2007 our Board of Directors was comprised of
James B. Hawkes, Chairman and Chief Executive Officer, and Thomas E. Faust Jr., President and Chief Investment Officer, and the following independent
Directors: Vincent M. OReilly, Ann E. Berman, Leo I. Higdon, Jr., Dorothy E. Puhy and Winthrop H. Smith, Jr. Our Board of Directors has determined
that each member of the Audit, Compensation, and Nominating and Governance Committees meets the standards of independence under the governance
guidelines and applicable NYSE listing standards, including the requirement that each member is free of any relationship that would interfere with his
or her individual exercise of independent judgment.
103
Item 14. Principal Accountant Fees and
Services
Audit and Non-Audit Fees
The following table presents fees for the professional audit
services rendered by Deloitte & Touche LLP for the integrated audit of our annual financial statements for the years ended October 31, 2007 and
2006 and fees billed for other services rendered by Deloitte & Touche LLP during those periods.
Year Ended October 31,
|
|
|
|
2007
|
|
2006
|
Audit
fees |
|
|
|
$ |
1,259,555 |
|
|
$ |
1,168,340 |
|
Audit-related
fees (1) |
|
|
|
|
35,000 |
|
|
|
|
|
Tax fees (2) |
|
|
|
|
239,610 |
|
|
|
26,632 |
|
All other fees(3) |
|
|
|
|
218,388 |
|
|
|
122,815 |
|
Total |
|
|
|
$ |
1,752,553 |
|
|
$ |
1,317,787 |
|
(1) |
|
Audit-related fees consist of assurance and related services that
are reasonably related to the performance of the audit of the Companys financial statements. This category includes fees related to an
acquisition. |
(2) |
|
Tax fees consist of the aggregate fees billed for professional
service rendered by Deloitte & Touche LLP for tax compliance, tax advice, and tax planning (domestic and international). |
(3) |
|
All other fees consist of assurance and related services that are
reasonably related to the performance of the audit of the Companys financial statements. The category includes fees related to the performance of
audits and attest services not required by statute or regulation, audits of the Companys benefit plans, due diligence related to acquisitions,
audit services related to the senior debt offering and agreed-upon procedures. |
Our Audit Committee reviews all audit, tax and all other
fees at least annually. Our Audit Committee pre-approved all audit and tax services in fiscal 2007 and 2006. Our Audit Committee has concluded that the
provision of the tax services listed above is compatible with maintaining the independence of Deloitte & Touche LLP.
(The remainder of this page is left intentionally
blank.)
104
PART IV
Item 15. Exhibits and Financial Statement
Schedules
(A) Exhibits and Financial Statement
Schedules
The consolidated financial statements of Eaton Vance Corp. and
Report of Independent Registered Public Accounting Firm are included under Item 8 of this Annual Report on Form 10-K. No financial statement schedules
are required.
The list of exhibits required by Item 601 of Regulation S-K is
set forth in the Exhibit Index on pages 107 through 111 and is incorporated herein by reference.
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Eaton Vance Corp. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
EATON
VANCE CORP.
|
|
|
|
|
/s/ Thomas E. Faust Jr.
|
|
|
|
|
Thomas E. Faust Jr. |
|
|
|
|
Chairman, Director, Chief |
|
|
|
|
Executive Officer and President |
|
|
|
|
December 21, 2007 |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of Eaton Vance Corp. and in the capacities and on the dates
indicated:
/s/ Thomas E.
Faust Jr. Thomas E. Faust Jr. |
|
|
|
Chairman, Chief Executive Officer and President |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Robert J.
Whelan Robert J. Whelan |
|
|
|
Chief
Financial Officer |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Laurie G.
Hylton Laurie G. Hylton |
|
|
|
Chief
Accounting Officer |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Ann E.
Berman Ann E. Berman |
|
|
|
Director |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Leo I.
Higdon, Jr. Leo I. Higdon, Jr. |
|
|
|
Director |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Vincent M.
OReilly Vincent M. OReilly |
|
|
|
Director |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Dorothy E.
Puhy Dorothy E. Puhy |
|
|
|
Director |
|
December 21,
2007 |
|
|
|
|
|
|
|
/s/ Winthrop H.
Smith, Jr. Winthrop H. Smith, Jr. |
|
|
|
Director |
|
December 21,
2007 |
106
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 Exhibits are filed as a part of this Report or incorporated
herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934:
Exhibit No. |
|
|
|
Description
|
2.1 |
|
|
|
Copy
of the Unit Purchase Agreement, dated as of July 25, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, and Fox Asset Management,
Inc., a New Jersey corporation, and Messrs. J. Peter Skirkanich, James P. OMealia, George C. Pierdes, John R. Sampson and Phillip R. Sloan has
been filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100) and is incorporated
herein by reference. |
|
2.2 |
|
|
|
Copy
of Amendment No. 1 of the Unit Purchase Agreement, dated as of July 25, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, Saucon I,
Inc., a New Jersey corporation formerly named Fox Asset Management, Inc., Saucon III, a Delaware limited liability company, Saucon IV, a Delaware
limited liability company, and Messrs. J. Peter Skirkanich, James P. OMealia, George C. Pierdes, John R. Sampson and Phillip R. Sloan has been
filed as Exhibit 2.2 to the Form 8-K A filed on October 19, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
2.3 |
|
|
|
Copy
of the Unit Purchase Agreement, dated as of August 2, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, Atlanta Capital Management
Company LLC, and each of Daniel W. Boone III, Gregory L. Coleman, Jerry D. Devore, William Hackney, III, Marilyn Robinson Irvin, Dallas L. Lundy,
Walter F. Reames, Jr. and Christopher A. Reynolds has been filed as Exhibit 2.3 to the Form 8-K A filed on October 19, 2001, (S.E.C. File No. 1-8100)
and is incorporated herein by reference. |
|
2.4 |
|
|
|
Copy
of the Stock Purchase Agreement, dated as of June 4, 2003, among Eaton Vance Acquisitions, a Massachusetts Business Trust, and PPA Acquisition, LLC, a
Delaware limited liability company, PPA Acquisition Corp., a Delaware corporation doing business under the name of Parametric Portfolio
Associates and Brian Langstraat and David Stein has been filed as Exhibit 2.4 to the Annual Report on Form 10-K for the fiscal year ended October
31, 2003, (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
2.5 |
|
|
|
Copy
of The First Amendment to the Stock Purchase Agreement, dated as of September 10, 2003, among Eaton Vance Acquisitions, a Massachusetts Business Trust,
and PPA Acquisition, LLC, a Delaware limited liability company, PPA Acquisition Corp., a Delaware corporation doing business under the name of
Parametric Portfolio Associates and Brian Langstraat and David Stein has been filed as Exhibit 2.5 to the Annual Report on Form 10-K for
the fiscal year ended October 31, 2003, (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
2.6 |
|
|
|
Copy
of the Second Amendment to the Stock Purchase Agreement, dated as of September 10, 2003, among Eaton Vance Acquisitions, a Massachusetts Business
Trust, and PPA Acquisition, LLC, a Delaware limited liability company, PPA Acquisition Corp., a Delaware corporation doing business under the name of
Parametric Portfolio Associates and Brian Langstraat and David Stein to the Annual Report on Form 10-K for the fiscal year ended October
31, 2003, (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
107
Exhibit No. |
|
|
|
Description
|
3.1 |
|
|
|
The
Companys Amended Articles of Incorporation are filed as Exhibit 3.1 to the Companys registration statement on Form 8-B dated February 4,
1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by
reference. |
|
3.2 |
|
|
|
The
Companys By-Laws, as amended, are filed as Exhibit 99.3 to the Companys Current Report on Form 8-K filed January 18, 2006 (S.E.C. File No.
1-8100) and are incorporated herein by reference. |
|
3.3 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on April 18, 1983, are filed as Exhibit 3.3 as part of Amendment No. 1
to the Companys Annual Report on Form 10-K/A for the fiscal year ended October 31, 2006 (S.E.C. File No. 1-8100) and are incorporated herein by
reference. |
|
3.4 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on November 22, 1983, has been filed as Exhibit 3.3 to the Annual Report
on Form 10-K of the Company for the fiscal year ended October 31, 1983, (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
3.5 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on February 25, 1986 has been filed as Exhibit 3.4 to the Annual Report
on Form 10-K of the Company for the fiscal year ended October 31, 1986, (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
3.6 |
|
|
|
Copy
of the Companys Article of Amendment effective at the close of business on November 11, 1992 has been filed as Exhibit 3.6 as part of Amendment
No. 1 to the Companys Annual Report on Form 10-K/A for the fiscal year ended October 31, 2006 (S.E.C. File No. 1-8100) and are incorporated
herein by reference. |
|
3.7 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on May 15, 1997 has been filed as Exhibit 3.1 to the Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 1997 (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
3.8 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on August 14, 1998 has been filed as Exhibit 3.1 to the Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 1998 (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
3.9 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on November 13, 2000 has been filed as Exhibit 3.6 to the Annual Report
on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
3.10 |
|
|
|
Copy
of the Companys Articles of Amendment effective at the close of business on January 14, 2005 has been filed as Exhibit 3.7 to the Annual Report
on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
108
Exhibit No. |
|
|
|
Description
|
4.1 |
|
|
|
The
rights of the holders of the Companys Common Stock, par value $0.00390625 per share, and Non-Voting Common Stock, par value $0.00390625 per
share, are described in the Companys Amended Articles of Incorporation (particularly Articles Sixth, Seventh and Ninth thereof) and the
Companys By-Laws (particularly Article II thereof). See Exhibits 3.1 through 3.10 above as incorporated herein by reference. |
|
9.1 |
|
|
|
Copy
of the Voting Trust Agreement made as of October 30, 1997 has been filed as Exhibit 9.1 to the Annual Report on Form 10-K of the Company for the fiscal
year ended October 31, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
9.2 |
|
|
|
Copy
of the resolutions of the Companys Board of Directors amending the Voting Trust Agreement, dated October 11, 2000 has been filed as Exhibit 9.2
as part of Amendment No. 1 to the Annual Report on Form 10-K/A of the Company for the fiscal year ended October 31, 2006, (S.E.C. File No. 1-8100) and
are incorporated herein by reference. |
|
9.3 |
|
|
|
Copy
of the resolutions of the Companys Board of Directors amending the Voting Trust Agreement, dated October 1, 2003 has been filed as Exhibit 9.3 as
part of Amendment No. 1 to the Annual Report on Form 10-K/A of the Company for the fiscal year ended October 31, 2006, (S.E.C. File No. 1-8100) and are
incorporated herein by reference. |
|
9.4 |
|
|
|
Copy
of the resolutions of the Companys Board of Directors amending the Voting Trust Agreement, dated October 10, 2006 has been filed as Exhibit 9.4
as part of Amendment No. 1 to the Annual Report on Form 10-K/A of the Company for the fiscal year ended October 31, 2006, (S.E.C. File No. 1-8100) and
are incorporated herein by reference. |
|
10.1 |
|
|
|
Copy
of the Eaton Vance Corp. Supplemental Profit Sharing Plan adopted by the Companys Directors on October 9, 1996, has been filed as Exhibit 10.12
to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1996, (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
10.2 |
|
|
|
Copy
of 1998 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998 has been filed as Exhibit 10.1 to the Quarterly Report
on Form 10-Q of the Company for the fiscal quarter ended July 31, 1998 (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
10.3 |
|
|
|
Copy
of Eaton Vance Corp. Executive Performance-Based Compensation Plan as adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998 has been
filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 1998 (S.E.C. File No. 1-8100), and is
incorporated herein by reference. |
|
10.4 |
|
|
|
Copy
of 1998 Executive Loan Program, as amended, relating to financing or refinancing the exercise of options by key directors, officers, and employees
adopted by the Eaton Vance Corp. Directors on October 15, 1998 (filed herewith). |
|
10.5 |
|
|
|
Copy
of 1999 Restricted Stock Plan as adopted by the Eaton Vance Corp. Board of Directors on October 13, 1999 has been filed as Exhibit 10.21 to the Annual
Report on Form 10-K of the Company for the fiscal year ended October 31, 1999 (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
109
Exhibit No. |
|
|
|
Description
|
10.6 |
|
|
|
Copy
of Amendment No. 1 to the Eaton Vance Corp. Executive Performance-Based Compensation Plan as adopted by the Eaton Vance Corp. Board of Directors on
October 11, 2000 has been filed as Exhibit 10.16 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C.
File No. 1-8100) and is incorporated herein by reference. |
|
10.7 |
|
|
|
Copy
of the restated Eaton Vance Corp. Supplemental Profit Sharing Plan as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been
filed as Exhibit 10.17 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is
incorporated herein by reference. |
|
10.8 |
|
|
|
Copy
of Stock Option Income Deferral Plan as adopted by the Eaton Vance Corp. Board of Directors on April 18, 2001 has been filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 30, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
10.9 |
|
|
|
Copy
of 1986 Employee Stock Purchase Plan Restatement No. 9 as adopted by the Eaton Vance Corp. Board of Directors on July 11, 2001 has been filed as
Exhibit 10.19 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100) and is
incorporated herein by reference. |
|
10.10 |
|
|
|
Copy
of 1992 Incentive Plan Stock Alternative Restatement No. 5 as adopted by the Eaton Vance Corp. Board of Directors on July 11, 2001 has
been filed as Exhibit 10.19 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100)
and is incorporated herein by reference. |
|
10.11 |
|
|
|
Copy
of 1998 Stock Option Plan Restatement No. 3 as adopted by the Eaton Vance Corp. Board of Directors on December 12, 2001 has been filed as
Exhibit 10.22 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2001, (S.E.C. File No. 1-8100) and is incorporated
herein by reference. |
|
10.12 |
|
|
|
Copy
of 1998 Executive Loan Program relating to financing or refinancing the exercise of options by employees revised by the Eaton Vance Corp. Directors on
July 9, 2003 has been filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended July 31, 2003 (S.E.C. File No.
1-8100) and is incorporated herein by reference. |
|
10.13 |
|
|
|
Copy
of 1998 Stock Option Plan Restatement No. 4 as adopted by the Eaton Vance Corp. Board of Directors on October 20, 2004 has been filed as Exhibit
10.15 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100) and is incorporated herein
by reference. |
|
10.14 |
|
|
|
Copy
of the Credit Agreement, dated December 21, 2004, between Eaton Vance Corp. as borrower and JP Morgan Chase Bank, as administrative agent has been
filed as Exhibit 99.1 to the Current Report on Form 8-K of the Company on December 23, 2004, (S.E.C. File No. 1-8100) and is incorporated herein by
reference. |
|
10.15 |
|
|
|
Copy
of 1998 Stock Option Plan Restatement No. 5 as adopted by the Eaton Vance Corp. Board of Directors on December 15, 2004 has been filed as
Exhibit 10.17 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100) and is incorporated
herein by reference. |
110
Exhibit No. |
|
|
|
Description
|
10.16 |
|
|
|
Copy
of 1986 Employee Stock Purchase Plan Restatement No. 10 as adopted by the Eaton Vance Corp. Board of Directors on December 15, 2004 has been
filed as Exhibit 10.18 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100) and is
incorporated herein by reference. |
|
10.17 |
|
|
|
Copy
of 1992 Incentive Plan Stock Alternative Restatement No. 6 as adopted by the Eaton Vance Corp. Board of Directors on December 15, 2004
has been filed as Exhibit 10.19 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100)
and is incorporated herein by reference. |
|
10.18 |
|
|
|
Copy
of 1999 Restricted Stock Plan Restatement No. 1 as adopted by the Eaton Vance Corp. Board of Directors on December 15, 2004 has been filed as
Exhibit 10.20 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2004 (S.E.C. File No. 1-8100) and is incorporated
herein by reference. |
|
10.19 |
|
|
|
Copy
of 1998 Stock Option Plan Restatement No. 8 as adopted by the Eaton Vance Corp. Board of Directors on October 25, 2006 has been filed as Exhibit
10.19 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2006 (S.E.C. File No. 1-8100) and is incorporated herein
by reference. |
|
10.20 |
|
|
|
Copy
of 1986 Employee Stock Purchase Plan Restatement No. 11 as adopted by the Eaton Vance Corp. Board of Directors on October 25, 2006 has been
filed as Exhibit 10.20 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2006 (S.E.C. File No. 1-8100) and is
incorporated herein by reference. |
|
10.21 |
|
|
|
Copy
of 2007 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on October 24, 2007 has been filed as Exhibit 10.10 to the Current
Report on Form 8-K of the Company on October 24, 2007 (S.E.C. File No. 1-8100) and is incorporated herein by reference. |
|
21.1 |
|
|
|
List
of the Companys Subsidiaries as of October 31, 2007 (filed herewith). |
|
23.1 |
|
|
|
Consent of Independent Registered Public Accounting Firm (filed herewith). |
|
31.1 |
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
31.2 |
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
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 (furnished herewith). |
|
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 (furnished herewith). |
|
99.1 |
|
|
|
List
of Eaton Vance Corp. Open Registration Statements (filed herewith). |
111
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end
EX-10.4
5
d22372ex10-4.htm
Exhibit 10.4
EATON VANCE EMPLOYEE LOAN PROGRAM
(as revised
effective October 31, 2006)
1. Purpose. The
purpose of the Eaton Vance Employee Loan Program (formerly called the Eaton Vance Corp. 1998 Executive Loan Program)(the Program) is to
benefit Eaton Vance Corp. and its present or future subsidiaries (together, or separately, the Company, as the context may require) by
enhancing the Companys ability to attract and retain those officers (other than executive officers) and other key employees of the Company who
are in a position to make substantial contributions to the ongoing success of the Company. The Program is intended to complement the incentives now
offered by the Company to its employees which allow them to acquire shares of Eaton Vance Corp. Non-Voting Common Stock (Eaton Vance
Stock). To accomplish this purpose, the Program provides loans to finance exercises of incentive stock options and non-qualified stock options
granted under various stock option plans maintained by the Company, all as the Compensation Committee of the Board of Directors of Eaton Vance Corp.
(the Committee) determines.
2. Participation.
Participation in the Program shall be limited to those officers (other than executive officers of Eaton Vance Corp.) and key employees of the Company
who are determined by the Committee as being eligible to so participate (the Participants). For purposes of the Program, executive officers
of Eaton Vance Corp. include the President and Chief Executive Officer, the Executive Vice President, and the following Vice Presidents: the Chief
Financial Officer, the Chief Legal Officer, the Chief Administrative Officer, the Chief Accounting Officer, and the Chief Sales and Marketing
Officer.
3. Administration.
The Committee shall administer the Program and have exclusive power to determine (a) which officers and key employees shall become Participants, (b)
the time or times at which such offer shall be made, and (c) the amount to be loaned to any Participant. The interpretation and instruction by the
Committee of any provision of the Program or of any agreement or other matter related to the Program shall be final unless otherwise determined by the
Committee or the Board of Directors of Eaton Vance Corp. The Committee may delegate any of its powers and responsibilities under the Program to the
Treasurer of Eaton Vance Corp.
4. Amount Available for
Loans. The aggregate amount of loans under the Program and under the Companys 1997, 1995 and 1984 Executive Loan Programs which may be
outstanding at any one time shall not exceed $10,000,000. All loans under the Program must be made on or before October 31, 2010.
5. Terms of Notes.
Each loan made under the Program shall be evidenced by a promissory note executed and delivered by the Participant to Eaton Vance Management (the
Note). Each Note shall be subject to the following terms and conditions:
(a) |
|
The participant shall be personally liable on the
Note. |
112
(b) |
|
The maximum term to maturity of the Note shall be seven years;
provided, however, that the Note shall become immediately due and payable as of the date a Participant ceases to be employed by the Company for any
reason other than age, disability or death. |
(c) |
|
Each Note shall provide for the payment of interest at such
annual rate as may be set by the Committee, which rate shall not be less than that necessary to avoid the loan being characterized as either (i)
carrying unstated interest within the meaning of §483 of the Internal Revenue Code of 1986, as amended (the Code) in the
case of loans the proceeds of which are used to acquire shares of Eaton Vance Stock from the Company or (ii) a below-market loan within the
meaning of §7872 of the Code in all other cases. |
(d) |
|
The Committee, in its discretion, may require that amounts
payable with respect to the Note be secured by collateral of such nature and of such value as the Committee determines. Where the purpose of the loan
is to finance the purchase of Eaton Vance Stock, and where the Note is secured, all or in part, by margin securities as defined in
Regulation G promulgated by the Board of Governors of the Federal Reserve System, the Note shall contain such further terms and conditions as are
required by said Regulation G. |
6. Effective Date.
The effective date of the revised Program is July 9, 2003, the date on which it was approved by the Board. The revisions to the Program approved on
July 9, 2003, are designed to implement the provisions of section 402 of the Sarbanes-Oxley Act of 2002, and do not affect any loans existing under the
Program on or prior to July 30, 2002; provided, that no material modification shall be made to any term of any such loans outstanding to any director
or executive officer of the Company.
113
EX-21.1
6
d22372ex21-1.htm
Exhibit 21.1
List of Subsidiaries
As of October 31,
2007*
|
|
|
|
State or Jurisdiction of Incorporation or
Organization |
|
Name Under Which Subsidiary Does
Business |
First Tier
Subsidiaries of Eaton Vance Corp.: |
|
|
|
|
|
|
|
|
|
|
Eaton Vance
Management |
|
|
|
Massachusetts |
|
Same |
Eaton Vance
Acquisitions |
|
|
|
Delaware |
|
Same |
|
|
|
|
|
|
|
Certain
Subsidiaries of Eaton Vance Acquisitions: |
|
|
|
|
|
|
|
|
|
|
Atlanta Capital
Management Company, LLC |
|
|
|
Delaware |
|
Same |
Fox Asset
Management LLC |
|
|
|
Delaware |
|
Same |
Parametric
Portfolio Associates LLC |
|
|
|
Delaware |
|
Same |
|
|
|
|
|
|
|
Certain
Subsidiaries of Eaton Vance Management: |
|
|
|
|
|
|
|
|
Eaton Vance
Distributors, Inc. |
|
|
|
Massachusetts |
|
Same |
Boston
Management and Research |
|
|
|
Massachusetts |
|
Same |
Eaton Vance
Investment Counsel |
|
|
|
Massachusetts |
|
Same |
Eaton Vance
Management (International) Limited |
|
|
|
United
Kingdom |
|
Same |
* The names of certain subsidiaries have been
omitted from this list inasmuch as the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant
subsidiary as of the Companys fiscal year ended October 31, 2007.
114
EX-23.1
7
d22372ex23-1.htm
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of
Eaton
Vance Corp.:
We consent to the incorporation by reference in the
Registration Statements listed at Exhibit 99.1 on Forms S-3 and S-8 of our reports, dated December 20, 2007, relating to the consolidated financial
statements of Eaton Vance Corp. and managements report on the effectiveness of internal control over financial reporting appearing in the Annual
Report on Form 10-K of Eaton Vance Corp. for the year ended October 31, 2007.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 20,
2007
115
EX-31.1
8
d22372ex31-1.htm
Exhibit 31.1
CERTIFICATION AS ADOPTED PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas E. Faust, Jr., certify that:
1. |
|
I have reviewed this annual report on Form 10-K of Eaton Vance
Corp.; |
2. |
|
Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual report; |
4. |
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
|
Designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being
prepared; |
(b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
(c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
(d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
(b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
DATE: December
21, 2007 |
|
|
|
/s/Thomas E. Faust Jr.
|
|
|
|
|
(Signature) Thomas E. Faust Jr. Chairman, Chief Executive Officer and President |
116
EX-31.2
9
d22372ex31-2.htm
Exhibit 31.2
CERTIFICATION AS ADOPTED PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Whelan, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of Eaton Vance
Corp.; |
2. |
|
Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual report; |
4. |
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
|
Designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being
prepared; |
(b) |
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
(c) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
(d) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
(b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
DATE: December
21, 2007 |
|
|
|
/s/ Robert J. Whelan
|
|
|
|
|
(Signature) Robert J. Whelan Chief Financial Officer |
117
EX-32.1
10
d22372ex32-1.htm
Exhibit 32.1
CERTIFICATION
AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Eaton Vance Corp.
(the Company) on Form 10-K for the period ending October 31, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Thomas E. Faust, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company. |
DATE: December
21, 2007 |
|
|
|
/s/Thomas E. Faust Jr.
|
|
|
|
|
(Signature) Thomas E. Faust Jr. Chairman, Chief Executive Officer and President |
118
EX-32.2
11
d22372ex32-2.htm
Exhibit 32.2
CERTIFICATION
AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Eaton Vance Corp.
(the Company) on Form 10-K for the period ending October 31, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Robert J. Whelan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company. |
DATE: December
21, 2007 |
|
|
|
/s/Robert J. Whelan |
|
|
|
|
(Signature) Robert J. Whelan Chief Financial Officer |
119
EX-99.1
12
d22372ex99-1.htm
Exhibit 99.1
Eaton Vance Corp.
Open Registration
Statements
Registration Statement
|
|
|
|
Filing Date
|
|
Filing Number
|
Form
S-3ASR |
|
|
|
September 25, 2007 |
|
333-146280
|
Form
S-8 |
|
|
|
January 12, 2005 |
|
333-122000 |
Form S-3
A |
|
|
|
February 5, 2002 |
|
333-73080 |
Form
S-3 |
|
|
|
November 9, 2001 |
|
333-73080 |
Form
S-8 |
|
|
|
November 13, 2000 |
|
333-49744 |
Form
S-8 |
|
|
|
June 26, 2000 |
|
333-40112 |
Form
S-8 |
|
|
|
April 28, 2000 |
|
333-35940 |
Form
S-8 |
|
|
|
October 29, 1999 |
|
333-89921 |
Form
S-8 |
|
|
|
August 13, 1999 |
|
333-85137 |
Form
S-8 |
|
|
|
August 26, 1998 |
|
333-62259 |
Form
S-8 |
|
|
|
September 3, 1998 |
|
333-62801 |
Form
S-8 |
|
|
|
September 9, 1998 |
|
333-63077 |
Form
S-8 |
|
|
|
December 19, 1997 |
|
333-42813 |
Form
S-3 |
|
|
|
June 28, 1995 |
|
33-60649 |
Form
S-8 |
|
|
|
June 27, 1995 |
|
33-60617 |
Form
S-8 |
|
|
|
December 1, 1994 |
|
33-56701 |
Form
S-8 |
|
|
|
June 8, 1994 |
|
33-54035 |
Form
S-8 |
|
|
|
March 8, 1994 |
|
33-52559 |
Form
S-8 |
|
|
|
April 23, 1992 |
|
33-47405 |
Form
S-8 |
|
|
|
April 23, 1992 |
|
33-47403 |
Form
S-8 |
|
|
|
April 23, 1992 |
|
33-47402 |
Form
S-8 |
|
|
|
April 23, 1992 |
|
33-47401 |
Form
S-3 |
|
|
|
February 13, 1992 |
|
33-45685 |
Form
S-8 |
|
|
|
September 16, 1991 |
|
33-42667 |
Form
S-8 |
|
|
|
October 11, 1989 |
|
33-31382 |
Form
S-8 |
|
|
|
April 10, 1987 |
|
33-13217 |
120
-----END PRIVACY-ENHANCED MESSAGE-----