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As Of Filer Filing For·On·As Docs:Size 6/05/20 Eaton Vance Corp 10-Q 4/30/20 111:17M |
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 2.26M 7: EX-31.1 Certification -- §302 - SOA'02 HTML 38K 8: EX-31.2 Certification -- §302 - SOA'02 HTML 38K 9: EX-32.1 Certification -- §906 - SOA'02 HTML 35K 10: EX-32.2 Certification -- §906 - SOA'02 HTML 34K 18: R1 Document and Entity Information HTML 86K 85: R2 Consolidated Balance Sheets HTML 142K 100: R3 Consolidated Balance Sheets (Parentheticals) HTML 44K 60: R4 Consolidated Statements of Income HTML 122K 20: R5 Consolidated Statements of Comprehensive Income HTML 61K 87: R6 Consolidated Statements of Shareholders' Equity HTML 149K 102: R7 Consolidated Statements of Shareholders' Equity HTML 33K (Parentheticals) 57: R8 Consolidated Statements of Cash Flows HTML 189K 23: R9 Summary of Significant Accounting Policies HTML 43K 82: R10 Cash, Cash Equivalents and Restricted Cash HTML 48K 96: R11 Investments HTML 98K 62: R12 Variable Interest Entities HTML 156K 24: R13 Derivative Financial Instruments HTML 135K 83: R14 Fair Value of Assets and Liabilities Measured at HTML 285K Fair Value on a Recurring Basis 97: R15 Leases HTML 72K 63: R16 Acquisitions HTML 39K 25: R17 Intangible Assets HTML 90K 81: R18 Debt HTML 37K 98: R19 Revenue HTML 102K 37: R20 Stock-Based Compensation Plans HTML 111K 28: R21 Common Stock Repurchases HTML 34K 64: R22 Non-operating Income (Expense) HTML 85K 103: R23 Income Taxes HTML 76K 38: R24 Non-controlling and Other Beneficial Interests HTML 53K 29: R25 Accumulated Other Comprehensive Income (Loss) HTML 131K 65: R26 Earnings per Share HTML 62K 104: R27 Commitments and Contingencies HTML 36K 39: R28 Related Party Transactions HTML 83K 27: R29 Geographic Information HTML 62K 21: R30 Summary of Significant Accounting Policies HTML 46K (Policies) 61: R31 Cash, Cash Equivalents and Restricted Cash HTML 48K (Tables) 101: R32 Investments (Tables) HTML 91K 86: R33 Variable Interest Entities (Tables) HTML 134K 19: R34 Derivative Financial Instruments (Tables) HTML 129K 59: R35 Fair Value of Assets and Liabilities Measured at HTML 275K Fair Value on a Recurring Basis (Tables) 99: R36 Leases (Tables) HTML 74K 84: R37 Intangibles Assets (Tables) HTML 91K 22: R38 Revenue (Table) HTML 101K 56: R39 Stock-Based Compensation Plans (Tables) HTML 106K 35: R40 Non-operating Income (Expense) (Tables) HTML 84K 47: R41 Income Taxes (Tables) HTML 68K 106: R42 Non-controlling and Other Beneficial Interests HTML 52K (Tables) 67: R43 Accumulated Other Comprehensive Income (Loss) HTML 130K (Tables) 34: R44 Earnings Per Share (Tables) HTML 61K 46: R45 Related Party Transactions (Tables) HTML 73K 105: R46 Geographic Information (Tables) HTML 61K 66: R47 Summary of Significant Accounting Policies HTML 46K (Details) 36: R48 Cash, Cash Equivalents and Restricted Cash HTML 49K (Details) 45: R49 Investments (Summary of Investments) (Details) HTML 52K 53: R50 Investments (Summary of net gains (Losses) on HTML 37K Securities Held at Fair Value) (Details) 16: R51 Investments (Investments Held at Cost Narrative) HTML 35K (Details) 73: R52 Investments (Investments in non-consolidated CLO HTML 40K entities Narrative) (Details) 88: R53 Investments (Equity Method Investees Narrative) HTML 45K (Details) 54: R54 Investments (Summary of Equity Method Investees) HTML 44K (Details) 17: R55 Variable Interest Entities (Investments in VIEs HTML 83K That Are Consolidated - Narrative) (Details) 74: R56 Variable Interest Entities (Investments in VIEs HTML 44K That Are Not Consolidated - Narrative) (Details) 89: R57 Variable Interest Entities (Schedule of the HTML 46K Balances Related to Consolidated Sponsored Funds) (Details) 55: R58 Variable Interest Entities (Summary of the HTML 50K Carrying Amounts Related to VIE that are Consolidated on the Company's Balance Sheet) (Details) 15: R59 Variable Interest Entities (Summary of the Amounts HTML 43K Related to VIE that are Consolidated on the Company's Income Statement) (Details) 70: R60 Variable Interest Entities (Summary of Application HTML 44K of the Measurement Alternative Results in the Company's Earnings from Consolidated VIE Subsequent to Initial Consolidation) (Details) 108: R61 Derivative Financial (Derivative Financial HTML 47K Instruments Designated as Cash Flow Hedges) (Details) 42: R62 Derivative Financial (Other Derivative Financial HTML 87K Instruments Not Designated for Hedge Accounting) (Details) 32: R63 Fair Value of Assets and Liabilities Measured at HTML 126K Fair Value on a Recurring Basis (Details) 71: R64 Fair Value of Assets and Liabilities Measured at HTML 48K Fair Value on a Recurring Basis Classified as Level 3 (Details) 109: R65 Fair Value of Assets and Liabilities Measured at HTML 47K Fair Value on a Recurring Basis (Summary of the Carrying Amounts and Estimated Fair Values of These Financial Instruments) (Details) 43: R66 Fair Value of Assets and Liabilities Measured at HTML 35K Fair Value on a Recurring Basis (Narrative) (Details) 33: R67 Leases (Narrative) (Details) HTML 37K 68: R68 Leases (Components Of Total Operating Lease HTML 38K Expense) (Details) 111: R69 Leases (Undiscounted Operating Lease Liability HTML 45K Maturity) (Details) 94: R70 Leases (Undiscounted Operating Lease Liability HTML 42K Maturity II) (Details) 77: R71 Leases (Schedule of Total Future Minimum Lease HTML 50K Commitments) (Details) 13: R72 Acquisitions (Details) HTML 57K 50: R73 Intangible Assets (Narrative) (Details) HTML 34K 93: R74 Intangible Assets (Schedule of the Carrying HTML 58K Amounts of Intangible Assets) (Details) 76: R75 Intangible Assets (Schedule of Estimated Remaining HTML 44K Amortization Expense for fiscal 2020 and the Next Five Fiscal Years) (Details) 12: R76 Debt (Details) HTML 56K 49: R77 Revenue (Narrative) (Details) HTML 36K 90: R78 Revenue (Summary of Total Revenue by Source) HTML 53K (Details) 79: R79 Revenue (Summary of Management fee revenue by HTML 53K investment mandate reporting category) (Details) 95: R80 Stock Based Compensation Plans (Omnibus Incentive HTML 57K Plan, Stock Option, Restricted Stock and Deferred Stock Units Narrative) (Details) 78: R81 Stock-Based Compensation Plans (Summary of HTML 57K Stock-based Compensation Expense Recognized by Plan) (Details) 14: R82 Stock-Based Compensation Plans (Summary of HTML 58K Restricted Share Activity) (Details) 52: R83 Stock-Based Compensation Plans (Stock Option HTML 79K Transactions) (Details) 92: R84 Common Stock Repurchases (Details) HTML 42K 75: R85 Non-operating income (Expense) (Details) HTML 59K 11: R86 Income Taxes (Narrative) (Details) HTML 53K 48: R87 Income Taxes (Reconciliation of the Difference HTML 52K Between the Company's Effective Tax Rate and the U.S. Federal Statutory Tax Rate (As A Percent)) (Details) 91: R88 Non-Controlling and Other Beneficial Interests HTML 40K (Details) 80: R89 Accumulated Other Comprehensive Income (Loss) HTML 73K (Details) 69: R90 Earnings Per Share (Narrative) (Details) HTML 33K 107: R91 Earnings Per Share (Summary Schedule of the HTML 55K Calculation of Earnings Per Basic and Diluted Shares) (Details) 41: R92 Related Party Transactions (Sponsored Funds HTML 47K Narrative) (Details) 31: R93 Related Party Transactions (Loan to Affiliate and HTML 61K Employee Loan Program Narrative) (Details) 72: R94 Related Party Transactions (Summary of Related HTML 42K Party Revenue Transactions) (Details) 110: R95 Related Party Transactions (Summary of sales HTML 36K proceeds and net realized gains (Losses) From Investments in Non-Consolidated Sponsored Funds) (Details) 44: R96 Geographic Information (Details) HTML 43K 58: XML IDEA XML File -- Filing Summary XML 216K 40: XML XBRL Instance -- ev-20200430_htm XML 4.35M 26: EXCEL IDEA Workbook of Financial Reports XLSX 115K 3: EX-101.CAL XBRL Calculations -- ev-20200430_cal XML 398K 4: EX-101.DEF XBRL Definitions -- ev-20200430_def XML 1.74M 5: EX-101.LAB XBRL Labels -- ev-20200430_lab XML 3.35M 6: EX-101.PRE XBRL Presentations -- ev-20200430_pre XML 2.32M 2: EX-101.SCH XBRL Schema -- ev-20200430 XSD 404K 51: JSON XBRL Instance as JSON Data -- MetaLinks 641± 1.02M 30: ZIP XBRL Zipped Folder -- 0000350797-20-000087-xbrl Zip 417K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the quarterly period ended i April 30, 2020
or
i ☐Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from _____________ to ____________
Commission File Number: i 1-8100
i EATON VANCE CORP.
(Exact name of registrant as specified in its charter)
i Maryland |
| i 04-2718215 | ||
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) | ||
incorporation or organization) |
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| i Two International Place, i Boston, i Massachusetts i 02110 |
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| (Address of principal executive offices) (zip code) |
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| ( i 617) i 482-8260 |
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| (Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
i Non-Voting Common Stock, $0.00390625 par value | i EV | i New York Stock Exchange |
Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | i ☐ |
Emerging growth company | i ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class: |
| Outstanding as of April 30, 2020 |
Non-Voting Common Stock, $0.00390625 par value |
| i 113,929,794 shares |
Voting Common Stock, $0.00390625 par value |
| i 478,643 shares |
Eaton Vance Corp.
Form 10-Q
As of April 30, 2020 and for the
Three and Six Month Periods Ended April 30, 2020
Required Information |
| Page Number Reference |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
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Item 1. Consolidated Financial Statements (unaudited) |
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Eaton Vance Corp. |
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Consolidated Balance Sheets (unaudited) |
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| April 30, |
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| October 31, |
(in thousands) |
| 2020 |
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| 2019 |
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Assets |
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Cash and cash equivalents | $ | i 914,857 |
| $ | i 557,668 |
Management fees and other receivables |
| i 219,944 |
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| i 237,864 |
Investments |
| i 635,079 |
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| i 1,060,739 |
Assets of consolidated collateralized loan obligation (CLO) entities: |
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Cash |
| i 42,081 |
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| i 48,704 |
Bank loans and other investments |
| i 1,135,609 |
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| i 1,704,270 |
Other assets |
| i 5,555 |
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| i 28,039 |
Deferred sales commissions |
| i 59,813 |
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| i 55,211 |
Deferred income taxes |
| i 60,914 |
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| i 62,661 |
Equipment and leasehold improvements, net |
| i 71,797 |
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| i 72,798 |
Operating lease right-of-use assets |
| i 261,660 |
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| i - |
Intangible assets, net |
| i 73,921 |
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| i 75,907 |
Goodwill |
| i 259,681 |
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| i 259,681 |
Loan to affiliate |
| i 5,000 |
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| i 5,000 |
Other assets |
| i 100,803 |
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| i 85,087 |
Total assets | $ | i 3,846,714 |
| $ | i 4,253,629 |
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See notes to Consolidated Financial Statements. |
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3
Eaton Vance Corp. |
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Consolidated Balance Sheets (unaudited) (continued) |
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| April 30, |
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| October 31, |
(in thousands, except share data) |
| 2020 |
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| 2019 |
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Liabilities, Temporary Equity and Permanent Equity |
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Liabilities: |
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Accrued compensation | $ | i 122,051 |
| $ | i 240,722 |
Accounts payable and accrued expenses |
| i 72,411 |
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| i 89,984 |
Dividend payable |
| i 53,803 |
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| i 55,177 |
Debt |
| i 620,930 |
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| i 620,513 |
Operating lease liabilities |
| i 310,860 |
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| i - |
Liabilities of consolidated CLO entities: |
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Senior and subordinated note obligations |
| i 1,088,574 |
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| i 1,617,095 |
Other liabilities |
| i 39,454 |
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| i 51,122 |
Other liabilities |
| i 50,391 |
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| i 108,982 |
Total liabilities |
| i 2,358,474 |
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| i 2,783,595 |
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Commitments and contingencies (Note 19) |
| nil |
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| nil |
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Temporary Equity: |
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Redeemable non-controlling interests |
| i 211,135 |
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| i 285,915 |
Total temporary equity |
| i 211,135 |
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| i 285,915 |
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Permanent Equity: |
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Voting Common Stock, par value $ i 0.00390625 per share: |
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Authorized, i 1,280,000 shares |
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Issued and outstanding, i i 478,643 / and i i 422,935 / shares, |
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respectively |
| i 2 |
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| i 2 |
Non-Voting Common Stock, par value $ i 0.00390625 per share: |
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Authorized, i 190,720,000 shares |
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Issued and outstanding, i i 113,929,794 / and i i 113,143,567 / shares, |
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respectively |
| i 445 |
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| i 442 |
Additional paid-in capital |
| i 12,094 |
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| i - |
Notes receivable from stock option exercises |
| ( i 7,070) |
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| ( i 8,447) |
Accumulated other comprehensive loss |
| ( i 68,925) |
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| ( i 58,317) |
Retained earnings |
| i 1,340,559 |
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| i 1,250,439 |
Total Eaton Vance Corp. shareholders' equity |
| i 1,277,105 |
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| i 1,184,119 |
Non-redeemable non-controlling interests |
| i - |
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| i - |
Total permanent equity |
| i 1,277,105 |
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| i 1,184,119 |
Total liabilities, temporary equity and permanent equity | $ | i 3,846,714 |
| $ | i 4,253,629 |
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See notes to Consolidated Financial Statements. |
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4
Eaton Vance Corp. |
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Consolidated Statements of Income (unaudited) |
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| Three Months Ended | Six Months Ended | ||||||
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| April 30, |
| April 30, | |||||
(in thousands, except per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||
Revenue: |
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| Management fees | $ | i 354,121 | $ | i 359,384 | $ | i 748,922 | $ | i 710,134 | |
| Distribution and underwriter fees |
| i 19,122 |
| i 20,054 |
| i 40,700 |
| i 43,144 | |
| Service fees |
| i 30,557 |
| i 29,586 |
| i 64,496 |
| i 58,946 | |
| Other revenue |
| i 2,111 |
| i 2,837 |
| i 4,347 |
| i 6,053 | |
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| Total revenue |
| i 405,911 |
| i 411,861 |
| i 858,465 |
| i 818,277 |
Expenses: |
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| Compensation and related costs |
| i 149,072 |
| i 153,542 |
| i 321,054 |
| i 307,430 | |
| Distribution expense |
| i 33,533 |
| i 35,930 |
| i 73,536 |
| i 73,438 | |
| Service fee expense |
| i 26,648 |
| i 25,921 |
| i 56,403 |
| i 51,438 | |
| Amortization of deferred sales commissions |
| i 6,289 |
| i 5,571 |
| i 12,257 |
| i 11,118 | |
| Fund-related expenses |
| i 10,897 |
| i 9,960 |
| i 21,964 |
| i 19,605 | |
| Other expenses |
| i 57,516 |
| i 53,764 |
| i 116,576 |
| i 106,945 | |
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| Total expenses |
| i 283,955 |
| i 284,688 |
| i 601,790 |
| i 569,974 |
Operating income |
| i 121,956 |
| i 127,173 |
| i 256,675 |
| i 248,303 | ||
Non-operating income (expense): |
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| Gains (losses) and other investment income, net |
| ( i 50,512) |
| i 15,206 |
| ( i 34,422) |
| i 21,039 | |
| Interest expense |
| ( i 6,364) |
| ( i 5,888) |
| ( i 12,252) |
| ( i 12,019) | |
| Other income (expense) of consolidated CLO entities: |
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| Gains (losses) and other investment income, net |
| ( i 4,841) |
| i 21,794 |
| i 10,722 |
| i 27,235 |
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| Interest and other expense |
| ( i 11,647) |
| ( i 10,821) |
| ( i 29,043) |
| ( i 19,157) |
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| Total non-operating income (expense) |
| ( i 73,364) |
| i 20,291 |
| ( i 64,995) |
| i 17,098 |
Income before income taxes and equity in net |
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| income of affiliates |
| i 48,592 |
| i 147,464 |
| i 191,680 |
| i 265,401 | |
Income taxes |
| ( i 22,017) |
| ( i 37,069) |
| ( i 54,595) |
| ( i 64,694) | ||
Equity in net income of affiliates, net of tax |
| i 1,481 |
| i 2,735 |
| i 3,806 |
| i 4,683 | ||
Net income |
| i 28,056 |
| i 113,130 |
| i 140,891 |
| i 205,390 | ||
Net (income) loss attributable to non-controlling and |
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| other beneficial interests |
| i 44,002 |
| ( i 11,323) |
| i 35,152 |
| ( i 16,782) | |
Net income attributable to Eaton Vance Corp. shareholders | $ | i 72,058 | $ | i 101,807 | $ | i 176,043 | $ | i 188,608 | ||
Earnings per share: |
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| Basic | $ | i 0.66 | $ | i 0.92 | $ | i 1.61 | $ | i 1.69 | |
| Diluted | $ | i 0.65 | $ | i 0.89 | $ | i 1.55 | $ | i 1.64 | |
Weighted average shares outstanding: |
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| Basic |
| i 109,224 |
| i 110,379 |
| i 109,297 |
| i 111,315 | |
| Diluted |
| i 111,610 |
| i 114,249 |
| i 113,292 |
| i 114,795 | |
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See notes to Consolidated Financial Statements. |
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5
Eaton Vance Corp. | ||||||||
Consolidated Statements of Comprehensive Income (unaudited) | ||||||||
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| Three Months Ended |
| Six Months Ended | ||||
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| April 30, |
| April 30, | ||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
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Net income | $ | i 28,056 | $ | i 113,130 | $ | i 140,891 | $ | i 205,390 |
Other comprehensive loss: |
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Amortization of net losses on cash flow hedges, |
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net of tax |
| ( i 25) |
| ( i 26) |
| ( i 49) |
| ( i 50) |
Foreign currency translation adjustments |
| ( i 10,199) |
| ( i 5,656) |
| ( i 10,559) |
| ( i 4,670) |
Other comprehensive loss, net of tax |
| ( i 10,224) |
| ( i 5,682) |
| ( i 10,608) |
| ( i 4,720) |
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Total comprehensive income |
| i 17,832 |
| i 107,448 |
| i 130,283 |
| i 200,670 |
Comprehensive (income) loss attributable to non-controlling |
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and other beneficial interests |
| i 44,002 |
| ( i 11,323) |
| i 35,152 |
| ( i 16,782) |
Total comprehensive income attributable to Eaton Vance |
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Corp. shareholders | $ | i 61,834 | $ | i 96,125 | $ | i 165,435 | $ | i 183,888 |
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See notes to Consolidated Financial Statements. |
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6
Eaton Vance Corp. |
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Consolidated Statements of Shareholders' Equity (unaudited) |
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| Three Months Ended April 30, 2020 | |||||||||||||||||||||||||||||||||||
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| Permanent Equity |
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| Temporary Equity |
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(in thousands) | Voting Common Stock |
| Non-Voting Common Stock |
| Additional Paid-In Capital |
| Notes Receivable from Stock Option Exercises |
| Accumulated Other Comprehensive Income (Loss) | Retained Earnings |
| Non-Redeemable Non- Controlling Interests |
| Total Permanent Equity |
|
|
| Redeemable Non-Controlling Interests |
|
| ||||||||||||||||
Balance, January 31, 2020 | $ | i 2 |
|
| $ | i 446 |
|
| $ | i - |
|
| $ | ( i 7,354) |
|
| $ | ( i 58,701) |
| $ | i 1,310,631 |
|
| $ | i - |
|
| $ | i 1,245,024 |
|
|
| $ | i 336,087 |
|
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| i 72,058 |
|
|
| i 159 |
|
|
| i 72,217 |
|
|
|
| ( i 44,161) |
|
|
Other comprehensive loss, net of tax |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( i 10,224) |
|
| - |
|
|
| - |
|
|
| ( i 10,224) |
|
|
|
| - |
|
|
Dividends declared ($ i 0.375 per share) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| ( i 42,875) |
|
|
| - |
|
|
| ( i 42,875) |
|
|
|
| - |
|
|
Issuance of Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise of stock options |
| - |
|
|
| i 1 |
|
|
| i 14,674 |
|
|
| ( i 959) |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 13,716 |
|
|
|
| - |
|
|
Under employee stock purchase incentive plan |
| - |
|
|
| i 1 |
|
|
| i 271 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 272 |
|
|
|
| - |
|
|
Stock-based compensation |
| - |
|
|
| - |
|
|
| i 21,431 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 21,431 |
|
|
|
| - |
|
|
Tax benefit associated with non-controlling interests |
| - |
|
|
| - |
|
|
| i 2,523 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 2,523 |
|
|
|
| - |
|
|
Repurchase of Non-Voting Common Stock |
| - |
|
|
| ( i 3) |
|
|
| ( i 31,718) |
|
|
| - |
|
|
| - |
|
| i 745 |
|
|
| - |
|
|
| ( i 30,976) |
|
|
|
| - |
|
|
Principal repayments on notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from stock option exercises |
| - |
|
|
| - |
|
|
| - |
|
|
| i 1,243 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 1,243 |
|
|
|
| - |
|
|
Net subscriptions (redemptions/distributions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of non-controlling interest holders |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| ( i 159) |
|
|
| ( i 159) |
|
|
|
| i 76,701 |
|
|
Net consolidations (deconsolidations) of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored investment funds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ( i 152,579) |
|
|
Changes in redemption value of non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests redeemable at fair value |
| - |
|
|
| - |
|
|
| i 4,913 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 4,913 |
|
|
|
| ( i 4,913) |
|
|
Balance, April 30, 2020 | $ | i 2 |
|
| $ | i 445 |
|
| $ | i 12,094 |
|
| $ | ( i 7,070) |
|
| $ | ( i 68,925) |
| $ | i 1,340,559 |
|
| $ | i - |
|
| $ | i 1,277,105 |
|
|
| $ | i 211,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Eaton Vance Corp. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders' Equity (unaudited) (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended April 30, 2019 | |||||||||||||||||||||||||||||||||||
|
| Permanent Equity |
|
|
|
| Temporary Equity |
|
| |||||||||||||||||||||||||||
(in thousands) | Voting Common Stock |
| Non-Voting Common Stock |
| Additional Paid-In Capital |
| Notes Receivable from Stock Option Exercises |
| Accumulated Other Comprehensive Income (Loss) | Retained Earnings |
| Non-Redeemable Non- Controlling Interests |
| Total Permanent Equity |
|
|
| Redeemable Non-Controlling Interests |
|
| ||||||||||||||||
Balance, January 31, 2019 | $ | i 2 |
|
| $ | i 450 |
|
| $ | i - |
|
| $ | ( i 7,875) |
|
| $ | ( i 55,933) |
| $ | i 1,131,094 |
|
| $ | i 1,006 |
|
| $ | i 1,068,744 |
|
|
| $ | i 326,589 |
|
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| i 101,807 |
|
|
| i 445 |
|
|
| i 102,252 |
|
|
|
| i 10,878 |
|
|
Other comprehensive loss, net of tax |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( i 5,682) |
|
| - |
|
|
| - |
|
|
| ( i 5,682) |
|
|
|
| - |
|
|
Dividends declared ($ i 0.35 per share) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| ( i 40,039) |
|
|
| - |
|
|
| ( i 40,039) |
|
|
|
| - |
|
|
Issuance of Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise of stock options |
| - |
|
|
| i 1 |
|
|
| i 9,049 |
|
|
| ( i 49) |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 9,001 |
|
|
|
| - |
|
|
Under employee stock purchase incentive plan |
| - |
|
|
| - |
|
|
| i 2,917 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 2,917 |
|
|
|
| - |
|
|
Under restricted stock plan, net of forfeitures |
| - |
|
|
| i 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 1 |
|
|
|
| - |
|
|
Stock-based compensation |
| - |
|
|
| - |
|
|
| i 21,888 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 21,888 |
|
|
|
| - |
|
|
Tax expense associated with non-controlling interests |
| - |
|
|
| - |
|
|
| ( i 33) |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| ( i 33) |
|
|
|
| - |
|
|
Repurchase of Non-Voting Common Stock |
| - |
|
|
| ( i 6) |
|
|
| ( i 33,599) |
|
|
| - |
|
|
| - |
|
| ( i 34,892) |
|
|
| - |
|
|
| ( i 68,497) |
|
|
|
| - |
|
|
Principal repayments on notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from stock option exercises |
| - |
|
|
| - |
|
|
| - |
|
|
| i 104 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 104 |
|
|
|
| - |
|
|
Net subscriptions (redemptions/distributions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of non-controlling interest holders |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| ( i 402) |
|
|
| ( i 402) |
|
|
|
| i 2,698 |
|
|
Net consolidations (deconsolidations) of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored investment funds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ( i 211) |
|
|
Changes in redemption value of non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests redeemable at fair value |
| - |
|
|
| - |
|
|
| ( i 222) |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| ( i 222) |
|
|
|
| i 222 |
|
|
Balance, April 30, 2019 | $ | i 2 |
|
| $ | i 446 |
|
| $ | i - |
|
| $ | ( i 7,820) |
|
| $ | ( i 61,615) |
| $ | i 1,157,970 |
|
| $ | i 1,049 |
|
| $ | i 1,090,032 |
|
|
| $ | i 340,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Eaton Vance Corp. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders' Equity (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended April 30, 2020 | |||||||||||||||||||||||||||||||||||
|
| Permanent Equity |
|
|
|
| Temporary Equity |
|
| |||||||||||||||||||||||||||
(in thousands) | Voting Common Stock |
| Non-Voting Common Stock |
| Additional Paid-In Capital |
| Notes Receivable from Stock Option Exercises |
| Accumulated Other Comprehensive Income (Loss) | Retained Earnings |
| Non-Redeemable Non- Controlling Interests |
| Total Permanent Equity |
|
|
| Redeemable Non-Controlling Interests |
|
| ||||||||||||||||
Balance, November 1, 2019 | $ | i 2 |
|
| $ | i 442 |
|
| $ | i - |
|
| $ | ( i 8,447) |
|
| $ | ( i 58,317) |
| $ | i 1,250,439 |
|
| $ | i - |
|
| $ | i 1,184,119 |
|
|
| $ | i 285,915 |
|
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| i 176,043 |
|
|
| i 366 |
|
|
| i 176,409 |
|
|
|
| ( i 35,518) |
|
|
Other comprehensive loss, net of tax |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( i 10,608) |
|
| - |
|
|
| - |
|
|
| ( i 10,608) |
|
|
|
| - |
|
|
Dividends declared ($ i 0.75 per share) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| ( i 85,923) |
|
|
| - |
|
|
| ( i 85,923) |
|
|
|
| - |
|
|
Issuance of Voting Common Stock |
| - |
|
|
| - |
|
|
| i 581 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 581 |
|
|
|
| - |
|
|
Issuance of Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise of stock options |
| - |
|
|
| i 5 |
|
|
| i 46,409 |
|
|
| ( i 1,081) |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 45,333 |
|
|
|
| - |
|
|
Under employee stock purchase plans |
| - |
|
|
| - |
|
|
| i 1,657 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 1,657 |
|
|
|
| - |
|
|
Under employee stock purchase incentive plan |
| - |
|
|
| i 1 |
|
|
| i 2,966 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 2,967 |
|
|
|
| - |
|
|
Under restricted stock plan, net of forfeitures |
| - |
|
|
| i 6 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 6 |
|
|
|
| - |
|
|
Stock-based compensation |
| - |
|
|
| - |
|
|
| i 50,951 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 50,951 |
|
|
|
| - |
|
|
Tax benefit of non-controlling interest repurchases |
| - |
|
|
| - |
|
|
| i 2,509 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 2,509 |
|
|
|
| - |
|
|
Repurchase of Non-Voting Common Stock |
| - |
|
|
| ( i 9) |
|
|
| ( i 97,588) |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| ( i 97,597) |
|
|
|
| - |
|
|
Principal repayments on notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from stock option exercises |
| - |
|
|
| - |
|
|
| - |
|
|
| i 2,458 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 2,458 |
|
|
|
| - |
|
|
Net subscriptions (redemptions/distributions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of non-controlling interest holders |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| ( i 366) |
|
|
| ( i 366) |
|
|
|
| i 117,926 |
|
|
Net consolidations (deconsolidations) of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored investment funds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ( i 152,579) |
|
|
Changes in redemption value of non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests redeemable at fair value |
| - |
|
|
| - |
|
|
| i 4,609 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 4,609 |
|
|
|
| ( i 4,609) |
|
|
Balance, April 30, 2020 | $ | i 2 |
|
| $ | i 445 |
|
| $ | 12,094 |
|
| $ | ( i 7,070) |
|
| $ | ( i 68,925) |
| $ | i 1,340,559 |
|
| $ | i - |
|
| $ | i 1,277,105 |
|
|
| $ | i 211,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
9
Eaton Vance Corp. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Consolidated Statements of Shareholders' Equity (unaudited) (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
| Six Months Ended April 30, 2019 | |||||||||||||||||||||||||||||||||||
|
| Permanent Equity |
|
|
|
| Temporary Equity |
|
| |||||||||||||||||||||||||||
(in thousands) | Voting Common Stock |
| Non-Voting Common Stock |
| Additional Paid-In Capital |
| Notes Receivable from Stock Option Exercises |
| Accumulated Other Comprehensive Income (Loss) | Retained Earnings |
| Non-Redeemable Non- Controlling Interests |
| Total Permanent Equity |
|
|
| Redeemable Non-Controlling Interests |
|
| ||||||||||||||||
Balance, November 1, 2018 | $ | i 2 |
|
| $ | i 455 |
|
| $ | i 17,514 |
|
| $ | ( i 8,057) |
|
| $ | ( i 53,181) |
| $ | i 1,150,698 |
|
| $ | i 1,000 |
|
| $ | i 1,108,431 |
|
|
| $ | i 335,097 |
|
|
Cumulative effect adjustment upon adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of new accounting standard (ASU 2016-01) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( i 3,714) |
|
| i 3,714 |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| i 188,608 |
|
|
| i 862 |
|
|
| i 189,470 |
|
|
|
| i 15,920 |
|
|
Other comprehensive loss, net of tax |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( i 4,720) |
|
| - |
|
|
| - |
|
|
| ( i 4,720) |
|
|
|
| - |
|
|
Dividends declared ($ i 0.70 per share) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| ( i 80,425) |
|
|
| - |
|
|
| ( i 80,425) |
|
|
|
| - |
|
|
Issuance of Non-Voting Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On exercise of stock options |
| - |
|
|
| i 2 |
|
|
| i 12,029 |
|
|
| ( i 248) |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 11,783 |
|
|
|
| - |
|
|
Under employee stock purchase plans |
| - |
|
|
| - |
|
|
| i 1,593 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 1,593 |
|
|
|
| - |
|
|
Under employee stock purchase incentive plan |
| - |
|
|
| - |
|
|
| i 3,389 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 3,389 |
|
|
|
| - |
|
|
Under restricted stock plan, net of forfeitures |
| - |
|
|
| i 7 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 7 |
|
|
|
| - |
|
|
Stock-based compensation |
| - |
|
|
| - |
|
|
| i 44,547 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 44,547 |
|
|
|
| - |
|
|
Tax benefit of non-controlling interest repurchases |
| - |
|
|
| - |
|
|
| i 959 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 959 |
|
|
|
| - |
|
|
Repurchase of Non-Voting Common Stock |
| - |
|
|
| ( i 18) |
|
|
| ( i 78,887) |
|
|
| - |
|
|
| - |
|
| ( i 104,625) |
|
|
| - |
|
|
| ( i 183,530) |
|
|
|
| - |
|
|
Principal repayments on notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from stock option exercises |
| - |
|
|
| - |
|
|
| - |
|
|
| i 485 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| i 485 |
|
|
|
| - |
|
|
Net subscriptions (redemptions/distributions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of non-controlling interest holders |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| ( i 841) |
|
|
| ( i 841) |
|
|
|
| i 43,919 |
|
|
Net consolidations (deconsolidations) of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored investment funds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ( i 51,912) |
|
|
Reclass to temporary equity |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| i 28 |
|
|
| i 28 |
|
|
|
| ( i 28) |
|
|
Purchase of non-controlling interests |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ( i 3,964) |
|
|
Changes in redemption value of non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests redeemable at fair value |
| - |
|
|
| - |
|
|
| ( i 1,144) |
|
|
| - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| ( i 1,144) |
|
|
|
| i 1,144 |
|
|
Balance, April 30, 2019 | $ | i 2 |
|
| $ | i 446 |
|
| $ | i - |
|
| $ | ( i 7,820) |
|
| $ | ( i 61,615) |
| $ | i 1,157,970 |
|
| $ | i 1,049 |
|
| $ | i 1,090,032 |
|
|
| $ | i 340,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Eaton Vance Corp. | ||||||
Consolidated Statements of Cash Flows (unaudited) | ||||||
|
|
| Six Months Ended | |||
|
|
| April 30, | |||
(in thousands) |
| 2020 |
|
| 2019 | |
|
|
|
|
|
|
|
Cash Flows From Operating Activities: |
|
|
|
|
| |
Net income | $ | i 140,891 |
| $ | i 205,390 | |
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
| |
operating activities: |
|
|
|
|
| |
Depreciation and amortization |
| i 11,435 |
|
| i 12,135 | |
Amortization of deferred sales commissions |
| i 12,257 |
|
| i 11,112 | |
Stock-based compensation |
| i 50,951 |
|
| i 44,547 | |
Deferred income taxes |
| i 4,350 |
|
| i 6,568 | |
Net (gains) losses on investments and derivatives |
| i 49,241 |
|
| ( i 69) | |
Equity in net income of affiliates, net of tax |
| ( i 3,806) |
|
| ( i 4,683) | |
Dividends received from affiliates |
| i 2,892 |
|
| i 5,634 | |
Non-cash operating lease expense |
| i 8,788 |
|
| i - | |
Consolidated CLO entities’ operating activities: |
|
|
|
|
| |
Net (gains) losses on bank loans, other investments and note obligations |
| i 30,663 |
|
| ( i 608) | |
Amortization of bank loan investments |
| ( i 2,316) |
|
| ( i 389) | |
Increase (decrease) in other assets, net of other liabilities |
| ( i 6,633) |
|
| i 10,128 | |
Decrease in cash due to deconsolidation of CLO entity |
| ( i 4,606) |
|
| i - | |
Changes in operating assets and liabilities: |
|
|
|
|
| |
Management fees and other receivables |
| i 17,850 |
|
| i 1,194 | |
Short-term debt securities |
| i 280,811 |
|
| i 70,077 | |
Investments held by consolidated sponsored funds and separately |
|
|
|
|
| |
managed accounts |
| ( i 115,735) |
|
| ( i 28,356) | |
Deferred sales commissions |
| ( i 16,859) |
|
| ( i 11,975) | |
Other assets |
| i 19,427 |
|
| i 23,281 | |
Accrued compensation |
| ( i 118,517) |
|
| ( i 112,399) | |
Accounts payable and accrued expenses |
| ( i 372) |
|
| i 4,635 | |
Operating lease liabilities |
| ( i 8,345) |
|
| i - | |
Other liabilities |
| i 44,691 |
|
| ( i 16,566) | |
Net cash provided by operating activities |
| i 397,058 |
|
| i 219,656 | |
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
| |
Additions to equipment and leasehold improvements |
| ( i 11,542) |
|
| ( i 21,612) | |
Proceeds from sale of investments |
| i 5,572 |
|
| i 12,139 | |
Purchase of investments |
| ( i 77) |
|
| ( i 1,452) | |
Proceeds from sale of investments in CLO entity note obligations |
| i 27,258 |
|
| i - | |
Consolidated CLO entities’ investing activities: |
|
|
|
|
| |
Proceeds from sales of bank loans and other investments |
| i 458,059 |
|
| i 193,838 | |
Purchase of bank loans and other investments |
| ( i 451,467) |
|
| ( i 550,600) | |
Net cash provided by (used for) investing activities |
| i 27,803 |
|
| ( i 367,687) | |
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
|
11
Eaton Vance Corp. | |||||
Consolidated Statements of Cash Flows (unaudited) (continued) | |||||
|
|
| Six Months Ended | ||
|
|
| April 30, | ||
(in thousands) |
| 2020 |
| 2019 | |
Cash Flows From Financing Activities: |
|
|
|
| |
Purchase of additional non-controlling interest | $ | ( i 8,372) | $ | ( i 18,098) | |
Proceeds from line of credit |
| i 300,000 |
| i - | |
Repayment of line of credit |
| ( i 300,000) |
| i - | |
Line of credit issuance costs |
| i - |
| ( i 930) | |
Proceeds from issuance of Voting Common Stock |
| i 581 |
| i - | |
Proceeds from issuance of Non-Voting Common Stock |
| i 49,963 |
| i 16,772 | |
Repurchase of Non-Voting Common Stock |
| ( i 111,267) |
| ( i 196,666) | |
Principal repayments on notes receivable from stock option exercises |
| i 2,458 |
| i 485 | |
Dividends paid |
| ( i 87,184) |
| ( i 82,521) | |
Net subscriptions received from (redemptions/distributions paid to) |
|
|
|
| |
non-controlling interest holders |
| i 116,807 |
| i 42,868 | |
Consolidated CLO entities’ financing activities: |
|
|
|
| |
Proceeds from line of credit |
| i - |
| i 151,838 | |
Net cash used for financing activities |
| ( i 37,014) |
| ( i 86,252) | |
Effect of currency rate changes on cash and cash equivalents |
| ( i 2,966) |
| ( i 527) | |
Net decrease in cash, cash equivalents and restricted cash |
| i 384,881 |
| ( i 234,810) | |
Cash, cash equivalents and restricted cash, beginning of period |
| i 653,345 |
| i 866,075 | |
Cash, cash equivalents and restricted cash, end of period | $ | i 1,038,226 | $ | i 631,265 | |
|
|
|
|
|
|
Supplemental Cash and Restricted Cash Flow Information: |
|
|
|
| |
Cash paid for interest | $ | i 11,810 | $ | i 11,362 | |
Cash paid for interest by consolidated CLO entities |
| i 34,945 |
| i 7,521 | |
Cash paid for income taxes, net of refunds |
| i 30,603 |
| i 57,351 | |
Supplemental Schedule of Non-Cash Investing and Financing |
|
|
|
| |
| Transactions: |
|
|
|
|
Increase in equipment and leasehold improvements due to non-cash |
|
|
|
| |
additions | $ | i 837 | $ | i 6,274 | |
Operating lease right-of-use assets recognized upon adoption of new |
|
|
|
| |
lease guidance |
| i 270,040 |
| i - | |
Operating lease liabilities recognized upon adoption of new lease guidance |
| i 318,824 |
| i - | |
Operating lease right-of-use assets obtained in exchange for new operating |
|
|
|
| |
lease liabilities |
| i 517 |
| i - | |
Exercise of stock options through issuance of notes receivable |
| i 1,081 |
| i 248 | |
Decrease in non-controlling interests due to net deconsolidation |
|
|
|
| |
of sponsored investment funds |
| ( i 152,579) |
| ( i 51,912) | |
Increase in bank loans and other investments of consolidated CLO entities |
|
|
|
| |
due to unsettled sales |
| i 2,340 |
| i 22,525 | |
Increase in bank loans and other investments of consolidated CLO entities |
|
|
|
| |
due to unsettled purchases |
| i 28,559 |
| i 193,244 | |
Deconsolidation of CLO Entity: |
|
|
|
| |
Decrease in bank loans and other investments | $ | ( i 445,569) | $ | i - | |
Decrease in senior and subordinated loan obligations |
| ( i 421,601) |
| i - | |
|
|
|
|
|
|
See notes to Consolidated Financial Statements. |
|
|
|
|
12
Eaton Vance Corp.
Notes to Consolidated Financial Statements (unaudited)
1. Summary of Significant Accounting Policies
i
Basis of presentation
In the opinion of management, the accompanying unaudited interim Consolidated Financial Statements of Eaton Vance Corp. (the Company) include all normal recurring adjustments necessary to present fairly the results for the interim periods in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Such financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations. As a result, these financial statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2019.
i
Adoption of new accounting standard
The Company adopted Accounting Standards Update (ASU) 2016-02, Leases, as of November 1, 2019. This guidance requires a lessee to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases. The Company applied a modified retrospective approach to adoption and has not restated comparative periods. In order to reduce the complexity of adoption, the Company elected practical expedients that allowed it to forego reassessments of the following: whether an arrangement is or contains a lease, the classification of the lease, the recognition requirement for initial direct costs, and assumptions regarding renewal options that affect the lease term. Separately, the Company made accounting policy elections to 1) not separate lease and non-lease components such that all consideration required to be paid under its lease agreements will be allocated to the lease component, and 2) to report short-term leases with a term of twelve months or less off-balance sheet.
Upon adoption of the new guidance on November 1, 2019, the Company recognized operating lease right‐of‐use (ROU) assets of approximately $ i 270.0 million equal to forecasted operating lease liabilities less deferred rent of $ i 48.8 million, which was recognized under previous lease accounting guidance, and operating lease liabilities of approximately $ i 318.8 million, with i no cumulative-effect adjustment to opening retained earnings. The new guidance does not have a significant impact on the Company’s results of operations or cash flows because operating lease costs continue to be recognized on a straight‐line basis over the remaining lease term and operating lease payments continue to be classified within operating activities in the Consolidated Statement of Cash Flows.
The Company’s accounting policies related to leases, as provided below, have been updated to reflect the adoption of this new accounting standard as of November 1, 2019.
/i
Leases
Contracts are evaluated at inception to determine whether such contract is or contains a lease. The Company leases certain office space and equipment under non-cancelable operating leases. As leases expire, they are normally renewed or replaced in the ordinary course of business. Lease agreements may contain renewal options exercisable by the Company, rent escalation clauses and/or other incentives
13
provided by the landlord. Renewal options that have been determined to be reasonably certain to be exercised are included in the lease term. Rights and obligations attributable to identified leases with a term in excess of twelve months are recognized on the Company’s Consolidated Balance Sheet in the form of ROU assets and lease liabilities as of the date the underlying assets are available for use, which may be the date the Company gains access to begin leasehold improvements. Lease payments related to short-term leases with a term of i twelve months or less are recognized on a straight-line basis as short-term lease expense.
Lease liabilities are initially and subsequently measured at the present value of future lease payments over the lease term. For the purposes of this calculation, lease payments consist of fixed monthly lease payments related to use of the underlying assets and related services. Discount rates used in the calculation of present value reflect estimated incremental borrowing rates determined for each lease as of the lease commencement date or subsequently when the lease liability is re-measured, as applicable.
ROU assets are initially measured equal to the corresponding lease liabilities, adjusted for any lease incentives payable to the Company. Subsequently, the amortization of ROU assets is recognized as a component of operating lease expense. The total cost of operating leases is recognized on a straight-line basis over the life of the related leases, and is comprised of imputed interest on lease liabilities measured using the effective interest method and amortization of the ROU asset. Variable lease payments are primarily related to services such as common-area maintenance and utilities, property taxes and insurance and are recognized as variable lease expense when incurred.
ROU assets are tested for impairment whenever changes in facts or circumstances indicate that the carrying amount of an asset may not be recoverable. Modification of a lease term would result in re-measurement of the lease liability and a corresponding adjustment to the ROU asset.
i2. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s Consolidated Balance Sheets that equal the total of the same such amounts presented in the Consolidated Statements of Cash Flows:
i
|
|
| April 30, |
| October 31, |
| (in thousands) |
| 2020 |
| 2019 |
| Cash and cash equivalents | $ | i 914,857 | $ | i 557,668 |
| Restricted cash of consolidated sponsored funds included in investments |
| i 42,433 |
| i 37,905 |
| Restricted cash included in assets of consolidated CLO entities, cash |
| i 42,081 |
| i 48,704 |
| Restricted cash included in other assets |
| i 38,855 |
| i 9,068 |
| Total cash, cash equivalents and restricted cash presented |
|
|
|
|
| in the Consolidated Statement of Cash Flows | $ | i 1,038,226 | $ | i 653,345 |
i
14
3. Investments
The following is a summary of investments:
i
| (in thousands) |
| April 30, |
| ||
|
| 2020 |
| 2019 | ||
| Investments held at fair value: |
|
|
|
| |
| Short-term debt securities | $ | i 16,427 | $ | i 297,845 | |
| Debt and equity securities held by consolidated sponsored funds |
| i 374,689 |
| i 514,072 | |
| Debt and equity securities held in separately managed accounts |
| i 74,692 |
| i 76,662 | |
| Non-consolidated sponsored funds and other |
| i 13,902 |
| i 10,329 | |
| Total investments held at fair value |
| i 479,710 |
| i 898,908 | |
| Investments held at cost |
| i 20,928 |
| i 20,904 | |
| Investments in non-consolidated CLO entities |
| i 1,380 |
| i 1,417 | |
| Investments in equity method investees |
| i 133,061 |
| i 139,510 | |
| Total investments(1) | $ | i 635,079 | $ | i 1,060,739 | |
|
|
|
|
|
|
|
| (1) | Excludes bank loans and other investments held by consolidated CLO entities, which are discussed in Note 4. |
Investments held at fair value
The Company recognized gains (losses) related to debt and equity securities held at fair value within gains (losses) and other investment income, net, in the Company’s Consolidated Statements of Income as follows:
i
|
|
| Three Months Ended |
| Six Months Ended | ||||||
|
|
| April 30, |
| April 30, | ||||||
| (in thousands) | 2020 | 2019 |
| 2020 | 2019 | |||||
| Realized gains (losses) on securities sold | $ | ( i 14,516) | $ | i 4,162 |
| $ | ( i 10,642) | $ | ( i 233) | |
| Unrealized gains (losses) on investments |
|
|
|
|
|
|
|
|
| |
| held at fair value |
| ( i 53,017) |
| i 8,071 |
|
| ( i 45,379) |
| i 11,377 | |
| Net gains (losses) on investments held at fair value | $ | ( i 67,533) | $ | i 12,233 |
| $ | ( i 56,021) | $ | i 11,144 |
Investments held at cost
Investments held at cost primarily include the Company’s equity investment in a wealth management technology firm. At both April 30, 2020 and October 31, 2019, the carrying value of the Company’s investment in the wealth management technology firm was $ i i 19.0 / million.
Investments in non-consolidated CLO entities
The Company provides investment management services for, and has made direct investments in, CLO entities that it does not consolidate, as described further in Note 4. The Company’s investments in non-consolidated CLO entities are carried at amortized cost unless impaired, at which point they are written down to fair value. At both April 30, 2020 and October 31, 2019, the carrying values of such investments
15
were $ i i 1.4 / million. At both April 30, 2020 and October 31, 2019, combined assets under management in the pools of non-consolidated CLO entities were $ i i 0.4 / billion.
The Company did not recognize any impairment losses related to the Company’s investments in non-consolidated CLO entities for the three and six months ended April 30, 2020 and 2019, respectively.
Investments in equity method investees
The Company has a i i 49 / percent equity interest in Hexavest Inc. (Hexavest), a Montreal, Canada-based investment adviser. The carrying value of this investment consisted of the following:
i
| (in thousands) |
| April 30, |
| |
|
| 2020 |
| 2019 | |
| Equity in net assets of Hexavest | $ | i 6,866 | $ | i 5,466 |
| Definite-lived intangible assets |
| i 17,563 |
| i 19,486 |
| Goodwill |
| i 110,072 |
| i 116,319 |
| Deferred tax liability |
| ( i 4,725) |
| ( i 5,243) |
| Total carrying value | $ | i 129,776 | $ | i 136,028 |
The Company’s investment in Hexavest is denominated in Canadian dollars and is subject to foreign currency translation adjustments, which are recorded in accumulated other comprehensive income (loss). Changes in the carrying value of goodwill is entirely attributable to foreign currency translation adjustments.
During the second quarter of fiscal 2020, the Company noted a decline in Hexavest’s managed assets driven primarily by equity market declines and net client withdrawals. An interim impairment test indicated that the estimated fair value of the Company’s investment in Hexavest had fallen below the carrying value as of April 30, 2020, an initial indicator of impairment. However, the Company determined that the investment was not other-than-temporarily impaired, as this was the first period end when the estimated fair value of the Company’s investment in Hexavest was less than its carrying value. The Company has no intention of disposing of its investment in Hexavest. Deeper or more extended declines in Hexavest’s managed assets could further reduce the fair value of the Company’s investment; as a result, future impairment tests could result in the Company recognizing an other-than-temporary impairment of its investment.
The Company also has a seven percent equity interest in a private equity partnership managed by a third party that invests in companies in the financial services industry. The carrying value of this investment was $ i 3.3 million at April 30, 2020 and $ i 3.5 million at October 31, 2019.
During the six months ended April 30, 2020 and 2019, the Company received dividends of $ i 2.9 million and $ i 5.6 million, respectively, from its investments in equity method investees.
i
16
4. Variable Interest Entities (VIEs)
Investments in VIEs that are consolidated
In the normal course of business, the Company maintains investments in sponsored entities that are considered VIEs to support their launch and marketing. The Company consolidates these sponsored entities if it is the primary beneficiary of the VIE.
Consolidated sponsored funds
The Company invests in sponsored investment companies that meet the definition of a VIE. Underlying investments held by consolidated sponsored funds consist of debt and equity securities and are included in the reported amount of investments on the Company’s Consolidated Balance Sheets at April 30, 2020 and October 31, 2019. Net investment income or (loss) related to consolidated sponsored funds was included in gains (losses) and other investment income, net, in the Company’s Consolidated Statements of Income for all periods presented. The impact of consolidated sponsored funds’ net income or (loss) on net income attributable to Eaton Vance Corp. shareholders was reduced by amounts attributable to non-controlling interest holders, which are recorded in net (income) loss attributable to non-controlling and other beneficial interests in the Company’s Consolidated Statements of Income for all periods presented. The extent of the Company’s exposure to loss with respect to a consolidated sponsored fund is limited to the amount of the Company’s investment in the sponsored fund and any uncollected management and performance fees. The Company is not obligated to provide financial support to sponsored funds. Only the assets of a sponsored fund are available to settle its obligations. Other beneficial interest holders of sponsored funds do not have recourse to the general credit of the Company.
The Company consolidated i 18 sponsored funds as of April 30, 2020 and i 19 sponsored funds as of October 31, 2019. The following table sets forth the balances related to these funds as well as the Company’s net interest in these funds:
i
| (in thousands) |
| April 30, |
| |
|
| 2020 |
| 2019 | |
| Investments | $ | i 374,689 | $ | i 514,072 |
| Other assets |
| i 16,117 |
| i 16,846 |
| Other liabilities |
| ( i 14,929) |
| ( i 35,488) |
| Redeemable non-controlling interests |
| ( i 190,510) |
| ( i 260,681) |
| Net interest in consolidated sponsored funds | $ | i 185,367 | $ | i 234,749 |
Consolidated CLO entities
As of April 30, 2020, the Company deemed itself to be the primary beneficiary of i three non-recourse securitized CLO entities, namely, Eaton Vance CLO 2019-1 (CLO 2019-1), Eaton Vance CLO 2013-1 (CLO 2013-1) and Eaton Vance CLO 2014-1R (CLO 2014-1R). As of October 31, 2019, the Company deemed itself to be the primary beneficiary of i four non-recourse securitized CLO entities, namely, CLO 2019-1, CLO 2013-1, Eaton Vance CLO 2018-1 (CLO 2018-1) and CLO 2014-1R.
The assets of consolidated CLO entities are held solely as collateral to satisfy the obligations of each entity. The Company has no right to receive benefits from, nor does the Company bear the risks associated with, the assets held by these CLO entities beyond the Company’s investment in these entities. In the event of default, recourse to the Company is limited to its investment in these entities. The Company has not
17
provided any financial or other support to these entities that it was not previously contractually required to provide, and there are neither explicit arrangements nor does the Company hold implicit variable interests that could require the Company to provide any ongoing financial support to these entities. Other beneficial interest holders of consolidated CLO entities do not have any recourse to the Company’s general credit. The Company reports the financial information of consolidated securitized CLO entities on a one-month lag based upon the availability of financial information.
Eaton Vance CLO 2019-1
CLO 2019-1 was securitized on May 15, 2019. As of April 30, 2020, the Company continues to hold i 100 percent of the subordinated notes that were issued by CLO 2019-1 at closing and is still serving as the collateral manager of the entity. The Company deemed itself to be the primary beneficiary of CLO 2019-1 upon acquiring i 100 percent of the subordinated interests of the entity on May 15, 2019 and began consolidating the entity as of that date.
Eaton Vance CLO 2013-1
The Company deemed itself to be the primary beneficiary of CLO 2013-1 upon acquiring i 100 percent of the subordinated notes of the entity on May 1, 2019 and began consolidating the entity as of that date. As of April 30, 2020, the Company continues to hold i 100 percent of the subordinated notes that were acquired on May 1, 2019 and is still serving as the collateral manager of the entity.
Eaton Vance CLO 2018-1
CLO 2018-1 was securitized on October 24, 2018. The Company deemed itself to be the primary beneficiary of CLO 2018-1 upon acquiring i 93 percent of the subordinated interests of the entity on October 24, 2018 and began consolidating the entity as of that date. On January 15, 2020, the Company sold its entire interest in the subordinated notes of CLO 2018-1 to an unrelated third party for $ i 27.3 million and recognized a loss of $ i 7.2 million upon the sale included within gains and other investment income, net of consolidated CLO entities in the Company’s Consolidated Statement of Income for the six months ended April 30, 2020. Although the Company continues to serve as collateral manager of the entity, the Company concluded that it no longer had an obligation to absorb the losses of, or the rights to receive benefits from, CLO 2018-1 that could potentially be significant to the entity. As a result, the Company concluded that it was no longer the primary beneficiary of CLO 2018-1 upon the sale of the subordinated interests of the entity on January 15, 2020 and deconsolidated the entity as of that date.
Eaton Vance CLO 2014-1R
CLO 2014-1R was securitized on August 23, 2018. As of April 30, 2020, the Company continues to hold i 100 percent of the subordinated notes that were issued by CLO 2014-1R at closing and is still serving as the collateral manager of the entity. The Company deemed itself to be the primary beneficiary of CLO 2014-1R upon acquiring i 100 percent of the subordinated interests of the entity on August 23, 2018 and began consolidating CLO 2014-1R as of that date.
The Company elected to apply the measurement alternative to ASC 820 for collateralized financing entities upon the initial consolidation and for the subsequent measurement of the securitized CLO entities consolidated by the Company (collectively, the consolidated securitized CLO entities). The Company determined that the fair value of the financial assets of these entities is more observable than the fair value of the financial liabilities. Through the application of the measurement alternative, the fair value of the financial liabilities of these entities is measured as the difference between the fair value of the financial assets and the fair value of the Company’s beneficial interests in these entities, which include the subordinated interests held by the Company and any accrued management fees due to the Company. The
18
fair value of the subordinated notes held by the Company is determined primarily based on an income approach, which projects the cash flows of the CLO assets using projected default, prepayment, recovery and discount rates, as well as observable assumptions about market yields, callability and other market factors. An appropriate discount rate is then applied to determine the discounted cash flow valuation of the subordinated notes. Aggregate disclosures for the securitized CLO entities consolidated by the Company as of April 30, 2020 and October 31, 2019 are provided below.
The following table presents the balances attributable to the consolidated securitized CLO entities included on the Company’s Consolidated Balance Sheets:
i
|
|
|
| April 30, |
| October 31, |
| (in thousands) |
| 2020 |
| 2019 | |
| Assets of consolidated CLO entities: |
|
|
|
| |
|
| Cash | $ | i 42,081 | $ | i 48,704 |
|
| Bank loans and other investments |
| i 1,135,609 |
| i 1,704,270 |
|
| Receivable for pending bank loan sales |
| i 2,341 |
| i 24,193 |
|
| Other assets |
| i 3,214 |
| i 3,846 |
| Liabilities of consolidated CLO entities: |
|
|
|
| |
|
| Senior and subordinated note obligations |
| i 1,088,574 |
| i 1,617,095 |
|
| Payable for pending bank loan purchases |
| i 28,559 |
| i 33,985 |
|
| Other liabilities |
| i 10,895 |
| i 17,137 |
| Total beneficial interests | $ | i 55,217 | $ | i 112,796 |
Although the Company’s beneficial interests in the consolidated securitized CLO entities are eliminated upon consolidation, the application of the measurement alternative results in the Company’s total beneficial interests in these entities of $ i 55.2 million and $ i 112.8 million at April 30, 2020 and October 31, 2019, respectively, being equal to the net amount of the consolidated CLO entities’ assets and liabilities included on the Company’s Consolidated Balance Sheets. As noted above, the consolidated securitized CLO entities are reported on a one-month lag. The Company evaluated the disruption to the economy and financial markets attributable to the global pandemic during the month of April 2020 and the impact on the valuation of its beneficial interests in the consolidated securitized CLO entities. There are no material changes in the value of the Company’s beneficial interests in the consolidated securitized CLO entities as of April 30, 2020.
The collateral assets held by consolidated CLOs primarily consists of senior secured bank loan investments from a variety of industries. Bank loan investments mature at various dates between 2020 and 2028 and pay interest at LIBOR plus a spread of up to i 11.0 percent. Approximately i 0.6 percent of the collateral assets held by consolidated CLO entities were in default as of April 30, 2020. Additional disclosure of the fair values of assets and liabilities of consolidated CLO entities that are measured at fair value on a recurring basis is included in Note 6.
The consolidated securitized CLO entities, including the portioned owned by the Company, held notes payable with a total par value of $ i 1.3 billion at April 30, 2020, consisting of senior secured floating rate notes payable with a par value of $ i 1.2 billion and subordinated notes with a par value of $ i 117.4 million. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from i 0.7 percent to i 8.5 percent. The principal amounts outstanding of these note obligations mature on dates ranging from January 2028 to July 2030.
19
The following table presents the balances attributable to consolidated securitized CLO entities included in the Company’s Consolidated Statements of Income:
i
|
|
|
| Consolidated Securitized CLO Entities | ||||||
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Other income (expense) of consolidated |
|
|
|
|
|
|
|
| |
|
| CLO entities: |
|
|
|
|
|
|
|
|
|
| Gains (losses) and other investment |
|
|
|
|
|
|
|
|
|
| income, net | $ | ( i 4,841) | $ | i 17,355 | $ | i 10,722 | $ | i 21,933 |
|
| Interest and other expense |
| ( i 11,647) |
| ( i 9,680) |
| ( i 29,043) |
| ( i 17,925) |
| Net gain (loss) attributable to the Company | $ | ( i 16,488) | $ | i 7,675 | $ | ( i 18,321) | $ | i 4,008 |
The Company recognized net income of $ i 3.3 million and $ i 4.1 million from a warehouse CLO entity that the Company consolidated during the three and six months ended April 30, 2019, respectively.
As summarized in the table below, the application of the measurement alternative results in the Company's earnings from the consolidated securitized CLO entities subsequent to initial consolidation, as shown above, to be equivalent to the Company's own economic interests in these entities:
i
|
|
|
| Consolidated Securitized CLO Entities: | ||||||
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Economic interests in consolidated |
|
|
|
|
|
|
|
| |
| securitized CLO entities: |
|
|
|
|
|
|
|
| |
|
| Distributions received and gains (losses) |
|
|
|
|
|
|
|
|
|
| on senior and subordinated interests |
|
|
|
|
|
|
|
|
|
| held by the Company | $ | ( i 17,907) | $ | i 6,445 | $ | ( i 21,667) | $ | i 1,871 |
|
| Management fees |
| i 1,419 |
| i 1,230 |
| i 3,346 |
| i 2,137 |
| Total economic interests | $ | ( i 16,488) | $ | i 7,675 | $ | ( i 18,321) | $ | i 4,008 |
Investments in VIEs that are not consolidated
Sponsored funds
The Company classifies its investments in certain sponsored funds that are considered VIEs as equity securities when it is not considered the primary beneficiary of these VIEs. The Company provides aggregated disclosures with respect to these non-consolidated sponsored fund VIEs in Note 3 and Note 6.
Non-consolidated CLO entities
The Company is not deemed the primary beneficiary of certain CLO entities in which it holds variable interests. In developing its conclusion that it is not the primary beneficiary of these entities, the Company determined that, although it has variable interests in each such CLO by virtue of its beneficial ownership
20
interests in the CLO entities, these interests neither individually nor in the aggregate represent an obligation to absorb losses of, or a right to receive benefits from, any such entity that could potentially be significant to that entity.
The Company’s maximum exposure to loss with respect to these non-consolidated CLO entities is limited to the carrying value of its investments in, and collateral management fees receivable from, these entities as of April 30, 2020. The Company held investments in these entities totaling $ i i 1.4 / million on both April 30, 2020 and October 31, 2019. Collateral management fees receivable for these entities totaled $ i i 0.1 / million on both April 30, 2020 and October 31, 2019. Other investors in these CLO entities have no recourse against the Company for any losses sustained. The Company did not provide any financial or other support to these entities that it was not previously contractually required to provide in any of the fiscal periods presented. Income from these entities is recorded as a component of gains (losses) and other investment income, net, in the Company’s Consolidated Statements of Income, based upon projected investment yields. Additional information regarding the Company’s investment in non-consolidated CLO entities, as well as the combined assets under management in the pools of non-consolidated CLO entities, is included in Note 3.
Other entities
The Company holds variable interests in, but is not deemed to be the primary beneficiary of, certain sponsored privately offered equity funds with total assets of $ i 26.9 billion and $ i 26.3 billion on April 30, 2020 and October 31, 2019, respectively. The Company’s variable interests in these entities consist of the Company’s direct ownership therein, which in each case is insignificant relative to the total ownership of the fund, and any investment advisory fees earned but uncollected. The Company’s maximum exposure to loss with respect to these managed entities is limited to the carrying value of its investments in, and investment advisory fees receivable from, these entities as of April 30, 2020. The Company held investments in these entities totaling $ i i 0.5 / million on both April 30, 2020 and October 31, 2019 and investment advisory fees receivable totaling $ i i 1.3 / million on both April 30, 2020 and October 31, 2019. The Company did not provide any financial or other support to these entities that it was not contractually required to provide in any of the periods presented. The Company does not consolidate these VIEs because it does not have the obligation to absorb losses of, or the right to receive benefits from, these VIEs that could potentially be significant to these VIEs.
The Company’s investments in privately offered equity funds are carried at fair value and included in non-consolidated sponsored funds and other, which are disclosed as a component of investments in Note 3.
The Company also holds a variable interest in, but is not deemed to be the primary beneficiary of, a private equity partnership managed by a third party that invests in companies in the financial services industry. The Company’s variable interest in this entity consists of the Company’s direct ownership in the private equity partnership, equal to $ i 3.3 million and $ i 3.5 million on April 30, 2020 and October 31, 2019, respectively. The Company did not provide any financial or other support to this entity. The Company’s risk of loss with respect to the private equity partnership is limited to the carrying value of its investment in the entity as of April 30, 2020. The Company does not consolidate this VIE because the Company does not hold the power to direct the activities that most significantly affect the VIE.
The Company’s investment in the private equity partnership is accounted for as an equity method investment and disclosures related to this entity are included in Note 3 under the heading Investments in equity method investees.
i
21
5. Derivative Financial Instruments
Derivative financial instruments designated as cash flow hedges
In fiscal 2017, the Company entered into a Treasury lock transaction in connection with the offering of its 2027 Senior Notes. The Company concurrently designated the Treasury lock as a cash flow hedge to mitigate its exposure to variability in the forecasted semi-annual interest payments and recorded a loss of $ i 0.4 million, in other comprehensive income (loss), net of tax. The Company reclassified approximately $ i i 17,000 / and $ i i 34,000 / of the loss into interest expense during both the three and six months ended April 30, 2020 and 2019, respectively, and will reclassify the remaining $ i 0.5 million loss as of April 30, 2020 to earnings over the remaining term of the debt. During the next twelve months, the Company expects to reclassify approximately $ i 68,000 of the unamortized loss.
In fiscal 2013, the Company entered into a forward-starting interest rate swap in connection with the offering of its 2023 Senior Notes and recorded a gain in other comprehensive income (loss), net of tax. The Company reclassified $ i i 50,000 / and $ i i 0.1 / million of the gain into interest expense during both the three and six months ended April 30, 2020 and 2019, respectively, and will reclassify the remaining $ i 0.6 million gain as of April 30, 2020 to earnings over the remaining term of the debt. During the next twelve months, the Company expects to reclassify approximately $ i 0.2 million of the unamortized gain.
Other derivative financial instruments not designated for hedge accounting
The Company utilizes derivative financial instruments to hedge the market and currency risks associated with its investments in certain consolidated seed investments that are not designated as hedging instruments for accounting purposes.
Excluding derivative financial instruments held by consolidated sponsored funds, the Company was party to the following derivative financial instruments:
i
|
|
| ||||||
|
| Number of Contracts |
| Notional Value (in millions) |
| Number of Contracts |
| Notional Value (in millions) |
| Stock index futures | i 1,166 | $ | i 88.2 |
| i 1,370 | $ | i 108.3 |
| Total return swaps | i 2 | $ | i 84.0 |
| i 2 | $ | i 84.0 |
| Interest rate swaps | i 6 | $ | i 8.9 |
| i 6 | $ | i 24.4 |
| Credit default swaps | i 1 | $ | i 8.0 |
| i 1 | $ | i 8.0 |
| Foreign exchange contracts | i 61 | $ | i 40.8 |
| i 26 | $ | i 56.4 |
| Commodity futures | i 486 | $ | i 17.2 |
| i 415 | $ | i 15.2 |
| Currency futures | i 73 | $ | i 8.0 |
| i 231 | $ | i 24.0 |
| Interest rate futures | i 140 | $ | i 17.7 |
| i 151 | $ | i 22.3 |
The derivative contracts outstanding and associated notional values at April 30, 2020 and October 31, 2019 are representative of derivative balances throughout each respective period.
The Company has not elected to offset fair value amounts related to derivative financial instruments executed with the same counterparty under master netting arrangements; as a result, the Company records all derivative financial instruments as either other assets or other liabilities, gross, on its
22
Consolidated Balance Sheets and measures them at fair value. The following table presents the fair value of derivative financial instruments not designated for hedge accounting and how they are reflected on the Company’s Consolidated Balance Sheets:
|
|
| ||||||||
| (in thousands) |
| Other Assets |
| Other Liabilities |
|
| Other Assets |
| Other Liabilities |
| Stock index futures | $ | i 1,372 | $ | i 3,754 |
| $ | i 615 | $ | i 1,841 |
| Total return swaps |
| i 6,299 |
| i - |
|
| i 396 |
| i 114 |
| Interest rate swaps |
| i 35 |
| i 116 |
|
| i 61 |
| i 235 |
| Credit default swaps |
| i 848 |
| i - |
|
| i 360 |
| i - |
| Foreign exchange contracts |
| i 1,494 |
| i 231 |
|
| i 51 |
| i 615 |
| Commodity futures |
| i 376 |
| i 233 |
|
| i 319 |
| i 334 |
| Currency futures |
| i 238 |
| i 91 |
|
| i 128 |
| i 153 |
| Interest rate futures |
| i 125 |
| i 368 |
|
| i 144 |
| i 22 |
| Total | $ | i 10,787 | $ | i 4,793 |
| $ | i 2,074 | $ | i 3,314 |
The Company may provide cash collateral to, or receive cash collateral from, certain counterparties to satisfy margin requirements for derivative positions that are classified as restricted cash. At April 30, 2020 and October 31, 2019, restricted cash collateral balances for derivative positions included in other assets on the Company’s Consolidated Balance Sheet were $ i 36.9 million and $ i 7.5 million, respectively. At April 30, 2020 and October 31, 2019, payables to counterparties for collateral balances received related to derivative positions included in other liabilities on the Company’s Consolidated Balance Sheets were $ i 7.8 million and $ i 0, respectively.
The Company recognized the following gains (losses) on derivative financial instruments within gains (losses) and other investment income, net, in the Company’s Consolidated Statements of Income:
|
| Three Months Ended |
| Six Months Ended | ||||||
|
| April 30, |
| April 30, | ||||||
| (in thousands) |
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| Stock index futures | $ | i 14,903 | $ | ( i 5,681) |
| $ | i 12,285 | $ | ( i 5,897) |
| Total return swaps |
| i 7,778 |
| ( i 4,197) |
|
| i 6,511 |
| ( i 6,382) |
| Interest rate swaps |
| ( i 197) |
| i - |
|
| ( i 465) |
| i - |
| Credit default swaps |
| i 514 |
| ( i 64) |
|
| i 467 |
| ( i 147) |
| Foreign exchange contracts |
| i 1,633 |
| i 345 |
|
| i 1,767 |
| i 62 |
| Commodity futures |
| i 703 |
| ( i 410) |
|
| i 1,128 |
| i 337 |
| Currency futures |
| i 904 |
| ( i 106) |
|
| i 958 |
| ( i 71) |
| Interest rate futures |
| ( i 77) |
| ( i 514) |
|
| ( i 127) |
| ( i 902) |
| Net gains (losses) | $ | i 26,161 | $ | ( i 10,627) |
| $ | i 22,524 | $ | ( i 13,000) |
In addition to the derivative contracts described above, certain consolidated seed investments may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives.
i
23
6. Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize financial assets and liabilities measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy:
i
|
|
|
|
|
|
|
|
|
|
| |
| (in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Not Held at Fair Value |
| Total |
| Financial assets: |
|
|
|
|
|
|
|
|
|
|
| Cash equivalents | $ | i 19,473 | $ | i 3,000 | $ | i - | $ | i - | $ | i 22,473 |
| Investments held at fair value: |
|
|
|
|
|
|
|
|
|
|
| Debt securities: |
|
|
|
|
|
|
|
|
|
|
| Short-term |
| i - |
| i 16,427 |
| i - |
| i - |
| i 16,427 |
| Held by consolidated sponsored funds |
| i - |
| i 209,427 |
| i - |
| i - |
| i 209,427 |
| Held in separately managed accounts |
| i - |
| i 53,627 |
| i - |
| i - |
| i 53,627 |
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
| Held by consolidated sponsored funds |
| i 75,514 |
| i 89,748 |
| i - |
| i - |
| i 165,262 |
| Held in separately managed accounts |
| i 20,869 |
| i 196 |
| i - |
| i - |
| i 21,065 |
| Non-consolidated sponsored funds |
|
|
|
|
|
|
|
|
|
|
| and other |
| i 13,386 |
| i 516 |
| i - |
| i - |
| i 13,902 |
| Investments held at cost(1) |
| i - |
| i - |
| i - |
| i 20,928 |
| i 20,928 |
| Investments in non-consolidated CLO |
|
|
|
|
|
|
|
|
|
|
| entities(2) |
| i - |
| i - |
| i - |
| i 1,380 |
| i 1,380 |
| Investments in equity method investees(1) |
| i - |
| i - |
| i - |
| i 133,061 |
| i 133,061 |
| Derivative instruments |
| i - |
| i 10,787 |
| i - |
| i - |
| i 10,787 |
| Assets of consolidated CLO entities: |
|
|
|
|
|
|
|
|
|
|
| Bank loans and other investments |
| i - |
| i 1,133,678 |
| i 1,931 |
| i - |
| i 1,135,609 |
| Total financial assets | $ | i 129,242 | $ | i 1,517,406 | $ | i 1,931 | $ | i 155,369 | $ | i 1,803,948 |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| Derivative instruments | $ | i - | $ | i 4,793 | $ | i - | $ | i - | $ | i 4,793 |
| Liabilities of consolidated CLO entities: |
|
|
|
|
|
|
|
|
|
|
| Senior and subordinated note obligations |
| i - |
| i 1,088,574 |
| i - |
| i - |
| i 1,088,574 |
| Total financial liabilities | $ | i - | $ | i 1,093,367 | $ | i - | $ | i - | $ | i 1,093,367 |
24
|
|
|
|
|
|
|
|
|
|
| ||
| (in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Not Held at Fair Value |
| Total | |
| Financial assets: |
|
|
|
|
|
|
|
|
|
| |
| Cash equivalents | $ | i 24,640 | $ | i 157,267 | $ | i - | $ | i - | $ | i 181,907 | |
| Investments held at fair value: |
|
|
|
|
|
|
|
|
|
| |
| Debt securities: |
|
|
|
|
|
|
|
|
|
| |
| Short-term |
| i - |
| i 297,845 |
| i - |
| i - |
| i 297,845 | |
| Held by consolidated sponsored funds |
| i - |
| i 330,966 |
| i - |
| i - |
| i 330,966 | |
| Held in separately managed accounts |
| i - |
| i 55,426 |
| i - |
| i - |
| i 55,426 | |
| Equity securities: |
|
|
|
|
|
|
|
|
|
| |
| Held by consolidated sponsored funds |
| i 70,646 |
| i 112,460 |
| i - |
| i - |
| i 183,106 | |
| Held in separately managed accounts |
| i 21,168 |
| i 68 |
| i - |
| i - |
| i 21,236 | |
| Non-consolidated sponsored funds |
|
|
|
|
|
|
|
|
|
| |
| and other |
| i 9,814 |
| i 515 |
| i - |
| i - |
| i 10,329 | |
| Investments held at cost(1) |
| i - |
| i - |
| i - |
| i 20,904 |
| i 20,904 | |
| Investments in non-consolidated CLO |
|
|
|
|
|
|
|
|
|
| |
| entities(2) |
| - |
| - |
| - |
| i 1,417 |
| i 1,417 | |
| Investments in equity method investees(1) |
| i - |
| i - |
| i - |
| i 139,510 |
| i 139,510 | |
| Derivative instruments |
| i - |
| i 2,075 |
| i - |
| i - |
| i 2,075 | |
| Assets of consolidated CLO entities: |
|
|
|
|
|
|
|
|
|
| |
| Bank loans and other investments |
| i - |
| i 1,702,769 |
| i 1,501 |
| i - |
| i 1,704,270 | |
| Total financial assets | $ | i 126,268 | $ | i 2,659,391 | $ | i 1,501 | $ | i 161,831 | $ | i 2,948,991 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Financial liabilities: |
|
|
|
|
|
|
|
|
|
| |
| Derivative instruments | $ | i - | $ | i 3,314 | $ | i - | $ | i - | $ | i 3,314 | |
| Liabilities of consolidated CLO entities: |
|
|
|
|
|
|
|
|
|
| |
| Senior and subordinated note obligations |
| i - |
| i 1,617,095 |
| i - |
| i - |
| i 1,617,095 | |
| Total financial liabilities | $ | i - | $ | i 1,620,409 | $ | i - | $ | i - | $ | i 1,620,409 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) | These investments are not measured at fair value in accordance with U.S. GAAP. | ||||||||||
| (2) | Investments in non-consolidated CLO entities are carried at amortized cost unless facts or circumstances indicate that the investments have been impaired, at which time the investments are written down to fair value as measured using level 3 inputs. |
A description of the valuation techniques and the inputs used in recurring fair value measurements is included immediately below. There have been no changes in the Company’s valuation techniques in the current reporting period.
Cash equivalents
Cash equivalents include investments in money market mutual funds, government agency securities, certificates of deposit and commercial paper with remaining maturities to the Company of less than three months, as determined upon the purchase of each security. Cash investments in daily redeemable, actively traded money market mutual funds are valued using published net asset values and are categorized as Level 1 within the fair value measurement hierarchy. Holdings of Treasury and government agency securities are valued based upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The carrying amounts of certificates of deposit and commercial paper are measured
25
at amortized cost, which approximates fair value due to the short time between the purchase and expected maturity of these investments. Depending on the categorization of the significant inputs, these assets are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.
Debt securities held at fair value
Debt securities held at fair value consist of certificates of deposit, commercial paper and corporate debt obligations with remaining maturities of three months to 12 months upon purchase by the Company, as well as investments in debt securities held in portfolios of consolidated sponsored funds and separately managed accounts.
Short-term debt securities held are generally valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker-dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. These assets are generally categorized as Level 2 within the fair value measurement hierarchy.
Debt securities held in portfolios of consolidated sponsored funds and separately managed accounts are generally valued on the basis of valuations provided by third-party pricing services as described above for short-term debt securities. Debt securities purchased with an original (remaining) maturity of 60 days or less (excluding those that are non-U.S. denominated, which typically are valued by a third-party pricing service or dealer quotes) are generally valued at amortized cost, which approximates fair value. Depending on the categorization of the significant inputs, debt securities held in portfolios of consolidated sponsored funds are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.
Equity securities held at fair value
Equity securities measured at fair value on a recurring basis consist of domestic and foreign equity securities held in portfolios of consolidated sponsored funds and separately managed accounts and investments in non-consolidated sponsored or other funds.
Equity securities are valued at the last sale, official close or, if there are no reported sales on the valuation date, at the mean between the latest available bid and ask prices on the primary exchange on which they are traded. When valuing foreign equity securities that meet certain criteria, the portfolios use a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities. In addition, the Company performs its own independent back test review of fair values versus the subsequent local market opening prices when available. Depending on the categorization of the significant inputs, these assets are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.
Equity investments in non-consolidated mutual funds are valued using the published net asset value per share and are classified as Level 1 within the fair value measurement hierarchy. Sponsored private open-end funds are not listed on an active exchange but calculate a net asset value per share (or equivalent) as of the Company’s reporting date in a manner consistent with mutual funds. The Company’s investments therein do not have any redemption restrictions and are not probable of being sold at an amount different from their calculated net asset value per share (or equivalent). Accordingly, investments in sponsored private open-end funds are measured at fair value based on the net asset value per share (or equivalent) of the investment as a
26
practical expedient and are categorized as Level 2 within the fair value measurement hierarchy. The Company does not have any unfunded commitments related to investments in sponsored private mutual funds at April 30, 2020 and October 31, 2019.
Derivative instruments
Derivative instruments, further discussed in Note 5, are recorded as either other assets or other liabilities on the Company’s Consolidated Balance Sheets. Futures and swap contracts are valued using a third‐party pricing service that determines fair value based on bid and ask prices. Foreign exchange contracts are valued by interpolating a value using the spot foreign exchange rate and forward points, which are based on spot rates and currency interest rate differentials. Derivative instruments generally are classified as Level 2 within the fair value measurement hierarchy.
Assets of consolidated CLO entities
Consolidated CLO entity assets include investments in bank loans and equity securities. Fair value is determined utilizing unadjusted quoted market prices when available. Equity securities held by consolidated CLO entities are valued using the same techniques as described above for equity securities. Interests in senior floating‐rate loans for which reliable market quotations are readily available are generally valued at the average mid‐point of bid and ask quotations obtained from a third‐party pricing service. Fair value may also be based upon valuations obtained from independent third‐party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non‐binding quotes. Depending on the categorization of the significant inputs, these assets are generally categorized as Level 2 or 3 within the fair value measurement hierarchy.
Liabilities of consolidated CLO entities
Consolidated CLO entity liabilities include senior and subordinated note obligations. Fair value is determined using the measurement alternative to ASC 820 for collateralized financing entities. In accordance with the measurement alternative, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (1) the fair value of the beneficial interests held by the Company and (2) the carrying value of any beneficial interests that represent compensation for services. Although both Level 2 and Level 3 inputs were used to measure the fair value of the CLO liabilities, the senior note obligations are classified as Level 2 within the fair value measurement hierarchy, as the Level 3 inputs used were not significant.
27
Level 3 assets and liabilities
The following tables show a reconciliation of the beginning and ending fair value measurements of assets and liabilities valued on a recurring basis and classified as Level 3 within the fair value measurement hierarchy:
i
|
|
|
| Bank Loans and Other Investments of Consolidated CLO Entities | ||
|
|
|
| Three Months Ended |
| Six Months Ended |
| (in thousands) |
|
| |||
| Beginning balance | $ | i 4,058 | $ | i 1,501 | |
| Paydowns |
| ( i 6) |
| ( i 13) | |
| Purchases |
| i 108 |
| i 429 | |
| Net gains (losses) included in net income |
| ( i 1) |
| i 37 | |
| Transfers into Level 3(1) |
| i - |
| i 2,205 | |
| Transfers out of Level 3(2) |
| ( i 2,228) |
| ( i 2,228) | |
| Ending balance | $ | i 1,931 | $ | i 1,931 | |
|
|
|
|
|
|
|
| (1) | Transfers into Level 3 were the result of a reduction in the availability of significant observable inputs used in determining the fair value of certain instruments. | ||||
| (2) | Transfers out of Level 3 were the result of an increase in the availability of significant observable inputs used in determining the fair value of certain instruments. |
|
|
| Bank Loans and Other Investments of Consolidated CLO Entities | |||
|
|
|
| Three Months Ended |
| Six Months Ended |
| (in thousands) |
|
| |||
| Beginning balance | $ | i 1,362 | $ | i 1,547 | |
| Paydowns |
| ( i 6) |
| ( i 12) | |
| Net losses included in net income |
| ( i 218) |
| ( i 397) | |
| Ending balance | $ | i 1,138 | $ | i 1,138 |
Financial Assets and Liabilities Not Measured at Fair Value
Certain financial instruments are not carried at fair value, but their fair value is required to be disclosed. The following is a summary of the carrying amounts and estimated fair values of these financial instruments:
i
|
|
|
| ||||||||
| (in thousands) |
| Carrying Value |
| Fair Value | Fair Value Level |
| Carrying Value |
| Fair Value | Fair Value Level |
| Loan to affiliate | $ | i 5,000 | $ | i 5,000 | 3 | $ | i 5,000 | $ | i 5,000 | 3 |
| Debt | $ | i 620,930 | $ | i 661,087 | 2 | $ | i 620,513 | $ | i 658,615 | 2 |
28
As discussed in Note 20, on December 23, 2015, Eaton Vance Management Canada Ltd. (EVMC), a wholly-owned subsidiary of the Company, loaned $ i 5.0 million to Hexavest under a term loan agreement to seed a new investment strategy. The carrying value of the loan approximates fair value. The fair value is determined annually using a cash flow model that projects future cash flows based upon contractual obligations, to which the Company then applies an appropriate discount rate.
The fair value of the Company’s debt has been determined based on quoted prices in inactive markets.
i7. Leases
The components of total operating lease expense included in other expenses in the Company’s Consolidated Statements of Income are as follows:
i
|
|
| Three Months Ended |
| Six Months Ended |
|
|
| April 30, |
| April 30, |
| (in thousands) |
| 2020 |
| 2020 |
| Operating lease expense | $ | i 6,207 | $ | i 12,504 |
| Variable lease expense |
| i 1,475 |
| i 2,794 |
| Total operating lease expense | $ | i 7,682 | $ | i 15,298 |
Operating lease liabilities primarily relate to office space leases in the U.S. that expire over various terms through 2039. A maturity analysis of undiscounted operating lease payments not yet paid and additional information related to the total amount of operating lease liabilities reported on the Company’s Consolidated Balance Sheet at April 30, 2020 are as follows:
i
| Year Ending October 31, |
|
|
| (in thousands) |
| Amount |
| Remainder of 2020 | $ | i 13,097 |
| 2021 |
| i 26,729 |
| 2022 |
| i 26,256 |
| 2023 |
| i 25,611 |
| 2024 |
| i 25,584 |
| 2025 – thereafter |
| i 252,669 |
| Total undiscounted operating lease payments |
| i 369,946 |
| Less: Imputed interest to be recognized as operating lease expense |
| ( i 59,086) |
| Total operating lease liabilities | $ | i 310,860 |
| Weighted average remaining lease term |
| i 14.2 years |
| Weighted average discount rate |
| i 2.4% |
On March 16, 2020, the Company exercised an existing option to extend the term of an office space lease for an additional i twelve months through i October 31, 2021, resulting in an increase in operating lease right-of-use assets and operating lease liabilities of $ i i 0.5 / million.
The Company utilizes estimated incremental borrowing rates as the discount rate to measure its lease liabilities. Incremental borrowing rates reflect the terms and conditions of each lease arrangement and are estimated at lease inception utilizing readily observable market-based unsecured corporate borrowing
29
rates (commensurate with the Company’s credit rating on its outstanding senior unsecured public debt) that correspond to the weighted average term of the lease, primarily adjusted for the effects of collateralization.
As of October 31, 2019, the Company’s total future minimum lease commitments by year were as follows:
i
| Year Ending October 31, |
|
|
| (in thousands) |
| Amount |
| 2020 | $ | i 25,239 |
| 2021 |
| i 26,242 |
| 2022 |
| i 26,296 |
| 2023 |
| i 25,642 |
| 2024 |
| i 25,614 |
| 2025 – thereafter |
| i 252,694 |
| Total | $ | i 381,727 |
i
8. Acquisitions
Atlanta Capital Management Company, LLC (Atlanta Capital)
Atlanta Capital Plan
In fiscal 2019 and 2018, the Company exercised a series of call options through which it purchased $ i 7.8 million and $ i 8.2 million, respectively, of indirect profit interests held by non-controlling interest holders of Atlanta Capital pursuant to the provisions of the Atlanta Capital Management Company, LLC Long-Term Equity Incentive Plan (the Atlanta Capital Plan). These transactions settled in cash in each of the first quarters of fiscal 2020 and 2019, respectively.
Total indirect profit interests in Atlanta Capital held by non-controlling interest holders issued pursuant to the Atlanta Capital Plan were i i 8.2 / percent at both April 30, 2020 and October 31, 2019. The estimated fair value of these interests was $ i 20.6 million and $ i 25.2 million at April 30, 2020 and October 31, 2019, respectively, and is included as a component of temporary equity on the Consolidated Balance Sheets.
Parametric Portfolio Associates LLC (Parametric)
Parametric Plan
In fiscal 2019 and 2018, the Company exercised a series of call options through which it purchased $ i 0.6 million and $ i 5.9 million, respectively, of profit interests held by non-controlling interest holders of Parametric pursuant to the provisions of the Parametric Portfolio Associates LLC Long-Term Equity Plan (the Parametric Plan). These transactions settled in cash in each of the first quarters of fiscal 2020 and 2019, respectively. As of April 30, 2020 and October 31, 2019, there were no profit interests in Parametric held by non-controlling interest holders issued pursuant to the Parametric Plan.
/
30
Parametric Risk Advisors
In November 2013, the non‐controlling interest holders of Parametric Risk Advisors entered into a Unit Acquisition Agreement with Parametric to exchange their remaining i 20 percent ownership interests in Parametric Risk Advisors for a i 0.8 percent profit interest and a i 0.8 percent capital interest in Parametric Portfolio LP (Parametric LP), whose sole asset is ownership interests in Parametric. As a result of this exchange, Parametric Risk Advisors became a wholly‐owned subsidiary of Parametric. In the first quarter of fiscal 2019, the Company exercised a series of call options through which it purchased $ i 4.0 million of profit interests and capital interests held by non-controlling interest holders of Parametric LP. The transaction settled in the first quarter of fiscal 2019. As of April 30, 2020 and October 31, 2019, there were no profit interests or capital interests in Parametric LP held by non-controlling interest holders issued pursuant to the Parametric Risk Advisors Unit Acquisition Agreement.
i
9. Intangible Assets
The following is a summary of intangible assets:
i
|
|
|
|
|
|
| |
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||
| Amortizing intangible assets: |
|
|
|
|
|
|
| Client relationships acquired | $ | i 134,247 | $ | ( i 117,698) | $ | i 16,549 |
| Intellectual property acquired |
| i 1,025 |
| ( i 619) |
| i 406 |
| Trademark acquired |
| i 4,257 |
| ( i 1,699) |
| i 2,558 |
| Research system acquired |
| i 639 |
| ( i 639) |
| i - |
| Non-amortizing intangible assets: |
|
|
|
|
|
|
| Mutual fund management contracts acquired |
| i 54,408 |
| - |
| i 54,408 |
| Total | $ | i 194,576 | $ | ( i 120,655) | $ | i 73,921 |
|
|
|
|
|
|
| |
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||
| Amortizing intangible assets: |
|
|
|
|
|
|
| Client relationships acquired | $ | i 134,247 | $ | ( i 115,921) | $ | i 18,326 |
| Intellectual property acquired |
| i 1,025 |
| ( i 586) |
| i 439 |
| Trademark acquired |
| i 4,257 |
| ( i 1,558) |
| i 2,699 |
| Research system acquired |
| i 639 |
| ( i 604) |
| i 35 |
| Non-amortizing intangible assets: |
|
|
|
|
|
|
| Mutual fund management contracts acquired |
| i 54,408 |
| - |
| i 54,408 |
| Total | $ | i 194,576 | $ | ( i 118,669) | $ | i 75,907 |
31
Amortization expense was $ i 1.0 million and $ i 1.1 million for the three months ended April 30, 2020 and 2019, respectively, and $ i 2.0 million and $ i 2.9 million for the six months ended April 30, 2020 and 2019, respectively. Estimated remaining amortization expense for fiscal 2020 and the next five fiscal years, on a straight-line basis, is as follows:
i
|
|
| Estimated |
|
| Year Ending October 31, |
| Amortization |
|
| (in thousands) |
| Expense |
|
| Remaining 2020 | $ | i 1,821 |
|
| 2021 |
| i 2,282 |
|
| 2022 |
| i 2,154 |
|
| 2023 |
| i 1,754 |
|
| 2024 |
| i 1,679 |
|
| 2025 |
| i 1,639 |
|
i
10. Debt
Corporate credit facility
The Company entered into a $ i 300.0 million unsecured revolving credit facility on December 11, 2018. The credit facility has a i five-year term, expiring on i December 11, 2023. Under this credit facility, the Company may currently borrow up to the initial amount of $ i 300.0 million committed by the lenders at LIBOR or LIBOR-successor benchmark-based rates of interest, as applicable, which vary depending on the credit rating of the Company. Accrued interest on any borrowings is payable quarterly in arrears and on the date of repayment. Subject to the terms and conditions of the credit facility, the amount available for borrowing may be increased to up to $ i 400.0 million through additional commitments by existing lenders or the addition of one or more new lenders to the syndicate. The credit facility is unsecured, contains financial covenants with respect to leverage and interest coverage, and requires the Company to pay a quarterly commitment fee on any unused portion.
The Company borrowed $ i i 300.0 / million from this credit facility during the second quarter of fiscal 2020 to demonstrate the Company’s ability to generate incremental liquidity if needed. Such borrowings were fully repaid prior to quarter end. The Company recognized interest expense of $ i i 0.5 / million attributable to borrowings under this credit facility for the three and six months ended April 30, 2020. There were i no borrowings under this facility during the six months ended April 30, 2019. As of April 30, 2020 and October 31, 2019, the Company had i i no / borrowings outstanding under its credit facility.
/ i32
11. Revenue
The following table disaggregates total revenue by source:
i
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| Management fees: |
|
|
|
|
|
|
|
|
| Sponsored funds | $ | i 236,462 | $ | i 243,464 | $ | i 502,752 | $ | i 486,130 |
| Separate accounts |
| i 117,659 |
| i 115,920 |
| i 246,170 |
| i 224,004 |
| Total management fees |
| i 354,121 |
| i 359,384 |
| i 748,922 |
| i 710,134 |
| Distribution and underwriter fees: |
|
|
|
|
|
|
|
|
| Distribution fees |
| i 13,934 |
| i 14,806 |
| i 28,998 |
| i 33,851 |
| Underwriter commissions |
| i 5,188 |
| i 5,248 |
| i 11,702 |
| i 9,293 |
| Total distribution and underwriter fees |
| i 19,122 |
| i 20,054 |
| i 40,700 |
| i 43,144 |
| Service fees |
| i 30,557 |
| i 29,586 |
| i 64,496 |
| i 58,946 |
| Other revenue |
| i 2,111 |
| i 2,837 |
| i 4,347 |
| i 6,053 |
| Total revenue | $ | i 405,911 | $ | i 411,861 | $ | i 858,465 | $ | i 818,277 |
The following table disaggregates total management fee revenue by investment mandate reporting category:
i
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Equity | $ | i 172,994 | $ | i 172,311 | $ | i 368,747 | $ | i 336,209 | |
| Fixed income(1) |
| i 61,958 |
| i 59,105 |
| i 127,461 |
| i 117,111 | |
| Floating-rate income |
| i 37,563 |
| i 49,405 |
| i 80,623 |
| i 103,083 | |
| Alternative |
| i 12,077 |
| i 14,128 |
| i 25,812 |
| i 30,301 | |
| Parametric custom portfolios(1) |
| i 58,360 |
| i 53,848 |
| i 123,343 |
| i 102,755 | |
| Parametric overlay services(2) |
| i 11,169 |
| i 10,587 |
| i 22,936 |
| i 20,675 | |
| Total management fees | $ | i 354,121 | $ | i 359,384 | $ | i 748,922 | $ | i 710,134 |
(1) The Company revised its investment mandate reporting categories to classify benchmark-based fixed income separate accounts (formerly classified as fixed income) as Parametric custom portfolios (formerly “portfolio implementation”), which now consists of equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature. Management fees totaling $ i 9.7 million and $ i 18.7 million have been reclassified from fixed income to Parametric custom portfolios for the three and six months ended April 30, 2019, respectively. These reclassifications do not affect the amount of total management fees in the prior periods.
(2) In the first quarter of fiscal 2020, this investment mandate reporting category was renamed Parametric overlay services (formerly “exposure management”). The name change does not affect the amount of management fees for the category in the prior periods.
Management fees and other receivables reported on the Company’s Consolidated Balance Sheet include $ i 216.9 million and $ i 231.3 million of receivables from contracts with customers at April 30, 2020 and October 31, 2019, respectively. Deferred revenue reported in other liabilities on the Company’s Consolidated Balance Sheet was $ i 6.5 million and $ i 6.3 million at April 30, 2020 and October 31, 2019,
33
respectively. The entire deferred revenue balance at the end of any given reporting period is expected to be recognized as management fee revenue in the subsequent quarter.
i
12. Stock-Based Compensation Plans
Compensation expense recognized by the Company related to its stock-based compensation plans was as follows:
i
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||
| Omnibus Incentive Plans: |
|
|
|
|
|
|
|
| ||
| Restricted shares | $ | i 15,773 | $ | i 14,015 | $ | i 35,775 | $ | i 28,500 | ||
| Stock options |
| i 4,760 |
| i 5,122 |
| i 12,105 |
| i 10,562 | ||
| Deferred stock units |
| ( i 483) |
| i 124 |
| i 376 |
| i 739 | ||
| Employee Stock Purchase Plans |
| i - |
| i - |
| i 371 |
| i 176 | ||
| Employee Stock Purchase Incentive Plan |
| i 36 |
| i 325 |
| i 966 |
| i 377 | ||
| Atlanta Capital Plan |
| i 401 |
| i 570 |
| i 802 |
| i 1,140 | ||
| Atlanta Capital Phantom Incentive Plan |
| i 445 |
| i 265 |
| i 900 |
| i 539 | ||
| Parametric Plan |
| i - |
| i 600 |
| i - |
| i 1,340 | ||
| Parametric Phantom Incentive Plan |
| i 16 |
| i 991 |
| i 32 |
| i 1,913 | ||
| Total stock-based compensation expense | $ | i 20,948 | $ | i 22,012 | $ | i 51,327 | $ | i 45,286 |
The total income tax benefit recognized for stock-based compensation arrangements was $ i 5.2 million and $ i 5.1 million for the three months ended April 30, 2020 and 2019, respectively and $ i 12.6 million and $ i 10.3 million for the six months ended April 30, 2020 and 2019, respectively.
Restricted shares
A summary of restricted share activity for the six months ended April 30, 2020 is as follows:
i
|
|
|
| Weighted- |
|
|
|
| Average |
|
|
|
| Grant Date |
| (share figures in thousands) | Shares |
| Fair Value |
| Unvested, beginning of period | i 5,377 | $ | i 42.72 |
| Granted | i 1,694 |
| i 46.36 |
| Vested | ( i 1,547) |
| i 40.31 |
| Forfeited | ( i 83) |
| i 44.65 |
| Unvested, end of period | i 5,441 | $ | i 43.65 |
As of April 30, 2020, there was $ i 174.2 million of compensation cost related to unvested restricted share awards not yet recognized. That cost is expected to be recognized over a weighted-average period of i 3.1 years.
34
Stock options
A summary of stock option activity for the six months ended April 30, 2020 is as follows:
i
| (share and intrinsic value amounts in thousands) | Shares |
| Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) |
| Aggregate Intrinsic Value | |
| Options outstanding, beginning of period | i 17,599 |
| $ | i 37.22 |
|
|
|
| Granted | i 2,888 |
|
| i 46.21 |
|
|
|
| Exercised | ( i 1,370) |
|
| i 33.88 |
|
|
|
| Forfeited/expired | ( i 22) |
|
| i 40.92 |
|
|
|
| Options outstanding, end of period | i 19,095 |
| $ | i 38.81 | i 5.9 | $ | i 39,671 |
| Options exercisable, end of period | i 10,200 |
| $ | i 34.63 | i 4.1 | $ | i 36,178 |
The Company received $ i 45.3 million and $ i 11.8 million related to the exercise of options for the six months ended April 30, 2020 and 2019, respectively.
As of April 30, 2020, there was $ i 48.7 million of compensation cost related to unvested stock options granted under the 2013 Omnibus Incentive Plan (2013 Plan) and predecessor plans that has not yet been recognized. That cost is expected to be recognized over a weighted-average period of i 2.9 years.
Deferred stock units
Deferred stock units issued to non-employee Directors under the 2013 Plan are accounted for as liability awards. Deferred stock units granted are considered fully vested for accounting purposes on the grant date and the entire fair value of these awards is recognized as compensation cost on the date of grant.
During the six months ended April 30, 2020, i 19,300 deferred stock units were issued to non-employee Directors pursuant to the 2013 Plan. The total liability attributable to deferred stock units included as a component of accrued compensation on the Company’s Consolidated Balance Sheet was $ i 2.1 million and $ i 1.7 million as of April 30, 2020 and October 31, 2019, respectively. The Company made a cash payment of $ i 0.5 million in the first quarter of fiscal 2019 to settle deferred stock unit award liabilities. There were i no cash payments made during the six months ended April 30, 2020.
Parametric Long-Term Equity Incentive Plan
During the fourth quarter of fiscal 2019, the Company purchased all of the outstanding profit units held by current and former employees under the Parametric Long‐Term Equity Incentive Plan (Parametric Plan). The Company terminated the Parametric Plan in the first quarter of fiscal 2020.
Parametric Phantom Incentive Plans
During the fourth quarter of fiscal 2019, the Company completed an exchange offer transaction accounted for as a modification through which a majority of the outstanding phantom incentive units previously
35
granted under the Parametric Phantom Incentive Plans were cancelled and exchanged for restricted shares of the Company’s Non-Voting Common Stock issued under the 2013 Plan. The Company will continue to recognize the remaining compensation expense of $ i 0.1 million related to the remaining outstanding phantom incentive units over a weighted-average period of i 3.7 years.
i
13. Common Stock Repurchases
The Company’s current Non-Voting Common Stock share repurchase program was authorized on i July 10, 2019. The Board authorized management to repurchase and retire up to i 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 timing and amount of share purchases are subject to management’s discretion. The Company’s share repurchase program is not subject to an expiration date.
In the first six months of fiscal 2020, the Company purchased and retired approximately i 2.4 million shares of its Non-Voting Common Stock under the current repurchase authorization. As of April 30, 2020, approximately i 4.0 million additional shares may be repurchased under the current authorization.
/i
14. Non-operating Income (Expense)
The components of non-operating income (expense) were as follows:
i
|
|
| Three Months Ended | Six Months Ended | ||||||
|
|
| April 30, |
| April 30, | |||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Interest and other income | $ | i 5,420 | $ | i 11,534 | $ | i 14,756 | $ | i 21,354 | |
| Net gains (losses) on investments and derivatives |
| ( i 56,241) |
| i 3,716 |
| ( i 49,241) |
| i 69 | |
| Net foreign currency losses |
| i 309 |
| ( i 44) |
| i 63 |
| ( i 384) | |
| Gains (losses) and other investment income, net |
| ( i 50,512) |
| i 15,206 |
| ( i 34,422) |
| i 21,039 | |
| Interest expense |
| ( i 6,364) |
| ( i 5,888) |
| ( i 12,252) |
| ( i 12,019) | |
| Other income (expense) of consolidated |
|
|
|
|
|
|
|
| |
|
| CLO entities: |
|
|
|
|
|
|
|
|
| Interest income |
| i 16,480 |
| i 15,059 |
| i 41,385 |
| i 26,809 | |
| Net gains (losses) on bank loans and other |
|
|
|
|
|
|
|
| |
| investments and note obligations |
| ( i 21,321) |
| i 6,735 |
| ( i 30,663) |
| i 426 | |
| Gains (losses) and other investment income, net |
| ( i 4,841) |
| i 21,794 |
| i 10,722 |
| i 27,235 | |
| Structuring and closing fees |
| ( i 43) |
| ( i 18) |
| ( i 279) |
| ( i 119) | |
| Interest expense |
| ( i 11,604) |
| ( i 10,803) |
| ( i 28,764) |
| ( i 19,038) | |
| Interest and other expense |
| ( i 11,647) |
| ( i 10,821) |
| ( i 29,043) |
| ( i 19,157) | |
| Total non-operating income (expense) | $ | ( i 73,364) | $ | i 20,291 | $ | ( i 64,995) | $ | i 17,098 |
i
15. Income Taxes
The provision for income taxes was $ i 22.0 million and $ i 37.1 million, or i 45.3 percent and i 25.1 percent of pre-tax income, for the three months ended April 30, 2020 and 2019, respectively. The provision for income taxes was $ i 54.6 million and $ i 64.7 million, or i 28.5 percent and i 24.4 percent of pre-tax income, for the six months ended April 30, 2020 and 2019, respectively.
/
36
The following table reconciles the U.S. statutory federal income tax rate to the Company’s effective income tax rate:
i
|
|
| Three Months Ended |
| Six Months Ended |
| ||||
|
|
| April 30, |
|
| |||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |
| Statutory U.S. federal income tax rate | i 21.0 | % | i 21.0 | % | i 21.0 | % | i 21.0 | % | |
| State income tax, net of federal income |
|
|
|
|
|
|
|
| |
| tax benefits | i 8.8 |
| i 4.5 |
| i 5.9 |
| i 4.5 |
| |
| Net (income) loss attributable to non-controlling |
|
|
|
|
|
|
|
| |
| and other beneficial interests | i 16.7 |
| ( i 0.9) |
| i 3.9 |
| ( i 0.9) |
| |
| Stock-based and other compensation | i 1.5 |
| i - |
| i 0.7 |
| i - |
| |
| Net excess tax benefits from stock-based |
|
|
|
|
|
|
|
| |
| compensation plans | ( i 2.2) |
| ( i 0.2) |
| ( i 3.1) |
| ( i 1.2) |
| |
| Other items | ( i 0.5) |
| i 0.7 |
| i 0.1 |
| i 1.0 |
| |
| Effective income tax rate | i 45.3 | % | i 25.1 | % | i 28.5 | % | i 24.4 | % |
The Company’s income tax provision for the three and six months ended April 30, 2020 includes charges of $ i 0.9 million and $ i 2.2 million, respectively, associated with certain provisions of the Tax Cuts and Jobs Act (2017 Tax Act) taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. In the three and six months ended April 30, 2020, the Company’s income tax provision was reduced by net excess tax benefits of $ i 1.1 million and $ i 6.0 million, respectively, related to the exercise of employee stock options and vesting of restricted stock awards, and $ i 9.9 million and $ i 10.8 million, respectively, related to net income attributable to non-controlling and other beneficial interests, which is not taxable to the Company.
The Company’s income tax provision for the three months ended April 30, 2019 includes $ i 0.7 million of charges associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. The Company’s income tax provision was reduced by net excess tax benefits related to the exercise of employee stock options and vesting of restricted stock awards totaling $ i 0.3 million and $ i 1.6 million related to the net income attributable to redeemable non-controlling interests, which is not taxable to the Company.
The Company’s income tax provision for the six months ended April 30, 2019 includes $ i 1.3 million of charges associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. The increase in the effective tax rate resulting from this charge is offset by an income tax benefit of $ i 3.2 million related to the exercise of employee stock options and vesting of restricted stock awards and $ i 3.0 million related to the net income attributable to redeemable non-controlling interest and other beneficial interests, which is not taxable to the Company.
As of April 30, 2020 and October 31, 2019, i i no / valuation allowance has been recorded for deferred tax assets, reflecting management’s belief that all deferred tax assets will be utilized.
As of April 30, 2020, the Company considers the undistributed earnings of certain foreign subsidiaries to be indefinitely reinvested in foreign operations. As of that date, the Company had approximately $ i 10.7 million of undistributed earnings primarily from foreign operations in the U.K. that are not available to
37
fund domestic operations or to distribute to shareholders unless repatriated. In consideration of the treatment of taxable distributions under the 2017 Tax Act, the impact of Global Intangible Low Taxed Income on the Company’s future foreign earnings and lack of withholding tax imposed by certain foreign governments, any future tax liability with respect to these undistributed earnings is immaterial.
The Company is generally no longer subject to income tax examinations by U.S. federal, state, local or non-U.S. taxing authorities for fiscal years prior to fiscal 2016.
i
16. Non-controlling and Other Beneficial Interests
The components of net (income) loss attributable to non-controlling and other beneficial interests were as follows:
i
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Consolidated sponsored funds | $ | i 45,276 | $ | ( i 8,141) | $ | i 38,099 | $ | ( i 10,563) | |
| Majority-owned subsidiaries |
| ( i 1,274) |
| ( i 3,182) |
| ( i 2,947) |
| ( i 6,219) | |
| Net (income) loss attributable to non-controlling |
|
|
|
|
|
|
|
| |
| and other beneficial interests | $ | i 44,002 | $ | ( i 11,323) | $ | i 35,152 | $ | ( i 16,782) |
i
17. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax, for the three months ended April 30, 2020 and 2019 are as follows:
i
| (in thousands) |
| Unamortized Net Gains on Cash Flow Hedges |
| Foreign Currency Translation Adjustments |
| Total | |
| Balance at January 31, 2020 | $ | i 76 | $ | ( i 58,777) | $ | ( i 58,701) | |
|
| Other comprehensive loss, before reclassifications |
| i - |
| ( i 10,199) |
| ( i 10,199) |
|
| Reclassification adjustments, before tax |
| ( i 33) |
| i - |
| ( i 33) |
|
| Tax impact |
| i 8 |
| i - |
| i 8 |
|
| Net current period other comprehensive loss | ( i 25) |
| ( i 10,199) |
| ( i 10,224) | |
| Balance at April 30, 2020 | $ | i 51 | $ | ( i 68,976) | $ | ( i 68,925) | |
|
|
|
|
|
|
|
|
|
| Balance at January 31, 2019 | $ | i 176 | $ | ( i 56,109) | $ | ( i 55,933) | |
|
| Other comprehensive loss, before reclassifications |
| i - |
| ( i 5,656) |
| ( i 5,656) |
|
| Reclassification adjustments, before tax |
| ( i 33) |
| i - |
| ( i 33) |
|
| Tax impact |
| i 7 |
| i - |
| i 7 |
|
| Net current period other comprehensive loss | ( i 26) |
| ( i 5,656) |
| ( i 5,682) | |
| Balance at April 30, 2019 | $ | i 150 | $ | ( i 61,765) | $ | ( i 61,615) |
38
The components of accumulated other comprehensive income (loss), net of tax, for the six months ended April 30, 2020 and 2019 are as follows:
| (in thousands) |
| Unamortized Net Gains on Cash Flow Hedges |
| Net Unrealized Gains on Available-for-Sale Investments |
| Foreign Currency Translation Adjustments |
| Total | |
| Balance at October 31, 2019 | $ | i 100 | $ | i - | $ | ( i 58,417) | $ | ( i 58,317) | |
|
| Other comprehensive loss, before |
|
|
|
|
|
|
|
|
|
| reclassifications |
| i - |
| i - |
| ( i 10,559) |
| ( i 10,559) |
|
| Reclassification adjustments, before tax |
| ( i 66) |
| i - |
| i - |
| ( i 66) |
|
| Tax impact |
| i 17 |
| i - |
| i - |
| i 17 |
|
| Net current period other comprehensive loss |
| ( i 49) |
| i - |
| ( i 10,559) |
| ( i 10,608) |
| Balance at April 30, 2020 | $ | i 51 | $ | i - | $ | ( i 68,976) | $ | ( i 68,925) | |
|
|
|
|
|
|
|
|
|
|
|
| Balance at October 31, 2018 | $ | i 200 | $ | i 3,714 | $ | ( i 57,095) | $ | ( i 53,181) | |
|
| Cumulative effect adjustment upon adoption |
|
|
|
|
|
|
|
|
|
| of new accounting standard (ASU 2016-01) |
| i - |
| ( i 3,714) |
| i - |
| ( i 3,714) |
| Balance at November 1, 2018, as adjusted |
| i 200 |
| i - |
| ( i 57,095) |
| ( i 56,895) | |
|
| Other comprehensive loss, before |
|
|
|
|
|
|
|
|
|
| reclassifications |
| i - |
| i - |
| ( i 4,670) |
| ( i 4,670) |
|
| Reclassification adjustments, before tax |
| ( i 67) |
| i - |
| i - |
| ( i 67) |
|
| Tax impact |
| i 17 |
| i - |
| i - |
| i 17 |
|
| Net current period other comprehensive loss |
| ( i 50) |
| i - |
| ( i 4,670) |
| ( i 4,720) |
| Balance at April 30, 2019 | $ | i 150 | $ | i - | $ | ( i 61,765) | $ | ( i 61,615) |
i
18. Earnings per Share
The following table sets forth the calculation of earnings per basic and diluted shares:
i
|
| Three Months Ended |
| Six Months Ended | |||||
|
| April 30, |
| April 30, | |||||
| (in thousands, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||
| Net income attributable to Eaton Vance Corp. |
|
|
|
|
|
|
|
|
| shareholders | $ | i 72,058 | $ | i 101,807 | $ | i 176,043 | $ | i 188,608 |
| Weighted-average shares outstanding – basic |
| i 109,224 |
| i 110,379 |
| i 109,297 |
| i 111,315 |
| Incremental common shares |
| i 2,386 |
| i 3,870 |
| i 3,995 |
| i 3,480 |
| Weighted-average shares outstanding – diluted |
| i 111,610 |
| i 114,249 |
| i 113,292 |
| i 114,795 |
| Earnings per share: |
|
|
|
|
|
|
|
|
| Basic | $ | i 0.66 | $ | i 0.92 | $ | i 1.61 | $ | i 1.69 |
| Diluted | $ | i 0.65 | $ | i 0.89 | $ | i 1.55 | $ | i 1.64 |
39
Antidilutive common shares related to stock options and unvested restricted stock excluded from the computation of earnings per diluted share were approximately i 10.4 million and i 7.5 million for the three months ended April 30, 2020 and 2019, respectively, and approximately i i 8.8 / million for both the six months ended April 30, 2020 and 2019.
i
19. 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. In certain circumstances, these indemnities in favor of third parties relate to service agreements entered into by investment funds advised by Eaton Vance Management, Boston Management and Research, or Calvert, all of which are direct or indirect wholly-owned subsidiaries of the Company. The Company has also agreed to indemnify its directors, officers and employees in accordance with the Company’s Articles of Incorporation, as amended. Certain agreements do not contain any limits on the Company’s liability and, therefore, it is not possible to estimate the Company’s potential liability under these indemnities. In certain cases, the Company has recourse against third parties with respect to these indemnities. Further, the Company maintains insurance policies that may provide coverage against certain claims under these indemnities.
The Company and its subsidiaries are subject to various legal proceedings. In the opinion of management, after discussions with legal counsel, the ultimate resolution of these matters will not have a material effect on the consolidated financial condition, results of operations or cash flows of the Company.
i
20. Related Party Transactions
Sponsored funds
The Company is an investment adviser to, and has administrative agreements with, certain funds that it sponsors for which employees of the Company are officers and/or directors. Substantially all of the services to these entities for which the Company earns a fee, including management, distribution and shareholder services, are provided under contracts that set forth the services to be provided and the fees to be charged. Certain of these contracts are subject to annual review and approval by the funds’ boards of directors or trustees.
Revenues for services provided or related to sponsored funds are as follows:
i
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Management fees | $ | i 236,462 | $ | i 243,464 | $ | i 502,752 | $ | i 486,130 | |
| Distribution and underwriter fees |
| i 19,122 |
| i 20,054 |
| i 40,700 |
| i 43,144 | |
| Service fees |
| i 30,557 |
| i 29,586 |
| i 64,496 |
| i 58,946 | |
| Shareholder services fees included in |
|
|
|
|
|
|
|
| |
| other revenue |
| i 1,580 |
| i 1,696 |
| i 3,106 |
| i 3,279 | |
| Total | $ | i 287,721 | $ | i 294,800 | $ | i 611,054 | $ | i 591,499 | |
|
|
|
|
|
|
|
|
|
|
|
40
For the three months ended April 30, 2020 and 2019, the Company contractually waived management fees it was otherwise entitled to receive of $ i 4.9 million and $ i 4.7 million, respectively. Separately, for these same periods, the Company provided subsidies to sponsored funds of $ i 6.9 million and $ i 7.9 million, respectively. For the six months ended April 30, 2020 and 2019, the Company contractually waived management fees it was otherwise entitled to receive of $ i 10.1 million and $ i 9.0 million, respectively. Separately, for these same periods, the Company provided subsidies to sponsored funds of $ i 12.3 million and $ i 17.2 million, respectively. Fee waivers and fund subsidies are recognized as a reduction to management fees in the Consolidated Statements of Income.
Sales proceeds and net realized gains (losses) from investments in non-consolidated sponsored funds are as follows:
i
|
|
| Three Months Ended |
| Six Months Ended | ||||
|
|
| April 30, |
| April 30, | ||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| Proceeds from sales | $ | i 5,057 | $ | i 2,349 | $ | i 5,058 | $ | i 6,625 |
| Net realized gains |
| i 175 |
| i 5,180 |
| i 180 |
| i 5,205 |
The Company pays all ordinary operating expenses of certain sponsored funds (excluding investment advisory and administrative fees) for which it earns an all-in-management fee. For the three months ended April 30, 2020 and 2019, expenses of $ i 3.2 million and $ i 3.3 million, respectively, were incurred by the Company pursuant to these arrangements. For the six months ended April 30, 2020 and 2019, expenses of $ i 6.3 million and $ i 6.6 million, respectively, were incurred by the Company pursuant to these arrangements.
Included in management fees and other receivables at April 30, 2020 and October 31, 2019 are receivables due from sponsored funds of $ i 88.6 million and $ i 104.1 million, respectively. Included in accounts payable and accrued expenses at April 30, 2020 and October 31, 2019 are payables due to sponsored funds of $ i 2.5 million and $ i 2.2 million, respectively, relating primarily to fund subsidies.
Loan to affiliate
On December 23, 2015, EVMC, a wholly owned subsidiary of the Company, loaned $ i i 5.0 / million to Hexavest under a term loan agreement to seed a new investment strategy. The loan renews automatically for an additional one-year period on each anniversary date unless written termination notice is provided by EVMC. i The Company earns interest equal to the one-year Canadian Dollar Offered Rate plus 100 basis points. Hexavest may prepay the loan in whole or in part at any time without penalty. For the three months ended April 30, 2020 and 2019, the Company recorded $ i 39,000 and $ i 43,000, respectively, of interest income related to the loan in gains (losses) and other investment income, net, in the Company’s Consolidated Statement of Income. For both the six months ended April 30, 2020 and 2019, the Company recorded $ i i 0.1 / million of interest income related to the loan. Interest due from Hexavest under this arrangement included in other assets on the Company’s Consolidated Balance Sheets was $ i i 15,000 / at both April 30, 2020 and October 31, 2019.
Employee loan program
The Company has established an Employee Loan Program under which a program maximum of $ i i 20.0 / million is available for loans to officers (other than executive officers) and other key employees of the
41
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 i 1.0 percent to i 2.9 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. All loans under the program must be made on or before i October 31, 2022. Loans outstanding under this program, which are full recourse in nature, are reflected as notes receivable from stock option exercises in shareholders’ equity and totaled $ i 7.1 million and $ i 8.4 million at April 30, 2020 and October 31, 2019, respectively.
i
21. Geographic Information
Revenues by principal geographic area are as follows:
i
|
|
| Three Months Ended | Six Months Ended | ||||||
|
|
| April 30, | April 30, | ||||||
| (in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| Revenue: |
|
|
|
|
|
|
|
| |
| U.S. | $ | i 394,447 | $ | i 396,370 | $ | i 833,498 | $ | i 787,124 | |
| International |
| i 11,464 |
| i 15,491 |
| i 24,967 |
| i 31,153 | |
| Total | $ | i 405,911 | $ | i 411,861 | $ | i 858,465 | $ | i 818,277 |
Long-lived assets by principal geographic area are as follows:
|
|
| April 30, |
| October 31, |
| (in thousands) |
| 2020 |
| 2019 |
| Long-lived Assets: |
|
|
|
|
| U.S. | $ | i 69,786 | $ | i 71,000 |
| International |
| i 2,011 |
| i 1,798 |
| Total | $ | i 71,797 | $ | i 72,798 |
International revenues and long-lived assets are attributed to countries based on the location in which revenues are earned and where the assets reside.
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Item includes statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, intentions or strategies regarding the future. All statements, other than statements of historical facts, included in this Form 10-Q regarding our financial position, business strategy and other plans and objectives for future operations are forward-looking statements. The terms “may,” “will,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend,” “estimate,” “believe,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Although we believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that they will prove to be correct or that we will take any actions that may now be planned. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in Risk Factors under Item 1A in this Form 10-Q and in our latest Annual Report on Form 10-K. 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. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The discussion and analysis below should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. Management has presumed that the readers of this interim financial information have read or have access to Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended October 31, 2019, as well as our current reports on Form 8-K.
Overview
Eaton Vance Corp. provides advanced investment strategies and wealth management solutions to forward-thinking investors around the world. Our principal business is managing investment funds and providing investment management and advisory services to high-net-worth individuals and institutions. Our core strategy is to develop and sustain management expertise across a range of investment disciplines and to offer leading investment strategies and services through multiple distribution channels. In executing our core strategy, we have developed broadly diversified investment management capabilities and a highly functional marketing, distribution and customer service organization. We measure our success as a Company based principally on investment performance delivered, client satisfaction, reputation in the marketplace, progress achieving strategic objectives, employee development and satisfaction, business and financial results, and shareholder value created.
We conduct our investment management and advisory business through wholly- and majority-owned investment affiliates, which include: Eaton Vance Management (EVM), Parametric Portfolio Associates LLC (Parametric), Atlanta Capital Management Company, LLC (Atlanta Capital) and Calvert Research and Management (Calvert). We also offer investment management advisory services through minority-owned affiliate Hexavest Inc. (Hexavest).
Through EVM, Atlanta Capital, Calvert and our other affiliates, we manage active equity, income, alternative and blended strategies across a range of investment styles and asset classes, including U.S., global and international equities, floating-rate bank loans, municipal bonds, global income, high-yield and investment
43
grade bonds, and mortgage-backed securities. Through Parametric, we manage a range of systematic investment strategies, including systematic equity, systematic fixed income, systematic alternatives and managed options strategies. Through Parametric, we also provide portfolio overlay services and manage custom separate account portfolios, including Custom Core™ equity, laddered fixed income, multi-asset and multi-manager portfolios. We also oversee the management of, and distribute, investment funds sub-advised by unaffiliated third-party managers, including global, emerging market and regional equity and asset allocation strategies.
Our breadth of investment management capabilities supports a wide range of strategies and services offered to fund shareholders and separate account investors. Our equity strategies encompass a diversity of investment objectives, risk profiles, income levels and geographic representation. Our income investment strategies cover a broad duration, geographic representation and credit quality range and encompass both taxable and tax-free investments. We also offer alternative investment strategies that include global macro absolute return and commodity-based investments. Although we manage and distribute a wide range of investment strategies and services, we operate in one business segment, namely as an investment adviser to funds and separate accounts. As of April 30, 2020, we had $465.3 billion in consolidated assets under management.
We distribute our funds and individual separately managed accounts principally through financial intermediaries. We have broad market reach, with distribution partners including national and regional broker-dealers, independent broker-dealers, registered investment advisors, banks and insurance companies. We support these distribution partners with a team of approximately 160 sales professionals covering U.S. and international markets.
We employ a team of approximately 30 sales professionals focused on serving institutional and high-net-worth clients who access investment management services on a direct basis and through investment consultants. Through our wholly- and majority-owned affiliates, we manage investments for a broad range of clients in the institutional and high-net-worth marketplace in the U.S. and internationally, including corporations, sovereign wealth funds, endowments, foundations, family offices and public and private employee retirement plans.
Our revenue is derived primarily from management, distribution and service fees received from Eaton Vance-, Parametric- and Calvert-branded funds and management fees received from individual and institutional separate accounts. Our fee revenues 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. As a matter of course, investors in our sponsored open-end funds and separate accounts have the ability to redeem their investments at any time, without prior notice, and there are no material restrictions that would prevent them from doing so. Our major expenses are employee compensation, distribution-related expenses, service fee expense, fund-related expenses, facilities expense and information technology expense.
Our discussion and analysis of our financial condition, results of operations and cash flows is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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 goodwill and intangible assets, temporary equity, income taxes, investments and stock-based compensation. 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.
44
Current Developments
During the second quarter of the Company’s fiscal 2020, the coronavirus (“COVID-19”) global pandemic significantly affected the economy and financial markets worldwide. While the Company is continuously monitoring and evaluating the impact of COVID-19, there is substantial uncertainty regarding how long the pandemic will last and how it will ultimately affect the overall economy and markets. During the second quarter, the Company’s implementation of its business continuity plan enabled operations to be maintained at or near normal levels even as approximately 98 percent of our employees were working remotely. We have not experienced any significant disruptions due to operational issues, loss of communication capabilities, technology failure or cyber-attacks. During the pandemic period, we continue to pursue our four primary strategic priorities: (1) capitalizing on the near-term growth opportunities presented by our market-leading positions in customized individual separate accounts, responsible investing, specialty wealth management strategies and services, and the array of high-performing actively managed investment strategies we offer across asset classes and investment styles; (2) defending our floating-rate bank loan, global macro absolute return, systematic emerging market equity and closed-end fund business franchises; (3) enhancing our competitive position by developing new value-added investment offerings, lowering operating costs, advancing succession planning and opportunistically pursuing potential acquisitions; and (4) investing in technology and operating infrastructure, leadership and staff development, and diversity and inclusion.
In June 2019, we announced a strategic initiative involving our Parametric, EVM and Eaton Vance Distributors affiliates to further strengthen our leadership positions in rules-based, systematic investment strategies, customized individual separate accounts and wealth management solutions. The initiative has three principal components: (1) rebranding EVM’s rules-based, systematic investment-grade fixed income strategies as Parametric and aligning internal reporting consistent with the revised branding; (2) integrating under Eaton Vance Distributors the sales teams serving Parametric and EVM clients and business partners in the registered investment advisor and multi-family office market; and (3) combining under Parametric the technology and operating platforms supporting the individual separately managed account businesses of Parametric and EVM. The first two principal components of this initiative are complete and we anticipate that the enhancements to the technology and operating platforms will be substantially complete by fiscal year end.
We now report equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature as Parametric custom portfolios. This investment mandate reporting category includes the Parametric equity and multi-asset strategies, primarily Custom Core and centralized portfolio management, as well as the laddered bond separate accounts that were formerly managed by EVM. These market-leading offerings combine the benefits of benchmark-based investing with the ability to customize portfolios to meet individual preferences and needs. In the first six months of fiscal 2020, net inflows into Parametric custom portfolios totaled $4.8 billion, generating annualized internal growth in managed assets of 6 percent.
The Calvert Funds are one of the largest and most diversified families of responsibly invested mutual funds, encompassing actively and passively managed equity, fixed and floating-rate income, and multi-asset strategies managed in accordance with the Calvert Principles for Responsible Investment or other responsible investment criteria. Since Calvert became part of Eaton Vance in December 2016, we have experienced significant growth in Calvert-branded investment strategies and further distinguished Calvert as a leader in environmental, social and governance (ESG) research and responsible engagement. Including the Atlanta Capital-subadvised Calvert Equity Fund, assets under management in Calvert strategies grew to $21.3 billion at April 30, 2020 from $19.8 billion at October 31, 2019, reflecting net inflows of $2.4 billion partially offset by
45
market price declines of $1.0 billion. Calvert’s $2.4 billion of net inflows in the first six months of fiscal 2020 equate to annualized internal growth in managed assets of 25 percent.
While Calvert is the centerpiece of our responsible investment strategy, our commitment to responsible investing also encompasses our other investment affiliates. EVM and Atlanta Capital are increasingly utilizing Calvert’s proprietary ESG research as a component of their fundamental research processes, and portfolio customization to reflect individual client’s responsible investment criteria remains a central feature of Parametric separate account offerings. Calvert’s research and impact analysis is also being integrated with Parametric to support this ability for clients to customize their portfolios. As of April 30, 2020, Parametric managed $22.3 billion of client assets based on client-specified responsible investment criteria. On an overall basis, Eaton Vance is one of the largest participants in responsible investing, a position we are committed to growing in conjunction with rising demand for investment strategies that incorporate ESG-integrated investment research and/or seek to achieve both favorable investment returns and positive societal impact.
In our floating-rate bank loan strategies, we saw net outflows of $4.5 billion in the first six months of fiscal 2020 and 2019. Net outflows in the first half of fiscal 2020 were heavily concentrated in March, as loan fund investors reacted to COVID-19-related market volatility and declines in benchmark short-term interest rates. The trading and settlement of bank loans remained orderly throughout this period of heavy selling pressure, with no issues experienced in terms of either liquidity or timing of trade settlement.
In our global macro absolute return strategies, we saw net outflows of approximately $670 million in the second quarter of fiscal 2020, which compares to net outflows of approximately $440 million in the second quarter of fiscal 2019 and approximately zero net flows in the first quarter of 2020. While not insulated from event risk, our global macro funds offer the potential for attractive levels of absolute returns that are substantially uncorrelated to U.S. equity and bond market returns.
In February 2019, EVM and related parties filed an application for exemptive relief with the SEC, seeking permission to offer exchange-traded funds (ETFs) that employ a novel method of supporting efficient secondary market trading of their shares. Because disclosure of current holdings would not be required, the portfolio trading activity of ETFs utilizing the proposed method could remain confidential. Reflecting dialogue with SEC staff, the application was amended in March 2020. The timing and likelihood of approval remains uncertain.
Performance
As of April 30, 2020, 68 Calvert, Eaton Vance and Parametric-branded mutual funds offered in the U.S. were rated 4 or 5 stars by MorningstarTM for at least one class of shares, including 34 five-star rated funds. As measured by total return net of expenses, at April 30, 2020 18 percent of our U.S. mutual fund assets ranked in the top quartile of their Morningstar peer groups over three years and 49 percent ranked in the top quartile over five and ten years. A good source of performance-related information for our funds is their websites, available at www.calvert.com and www.eatonvance.com. Information on these websites is not incorporated by reference into this Quarterly Report on Form 10-Q. On our funds’ websites, investors can also obtain other current information about our funds, including investment objective and principal investment policies, portfolio characteristics, expenses and Morningstar ratings.
46
Consolidated Assets under Management
Prevailing equity and income market conditions and investor sentiment affect the sales and redemptions of our investment offerings, managed asset levels, operating results and the recoverability of our investments. During the second quarter and the first six months of fiscal 2020, the S&P 500 Index, a broad measure of U.S. equity market performance, had total returns of -9.3 percent and -3.2 percent, respectively, and the MSCI Emerging Market Index, a broad measure of emerging market equity performance, had total returns of -12.5 percent and -10.4 percent, respectively. Over the same periods, the Barclays U.S. Aggregate Bond Index, a broad measure of U.S. bond market performance, had total returns of 3.0 percent and 4.9 percent, respectively.
Consolidated assets under management were $465.3 billion on April 30, 2020, down 1 percent from $469.9 billion of consolidated assets under management on April 30, 2019. The year-over-year decrease reflects net inflows of $14.6 billion and market price declines of $19.3 billion.
The following tables summarize our consolidated assets under management by investment mandate, investment vehicle and investment affiliate.
Consolidated Assets under Management by Investment Mandate(1) |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| April 30, |
| |||||
(in millions) |
| 2020 | % of Total |
| 2019 | % of Total | % Change | |
Equity(2) | $ | 122,273 | 26% | $ | 125,869 | 27% | -3% | |
Fixed income(3) |
| 61,347 | 13% |
| 58,531 | 12% | 5% | |
Floating-rate income |
| 27,822 | 6% |
| 39,750 | 8% | -30% | |
Alternative(4) |
| 7,226 | 2% |
| 9,409 | 2% | -23% | |
Parametric custom portfolios(5) |
| 158,696 | 34% |
| 153,604 | 33% | 3% | |
Parametric overlay services |
| 87,919 | 19% |
| 82,775 | 18% | 6% | |
Total | $ | 465,283 | 100% | $ | 469,938 | 100% | -1% | |
|
|
|
|
|
|
|
|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | |||||||
(2) | Includes balanced and other multi-asset mandates. Excludes equity mandates reported as Parametric custom portfolios. | |||||||
(3) | Includes cash management mandates. Excludes benchmark-based fixed income separate accounts reported as Parametric custom portfolios. | |||||||
(4) | Consists of absolute return, commodity and currency mandates. | |||||||
(5) | Equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature; other Parametric strategies may also be customized. |
Equity assets under management included $43.0 billion and $43.7 billion of assets managed for after-tax returns on April 30, 2020 and 2019, respectively. Parametric custom portfolio assets under management included $122.3 billion and $112.9 billion of assets managed for after-tax returns and/or tax-exempt income on April 30, 2020 and 2019, respectively. Fixed income assets included $27.4 billion and $26.2 billion of tax-exempt municipal income assets on April 30, 2020 and 2019, respectively.
47
Consolidated Assets under Management by Investment Vehicle(1) |
|
| ||||||
|
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|
|
|
|
|
|
|
|
| April 30, |
| |||||
(in millions) |
| 2020 | % of Total |
| 2019 | % of Total | % Change | |
Open-end funds | $ | 94,717 | 20% | $ | 104,367 | 22% | -9% | |
Closed-end funds |
| 21,712 | 5% |
| 24,503 | 5% | -11% | |
Private funds(2) |
| 43,975 | 10% |
| 42,092 | 9% | 4% | |
Institutional separate accounts |
| 154,755 | 33% |
| 160,460 | 34% | -4% | |
Individual separate accounts |
| 150,124 | 32% |
| 138,516 | 30% | 8% | |
Total | $ | 465,283 | 100% | $ | 469,938 | 100% | -1% | |
|
|
|
|
|
|
|
|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | |||||||
(2) | Includes privately offered equity, fixed and floating-rate income, and alternative funds and CLO entities. |
Consolidated Assets under Management by Investment Affiliate(1)(2) |
| |||||
|
|
|
|
| ||
|
|
| April 30, | % | ||
(in millions) |
| 2020 |
| 2019 | Change | |
Eaton Vance Management(3) | $ | 133,927 | $ | 147,602 | -9% | |
Parametric |
| 287,426 |
| 282,169 | 2% | |
Atlanta Capital |
| 22,645 |
| 23,019 | -2% | |
Calvert(4) |
| 21,285 |
| 17,148 | 24% | |
Total | $ | 465,283 | $ | 469,938 | -1% | |
|
|
|
|
|
|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | |||||
(2) | The Company's policy for reporting managed assets of investment portfolios overseen by multiple Eaton Vance affiliates is to base classification on the strategy's primary identity. | |||||
(3) | Includes managed assets of Eaton Vance-sponsored funds and separate accounts managed by Hexavest and unaffiliated third-party advisers under Eaton Vance supervision. | |||||
(4) | Includes managed assets of Calvert Equity Fund, which is sub-advised by Atlanta Capital, and Calvert-sponsored funds managed by unaffiliated third-party advisers under Calvert supervision. |
Consolidated average assets under management presented in the following tables are derived by averaging the beginning and ending assets of each month over the period. The tables are intended to provide information useful in the analysis of our asset-based revenue and distribution expenses. Separate account management fees are generally calculated as a percentage of either beginning, average or ending quarterly assets. Fund management, distribution and service fees, as well as certain expenses, are generally calculated as a percentage of average daily assets.
48
Consolidated Average Assets under Management by Investment Mandate(1) | |||||||||||
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|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in millions) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Equity(2) | $ | 125,468 | $ | 121,224 | 4% | $ | 129,963 | $ | 118,208 | 10% | |
Fixed income(3) |
| 62,573 |
| 57,778 | 8% |
| 62,595 |
| 56,423 | 11% | |
Floating-rate income |
| 30,605 |
| 40,330 | -24% |
| 32,296 |
| 41,598 | -22% | |
Alternative(4) |
| 7,896 |
| 9,733 | -19% |
| 8,134 |
| 10,428 | -22% | |
Parametric custom portfolios(5) |
| 161,348 |
| 147,134 | 10% |
| 165,017 |
| 141,602 | 17% | |
Parametric overlay services |
| 91,598 |
| 80,011 | 14% |
| 93,343 |
| 78,859 | 18% | |
Total | $ | 479,488 | $ | 456,210 | 5% | $ | 491,348 | $ | 447,118 | 10% | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | ||||||||||
(2) | Includes balanced and other multi-asset mandates. Excludes equity mandates reported as Parametric custom portfolios. | ||||||||||
(3) | Includes cash management mandates. Excludes benchmark-based fixed income separate accounts reported as Parametric custom portfolios. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. | ||||||||||
(4) | Consists of absolute return, commodity and currency mandates. | ||||||||||
(5) | Equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature; other Parametric strategies may also be customized. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. |
Consolidated Average Assets under Management by Investment Vehicle(1) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
|
| April 30, | % | April 30, | % | ||||||
(in millions) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||
Open-end funds | $ | 99,282 | $ | 102,096 | -3% | $ | 102,403 | $ | 101,307 | 1% | ||
Closed-end funds |
| 22,746 |
| 24,052 | -5% |
| 23,536 |
| 23,855 | -1% | ||
Private funds(2) |
| 44,275 |
| 40,580 | 9% |
| 45,022 |
| 39,668 | 13% | ||
Institutional separate accounts |
| 161,510 |
| 157,032 | 3% |
| 167,194 |
| 155,064 | 8% | ||
Individual separate accounts |
| 151,675 |
| 132,450 | 15% |
| 153,193 |
| 127,224 | 20% | ||
Total | $ | 479,488 | $ | 456,210 | 5% | $ | 491,348 | $ | 447,118 | 10% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | |||||||||||
(2) | Includes privately offered equity, fixed income and floating-rate income funds and CLO entities. |
Consolidated Net Flows
Consolidated net outflows of $9.3 billion and $3.2 billion in the second quarter and first six months of fiscal 2020, respectively, represent annualized internal growth in managed assets (consolidated net flows divided by beginning of period consolidated assets under management) of -7 percent and -1 percent, respectively. For comparison, we had consolidated net inflows of $4.6 billion and $6.1 billion in the second quarter and first six months of fiscal 2019, respectively, representing annualized internal growth in managed assets of 4 percent and 3 percent. Excluding Parametric overlay services, which have lower fees and more variable flows than the rest of our business, our net outflows of $2.8 billion and net inflows $2.2 billion in the second quarter and first
49
six months of fiscal 2020, respectively, represent annualized internal growth in managed assets of -3 percent and 1 percent. For comparison, we had net inflows of $2.6 billion and $4.8 billion in the second quarter and first six months of fiscal 2019, respectively, representing annualized internal growth in managed of assets of 3 percent.
Our annualized internal management fee revenue growth (management fees attributable to consolidated inflows less management fees attributable to consolidated outflows, divided by beginning of period consolidated management fee revenue) was -6 percent and -1 percent in the second quarter and first six months of fiscal 2020, respectively, as the management fee revenue lost from redemptions and other outflows exceeded the management fee revenue contribution from sales and other inflows. For comparison, our annualized internal management fee revenue growth was 1 percent and -1 percent in the second quarter and first six months of fiscal 2019, respectively.
The following tables summarize our consolidated assets under management and asset flows by investment mandate and investment vehicle:
50
Consolidated Assets under Management and Net Flows by Investment Mandate(1) |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| |||||
|
|
| April 30, | % |
| April 30, | % | |||||
(in millions) | 2020 | 2019 | Change |
| 2020 | 2019 | Change | |||||
Equity assets - beginning of period(2) | $ | 138,708 | $ | 116,990 | 19% | $ | 131,895 | $ | 115,772 | 14% | ||
|
| Sales and other inflows |
| 8,316 |
| 5,050 | 65% |
| 16,122 |
| 11,270 | 43% |
|
| Redemptions/outflows |
| (8,793) |
| (4,570) | 92% |
| (14,975) |
| (10,031) | 49% |
|
| Net flows |
| (477) |
| 480 | NM(6) |
| 1,147 |
| 1,239 | -7% |
|
| Exchanges |
| (205) |
| 150 | NM |
| (202) |
| 42 | NM |
|
| Market value change |
| (15,753) |
| 8,249 | NM |
| (10,567) |
| 8,816 | NM |
Equity assets - end of period | $ | 122,273 | $ | 125,869 | -3% | $ | 122,273 | $ | 125,869 | -3% | ||
Fixed income assets - beginning of period(3) |
| 64,262 |
| 56,910 | 13% |
| 62,378 |
| 54,339 | 15% | ||
|
| Sales and other inflows |
| 7,898 |
| 5,237 | 51% |
| 12,984 |
| 11,782 | 10% |
|
| Redemptions/outflows |
| (7,719) |
| (4,452) | 73% |
| (11,666) |
| (9,318) | 25% |
|
| Net flows |
| 179 |
| 785 | -77% |
| 1,318 |
| 2,464 | -47% |
|
| Exchanges |
| 154 |
| 71 | 117% |
| 177 |
| 397 | -55% |
|
| Market value change |
| (3,248) |
| 765 | NM |
| (2,526) |
| 1,331 | NM |
Fixed income assets - end of period | $ | 61,347 | $ | 58,531 | 5% | $ | 61,347 | $ | 58,531 | 5% | ||
Floating-rate income assets - beginning of period |
| 33,836 |
| 40,943 | -17% |
| 35,103 |
| 44,837 | -22% | ||
|
| Sales and other inflows |
| 1,937 |
| 2,079 | -7% |
| 3,626 |
| 5,645 | -36% |
|
| Redemptions/outflows |
| (5,096) |
| (3,657) | 39% |
| (8,142) |
| (10,135) | -20% |
|
| Net flows |
| (3,159) |
| (1,578) | 100% |
| (4,516) |
| (4,490) | 1% |
|
| Exchanges |
| (119) |
| (57) | 109% |
| (146) |
| (323) | -55% |
|
| Market value change |
| (2,736) |
| 442 | NM |
| (2,619) |
| (274) | 856% |
Floating-rate income assets - end of period | $ | 27,822 | $ | 39,750 | -30% | $ | 27,822 | $ | 39,750 | -30% | ||
Alternative assets - beginning of period(4) |
| 8,553 |
| 9,991 | -14% |
| 8,372 |
| 12,139 | -31% | ||
|
| Sales and other inflows |
| 498 |
| 802 | -38% |
| 1,173 |
| 1,846 | -36% |
|
| Redemptions/outflows |
| (1,182) |
| (1,275) | -7% |
| (1,775) |
| (4,539) | -61% |
|
| Net flows |
| (684) |
| (473) | 45% |
| (602) |
| (2,693) | -78% |
|
| Exchanges |
| (14) |
| (149) | -91% |
| (14) |
| (176) | -92% |
|
| Market value change |
| (629) |
| 40 | NM |
| (530) |
| 139 | NM |
Alternative assets - end of period | $ | 7,226 | $ | 9,409 | -23% | $ | 7,226 | $ | 9,409 | -23% | ||
Parametric custom portfolios assets - beginning of period(5) |
| 175,318 |
| 141,050 | 24% |
| 164,895 |
| 134,345 | 23% | ||
|
| Sales and other inflows |
| 13,896 |
| 9,099 | 53% |
| 23,641 |
| 19,263 | 23% |
|
| Redemptions/outflows |
| (12,596) |
| (5,696) | 121% |
| (18,817) |
| (10,996) | 71% |
|
| Net flows |
| 1,300 |
| 3,403 | -62% |
| 4,824 |
| 8,267 | -42% |
|
| Exchanges |
| 4 |
| (22) | NM |
| 5 |
| 53 | -91% |
|
| Market value change |
| (17,926) |
| 9,173 | NM |
| (11,028) |
| 10,939 | NM |
Parametric custom portfolios assets - end of period | $ | 158,696 | $ | 153,604 | 3% | $ | 158,696 | $ | 153,604 | 3% | ||
Parametric overlay services assets - beginning of period |
| 97,514 |
| 78,768 | 24% |
| 94,789 |
| 77,871 | 22% | ||
|
| Sales and other inflows |
| 29,025 |
| 14,559 | 99% |
| 50,338 |
| 31,681 | 59% |
|
| Redemptions/outflows |
| (35,494) |
| (12,544) | 183% |
| (55,693) |
| (30,352) | 83% |
|
| Net flows |
| (6,469) |
| 2,015 | NM |
| (5,355) |
| 1,329 | NM |
|
| Exchanges |
| 178 |
| - | NM |
| 178 |
| - | NM |
|
| Market value change |
| (3,304) |
| 1,992 | NM |
| (1,693) |
| 3,575 | NM |
Parametric overlay services assets - end of period | $ | 87,919 | $ | 82,775 | 6% | $ | 87,919 | $ | 82,775 | 6% | ||
Total assets under management - beginning of period |
| 518,191 |
| 444,652 | 17% |
| 497,432 |
| 439,303 | 13% | ||
|
| Sales and other inflows |
| 61,570 |
| 36,826 | 67% |
| 107,884 |
| 81,487 | 32% |
|
| Redemptions/outflows |
| (70,880) |
| (32,194) | 120% |
| (111,068) |
| (75,371) | 47% |
|
| Net flows |
| (9,310) |
| 4,632 | NM |
| (3,184) |
| 6,116 | NM |
|
| Exchanges |
| (2) |
| (7) | -71% |
| (2) |
| (7) | -71% |
|
| Market value change |
| (43,596) |
| 20,661 | NM |
| (28,963) |
| 24,526 | NM |
Total assets under management - end of period | $ | 465,283 | $ | 469,938 | -1% | $ | 465,283 | $ | 469,938 | -1% | ||
|
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|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. | |||||||||||
(2) | Includes balanced and other multi-asset mandates. Excludes equity mandates reported as Parametric custom portfolios. |
51
(3) | Includes cash management mandates. Excludes benchmark-based fixed income separate accounts reported as Parametric custom portfolios. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. | |||||||||||
(4) | Consists of absolute return, commodity and currency mandates. | |||||||||||
(5) | Equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature; other Parametric strategies may also be customized. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. | |||||||||||
(6) | Not meaningful (NM). |
52
Consolidated Assets under Management and Net Flows by Investment Vehicle(1) |
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| |||||||
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|
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|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
|
| April 30, | % | April 30, | % | ||||||
(in millions) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||
Funds - beginning of period | $ | 180,539 | $ | 162,750 | 11% | $ | 174,068 | $ | 164,968 | 6% | ||
|
| Sales and other inflows |
| 14,316 |
| 10,510 | 36% |
| 25,812 |
| 24,233 | 7% |
|
| Redemptions/outflows |
| (17,297) |
| (9,399) | 84% |
| (26,458) |
| (24,824) | 7% |
|
| Net flows |
| (2,981) |
| 1,111 | NM |
| (646) |
| (591) | 9% |
|
| Exchanges |
| (3) |
| (7) | -57% |
| (3) |
| (105) | -97% |
|
| Market value change |
| (17,151) |
| 7,108 | NM |
| (13,015) |
| 6,690 | NM |
Funds - end of period | $ | 160,404 | $ | 170,962 | -6% | $ | 160,404 | $ | 170,962 | -6% | ||
Institutional separate accounts - beginning of period |
| 175,258 |
| 155,224 | 13% |
| 173,331 |
| 153,996 | 13% | ||
|
| Sales and other inflows |
| 33,732 |
| 16,327 | 107% |
| 57,337 |
| 37,156 | 54% |
|
| Redemptions/outflows |
| (41,869) |
| (16,499) | 154% |
| (67,318) |
| (38,828) | 73% |
|
| Net flows |
| (8,137) |
| (172) | NM |
| (9,981) |
| (1,672) | 497% |
|
| Exchanges |
| 6 |
| - | NM |
| 6 |
| 98 | -94% |
|
| Market value change |
| (12,372) |
| 5,408 | NM |
| (8,601) |
| 8,038 | NM |
Institutional separate accounts - end of period | $ | 154,755 | $ | 160,460 | -4% | $ | 154,755 | $ | 160,460 | -4% | ||
Individual separate accounts - beginning of period |
| 162,394 |
| 126,678 | 28% |
| 150,033 |
| 120,339 | 25% | ||
|
| Sales and other inflows |
| 13,522 |
| 9,989 | 35% |
| 24,735 |
| 20,098 | 23% |
|
| Redemptions/outflows |
| (11,714) |
| (6,296) | 86% |
| (17,292) |
| (11,719) | 48% |
|
| Net flows |
| 1,808 |
| 3,693 | -51% |
| 7,443 |
| 8,379 | -11% |
|
| Exchanges |
| (5) |
| - | NM |
| (5) |
| - | NM |
|
| Market value change |
| (14,073) |
| 8,145 | NM |
| (7,347) |
| 9,798 | NM |
Individual separate accounts - end of period | $ | 150,124 | $ | 138,516 | 8% | $ | 150,124 | $ | 138,516 | 8% | ||
Total assets under management - beginning of period |
| 518,191 |
| 444,652 | 17% |
| 497,432 |
| 439,303 | 13% | ||
|
| Sales and other inflows |
| 61,570 |
| 36,826 | 67% |
| 107,884 |
| 81,487 | 32% |
|
| Redemptions/outflows |
| (70,880) |
| (32,194) | 120% |
| (111,068) |
| (75,371) | 47% |
|
| Net flows |
| (9,310) |
| 4,632 | NM |
| (3,184) |
| 6,116 | NM |
|
| Exchanges |
| (2) |
| (7) | -71% |
| (2) |
| (7) | -71% |
|
| Market value change |
| (43,596) |
| 20,661 | NM |
| (28,963) |
| 24,526 | NM |
Total assets under management - end of period | $ | 465,283 | $ | 469,938 | -1% | $ | 465,283 | $ | 469,938 | -1% | ||
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|
|
(1) | Consolidated Eaton Vance Corp. See table on page 54 for directly managed assets and flows of 49 percent-owned Hexavest, which are not included in the table above. |
53
As of April 30, 2020, our 49 percent-owned affiliate Hexavest managed $8.6 billion of client assets, down 38 percent from $13.9 billion of managed assets on April 30, 2019. Other than Eaton Vance-sponsored funds for which Hexavest is adviser or sub-adviser, the managed assets and flows of Hexavest are not included in our consolidated totals.
The following table summarizes assets under management and net flows of Hexavest:
Hexavest Assets under Management and Net Flows |
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|
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
|
| April 30, | % | April 30, | % | ||||||
(in millions) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||
Eaton Vance distributed: |
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|
|
|
| ||
Eaton Vance sponsored funds - beginning of period(1) | $ | 130 | $ | 177 | -27% | $ | 152 | $ | 159 | -4% | ||
|
| Sales and other inflows |
| 4 |
| 4 | 0% |
| 7 |
| 44 | -84% |
|
| Redemptions/outflows |
| (42) |
| (3) | NM |
| (68) |
| (28) | 143% |
|
| Net flows |
| (38) |
| 1 | NM |
| (61) |
| 16 | NM |
|
| Market value change |
| (22) |
| 6 | NM |
| (21) |
| 9 | NM |
Eaton Vance sponsored funds - end of period | $ | 70 | $ | 184 | -62% | $ | 70 | $ | 184 | -62% | ||
Eaton Vance distributed separate accounts - beginning |
|
|
|
|
|
|
|
|
|
| ||
|
| of period(2) |
| 1,566 |
| 2,065 | -24% |
| 1,563 |
| 2,169 | -28% |
|
| Sales and other inflows |
| 24 |
| 3 | 700% |
| 30 |
| 24 | 25% |
|
| Redemptions/outflows |
| (338) |
| (79) | 328% |
| (360) |
| (219) | 64% |
|
| Net flows |
| (314) |
| (76) | 313% |
| (330) |
| (195) | 69% |
|
| Market value change |
| (251) |
| 87 | NM |
| (232) |
| 102 | NM |
Eaton Vance distributed separate accounts - end of period | $ | 1,001 | $ | 2,076 | -52% | $ | 1,001 | $ | 2,076 | -52% | ||
Total Eaton Vance distributed - beginning of period |
| 1,696 |
| 2,242 | -24% |
| 1,715 |
| 2,328 | -26% | ||
|
| Sales and other inflows |
| 28 |
| 7 | 300% |
| 37 |
| 68 | -46% |
|
| Redemptions/outflows |
| (380) |
| (82) | 363% |
| (428) |
| (247) | 73% |
|
| Net flows |
| (352) |
| (75) | 369% |
| (391) |
| (179) | 118% |
|
| Market value change |
| (273) |
| 93 | NM |
| (253) |
| 111 | NM |
Total Eaton Vance distributed - end of period | $ | 1,071 | $ | 2,260 | -53% | $ | 1,071 | $ | 2,260 | -53% | ||
Hexavest directly distributed - beginning of period(3) |
| 11,296 |
| 10,988 | 3% |
| 11,640 |
| 11,467 | 2% | ||
|
| Sales and other inflows |
| 304 |
| 700 | -57% |
| 400 |
| 1,219 | -67% |
|
| Redemptions/outflows |
| (2,120) |
| (473) | 348% |
| (2,674) |
| (1,607) | 66% |
|
| Net flows |
| (1,816) |
| 227 | NM |
| (2,274) |
| (388) | 486% |
|
| Market value change |
| (1,921) |
| 419 | NM |
| (1,807) |
| 555 | NM |
Hexavest directly distributed - end of period | $ | 7,559 | $ | 11,634 | -35% | $ | 7,559 | $ | 11,634 | -35% | ||
Total Hexavest assets - beginning of period |
| 12,992 |
| 13,230 | -2% |
| 13,355 |
| 13,795 | -3% | ||
|
| Sales and other inflows |
| 332 |
| 707 | -53% |
| 437 |
| 1,287 | -66% |
|
| Redemptions/outflows |
| (2,500) |
| (555) | 350% |
| (3,102) |
| (1,854) | 67% |
|
| Net flows |
| (2,168) |
| 152 | NM |
| (2,665) |
| (567) | 370% |
|
| Market value change |
| (2,194) |
| 512 | NM |
| (2,060) |
| 666 | NM |
Total Hexavest assets - end of period | $ | 8,630 | $ | 13,894 | -38% | $ | 8,630 | $ | 13,894 | -38% | ||
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|
(1) | Managed assets and flows of Eaton Vance-sponsored funds for which Hexavest is adviser or sub-adviser. Eaton Vance receives management fees (and in some cases also distribution fees) on these assets, which are included in our consolidated assets under management, flows and average annualized management fee rates. | |||||||||||
(2) | Managed assets and flows of Eaton Vance-distributed separate accounts managed by Hexavest. Eaton Vance receives distribution fees, but not management fees, on these assets, which are not included in our consolidated assets under management, flows and average annualized management fee rates. | |||||||||||
(3) | Managed assets and flows of pre-transaction Hexavest clients and post-transaction Hexavest clients in Canada. Eaton Vance receives no management fees or distribution fees on these assets, which are not included in our consolidated assets under management, flows and average annualized management fee rates. |
54
Results of Operations
In evaluating operating performance, we consider net income attributable to Eaton Vance Corp. shareholders and earnings per diluted share, which are calculated on a basis consistent with U.S. GAAP, as well as adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share, both of which are internally derived non-U.S. GAAP performance measures.
Effective this quarter, our calculation of non-U.S. GAAP financial measures excludes the impact of consolidated sponsored funds and consolidated collateralized loan obligation (CLO) entities (collectively, consolidated investment entities) and other seed capital investments. Adjustments to GAAP operating income include the add-back of management fee revenue received from consolidated investment entities that are eliminated in consolidation and the non-management expenses of consolidated sponsored funds recognized in consolidation. Adjustments to GAAP net income attributable to Eaton Vance Corp. shareholders include the after-tax impact of these adjustments to operating income and the elimination of gains (losses) and other investment income (expense) of consolidated investment entities and other seed capital investments included in non-operating income (expense), as determined net of tax and non-controlling and other beneficial interests. All prior period non-U.S. GAAP financial measures have been updated to reflect this change.
Management believes that certain non-U.S. GAAP financial measures, specifically, adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share, while not a substitute for U.S. GAAP financial measures, may be effective indicators of our performance over time. Non-U.S. GAAP financial measures should not be construed to be superior to U.S. GAAP measures. In calculating these non-U.S. GAAP financial measures, net income attributable to Eaton Vance Corp. shareholders, earnings per diluted share is adjusted to exclude items management deems non-operating or non-recurring in nature, or otherwise outside the ordinary course of business. These adjustments may include, when applicable, the add back of closed-end fund structuring fees, costs associated with special dividends, debt repayments and tax settlements, the tax impact of stock-based compensation shortfalls or windfalls, and non-recurring charges for the effect of tax law changes. The adjusted measures also exclude the impact of consolidated investment entities and other seed capital investments. Management and our Board of Directors, as well as certain of our outside investors, consider the adjusted numbers a measure of our underlying operating performance. Management believes adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share are important indicators of our operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results, and may provide a useful baseline for analyzing trends in our underlying business.
55
The following table provides a reconciliation of net income attributable to Eaton Vance Corp. shareholders and earnings per diluted share to adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share, respectively:
|
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| Three Months Ended |
| Six Months Ended |
| ||||||
|
|
| April 30, | % | April 30, | % | ||||||
(in thousands, except per share figures) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||
Net income attributable to |
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|
|
| ||
|
| Eaton Vance Corp. shareholders | $ | 72,058 | $ | 101,807 | -29% | $ | 176,043 | $ | 188,608 | -7% |
Management fees of consolidated sponsored |
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|
|
|
|
|
|
| ||
|
| funds and consolidated CLO entities, net of tax(1) |
| 947 |
| 802 | 18% |
| 2,375 |
| 1,342 | 77% |
Non-management expenses of consolidated |
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|
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|
|
|
|
| ||
|
| sponsored funds, net of tax(2) |
| 848 |
| 980 | -13% |
| 1,803 |
| 2,073 | -13% |
Net (gains) losses and other investment income |
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|
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| ||
|
| related to consolidated sponsored funds and |
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|
| other seed capital investments, net of tax(3) |
| 4,607 |
| (3,178) | NM |
| (313) |
| (3,582) | -91% |
Other (income) expense of consolidated CLO |
|
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|
|
|
|
|
|
| ||
|
| entities, net of tax(4) |
| 12,226 |
| (8,179) | NM |
| 13,585 |
| (6,022) | NM |
Net excess tax benefit from stock-based |
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|
|
|
|
|
|
|
|
| ||
|
| compensation plans |
| (1,059) |
| (277) | 282% |
| (5,919) |
| (3,226) | 83% |
Adjusted net income attributable to |
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|
|
|
|
|
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| ||
|
| Eaton Vance Corp. shareholders | $ | 89,627 | $ | 91,955 | -3% | $ | 187,574 | $ | 179,193 | 5% |
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|
Earnings per diluted share | $ | 0.65 | $ | 0.89 | -27% | $ | 1.55 | $ | 1.64 | -5% | ||
Management fees of consolidated sponsored |
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|
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|
|
|
|
| ||
|
| funds and consolidated CLO entities, net of tax |
| 0.01 |
| - | NM |
| 0.02 |
| 0.01 | 100% |
Non-management expenses of consolidated |
|
|
|
|
|
|
|
|
|
| ||
|
| sponsored funds, net of tax |
| 0.01 |
| 0.01 | 0% |
| 0.02 |
| 0.02 | 0% |
Net (gains) losses and other investment income |
|
|
|
|
|
|
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|
|
| ||
|
| related to consolidated sponsored funds and |
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|
|
|
|
|
|
|
|
|
|
| other seed capital investments, net of tax |
| 0.04 |
| (0.03) | NM |
| - |
| (0.03) | -100% |
Other (income) expense of consolidated CLO |
|
|
|
|
|
|
|
|
|
| ||
|
| entities, net of tax |
| 0.11 |
| (0.07) | NM |
| 0.12 |
| (0.05) | NM |
Net excess tax benefit from stock-based |
|
|
|
|
|
|
|
|
|
| ||
|
| compensation plans |
| (0.02) |
| - | NM |
| (0.05) |
| (0.03) | 67% |
Adjusted earnings per diluted share | $ | 0.80 | $ | 0.80 | 0% | $ | 1.66 | $ | 1.56 | 6% | ||
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| |
(1) | Represents management fees eliminated upon the consolidation of sponsored funds and CLO entities. On a pre-tax basis, these totaled $1.3 million in the three months ended April 30, 2020, $1.1 million in the three months ended April 30, 2019, $3.2 million in the six months ended April 30, 2020 and $1.8 million in the six months ended April 30, 2019. | |||||||||||
(2) | Represents expenses of consolidated funds. On a pre-tax basis, these totaled $1.1 million in the three months ended April 30, 2020, $1.3 million in the three months ended April 30, 2019, $2.4 million in the six months ended April 30, 2020 and $2.8 million in the six months ended April 30, 2019. | |||||||||||
(3) | Represents gains, losses and other investment income earned on investments in sponsored strategies, whether accounted for as consolidated funds, separate accounts or equity investments, as well as the gains and losses recognized on derivatives used to hedge these investments. Stated amounts are net of non-controlling interests. On a pre-tax basis, these totaled $(6.2) million in the three months ended April 30, 2020, $4.3 million in the three months ended April 30, 2019, $0.4 million in the six months ended April 30, 2020 and $4.8 million in the six months ended April 30, 2019. | |||||||||||
(4) | Represents other income and expenses of consolidated CLO entities. On a pre-tax basis, these totaled $(16.5) million in the three months ended April 30, 2020, $11.0 million in the three months ended April 30, 2019, $(18.3) million in the six months ended April 30, 2020 and $8.1 million in the six months ended April 30, 2019. |
56
The 29 percent decrease in net income attributable to Eaton Vance Corp. shareholders in the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 reflects:
· A decrease in revenue of $6.0 million, reflecting a decrease in management fees, distribution and underwriting fees and other revenue, partially offset by an increase in service fees.
· A decrease in operating expenses of $0.7 million, reflecting increases in service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses, partially offset by decreases in compensation and distribution expense.
· An increase in non-operating expense of $93.7 million, primarily reflecting a $65.7 million increase in net losses and other investment income of consolidated sponsored funds and our investments in other sponsored strategies and a $27.5 million increase in the net expenses of consolidated CLO entities.
· A decrease in income taxes of $15.1 million.
· A decrease in equity in net income of affiliates, net of tax, of $1.3 million.
· An increase in net loss attributable to non-controlling and other beneficial interests of $55.3 million.
Weighted average diluted shares outstanding decreased by 2.6 million shares, or 2 percent, in the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019, primarily reflecting share repurchases in excess of new shares issued upon the vesting of restricted stock awards and the exercise of employee stock options and a decrease in the dilutive effect of in-the-money options and unvested restricted stock awards due to lower market prices of the Company’s shares.
The 7 percent decrease in net income attributable to Eaton Vance Corp. shareholders in the first six months of fiscal 2020 compared to the first six months of fiscal 2019 reflects:
· An increase in revenue of $40.2 million, reflecting increases in management fees and service fees, partially offset by decreases in distribution and underwriting fees, and other revenue.
· An increase in operating expenses of $31.8 million, reflecting increases in compensation, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses.
· An increase in non-operating expense of $82.1 million, primarily reflecting a $55.5 million increase in net losses and other investment income of consolidated sponsored funds and our investments in other sponsored strategies and a $26.4 million increase in the net expenses of consolidated CLO entities.
· A decrease in income taxes of $10.1 million.
· A decrease in equity in net income of affiliates, net of tax, of $0.9 million.
· An increase in net loss attributable to non-controlling and other beneficial interests of $51.9 million.
Weighted average diluted shares outstanding decreased by 1.5 million shares, or 1 percent, in the first six months of fiscal 2020 compared to the first six months of fiscal 2019, primarily reflecting share repurchases in excess of new shares issued upon the vesting of restricted stock awards and the exercise of employee stock options, partially offset by an increase in the dilutive effect of in-the-money options and unvested restricted stock awards due to higher market prices of the Company’s shares.
57
Revenue
The following table shows the components of our revenue:
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||
Management fees | $ | 354,121 | $ | 359,384 | -1% | $ | 748,922 | $ | 710,134 | 5% | ||
Distribution and underwriter fees |
| 19,122 |
| 20,054 | -5% |
| 40,700 |
| 43,144 | -6% | ||
Service fees |
| 30,557 |
| 29,586 | 3% |
| 64,496 |
| 58,946 | 9% | ||
Other revenue |
| 2,111 |
| 2,837 | -26% |
| 4,347 |
| 6,053 | -28% | ||
Total revenue | $ | 405,911 | $ | 411,861 | -1% | $ | 858,465 | $ | 818,277 | 5% |
Management fees
The $5.3 million decrease in management fees in the second quarter of fiscal 2020 from the same period a year earlier is primarily attributable to a 7 percent decrease in our consolidated average annualized management fee rate, partially offset by a 5 percent increase in our consolidated average assets under management, a $1.0 million decrease in fund subsidies, which are recorded as a contra-revenue component of management fees, a $0.7 million increase in performance-based fees and the impact of one additional fee day in the second quarter of fiscal 2020. The $38.8 million increase in management fees in the first six months of fiscal 2020 from the same period a year earlier is primarily attributable to a 10 percent increase in consolidated average assets under management, a $4.8 million decrease in fund subsidies, a $1.2 million increase in performance-based fees and the impact of one additional fee day in the first six months of fiscal 2020, partially offset by a 4 percent decrease in our consolidated average annualized management fee rate.
58
The following table shows our consolidated average annualized management fee rates by investment mandate, excluding performance-based fees, which were $2.5 million in the second quarter of fiscal 2020, $1.8 million in the second quarter of fiscal 2019, $2.7 million in the first six months of fiscal 2020 and $1.5 million in the first six months of fiscal 2019. Our consolidated average annualized management fee rates also exclude management fees earned on consolidated investment entities that are eliminated in consolidation, which were $1.3 million in the second quarter of fiscal 2020, $1.1 million in the second quarter of fiscal 2019, $3.2 million in the first six months of fiscal 2020 and $1.8 million in the first six months of fiscal 2019. Prior‐period consolidated average annualized management fee rates by investment mandate have been revised to reflect the reclassification of benchmark‐based fixed income separate accounts from fixed income to Parametric custom portfolios. This reclassification does not affect the Company’s overall consolidated average annualized management fee rates for any of the reported periods.
|
|
| Three Months Ended |
| Six Months Ended |
| ||
|
|
| April 30, | % | April 30, | % | ||
(in basis points on average managed assets) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||
Equity(1) | 55.1 | 57.1 | -4% | 56.6 | 56.9 | -1% | ||
Fixed income(2) | 40.1 | 41.7 | -4% | 40.9 | 41.7 | -2% | ||
Floating-rate income | 49.8 | 50.0 | 0% | 50.2 | 49.9 | 1% | ||
Alternative(3) | 62.2 | 59.4 | 5% | 63.8 | 58.6 | 9% | ||
Parametric custom portfolios(4) | 14.5 | 14.6 | -1% | 14.9 | 14.5 | 3% | ||
Parametric overlay services | 4.9 | 5.3 | -8% | 4.9 | 5.2 | -6% | ||
Consolidated average annualized management fee rates | 29.7 | 31.8 | -7% | 30.5 | 31.8 | -4% | ||
|
|
|
|
|
|
|
|
|
(1) | Includes balanced and other multi‐asset mandates. Excludes equity mandates reported as Parametric custom portfolios. | |||||||
(2) | Includes cash management mandates. Excludes benchmark-based fixed income separate accounts reported as Parametric custom portfolios. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. | |||||||
(3) | Consists of absolute return, commodity and currency mandates. | |||||||
(4) | Equity, fixed income and multi-asset separate accounts managed by Parametric for which customization is a primary feature; other Parametric strategies may also be customized. Amounts for periods prior to fiscal 2020 have been revised to reflect the reclassification of benchmark-based fixed income separate accounts from fixed income to Parametric custom portfolios in the first quarter of fiscal 2020. |
Consolidated average assets under management by investment mandate to which these fee rates apply can be found in the Consolidated Average Assets under Management by Investment Mandate table in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2 of this Quarterly Report on Form 10-Q. Changes in the consolidated average annualized management fee rates for the compared period primarily reflects shifts in the Company’s mix of business.
59
Distribution and underwriter fees
The following table shows fund distribution and underwriter fee revenue and other fund-related distribution income:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Distribution fees: |
|
|
|
|
|
|
|
|
|
| |
Class A | $ | 600 | $ | 762 | -21% | $ | 1,288 | $ | 1,628 | -21% | |
Class B |
| - |
| 32 | -100% |
| - |
| 76 | -100% | |
Class C |
| 7,423 |
| 9,066 | -18% |
| 15,833 |
| 21,600 | -27% | |
Class F |
| 349 |
| 379 | -8% |
| 751 |
| 752 | 0% | |
Class N(1) |
| 12 |
| 20 | -40% |
| 24 |
| 42 | -43% | |
Class R |
| 411 |
| 461 | -11% |
| 910 |
| 907 | 0% | |
Private funds |
| 3,392 |
| 2,759 | 23% |
| 7,049 |
| 5,257 | 34% | |
Total distribution fees |
| 12,187 |
| 13,479 | -10% |
| 25,855 |
| 30,262 | -15% | |
Underwriter commissions |
| 5,189 |
| 5,248 | -1% |
| 11,703 |
| 9,293 | 26% | |
Contingent deferred sales charges |
|
|
|
|
|
|
|
|
|
| |
and other redemption fees |
| 616 |
| 181 | 240% |
| 809 |
| 1,356 | -40% | |
Other distribution income |
| 1,130 |
| 1,146 | -1% |
| 2,333 |
| 2,233 | 4% | |
Total distribution and underwriter fees | $ | 19,122 | $ | 20,054 | -5% | $ | 40,700 | $ | 43,144 | -6% | |
|
|
|
|
|
|
| |||||
(1) | Consists of Investor class shares of Parametric Funds and Advisers class shares of Eaton Vance Funds. |
The $1.3 million decrease in distribution fees in the second quarter of fiscal 2020 from the same period a year earlier primarily reflects a decrease in Class C distribution fees driven by lower average managed assets of Class C mutual fund shares offset by an increase in distribution fees from private funds driven by higher average managed assets in these funds. The $0.9 million decrease in distribution and underwriter fees further reflects a $0.4 million increase in contingent deferred sales charges and other redemption fees.
The $4.4 million decrease in distribution fees in the first six months of fiscal 2020 from the same period a year earlier primarily reflects a decrease in Class C distribution fees driven by lower average managed assets of Class C mutual fund shares offset by an increase in distribution fees from private funds driven by higher average managed assets in these funds. The $2.4 million decrease in distribution and underwriter fees further reflects a $0.5 million decrease in contingent deferred sales charges and other redemption fees, primarily attributable to the early redemption of certain managed assets of a private fund in the first quarter of fiscal 2019, partially offset by a $2.4 million increase in underwriter commissions.
Service fees
Service fee revenue increased 3 percent and 9 percent in the second quarter and first six months of fiscal 2020 from the same periods a year earlier, respectively, primarily reflecting an increase in average assets in funds and fund share classes subject to service fees.
Other revenue
Other revenue, which consists primarily of fund shareholder servicing fees, referral fees and consultancy fees, decreased 26 percent and 28 percent in the second quarter and first six months of fiscal 2020 from the same
60
periods a year earlier, primarily reflecting decreases in miscellaneous dealer income, due to a terminated distribution agreement, Hexavest-related referral fees, shareholder servicing fees and consultancy fees.
Expenses
The following table shows our operating expenses:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Compensation and related costs | $ | 149,072 | $ | 153,542 | -3% | $ | 321,054 | $ | 307,430 | 4% | |
Distribution expense |
| 33,533 |
| 35,930 | -7% |
| 73,536 |
| 73,438 | 0% | |
Service fee expense |
| 26,648 |
| 25,921 | 3% |
| 56,403 |
| 51,438 | 10% | |
Amortization of deferred sales |
|
|
|
|
|
|
|
|
|
| |
| commissions |
| 6,289 |
| 5,571 | 13% |
| 12,257 |
| 11,118 | 10% |
Fund-related expenses |
| 10,897 |
| 9,960 | 9% |
| 21,964 |
| 19,605 | 12% | |
Other expenses |
| 57,516 |
| 53,764 | 7% |
| 116,576 |
| 106,945 | 9% | |
Total expenses | $ | 283,955 | $ | 284,688 | 0% | $ | 601,790 | $ | 569,974 | 6% |
Compensation and related costs
The following table shows the details of our compensation and related costs:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Base salaries and employee benefits | $ | 76,269 | $ | 72,153 | 6% | $ | 156,269 | $ | 146,744 | 6% | |
Stock-based compensation |
| 20,948 |
| 22,012 | -5% |
| 51,327 |
| 45,286 | 13% | |
Operating income-based incentives |
| 35,073 |
| 42,099 | -17% |
| 78,808 |
| 80,989 | -3% | |
Sales-based incentives |
| 16,870 |
| 15,355 | 10% |
| 33,471 |
| 32,389 | 3% | |
Other compensation expense |
| (88) |
| 1,923 | NM |
| 1,179 |
| 2,022 | -42% | |
Total | $ | 149,072 | $ | 153,542 | -3% | $ | 321,054 | $ | 307,430 | 4% |
Compensation expense decreased by $4.5 million, or 3 percent, in the second quarter of fiscal 2020 from the same period a year earlier. The decrease was primarily driven by (1) a $7.0 million decrease in operating income-based bonus accruals due to a decrease in consolidated pre-bonus operating income; (2) a $2.0 million decrease in other compensation expenses primarily due to lower severance expenses; and (3) a $1.1 million decrease in stock-based compensation expense. These decreases were partially offset by a $4.1 million increase in base salaries and employee benefits associated with increases in headcount, year-end compensation increases for continuing employees and one additional payroll day in the second quarter of fiscal 2020 and a $1.5 million increase in sales‐based incentive compensation.
Compensation expense increased by $13.6 million, or 4 percent, in the first six months of fiscal 2020 from the same period a year earlier. The increase was primarily driven by (1) a $9.5 million increase in base salaries and employee benefits associated with increases in headcount, year-end compensation increases for continuing employees and one additional payroll day in the first six months of fiscal 2020; (2) a $6.0 million increase in stock-based compensation expense primarily due to the accelerated recognition of stock-based compensation
61
expense in the first quarter of fiscal 2020 related to employee retirements; and (3) a $1.1 million increase in sales‐based incentive compensation. These increases were partially offset by a $2.2 million decrease in operating income-based bonus accruals and a $0.8 million decrease in other compensation expenses due to lower severance expenses.
Distribution expense
The following table shows the breakdown of our distribution expense:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Distribution fees | $ | 8,922 | $ | 10,739 | -17% |
| 18,934 |
| 24,678 | -23% | |
Intermediary marketing support |
|
|
|
|
|
|
|
|
|
| |
| payments |
| 12,570 |
| 13,037 | -4% |
| 27,063 |
| 24,990 | 8% |
Front-end sales commission expense |
| 5,811 |
| 5,210 | 12% |
| 12,664 |
| 9,051 | 40% | |
Discretionary marketing expenses |
| 3,438 |
| 4,065 | -15% |
| 8,793 |
| 8,912 | -1% | |
Finder's fees |
| 1,938 |
| 1,972 | -2% |
| 4,241 |
| 3,990 | 6% | |
Closed-end fund dealer compensation |
|
|
|
|
|
|
|
|
|
| |
| payments |
| 854 |
| 907 | -6% |
| 1,841 |
| 1,817 | 1% |
Total | $ | 33,533 | $ | 35,930 | -7% | $ | 73,536 | $ | 73,438 | 0% |
Distribution expense decreased by $2.4 million, or 7 percent, in the second quarter of fiscal 2020 versus the same period a year earlier, primarily reflecting lower Class C distribution expenses, driven by a decrease in average managed assets of Class C mutual fund shares, and a decrease in discretionary marketing expenses and intermediary marketing support payments. These decreases were partially offset by higher front-end sales commission expenses due to increased sales of Class A mutual fund shares. Distribution expense was substantially unchanged in the first six months of fiscal 2020 from the same period a year earlier, primarily reflecting an increase in intermediary marketing support payments and font-end sales commission expenses mostly offset by a decrease in Class C distribution expenses.
Service fee expense
Service fee expense increased by $0.7 million, or 3 percent, in the second quarter of fiscal 2020 from the same period a year earlier, reflecting higher private fund service fee payments, partially offset by lower Class C service fee payments. Service fee expense increased by $5.0 million, or 10 percent, in the first six months of fiscal 2020 from the same period a year earlier, reflecting higher Class A and private fund service fee payments, partially offset by lower Class C service fee payments.
Amortization of deferred sales commissions
Amortization expense increased by $0.7 million, or 13 percent, in the second quarter of fiscal 2020, and increased by $1.1 million, or 10 percent, in the first six months of fiscal 2020 versus the same periods a year earlier, primarily reflecting higher private fund commission amortization, partially offset by lower Class C commission amortization.
Fund-related expenses
Fund-related expenses increased by $0.9 million, or 9 percent, in the second quarter of fiscal 2020, and increased by $2.4 million, or 12 percent, in the first six months of fiscal 2020 compared to the same periods a
62
year earlier, reflecting higher sub-advisory fees driven by increases in average managed assets in sub-advised funds and one additional fee day.
Other expenses
The following table shows our other expenses:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Information technology | $ | 31,007 | $ | 24,788 | 25% | $ | 58,572 | $ | 48,197 | 22% | |
Facilities-related |
| 13,793 |
| 12,649 | 9% |
| 26,967 |
| 25,955 | 4% | |
Travel |
| 2,150 |
| 4,430 | -51% |
| 7,667 |
| 8,904 | -14% | |
Professional services |
| 4,234 |
| 5,037 | -16% |
| 9,690 |
| 8,694 | 11% | |
Communications |
| 1,730 |
| 1,469 | 18% |
| 3,150 |
| 2,991 | 5% | |
Amortization of intangible assets |
| 965 |
| 1,050 | -8% |
| 1,987 |
| 2,878 | -31% | |
Other corporate expense |
| 3,637 |
| 4,341 | -16% |
| 8,543 |
| 9,326 | -8% | |
Total | $ | 57,516 | $ | 53,764 | 7% | $ | 116,576 | $ | 106,945 | 9% |
Other expenses increased by $3.8 million, or 7 percent, in the second quarter of fiscal 2020 from the same period a year earlier. The increase in information technology expense is primarily attributable to an increase in project-related IT consulting services associated with investments in technology and strategic initiatives, higher system maintenance costs and an increase in market data services. The increase in facilities-related expenses is primarily attributable to a lease termination reimbursement for office space in Seattle during the second quarter of fiscal 2019. These increases were partially offset by lower travel expenses and a decrease in professional services expense reflecting decreases in legal expenses and recruiting costs.
Other expenses increased by $9.6 million, or 9 percent, in the first six months of fiscal 2020 from the same period a year earlier. The increase in information technology expense is primarily attributable to an increase in project-related IT consulting services associated with investments in technology and strategic initiatives, higher system maintenance costs and an increase in market data services. The increase in facilities-related expenses is primarily attributable to a lease termination reimbursement for office space in Seattle during the second quarter of fiscal 2019. The increase in professional services expenses reflects an increase in legal expenses and higher consulting costs. These increases were partially offset by lower travel expenses, a decrease in amortization expense related to certain intangible assets that were fully amortized during the first quarter of fiscal 2019 and a decrease in other corporate expenses.
63
Non-operating Income (Expense)
The following table shows the main categories of non-operating income (expense):
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Gains (losses) and other investment | $ | (50,512) | $ | 15,206 | NM | $ | (34,422) | $ | 21,039 | NM | |
income, net |
|
|
|
|
|
|
|
|
|
| |
Interest expense |
| (6,364) |
| (5,888) | 8% |
| (12,252) |
| (12,019) | 2% | |
Other income (expense) of consolidated |
|
|
|
|
|
|
|
|
|
| |
CLO entities: |
|
|
|
|
|
|
|
|
|
| |
Gains (losses) and other investment |
|
|
|
|
|
|
|
|
|
| |
| income, net |
| (4,841) |
| 21,794 | NM |
| 10,722 |
| 27,235 | -61% |
Interest and other expense |
| (11,647) |
| (10,821) | 8% |
| (29,043) |
| (19,157) | 52% | |
Total non-operating income (expense) | $ | (73,364) | $ | 20,291 | NM | $ | (64,995) | $ | 17,098 | NM |
The change in gains (losses) and other investment income, net, in the second quarter of fiscal 2020 compared to the same period a year ago reflects a $60.0 million increase in net investment losses, primarily attributable to investments of consolidated sponsored funds and associated hedges, and a $6.1 million decrease in interest and other income, partially offset by an increase in foreign currency gains of $0.4 million. The increase in net investment losses of consolidated sponsored funds during the second quarter of fiscal 2020 drove a corresponding increase in net loss attributable to non-controlling and other beneficial interest holders during the period as more fully described below.
Interest expense increased by $0.5 million in second quarter of fiscal 2020 compared to the same period a year earlier reflecting borrowings under our line of credit during the second quarter of fiscal 2020. Such borrowings were fully repaid prior to quarter-end.
The $27.5 million decrease in other income (expense) of consolidated CLO entities in the second quarter of 2020 compared to the same period a year earlier is driven by a decrease in our economic interests in these entities. The Company consolidated three securitized CLO entities as of April 30, 2020 in comparison to two securitized CLO entities and one warehouse stage CLO entity as of April 30, 2019. Our economic interests consist of changes in the fair market value of our investments in these entities, distributions received and management fees earned by the Company.
The change in gains (losses) and other investment income, net, in the first six months of fiscal 2020 compared to the same period a year ago reflects a $49.3 million increase in net investment losses, primarily attributable to investments of consolidated sponsored funds and associated hedges, and a $6.6 million decrease in interest and other income, partially offset by an increase in foreign currency gains of $0.4 million.
Interest expense increased by $0.2 million in first six months of 2020 compared to the same period a year earlier reflecting borrowings under our line of credit during the second quarter of fiscal 2020. Such borrowings were fully repaid prior to quarter-end.
The change in other income (expense) of consolidated CLO entities in the first six months of 2020 compared to the same period a year earlier reflects a $26.4 million increase in the net expenses consolidated CLO entities,
64
driven by a decrease in our economic interests in these entities. The Company consolidated three securitized CLO entities as of April 30, 2020 in comparison to two securitized CLO entities and one warehouse stage CLO entity as of April 30, 2019. Our economic interests consist of changes in the fair market value of our investments in these entities, distributions received and management fees earned by the Company.
Income Taxes
Our effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 45.3 percent in the second quarter of fiscal 2020 and 25.1 percent in the second quarter of fiscal 2019. Our effective tax rate was 28.5 percent in the first six months of fiscal 2020 and 24.4 percent in the first six months of fiscal 2019.
Our income tax provision for the three months ended April 30, 2020 and 2019 includes charges of $0.9 million and $0.7 million, respectively, associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. These charges totaled $2.2 million and $1.3 million for the six months ended April 30, 2020 and 2019, respectively.
Our income tax provision for the three months ended April 30, 2020 and 2019 was reduced by net excess tax benefits of $1.1 million and $0.3 million, respectively, related to the exercise of employee stock options and vesting of restricted stock awards, and $9.9 million and $1.6 million, respectively, related to net income attributable to non-controlling and other beneficial interest, which is not taxable to the Company. These net excess tax benefits totaled $6.0 million and $3.2 million for the six months ended April 30, 2020 and 2019, respectively.
Our calculations of adjusted net income and adjusted earnings per diluted share remove the impact of gains (losses) and other investment income (expense) of consolidated investment entities and other seed capital investments, add back the management fees and expenses of consolidated investment entities, and exclude the tax impact of stock-based compensation shortfalls or windfalls. On this basis, our adjusted effective tax rate was 24.9 percent and 26.9 percent for the three months ended April 30, 2020 and 2019, respectively, and 26.3 percent and 26.7 percent for the six months ended April 30, 2020 and 2019, respectively.
Our adjusted effective tax rate is calculated by dividing our adjusted income tax expense by adjusted income before income taxes and equity in net income of affiliates, which was $119.0 million and $126.5 million for the three months ended April 30, 2020 and 2019, respectively, and $253.3 million and $246.5 million for the six months ended April 30, 2020 and 2019, respectively. Adjusted income before income taxes and equity in net income of affiliates does not include the allocation of income or loss to non-controlling interests, removes the impact of gains (losses) and other investment income (expenses) of our consolidated investment entities and other seed capital investments and adds back the management fees and expenses of consolidated investment entities.
65
The following table reconciles income tax expense (benefit) to adjusted income tax expense (benefit):
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Income tax expense | $ | 22,017 | $ | 37,069 | -41% | $ | 54,595 | $ | 64,694 | -16% | |
Income tax expense attributable to: |
|
|
|
|
|
|
|
|
|
| |
Management fees of consolidated sponsored |
|
|
|
|
|
|
|
|
|
| |
funds and consolidated CLO entities |
| 330 |
| 274 | 20% |
| 828 |
| 459 | 80% | |
Non-management expenses of consolidated |
|
|
|
|
|
|
|
|
|
| |
sponsored funds |
| 296 |
| 335 | -12% |
| 628 |
| 708 | -11% | |
Net (gains) losses and other investment income |
|
|
|
|
|
|
|
|
|
| |
related to consolidated sponsored funds and |
|
|
|
|
|
|
|
|
|
| |
other seed capital investments |
| 1,606 |
| (1,086) | NM |
| (109) |
| (1,224) | -91% | |
Other (income) expense of consolidated CLO |
|
|
|
|
|
|
|
|
|
| |
entities |
| 4,262 |
| (2,794) | NM |
| 4,736 |
| (2,057) | NM | |
Net excess tax benefits from stock-based |
|
|
|
|
|
|
|
|
|
| |
compensation plans |
| 1,059 |
| 277 | 282% |
| 5,919 |
| 3,226 | 83% | |
Adjusted income tax expense | $ | 29,570 | $ | 34,075 | -13% | $ | 66,597 | $ | 65,806 | 1% |
Equity in Net Income of Affiliates, Net of Tax
Equity in net income of affiliates, net of tax, primarily reflects our 49 percent equity interest in Hexavest and our seven percent minority equity interest in a private equity partnership managed by a third party.
The following table summarizes the components of equity in net income of affiliates:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Investment in Hexavest, net of |
|
|
|
|
|
|
|
|
|
| |
| tax and amortization | $ | 1,643 | $ | 2,736 | -40% | $ | 3,951 | $ | 4,685 | -16% |
Investment in private equity |
|
|
|
|
|
|
|
|
|
| |
| partnership, net of tax |
| (162) |
| (1) | NM |
| (145) |
| (2) | NM |
Total | $ | 1,481 | $ | 2,735 | -46% | $ | 3,806 | $ | 4,683 | -19% |
66
Net Income Attributable to Non-controlling and Other Beneficial Interests
The following table summarizes the components of net (income) loss attributable to non-controlling and other beneficial interests:
|
| Three Months Ended |
| Six Months Ended |
| ||||||
|
| April 30, | % | April 30, | % | ||||||
(in thousands) |
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |
Consolidated sponsored funds | $ | 45,276 | $ | (8,141) | NM | $ | 38,099 | $ | (10,563) | NM | |
Majority-owned subsidiaries |
| (1,274) |
| (3,182) | -60% |
| (2,947) |
| (6,219) | -53% | |
Net (income) loss attributable to non-controlling |
|
|
|
|
|
|
|
|
|
| |
and other beneficial interests | $ | 44,002 | $ | (11,323) | NM | $ | 35,152 | $ | (16,782) | NM |
Net (income) loss attributable to non-controlling and other beneficial interests decreased by $55.3 million in the second quarter of fiscal 2020 and decreased by $51.9 million in the first six months of fiscal 2020 compared to the same periods a year ago, reflecting a decline in income and (gains) losses of consolidated investment entities and other seed capital investments driven primarily by markdowns in position values to reflect securities price declines in the second quarter of fiscal 2020. Net income attributable to majority-owned subsidiaries decreased by $1.9 million in the second quarter of fiscal 2020 and decreased by $3.3 million in the first six months of fiscal 2020, reflecting the Company’s accelerated repurchase of certain profit and capital interests in Parametric entities held by current and former employees. The repurchase settled in the fourth quarter of fiscal 2019. Net income attributable to non-controlling and other beneficial interests is not adjusted for taxes due to the underlying tax status of our consolidated sponsored funds and consolidated majority-owned subsidiaries, which are treated as pass-through entities for tax purposes.
Changes in Financial Condition, Liquidity and Capital Resources
The assets and liabilities of our consolidated CLO entities do not affect our liquidity or capital resources. The collateral assets of our consolidated CLO entities are held solely to satisfy the obligations of these entities and we have no right to these assets beyond our direct investment in, and management fees generated from, these entities. The note holders and third-party creditors of these entities have no recourse to the general credit of the Company. As a result, the assets and liabilities of our consolidated CLO entities are excluded from the discussion of liquidity and capital resources below.
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The following table summarizes certain key financial data relating to our liquidity and capital resources and the uses of cash:
Balance Sheet and Cash Flow Data |
|
|
|
| |||
|
|
|
|
| April 30, |
| October 31, |
(in thousands) |
| 2020 |
| 2019 | |||
|
|
|
|
|
|
|
|
Balance sheet data: |
|
|
|
| |||
| Assets: |
|
|
|
| ||
| Cash and cash equivalents | $ | 914,857 | $ | 557,668 | ||
| Management fees and other receivables |
| 219,944 |
| 237,864 | ||
| Total liquid assets | $ | 1,134,801 | $ | 795,532 | ||
|
|
|
|
|
|
|
|
| Investments | $ | 635,079 | $ | 1,060,739 | ||
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
| ||
| Debt(1) | $ | 625,000 | $ | 625,000 | ||
|
|
|
|
|
|
|
|
| (1) | Represents the principal amount of debt outstanding. The carrying value of the debt, including debt issuance costs, was $620.9 million and $620.5 million as of April 30, 2020 and October 31, 2019, respectively. | |||||
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended | |||
|
|
|
| April 30, | |||
(in thousands) |
| 2020 |
| 2019 | |||
|
|
|
|
|
|
|
|
Cash flow data: |
|
|
|
| |||
| Operating cash flows | $ | 397,058 | $ | 219,656 | ||
| Investing cash flows |
| 27,803 |
| (367,687) | ||
| Financing cash flows |
| (37,014) |
| (86,252) |
Liquidity and Capital Resources
Liquid assets consist of cash and cash equivalents and management fees and other receivables. Cash and cash equivalents consist of cash and short-term, highly liquid investments that are readily convertible to cash. Management fees and other receivables primarily represent receivables due from sponsored funds and separately managed accounts for investment advisory and distribution services provided. Excluding those assets identified as assets of consolidated CLO entities, liquid assets represented 43 percent and 32 percent of total assets on April 30, 2020 and October 31, 2019, respectively. Not included in the liquid asset amounts are $36.4 million and $317.9 million of highly liquid short-term debt securities with remaining maturities between three and 12 months held as of April 30, 2020 and October 31, 2019, respectively, which are included within investments on our Consolidated Balance Sheets. These amounts include $20.0 million and $20.1 million as of April 30, 2020 and October 31, 2019, respectively, in a separate account previously classified as a seed capital investment. Generally, our seed investments in consolidated funds and separate accounts are not treated as liquid assets because they may be longer term in nature.
As of April 30, 2020, our unsecured and unsubordinated debt consisted of $325 million in aggregate principal amount of 3.625 percent Senior Notes due in June 2023 and $300 million in aggregate principal amount of 3.5
68
percent Senior Notes due in April 2027. Interest on the senior notes is payable semi-annually in arrears. The senior notes do not contain debt covenants.
We maintain a $300.0 million unsecured revolving credit facility with several banks that expires on December 11, 2023. The facility, which we entered into on December 11, 2018, provides that we may borrow at LIBOR or LIBOR-successor benchmark-based rates of interest which vary depending on our credit ratings. Accrued interest on any borrowing is payable quarterly in arrears and on the date of repayment. Subject to the terms and conditions of the credit facility, the amount available for borrowing may be increased to up to $400.0 million through additional commitments by existing lenders or the addition of one or more new lenders to the syndicate. The credit facility contains financial covenants with respect to leverage and interest coverage, and requires us to pay a quarterly commitment fee on any unused portion. During the second quarter of fiscal 2020, we borrowed $300.0 million under our credit facility to demonstrate the Company’s ability to generate incremental liquidity if needed. Such borrowings were fully repaid before the end of the quarter, resulting in no outstanding borrowings under this facility at April 30, 2020. We were in compliance with all debt covenants as of April 30, 2020.
We continue to monitor our liquidity daily and are carefully manage our cash flow to maintain financial flexibility. We expect that our main uses of cash will be paying dividends, acquiring shares of our Non-Voting Common Stock, making seed investments in new investment strategies, potential strategic acquisitions, maintaining and enhancing our technology infrastructure and paying the operating expenses of our business. We believe that our existing liquid assets, cash flows from operations and borrowing capacity under our revolving credit facility are sufficient to meet our current and forecasted operating cash needs. The risk exists, however, that if we need to raise additional capital or refinance existing debt in the future, resources may not be available to us in sufficient amounts or on acceptable terms. Our ability to enter the capital markets in a timely manner depends on a number of factors, including the state of global credit and equity markets, interest rates, credit spreads and our credit ratings at such time. If we are unable to access capital markets to issue new debt, refinance existing debt or sell shares of our Non-Voting Common Stock as needed, or if we are unable to obtain such financing on acceptable terms, our business could be adversely affected. Eaton Vance’s issuer rating is A3 by Moody’s Investors Service and A- by S&P Global Ratings.
Recoverability of our Investments
Our $0.6 billion of investments as of April 30, 2020 consisted of our 49 percent equity interest in Hexavest, our direct investments in Company-sponsored funds and separate accounts entered into for investment and business development purposes, investments held by the funds we consolidate and certain other investments held at cost. Investments directly held by the Company and investments held by consolidated funds are significant to the Company and generally include liquid debt or equity securities that are carried at fair market value. We test our investments held at cost for impairment on a quarterly basis using qualitative factors. Our investments held at cost consist primarily of a $19.0 million investment in a U.S.-based wealth management technology firm.
We assess our investments in equity method investees, goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each fiscal year, or as facts and circumstances indicate that additional analysis is warranted. We evaluated whether the recent impacts to the economy and financial markets attributable to COVID-19 caused these assets to be impaired as of the end of April 30, 2020. There were no impairments recorded as of April 30, 2020 as a result of this evaluation.
69
Our investments in equity method investees primarily relates to our investment in Hexavest with a carrying amount of $129.8 million as of April 30, 2020. During the second quarter of fiscal 2020, the Company noted a decline in Hexavest’s managed assets driven primarily by equity market declines and net client withdrawals. An interim impairment test indicated that the estimated fair value of the Company’s investment in Hexavest had fallen below the carrying value as of April 30, 2020, an initial indicator of impairment. However, the Company determined that the investment was not other-than-temporarily impaired, as this was the first period end when the estimated fair value of the Company’s investment in Hexavest was less than its carrying value. The Company has no intention of disposing of its investment in Hexavest. Deeper or more extended declines in Hexavest’s managed assets could further reduce the fair value of the Company’s investment; as a result, future impairment tests could result in the Company recognizing an other-than-temporary impairment of its investment.
The carrying amount of our goodwill of $259.7 million primarily relates to goodwill associated with our acquisitions of Parametric, Atlanta Capital, and the Tax Advantaged Bond Strategies (TABS) business of M.D. Sass Investor Services that are now combined into a single reporting unit as a consequence of the strategic initiative that we announced in June 2019. This reporting unit has experienced considerable organic growth since acquisition and its financial performance remained strong in the current quarter. Also, our most recent quantitative impairment tests performed in the fourth quarter of fiscal 2019 indicated that the fair values of our reporting units were significantly in excess of their carrying amounts. Accordingly, we qualitatively determined that our goodwill was not impaired as of April 30, 2020.
Our indefinite-lived intangible assets primarily include $47.7 million of Calvert mutual fund management contracts acquired in fiscal 2017. Calvert is the centerpiece of our responsible investment strategy, and assets managed under Calvert branded strategies continued to experience growth through the second quarter. Accordingly, we qualitatively determined that these indefinite-lived intangible assets were not impaired as of April 30, 2020.
We periodically review our deferred sales commissions and amortizing identifiable intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. There have been no significant changes in the financial condition of these assets in the first six months of fiscal 2020 that would indicate that an impairment loss exists at April 30, 2020.
Operating Cash Flows
Cash provided by operating activities totaled $397.1 million in the first six months of fiscal 2020 compared to cash provided by operating activities of $219.7 million in the first six months of fiscal 2019. The year-over-year change primarily reflects an increase in net cash provided by operating activities of consolidated CLO entities, an increase in net inflows related to the purchase and sale of short-term debt securities, an increase in net outflows from investment activity of consolidated sponsored funds and separately managed accounts and an increase due to timing differences in the cash settlements of our other assets and liabilities.
Investing Cash Flows
Cash provided by investing activities totaled $27.8 million in the first six months of fiscal 2020 compared to cash used for investing activities of $367.7 million in the first six months of fiscal 2019. The year-over-year change primarily reflects a $363.4 million increase in net proceeds of bank loans and other investments by consolidated CLO entities, a $27.2 million increase in proceeds received by the Company related to the sale of
70
CLO entity note obligations and a $10.1 million decrease in additions to equipment and leasehold improvement, all partially offset by a $5.2 million decrease in net proceeds from sale of investments.
Financing Cash Flows
Cash used for financing activities totaled $37.0 million in the first six months of fiscal 2020. The Company used $111.3 million to repurchase and retire shares of our Non-Voting Common Stock under our authorized repurchase programs, paid $8.4 million to acquire additional interests in Atlanta Capital and Parametric and received proceeds of $50.0 million related to the issuance of shares of our Non-Voting Common Stock in connection with the exercise of stock options and other employee stock purchases. As of April 30, 2020, we had authorization to purchase an additional 2.4 million shares of our Non-Voting Common Stock under our current share repurchase authorization.
Our dividends declared per share were $0.375 in the first six months of fiscal 2020 and we paid an additional $4.7 million of dividends in the first six months of fiscal 2020 versus the first six months of fiscal 2019. We currently expect to declare and pay quarterly dividends on our Voting and Non-Voting Common Stock comparable to the dividend declared in the second quarter of fiscal 2020. Cash provided by financing activities of consolidated CLO entities in the first six months of fiscal 2019 included $151.8 million of proceeds received from a warehouse line of credit.
Contractual Obligations
We have future obligations under various contracts relating to debt, interest payments and operating leases. During the first six months ended April 30, 2020, there were no material changes to our contractual obligations as previously reported in our Annual Report on Form 10-K for the year ended October 31, 2019, except as discussed below.
Vested profit units (non‐controlling interests) held by employees in the Atlanta Capital long‐term equity incentive plan are not subject to mandatory redemption. Our repurchase of these non‐controlling interests is predicated on the exercise of a series of put options held by profit unit holders and call options held by us. The put options provide the profit unit holders the right to require us to repurchase their interests at specified intervals over time. The call options we hold provide us with the right to require the profit unit holders to sell their interests to us at specified intervals over time, as well as upon the occurrence of certain events such as death or permanent disability. These non‐controlling interests are redeemable at fair value. There is uncertainty as to the timing and amount of any purchases of vested profit units in the future. At April 30, 2020, there are no amounts payable to non-controlling interest holders of Atlanta Capital to repurchase vested profit units. In fiscal 2017, the Company introduced a phantom incentive plan for Atlanta Capital that provides for the award of phantom incentive units to eligible employees that are indexed to the per unit enterprise value of Atlanta Capital and settled in shares of our Non‐Voting Common Stock at vesting. As a consequence of introducing this stock‐based compensation plan, we ceased granting profit units to employees of Atlanta Capital under the long‐term equity incentive plan.
We report all redeemable non‐controlling interests in temporary equity on our Consolidated Balance Sheet at
estimated redemption value. The estimated redemption value of our non-controlling interests totaled $211.1 million on April 30, 2020 compared to $285.9 million on October 31, 2019. Redeemable non-controlling interests at April 30, 2020 consisted of vested profit units held by employees of Atlanta Capital granted under the Atlanta Capital long‐term equity incentive plan of $20.6 million and equity interests in our consolidated sponsored funds held by third‐party shareholders of $190.5 million.
71
Foreign Subsidiaries
As of April 30, 2020, we consider the undistributed earnings of certain foreign subsidiaries to be indefinitely reinvested in foreign operations. As of April 30, 2020, we had approximately $10.7 million of undistributed earnings, primarily from operations in the U.K., which are not available to fund domestic operations or to distribute to our shareholders unless repatriated. In consideration of the treatment of taxable distributions, under the 2017 Tax Act, the impact of Global Intangible Low Taxed Income on the Company’s future foreign earnings and lack of withholding tax imposed by certain foreign governments, any future tax liability with respect to these undistributed earnings is immaterial.
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 our Consolidated Financial Statements.
Critical Accounting Policies
The preparation of the Company’s Consolidated Financial Statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and related notes to the Consolidated Financial Statements. Our critical accounting policies reflect our accounting policies that require significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Our critical accounting policies are disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended 2019. Below is an update to our critical accounting policies driven by the uncertainty associated with COVID-19 and the increase in the level of judgment required to apply the policy.
Fair value measurements
The accounting standards for fair value measurement provide a framework for measuring fair value. Fair value is defined as the price that would be received for an asset, or the exit price that would be paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.
The Company has a 49 percent equity interest in Hexavest Inc. (Hexavest), a Montreal, Canada-based investment adviser. The investment is accounted for under the equity method of accounting. Investments in equity method investees are evaluated for impairment as events or changes in circumstances indicate that the carrying value of the investment may not be recoverable. During the second quarter of fiscal 2020, the Company noted a decline in Hexavest’s managed assets driven primarily by equity market declines and net client withdrawals. An interim impairment test was performed indicating that the estimated fair value of the investment had fallen below the carrying value as of April 30, 2020, an initial indicator of impairment. However, the Company determined that the investment is not other-than-temporarily impaired, as the duration of the decline in fair value was short and this was the first period end when fair value of the Company’s investment dropped below its carrying value. The Company has no intention of disposing of its investment in Hexavest. The severity and duration of the market decline and other events related to COVID-19 could further reduce the fair value of the Company’s investment; as a result, future impairment tests could result in the Company recognizing an other-than-temporary impairment of its investment. For additional information on risks related to COVID-19, see Part II, Item 1A. - Risk Factors.
72
Accounting Developments
On November 1, 2019, the Company fully adopted a new accounting standard related to leases. See Note 1, Summary of Significant Accounting Policies, in Item 1, Consolidated Financial Statements (unaudited) of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our Quantitative and Qualitative Disclosures About Market Risk from those previously reported in our Annual Report on Form 10-K for the year ended October 31, 2019.
Item 4. Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2020. 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 SEC’s rule and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is 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 April 30, 2020, our disclosure controls and procedures were effective.
There have been no changes in our internal control over financial reporting that occurred during the second quarter of our fiscal year ending October 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to evaluate the impact, if any, on their design and operating effectiveness.
73
Part II - Other Information
Item 1. Legal Proceedings
There have been no material developments in litigation previously reported in our SEC filings.
Item 1A. Risk Factors
The following is an update to Part I, “Item 1A- Risk Factors,” contained in our Form 10-K for the year ended October 31, 2019.
The COVID-19 pandemic is having an adverse effect on our business, results of operations, cash flows and financial condition. The ongoing COVID-19 pandemic has caused significant disruption in global financial markets, with numerous financial instruments experiencing price weakness. This has resulted in a decline in our assets under management and negatively affects our revenue and earnings. If financial markets remain depressed or worsen as a result of the COVID-19 pandemic, our assets under management, revenue and earnings will be further adversely affected, which impact could be material, and our investments in equity method investees and cost method investments could become impaired.
The COVID-19 pandemic has significantly affected the manner in which we operate. While we have in place business continuity plans that address potential impacts of the COVID-19 pandemic to our personnel and our facilities, and technologies which enable our personnel to work remotely, no assurance can be given that the steps we have taken will continue to be effective or appropriate. While our employees have to date been able to continue conducting business while working remotely, operational challenges may arise in the future, which may reduce our organizational efficiency or effectiveness, and increase operational, compliance and cybersecurity risks. In addition, because most of our employees have not previously worked remotely for an extended period of time, we are unsure of the impact that the remote work environment and lack of in-person meetings with colleagues, clients and business partners will have on the growth of our business and the results of our operations. Many of the key service providers we rely on also have transitioned to working remotely. If we or they were to experience material disruptions in the ability of our or their employees to work remotely (e.g., from illness due to COVID-19 or disruption in internet-based communication systems and networks), our ability to operate our business could be materially adversely disrupted. Any such material adverse disruptions to our business operations could have a material adverse impact on our results of operations, cash flows or financial condition.
The extent to which our business, results of operations, cash flows and financial results are affected by the COVID-19 pandemic will largely depend on future developments, which cannot be accurately predicted and are uncertain, including the duration and severity of the pandemic and length of time it will take for the financial markets and economy to recover and for our employees to safely return to the workplace. In addition, many of the risk factors described in our Annual Report on Form 10-K for the year ended October 31, 2019 are heightened by the effects of the COVID-19 pandemic and related economic conditions and could result in a material adverse effect on our business, results of operations, cash flows or financial condition.
74
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth information regarding purchases by the Company of our Non-Voting Common Stock on a monthly basis during the second quarter of fiscal 2020:
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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 | ||||||
February 1, 2020 through |
|
|
|
|
|
|
|
|
|
| |||
|
| 62,235 |
|
| $ | 47.76 |
| 62,235 |
|
| 4,859,250 | ||
March 1, 2020 through |
|
|
|
|
|
|
|
|
|
| |||
|
| 860,000 |
|
| $ | 32.38 |
| 860,000 |
|
| 3,999,250 | ||
April 1, 2020 through |
|
|
|
|
|
|
|
|
|
| |||
|
| 4,613 |
|
| $ | 33.47 |
| 4,613 |
|
| 3,994,637 | ||
Total | 926,848 |
|
| $ | 33.42 |
| 926,848 |
|
| 3,994,637 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | We announced a share repurchase program on July 10, 2019, 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. |
75
Item 6. Exhibits
(a) Exhibits
Exhibit No.
| Description |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| |
| |
| |
101 | Materials from the Eaton Vance Corp. Quarterly Report on Form 10-Q for the quarter ended April 30, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related Notes to the Consolidated Financial Statements, tagged in detail.
|
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
76
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EATON VANCE CORP. (Registrant)
DATE: June 5, 2020 |
|
| |
|
|
| (Signature) |
|
|
| |
|
|
| Chief Financial Officer |
DATE: June 5, 2020 |
|
| |
|
|
| (Signature) |
|
|
| |
|
|
| Chief Accounting Officer |
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This ‘10-Q’ Filing | Date | Other Filings | ||
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12/11/23 | ||||
10/31/22 | ||||
10/31/21 | ||||
10/31/20 | ||||
Filed on: | 6/5/20 | |||
For Period end: | 4/30/20 | |||
4/1/20 | ||||
3/31/20 | ||||
3/16/20 | ||||
3/1/20 | ||||
2/29/20 | ||||
2/1/20 | ||||
1/31/20 | 10-Q | |||
1/15/20 | 8-K | |||
11/1/19 | 4 | |||
10/31/19 | 10-K, 4, 5, 8-K, S-8 | |||
7/10/19 | ||||
5/15/19 | 4 | |||
5/1/19 | ||||
4/30/19 | 10-Q | |||
1/31/19 | 10-Q, S-8 | |||
12/11/18 | ||||
11/1/18 | 4 | |||
10/31/18 | 10-K, 10-K/A, 4, 5 | |||
10/24/18 | 4 | |||
8/23/18 | ||||
12/23/15 | ||||
List all Filings |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/04/20 Morgan Stanley S-4 7:3.7M Broadridge Fin’l So… Inc |