Eaton Vance Corp. Report for the Three Months and Nine Months Ended July 31, 2005

BOSTON, Aug. 17 /PRNewswire-FirstCall/ -- Eaton Vance Corp. reported diluted earnings per share of $0.29 in the third quarter of fiscal 2005 compared to diluted earnings per share of $0.25 in the third quarter of fiscal 2004, an increase of 16 percent. Eaton Vance earned $0.83 per diluted share in the first nine months of fiscal 2005, an increase of 17 percent compared to earnings of $0.71 per diluted share in the first nine months of fiscal 2004.

Assets under management of $106.0 billion at the end of the third quarter of fiscal 2005 were $16.5 billion or 18 percent greater than the $89.4 billion at the end of the third fiscal quarter last year. In the 12-month period ended July 31, 2005, the Company's assets under management were positively affected by long-term fund and separate account net inflows of $9.0 billion and market price appreciation of $7.7 billion. Gross sales and inflows of long-term funds and separate accounts in the last 12 months were $24.1 billion, including six new closed-end funds that raised a total of $4.3 billion.

Fund and separate account net inflows of $2.4 billion in the third quarter of fiscal 2005 compared to net inflows of $2.7 billion in the third quarter of fiscal 2004. This year's third quarter net inflows included $1.2 billion raised in the June offering of the closed-end Eaton Vance Tax-Managed Buy- Write Opportunities Fund and the over-allotment shares exercised from the April offering of the closed-end Eaton Vance Tax-Managed Buy-Write Income Fund. Last year's third quarter benefited from closed-end fund inflows of $0.8 billion that included the offering of Floating Rate Income Trust and the preferred shares related to the April 2004 offering of the Eaton Vance Global Dividend Opportunities Fund. Excluding closed-end funds, net flows for Eaton Vance funds were $0.7 billion in the third quarter of fiscal 2005 compared to $1.6 billion in the third quarter of fiscal 2004.

The Company experienced institutional and high-net-worth separate account net inflows of $235.0 million in the third quarter of fiscal 2005 compared to net outflows of $15.0 million in the third quarter of fiscal 2004. Retail managed account net inflows increased by 31 percent to $357.0 million in the third quarter of fiscal 2005 compared to $272.0 million in the same period last year. Tables 1-4 provide more details on assets under management and asset flows.

As a result of higher average assets under management, revenue in the third quarter of fiscal 2005 increased by $24.9 million or 15 percent to $190.8 million compared to revenue in the third quarter of fiscal 2004 of $165.9 million. Investment adviser and administration fees increased 21 percent to $127.8 million, compared to the 17 percent increase in average assets under management. Distribution and underwriter fees decreased 1 percent, reflecting the continuing shift in sales and assets from class B mutual fund shares to other fund share classes and other managed assets with low or no distribution fees. Service fee revenue increased 15 percent due to the increase in average fund assets that pay these fees. Other revenue decreased 34 percent primarily because the Company was no longer required to consolidate an affiliated investment company beginning in April 2005.

Operating expenses increased 11 percent in the third quarter of fiscal 2005 to $122.8 million compared to operating expenses of $110.5 million in the third quarter of fiscal 2004, because of higher compensation, service fee, distribution and other expenses. Compensation expense increased 19 percent because of increases in employee headcount, closed-end fund and separately managed account marketing incentive compensation and higher operating income- based bonus accruals.

Amortization of deferred sales commissions declined 21 percent in the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004 primarily because of the continuing decline in class B share sales and assets under management. Service fee expense increased 14 percent, in line with the increase in service fee revenue. Distribution expense increased 22 percent as a result of increases in class C share fund distribution fees and closed-end fund fees. Other expenses increased 18 percent primarily because of higher fund expenses, facilities, information technology, legal, audit, compliance, recruiting and other miscellaneous expenses.

Operating income increased 23 percent to $67.9 million and net income increased 18 percent to $41.2 million in the third quarter of fiscal 2005, compared to $55.4 million and $35.0 million, respectively, in the third quarter of fiscal 2004. Interest income increased 25 percent because of higher interest and dividends earned on cash and short-term investments. Interest expense decreased $0.9 million or 72 percent, reflecting lower interest on long-term debt. The effective tax rate, before minority interest and equity in net income of affiliates, was 39.5 percent in the third quarter of fiscal 2005 and 35.3 percent in the third quarter of fiscal 2004. The increase in the effective tax rate resulted from an increase in the Company's tax provision as part of its on-going review of state income tax liabilities. The effective tax rate for fiscal 2005 is expected to be between 37.3 and 38.0 percent.

Cash, cash equivalents and short-term investments were $252.3 million on July 31, 2005, and $291.8 million excluding $47.3 million of minority shareholder investments in a consolidated investment company on July 31, 2004. In April 2005, because of the fund's overall growth, the Company became a minority investor in the Eaton Vance Short-Term Income Fund and discontinued consolidating the fund in its financial statements.

The Company's strong operating cash flow in the last 12 months allowed it to pay $91.5 million in income taxes, $47.7 million in sales commissions, $121.7 million to repurchase 5.2 million shares of its non-voting common stock and $41.9 million in dividends to shareholders. There are currently no outstanding borrowings against the Company's $180 million credit facility.

During the first nine months of fiscal 2005, the Company repurchased and retired 4,289,292 shares of its non-voting common stock at an average price of $24.40 per share under its current and prior repurchase authorizations. Approximately 6.4 million shares remain of the current 8.0 million share authorization.

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

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

Eaton Vance Corp. Summary of Results of Operations (in thousands, except per share amounts) Three Months Ended Nine Months Ended July 31, July 31, % July 31, July 31, % 2005 2004 Change 2005 2004 Change Revenue: Investment adviser and administration fees $127,768 $105,489 21% $368,047 $300,401 23% Distribution and underwriter fees 35,238 35,585 (1) 104,107 115,098 (10) Service fees 26,637 23,197 15 77,253 68,123 13 Other revenue 1,108 1,672 (34) 5,629 4,585 23 Total revenue 190,751 165,943 15 555,036 488,207 14 Expenses: Compensation of officers and employees 44,676 37,676 19 130,794 111,968 17 Amortization of deferred sales commissions 15,694 19,919 (21) 50,641 62,551 (19) Service fee expense 22,087 19,418 14 63,853 56,929 12 Distribution expense 25,775 21,120 22 71,888 59,594 21 Other expenses 14,610 12,412 18 45,642 35,489 29 Total expenses 122,842 110,545 11 362,818 326,531 11 Operating Income 67,909 55,398 23 192,218 161,676 19 Other Income/(Expense): Interest income 1,030 826 25 2,796 2,275 23 Interest expense (367) (1,315) (72) (1,099) (4,330) (75) Gain on investments 187 356 (47) 274 278 (1) Foreign currency loss (51) (15) n/a (26) (62) n/a Impairment loss on investments - - n/a (1,840) - n/a Income Before Income Taxes, Minority Interest and Equity in Net Income of Affiliates 68,708 55,250 24 192,323 159,837 20 Income Taxes 27,115 19,495 39 71,879 56,380 27 Minority Interest 1,128 1,096 3 3,736 3,224 16 Equity in Net Income of Affiliates, Net of Tax 734 374 96 527 782 (33) Net Income $41,199 $35,033 18 $117,235 $101,015 16 Earnings Per Share: Basic $0.32 $0.26 23 $0.89 $0.75 19 Diluted $0.29 $0.25 16 $0.83 $0.71 17 Dividends Declared, Per Share $0.080 $0.075 7 $0.240 $0.195 23 Weighted Average Shares Outstanding: Basic 130,887 134,423 (3) 132,177 135,442 (2) Diluted 140,688 143,948 (2) 142,190 145,067 (2) Eaton Vance Corp. Balance Sheet (in thousands, except per share figures) July 31, October 31, July 31, 2005 2004 2004 ASSETS Current Assets: Cash and cash equivalents $125,479 $147,137 $182,525 Short-term investments 126,822 210,429 156,579 Investment adviser fees and other receivables 82,404 32,249 32,011 Other current assets 6,832 4,861 14,139 Total current assets 341,537 394,676 385,254 Other Assets: Deferred sales commissions 132,521 162,259 174,011 Goodwill 89,634 89,281 89,281 Other intangible assets, net 40,865 43,965 44,751 Long-term investments 51,448 36,895 35,870 Equipment and leasehold improvements, net 12,677 12,413 12,558 Other assets 4,395 4,077 2,851 Total other assets 331,540 348,890 359,322 Total assets $673,077 $743,566 $744,576 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accrued compensation $46,586 $52,299 $38,527 Accounts payable and accrued expenses 28,650 23,789 23,389 Dividend payable 10,431 10,660 10,042 Current portion of long-term debt - - 46,002 Other current liabilities 7,674 7,451 2,872 Total current liabilities 93,341 94,199 120,832 Long-Term Liabilities: Long-term debt 75,184 74,347 74,071 Deferred income taxes 49,146 57,644 63,270 Total long-term liabilities 124,330 131,991 137,341 Total liabilities 217,671 226,190 258,173 Minority interest 4,058 67,870 51,367 Commitments and contingencies - - - Shareholders' Equity: Common stock, par value $0.00390625 per share: Authorized, 1,280,000 shares Issued, 309,760 shares 1 1 1 Non-voting common stock, par value $0.00390625 per share: Authorized, 190,720,000 shares Issued, 130,230,370, 133,271,560 and 133,875,868 shares, respectively 509 521 523 Notes receivable from stock option exercises (2,843) (2,718) (3,010) Deferred compensation (2,800) (2,400) (2,800) Accumulated other comprehensive income 2,876 1,854 1,556 Retained earnings 453,605 452,248 438,766 Total shareholders' equity 451,348 449,506 435,036 Total liabilities and shareholders' equity $673,077 $743,566 $744,576 Table 1 Asset Flows (in millions) Twelve Months Ended July 31, 2005 Assets 7/31/2004 - beginning of period $89,442 Long-term fund sales and inflows 17,902 Long-term fund redemptions and outflows (10,072) Long-term fund net exchanges (34) Long-term fund mkt. value change 4,710 Institutional and HNW account inflows 3,306 Institutional and HNW account outflows (3,566) Institutional and HNW account assets acquired* (53) Retail managed account inflows 2,855 Retail managed account outflows (1,420) Separate account mkt. value change 3,037 Change in money market funds (132) Net change 16,533 Assets 7/31/2005 - end of period $105,975 Table 2 Assets Under Management By Investment Objective (in millions) July 31, October 31, % July 31, % 2005 2004 Change 2004 Change Equity Funds $43,509 $36,895 18% $ 35,018 24% Fixed Income Funds 18,451 17,553 5% 17,090 8% Bank Loan Funds 16,430 15,034 9% 13,777 19% Money Market Funds 271 389 -30% 403 -33% Separate Accounts 27,314 24,475 12% 23,154 18% Total $105,975 $94,346 12% $89,442 18% Table 3 Asset Flows by Investment Objective (in millions) Three Months Ended Nine Months Ended July 31, July 31, July 31, July 31, 2005 2004 2005 2004 Equity fund assets - beginning of period $39,104 $34,539 $36,895 $28,854 Sales/inflows 2,625 1,498 6,386 7,218 Redemptions/outflows (1,060) (874) (3,244) (2,442) Exchanges 13 4 43 97 Market value change 2,827 (149) 3,429 1,291 Net change 4,405 479 6,614 6,164 Equity assets - end of period $43,509 $35,018 $43,509 $35,018 Fixed income fund assets - beginning of period 17,958 17,649 17,553 17,801 Sales/inflows 845 434 2,671 1,825 Redemptions/outflows (574) (661) (1,761) (1,904) Exchanges 8 (114) (39) (263) Market value change 214 (218) 27 (369) Net change 493 (559) 898 (711) Fixed income assets - end of period $18,451 $17,090 $18,451 $17,090 Bank loan fund assets - beginning of period 16,416 11,791 15,034 9,547 Sales/inflows 940 2,570 3,831 5,768 Redemptions/outflows (927) (527) (2,425) (1,642) Exchanges (27) 75 (31) 147 Market value change 28 (132) 21 (43) Net change 14 1,986 1,396 4,230 Bank loan assets - end of period $16,430 $13,777 $16,430 $13,777 Long-term fund assets - beginning of period 73,478 63,979 69,482 56,202 Sales/inflows 4,410 4,502 12,888 14,811 Redemptions/outflows (2,561) (2,062) (7,430) (5,988) Exchanges (6) (35) (27) (19) Market value change 3,069 (499) 3,477 879 Net change 4,912 1,906 8,908 9,683 Total long-term fund assets - end of period $78,390 $65,885 $78,390 $65,885 Separate accounts - beginning of period 24,983 20,729 24,475 18,397 Institutional/HNW account inflows 655 618 2,133 2,507 Institutional/HNW account outflows (420) (633) (2,997) (1,431) Institutional/ HNW assets acquired * - 1,996 - 1,996 Retail managed account inflows 665 504 2,387 1,530 Retail managed account outflows (308) (232) (1,174) (808) Separate accounts market value change 1,739 172 2,490 963 Net change 2,331 2,425 2,839 4,757 Separate accounts - end of period $27,314 $23,154 $27,314 $23,154 Money market fund assets - end of period 271 403 271 403 Total assets under management - end of period $105,975 $89,442 $105,975 $89,442 Table 4 Long-Term Fund and Separate Account Net Flows Three Months Ended Nine Months Ended July 31, July 31, July 31, July 31, 2005 2004 2005 2004 Long-term funds: Closed-end funds $1,167 $793 $3,076 $5,115 Open-end and other funds 682 1,647 2,382 3,708 Institutional/HNW accounts 235 (15) (864) 1,076 Retail managed accounts 357 272 1,213 722 Total net flows $2,441 $2,697 $5,807 $10,621 * Deutsche Bank's Scudder Private Investment Counsel assets acquired by Eaton Vance in July 2004. Adjustment to assets acquired made in August 2004.