XNYS:EV Eaton Vance Corp Quarterly Report 10-Q Filing - 4/30/2012

Effective Date 4/30/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
(Mark One)
x   Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
     For the quarterly period ended April 30, 2012
or     
o   Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
     For the transition period from  to 

Commission file no. 1-8100

EATON VANCE CORP.

(Exact name of registrant as specified in its charter)

 
Maryland   04-2718215
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)

Two International Place, Boston, Massachusetts 02110

(Address of principal executive offices) (zip code)

(617) 482-8260

(Registrant's telephone number, including area code)

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer x   Accelerated filer          o
Non-accelerated filer  o (Do not check if smaller reporting company)   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

Shares outstanding as of April 30, 2012:
    Voting Common Stock — 413,167 shares
    Non-Voting Common Stock — 115,130,059 shares

 

 


 
 

TABLE OF CONTENTS

Eaton Vance Corp.
Form 10-Q
As of April 30, 2012 and for the
Three and Six Month Periods Ended April 30, 2012

Table of Contents

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TABLE OF CONTENTS

Part I — Financial Information

Item 1. Consolidated Financial Statements

Eaton Vance Corp.
Consolidated Balance Sheets (unaudited)

   
(in thousands)   April 30,
2012
  October 31,
2011
Assets
                 
Cash and cash equivalents   $ 514,668     $ 510,913  
Investment advisory fees and other receivables     129,011       130,525  
Investments     295,862       287,735  
Assets of consolidated collateralized loan obligation (“CLO”) entity:
                 
Cash and cash equivalents     27,236       16,521  
Bank loans and other investments     486,244       462,586  
Other assets     5,887       2,715  
Deferred sales commissions     22,006       27,884  
Deferred income taxes     45,431       41,343  
Equipment and leasehold improvements, net     61,316       67,227  
Intangible assets, net     63,226       67,224  
Goodwill     154,636       142,302  
Other assets     110,882       74,325  
Total assets   $ 1,916,405     $ 1,831,300  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Balance Sheets (unaudited) (continued)

   
(in thousands, except share figures)   April 30,
2012
  October 31,
2011
Liabilities, Temporary Equity and Permanent Equity
                 
Liabilities:
                 
Accrued compensation   $ 76,065     $ 137,431  
Accounts payable and accrued expenses     53,111       51,333  
Dividend payable     21,968       21,959  
Debt     500,000       500,000  
Liabilities of consolidated CLO entity:
                 
Senior and subordinated note obligations     485,646       477,699  
Other liabilities     26,089       5,193  
Other liabilities     102,565       75,557  
Total liabilities     1,265,444       1,269,172  
Commitments and contingencies
                 
Temporary Equity:
                 
Redeemable non-controlling interests     134,516       100,824  
Permanent Equity:
                 
Voting Common Stock, par value $0.00390625 per share:
                 
Authorized, 1,280,000 shares                  
Issued and outstanding, 413,167 and 399,240 shares, respectively     2       2  
Non-Voting Common Stock, par value $0.00390625 per share:
                 
Authorized, 190,720,000 shares  
Issued and outstanding, 115,130,059 and 115,223,827 shares, respectively     450       450  
Notes receivable from stock option exercises     (4,171 )      (4,441 ) 
Accumulated other comprehensive income     3,097       1,340  
Appropriated retained earnings (deficit)     4,994       (3,867 ) 
Retained earnings     510,976       466,931  
Total Eaton Vance Corp. shareholders' equity     515,348       460,415  
Non-redeemable non-controlling interests     1,097       889  
Total permanent equity     516,445       461,304  
Total liabilities, temporary equity and permanent equity   $ 1,916,405     $ 1,831,300  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Income (unaudited)

       
(in thousands, except per share figures)   Three Months Ended
April 30,
  Six Months Ended
April 30,
  2012   2011   2012   2011
Revenue:
                                   
Investment advisory and administrative fees   $ 248,888     $ 251,670     $ 488,340     $ 494,404  
Distribution and underwriter fees     22,551       26,141       45,066       53,468  
Service fees     32,065       36,478       64,364       73,823  
Other revenue     1,266       1,324       2,606       2,532  
Total revenue     304,770       315,613       600,376       624,227  
Expenses:
                                   
Compensation and related costs     97,566       97,157       194,249       194,207  
Distribution expense     32,960       33,657       65,288       66,354  
Service fee expense     28,088       30,780       56,761       62,109  
Amortization of deferred sales commissions     5,533       9,643       11,353       19,993  
Fund expenses     6,590       5,017       13,241       9,561  
Other expenses     35,222       32,547       67,853       65,846  
Total expenses     205,959       208,801       408,745       418,070  
Operating income     98,811       106,812       191,631       206,157  
Non-operating income (expense):
                                   
Gains and other investment income, net     2,796       12,492       10,973       13,812  
Interest expense     (8,412 )      (8,412 )      (16,825 )      (16,825 ) 
Other income (expense) of consolidated CLO entity:
                                   
Gains (losses) and other investment income, net     8,895       (12,984 )      19,175       (11,149 ) 
Interest expense     (4,134 )      (4,033 )      (8,445 )      (5,547 ) 
Total non-operating (expense) income     (855 )      (12,937 )      4,878       (19,709 ) 
Income before income taxes and equity in net (loss) income of affiliates     97,956       93,875       196,509       186,448  
Income taxes     (35,164 )      (41,337 )      (70,351 )      (75,859 ) 
Equity in net (loss) income of affiliates, net of tax     (22 )      1,227       1,482       2,461  
Net income     62,770       53,765       127,640       113,050  
Net (income) loss attributable to non-controlling and
other beneficial interests
    (9,900 )      8,714       (27,499 )      (13,036 ) 
Net income attributable to Eaton Vance Corp. shareholders   $ 52,870     $ 62,479     $ 100,141     $ 100,014  
Earnings per share:
                          
Basic   $ 0.46     $ 0.53     $ 0.87     $ 0.84  
Diluted   $ 0.44     $ 0.50     $ 0.84     $ 0.80  
Weighted average shares outstanding:
                                   
Basic     112,418       116,413       112,541       116,540  
Diluted     115,881       122,292       115,324       122,167  
Dividends declared per share   $ 0.19     $ 0.18     $ 0.38     $ 0.36  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Comprehensive Income (unaudited)

       
(in thousands)   Three Months Ended
April 30,
  Six Months Ended
April 30,
  2012   2011   2012   2011
Net income   $ 62,770     $ 53,765     $ 127,640     $ 113,050  
Other comprehensive income (loss):
                                   
Amortization of loss on derivatives, net of income taxes of $40, $40, $79 and $79, respectively     72       72       144       144  
Unrealized holding gains on available-for-sale investments, net of income taxes of $587, $714, $1,027 and $1,600, respectively     949       1,124       1,682       2,568  
Foreign currency translation adjustments, net of income taxes of $(66), $(178), $19 and $(178), respectively     73       331       (69 )      338  
Total comprehensive income     63,864       55,292       129,397       116,100  
Comprehensive (income) loss attributable to non-controlling and other beneficial interests     (9,900 )      8,714       (27,499 )      (13,036 ) 
Total comprehensive income attributable to Eaton Vance Corp. shareholders   $ 53,964     $ 64,006     $ 101,898     $ 103,064  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Shareholders' Equity (unaudited)

                   
(in thousands)   Permanent Equity   Temporary Equity
  Voting Common Stock   Non-Voting Common Stock   Additional Paid-In Capital   Notes Receivable from Stock Option Exercises   Accumulated Other Comprehensive Income   Appropriated Retained Earnings (Deficit)   Retained Earnings   Non-Redeemable Non-Controlling Interests   Total
Permanent
Equity
  Redeemable
Non-Controlling Interests
Balance, November 1, 2011   $ 2     $ 450     $     $ (4,441 )    $ 1,340     $ (3,867 )    $ 466,931     $ 889     $ 461,304     $ 100,824  
Net income                                   8,861       100,141       1,776       110,778       16,862  
Other comprehensive income                             1,757                         1,757        
Dividends declared                                         (43,991 )            (43,991 )       
Issuance of Voting Common Stock                 56                                     56        
Issuance of Non-Voting Common Stock:
                                                                                         
On exercise of stock options           2       8,458       (211 )                              8,249        
Under employee stock purchase plan           1       1,823                                     1,824        
Under employee incentive plan                 1,609                                     1,609        
Under restricted stock plan, net of forfeitures           5                                           5        
Stock-based compensation                 29,320                                     29,320        
Tax benefit of stock option exercises                 1,162                                     1,162        
Repurchase of Non-Voting Common Stock           (8 )      (39,556 )                        (12,105 )            (51,669 )       
Principal repayments on notes receivable from stock option exercises                       481                               481        
Net subscriptions (redemptions/distributions) of
non-controlling interest holders
                                              (1,436 )      (1,436 )      20,102  
Deconsolidation                                                           (6,276 ) 
Reclass to temporary equity                                               (132 )      (132 )      132  
Other changes in non-controlling interests                 (2,872 )                                    (2,872 )      2,872  
Balance, April 30, 2012   $ 2     $ 450     $     $ (4,171 )    $ 3,097     $ 4,994     $ 510,976     $ 1,097     $ 516,445     $ 134,516  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Shareholders' Equity (unaudited) (continued)

                   
(in thousands)   Permanent Equity   Temporary Equity
  Voting Common Stock   Non-Voting Common Stock   Additional Paid-In Capital   Notes Receivable from Stock Option Exercises   Accumulated Other Comprehensive Income
(Loss)
  Appropriated Retained Earnings   Retained Earnings   Non-Redeemable Non-Controlling Interests   Total
Permanent
Equity
  Redeemable
Non-Controlling Interests
Balance, November 1, 2010   $ 2     $ 461     $ 50,225     $ (3,158 )    $ (435 )    $     $ 363,190     $ 570     $ 410,855     $ 67,019  
Cumulative effect of adoption of new accounting principle                                   30,666       1,665             32,331        
Net income                                   (18,630 )      100,014       1,264       82,648       30,402  
Other comprehensive income                             3,050                         3,050        
Dividends declared                                         (42,795 )            (42,795 )       
Issuance of Non-Voting Common Stock:
                                                                                         
On exercise of stock options           5       23,068       (490 )                              22,583        
Under employee stock purchase plan                 1,876                                     1,876        
Under employee incentive plan                 2,567                                     2,567        
Under restricted stock plan, net of forfeitures           4                                           4        
Stock-based compensation                 27,529                                     27,529        
Tax benefit of stock option exercises                 3,331                                     3,331        
Repurchase of Non-Voting Common Stock           (8 )      (65,811 )                                    (65,819 )       
Principal repayments on notes receivable from stock option exercises                       780                               780        
Net subscriptions (redemptions/distributions) of
non-controlling interest holders
                                              (855 )      (855 )      94,572  
Deconsolidation                                                           (74,708 ) 
Reclass to temporary equity                                               (66 )      (66 )      66  
Other changes in non-controlling interests                 (850 )                                    (850 )      850  
Balance, April 30, 2011   $ 2     $ 462     $ 41,935     $ (2,868 )    $ 2,615     $ 12,036     $ 422,074     $ 913     $ 477,169     $ 118,201  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Cash Flows (unaudited)

   
(in thousands)   Six Months Ended
April 30,
  2012   2011
Cash Flows From Operating Activities:
                 
Net income   $ 127,640     $ 113,050  
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Depreciation and amortization     12,597       12,274  
Amortization of deferred sales commissions     11,372       19,971  
Stock-based compensation     29,320       27,529  
Deferred income taxes     (5,176 )      77,562  
Net gains on investments and derivatives     (7,680 )      (8,613 ) 
Equity in net income of affiliates     (2,383 )      (3,962 ) 
Dividends received from affiliates     10,534       1,139  
Consolidated CLO entity operating activities:
                 
Net (gains) losses on bank loans, other investments and note obligations     (7,963 )      21,725  
Amortization of investments     (532 )      (713 ) 
Net increase (decrease) in other assets and liabilities, including cash     7,012       (151 ) 
Changes in operating assets and liabilities:
                 
Investment advisory fees and other receivables     1,665       (1,558 ) 
Investments in trading securities     (58,759 )      (127,429 ) 
Deferred sales commissions     (5,494 )      (9,988 ) 
Other assets     (31,142 )      (22,518 ) 
Accrued compensation     (61,329 )      (44,940 ) 
Accounts payable and accrued expenses     1,949       (2,369 ) 
Other liabilities     26,727       1,480  
Net cash provided by operating activities     48,358       52,489  
Cash Flows From Investing Activities:
                 
Additions to equipment and leasehold improvements     (2,479 )      (5,880 ) 
Net cash paid in acquisition     (12,335 )      (11,595 ) 
Cash paid for intangible assets     (200 )      (1,650 ) 
Proceeds from sales of investments     47,407       84,422  
Purchase of investments     (6,274 )      (678 ) 
Consolidated CLO entity investing activities:
                 
Proceeds from sales and maturities of bank loans and other investments     89,308       167,869  
Purchase of bank loans and other investments     (96,525 )      (171,610 ) 
Net cash provided by investing activities     18,902       60,878  

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Consolidated Statements of Cash Flows (unaudited) (continued)

   
(in thousands)   Six Months Ended
April 30,
  2012   2011
Cash Flows From Financing Activities:
                 
Proceeds from issuance of Voting Common Stock     56        
Proceeds from issuance of Non-Voting Common Stock     11,687       27,030  
Repurchase of Non-Voting Common Stock     (51,669 )      (65,819 ) 
Principal repayments on notes receivable from stock option exercises     481       780  
Excess tax benefit of stock option exercises     1,162       3,331  
Dividends paid     (43,982 )      (42,773 ) 
Net subscriptions received from (redemptions/distributions paid to) non-controlling interest holders     18,666       93,717  
Net cash (used for) provided by financing activities     (63,599 )      16,266  
Effect of currency rate changes on cash and cash equivalents     94       104  
Net increase in cash and cash equivalents     3,755       129,737  
Cash and cash equivalents, beginning of period     510,913       307,886  
Cash and cash equivalents, end of period   $ 514,668     $ 437,623  
Supplemental Cash Flow Information:
                 
Cash paid for interest   $ 16,320     $ 16,320  
Cash paid for interest by consolidated CLO entity     8,715       4,273  
Cash paid for income taxes, net of refunds     86,090       78,962  
Supplemental Disclosure of Non-Cash Information:
                 
Increase in equipment and leasehold improvements due to non-cash additions   $ 180     $ 3,628  
Exercise of stock options through issuance of notes receivable     211       490  
Consolidation of CLO entity:
                 
Increase in other assets, net of other liabilities   $     $ 10,418  
Increase in investments           466,440  
Increase in borrowings           446,192  
Deconsolidations of Sponsored Investment Funds:
                 
Decrease in investments   $ (6,639 )    $ (74,486 ) 
Decrease in non-controlling interests     (6,276 )      (74,708 ) 

 
 
See notes to Consolidated Financial Statements.

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TABLE OF CONTENTS

Eaton Vance Corp.
Notes to Consolidated Financial Statements (unaudited)

1. Basis of Presentation

In the opinion of management, the accompanying unaudited interim Consolidated Financial Statements of Eaton Vance Corp. (“the Company”) include all adjustments necessary to present fairly the results for the interim periods in accordance with accounting principles generally accepted in the United States of America (“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 (“SEC”). Certain information and footnote disclosures have been omitted pursuant to such rules and regulations. As a result, these financial statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s latest annual report on Form 10-K.

During the second quarter of fiscal 2012, the Company combined the following line items previously reported within non-operating income (expense) into gains and other investment income, net: interest and other income; net gains (losses) on investments and derivative; and foreign currency gains. Also during the second fiscal quarter, interest income and net gains (losses) on bank loans, other investments, and note obligations of the consolidated CLO entity were combined into gains (losses) and other investment income, net, of the consolidated CLO entity. Amounts for the comparative prior fiscal year periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on the amounts reported for total non-operating income (expense). See Note 19 for the components of gains and other investment income.

During the first quarter of fiscal 2012, the Company changed the presentation of its Consolidated Statements of Income. The change relates to the classification of net investment income and net investment gains or losses of consolidated sponsored funds. Net investment income earned by consolidated sponsored funds and net investment gains or losses recognized by consolidated sponsored funds, previously included in other revenue, are now presented as components of gains and other investment income. Management believes the revised presentation is more useful to readers of its financial statements by better highlighting the current earnings effect of the investment results of consolidated sponsored funds. Amounts for the comparative prior fiscal year periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on previously reported net income or financial position and do not represent a restatement of any previously reported financial results.

The following tables present the effects of the change in presentation of net investment income and net investment gains or losses earned by consolidated sponsored funds to the Company’s previously reported Consolidated Statements of Income for the three and six months ended April 30, 2011:

     
  Three Months Ended
April 30, 2011
(in thousands)   As
Previously
Reported
  Reclassifications   As
Reclassified
Other revenue   $ 11,549     $ (10,225 )    $ 1,324  
Total revenue     325,838       (10,225 )      315,613  
Operating income     117,037       (10,225 )      106,812  
Gains and other investment income, net     2,267       10,225       12,492  
Net income     53,765             53,765  
Net income attributable to Eaton Vance Corp. shareholders     62,479             62,479  

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  Six Months Ended
April 30, 2011
(in thousands)   As
Previously
Reported
  Reclassifications   As
Reclassified
Other revenue   $ 16,430     $ (13,898 )    $ 2,532  
Total revenue     638,125       (13,898 )      624,227  
Operating income     220,055       (13,898 )      206,157  
Gains and other investment income, net     (86 )      13,898       13,812  
Net income     113,050             113,050  
Net income attributable to Eaton Vance Corp. shareholders     100,014             100,014  

2. Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its controlled subsidiaries. The Company consolidates all investments in affiliates in which the Company’s ownership exceeds 50 percent or where the Company has control. In addition, the Company consolidates any variable interest entities (“VIE’s”) (including the below-referenced CLO entity) for which the Company is considered the primary beneficiary. The Company provides for non-controlling and other beneficial interests in consolidated subsidiaries for which the Company’s ownership is less than 100 percent. The equity method of accounting is used for investments in non-controlled affiliates in which the Company’s ownership ranges from 20 to 50 percent, or in instances in which the Company is able to exercise significant influence but not control (such as representation on the investee’s Board of Directors). All intercompany accounts and transactions have been eliminated.

The Company adopted the provisions of a new consolidation standard on November 1, 2010. In conjunction with the adoption, the Company concluded that it was the primary beneficiary of one of the CLO entities for which it acts as collateral manager. As a result, the Company consolidated the assets, liabilities and results of operations of that entity in the Company’s Consolidated Financial Statements beginning on November 1, 2010. The assets of the CLO entity cannot be used by the Company, and the note holders of the entity have no recourse to the general credit or assets of the Company.

From time to time, the Company may maintain a controlling financial interest in a sponsored fund. Upon consolidation, the Company assumes the specialized accounting treatment of the fund. All of the underlying investments held by consolidated funds are carried at fair value, with corresponding changes in fair value reflected in gains and other investment income in the Company’s Consolidated Statements of Income. When the Company is no longer deemed to control the fund, the fund is deconsolidated and accounted for under another accounting method.

3. New Accounting Standards Not Yet Adopted

Testing goodwill for impairment

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the existing goodwill impairment guidance. The terms of the amendment permit a reporting entity to first assess qualitative factors to determine whether it is necessary to perform step one of the two-step goodwill impairment test. The new guidance is effective for the Company for the fiscal year that begins on November 1, 2012. The adoption of this new guidance is not expected to have a material effect on the Company’s Consolidated Financial Statements.

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4. Adoption of New Accounting Standards

The Company adopted the following accounting standard in fiscal 2012:

Fair value measurements

On February 1, 2012, the Company adopted new requirements for expanded fair value disclosures as issued by the FASB. The updated guidance modifies and clarifies existing fair value guidance and expands disclosure requirements. The expanded disclosures are included in Note 6.

5. Investments

The following is a summary of investments at April 30, 2012 and October 31, 2011:

   
(in thousands)   April 30, 2012   October 31, 2011
Corporate debt securities   $     $ 4,832  
Consolidated funds:
                 
Debt securities     55,523       69,083  
Equity securities     107,638       74,434  
Separately managed accounts:
                 
Debt securities     21,212       11,307  
Equity securities     39,964       33,553  
Sponsored funds     37,323       39,841  
CLO entity     449       278  
Investments in affiliates     26,246       46,900  
Other investments     7,507       7,507  
Total investments   $ 295,862     $ 287,735  

Investments classified as trading

The following is a summary of the cost and fair value of investments classified as trading at April 30, 2012 and October 31, 2011. These investments include corporate debt securities held directly by the Company and debt and equity securities held in the portfolios of consolidated funds and separately managed accounts seeded for product development purposes.

April 30, 2012

   
(in thousands)   Cost   Fair Value
Debt securities   $ 74,571     $ 76,735  
Equity securities     137,100       147,602  
Total investments   $ 211,671     $ 224,337  

October 31, 2011

   
(in thousands)   Cost   Fair Value
Debt securities   $ 83,852     $ 85,222  
Equity securities     105,230       107,987  
Total investments   $ 189,082     $ 193,209  

The Company recognized $1.0 million and $9.3 million of net unrealized gains related to investments classified as trading for the three months ended April 30, 2012 and 2011, respectively, and $6.8 million and $9.5 million for the six months ended April 30, 2012 and 2011, respectively.

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During the first quarter and second quarter of fiscal 2012, the Company deconsolidated its investments in Eaton Vance Diversified Currency Income Fund and Eaton Vance Parametric Structured Absolute Return Fund, respectively, when its ownership fell below 50 percent. Also during the second quarter of fiscal 2012, the Company deconsolidated its investment in Eaton Vance Multi-Strategy All Market Fund when the Company redeemed all of its shares.

Investments classified as available-for-sale

The following is a summary of the cost, gross unrealized gains and losses, and fair value of investments classified as available-for-sale at April 30, 2012 and October 31, 2011:

April 30, 2012

       
    Gross Unrealized  
(in thousands)   Cost   Gains   Losses   Fair Value
Sponsored funds   $ 29,141     $ 8,358     $ (176 )    $ 37,323  

October 31, 2011

       
    Gross Unrealized  
(in thousands)   Cost   Gains   Losses   Fair Value
Sponsored funds   $ 34,368     $ 5,518     $ (45 )    $ 39,841  

Gross unrealized gains and losses on investments in sponsored funds classified as available-for-sale have been excluded from earnings and reported as a component of accumulated other comprehensive income, net of deferred taxes. No investment with a gross unrealized loss has been in a loss position for greater than one year.

The Company reviewed the gross unrealized losses of $0.2 million as of April 30, 2012 and determined that these losses were not other-than-temporary, primarily because the Company has both the ability and intent to hold the investments for a period of time sufficient to recover such losses. The aggregate fair value of investments associated with the unrealized losses was $7.8 million at April 30, 2012.

The following is a summary of the Company’s realized gains and losses upon disposition of sponsored funds classified as available-for-sale for the three and six months ended April 30, 2012 and 2011.

       
  Three Months Ended
April 30,
  Six Months Ended
April 30,
(in thousands)   2012   2011   2012   2011
Gains   $ 162     $ 85     $ 247     $ 2,106  
Losses     (101 )            (123 )      (1,554 ) 
Net realized gains   $ 61     $ 85     $ 124     $ 552  

Investments in non-consolidated CLO entities

The Company did not recognize any impairment losses related to its investments in non-consolidated CLO entities in either the three or six months ended April 30, 2012 or 2011.

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Investments in affiliates

The Company has a 7 percent equity interest in a private equity partnership managed by a third party that invests in companies in the financial services industry. The Company’s investment in the partnership was $9.7 million and $18.4 million at April 30, 2012 and October 31, 2011, respectively.

The Company had equity interests in the following sponsored funds as of April 30, 2012 and October 31, 2011.

       
  Equity Ownership
Interest (%)
  Equity Ownership
Interest ($)
(dollar amounts in thousands)   April 30,
2012
  October 31,
2011
  April 30,
2012
  October 31,
2011
Eaton Vance Diversified
Currency Income Fund
    32 %          $ 16,535     $  
Eaton Vance Parametric Structured
Commodity Strategy Fund
          47 %            9,190  
Eaton Vance Parametric Option
Absolute Return Strategy Fund
          27 %            19,298  

The Company recognized a $2.4 million gain in the first six months of fiscal 2012 related to its April 2011 sale of its equity interest in Lloyd George Management (BVI) Limited, representing additional settlement payments received during the first six months. The Company realized a gain of $5.5 million in the first six months of fiscal 2011 in connection with this sale.

The Company did not recognize any impairment losses related to its investments in affiliates during the three and six months ended April 30, 2012 and 2011, respectively.

Other investments

Included in other investments are certain investments carried at cost totaling $7.5 million as of both April 30, 2012 and October 31, 2011, respectively. Management believes that the carrying value of its other investments approximates their fair value.

6. Fair Value Measurements

Substantially all of the Company’s investments are carried at fair value, with the exception of its investments in non-consolidated CLO entities that have not been impaired in the current fiscal period and certain other investments, which are accounted for using the equity or cost method.

The following is a description of the valuation methodologies used for financial assets and liabilities measured at fair value, as well as the general classification of such financial assets and liabilities pursuant to the valuation hierarchy. The Company did not hold any nonfinancial assets or liabilities measured at fair value on a recurring basis at April 30, 2012 or October 31, 2011.

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Financial Instrument   Hierarchy   Valuation Methodology
Cash equivalents   Level 1   Includes investments in money market funds. Fair value is determined based upon unadjusted quoted market prices.
     Level 2   Includes agency securities. Fair value is determined based upon observable inputs other than Level 1 unadjusted quoted market prices, such as 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.
Investments   Level 1   Includes certain debt and certain equity securities held in the portfolios of consolidated funds and separately managed accounts, which are classified as trading, and investments in non-consolidated sponsored funds, which are classified as available for sale. Fair value is determined based upon unadjusted quoted market prices.
     Level 2   Includes commercial paper, certain debt and equity securities held in the portfolios of consolidated funds and separate accounts, investments in privately offered equity funds that are not listed but have a net asset value that is comparable to mutual funds and investments in portfolios that have a net asset value that is comparable to mutual funds. Fair value is determined using observable inputs other than Level 1 unadjusted quoted market prices, such as quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active, and inputs other than quoted prices that are observable or corroborated by observable market data. If events occur after the close of the primary market for any security, the quoted market prices may be adjusted for the observable price movements of country-specific market proxies.
Derivative assets and liabilities   Level 2   Includes foreign exchange contracts, stock index futures contracts and commodity futures contracts. Foreign exchange contract pricing is determined by interpolating a value using the spot foreign currency rate based on spot rate and currency exchange rate differentials, which are all observable inputs. Index futures contracts and commodity futures contracts pricing is determined by a third-party pricing service that determines fair value based on bid and ask prices.

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Financial Instrument   Hierarchy   Valuation Methodology
Securities sold, not yet
purchased
  Level 2   Pricing is determined by a third-party pricing service that determines fair value based on bid and ask prices.
Assets of consolidated
CLO entity
  Level 1   Includes investments in money market funds and certain equity securities. Fair value is determined based upon unadjusted quoted market prices.
     Level 2   Includes bank loans and certain debt and equity securities. Fair value is determined based upon valuations obtained from independent third-party broker or dealer prices. These prices are derived from matrix pricing models, which consider information regarding securities with similar characteristics.
     Level 3   Includes warrants, bank loans and certain equity securities. Fair value has been determined using either discounted cash flow analyses or a single broker non-binding quote.
Liabilities of consolidated
CLO entity
  Level 2   Includes certain debt securities. Fair value is determined based upon observable inputs other than Level 1 unadjusted quoted market prices, such as 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.
     Level 3   Includes senior and subordinated note obligations issued by the consolidated CLO entity. Fair value is determined primarily using model-based valuation techniques in which one or more significant inputs are unobservable in the market.

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The following tables summarize the assets and liabilities measured at fair value on a recurring basis and their assigned levels within the hierarchy at April 30, 2012 and October 31, 2011:

April 30, 2012

         
(in thousands)   Level 1   Level 2   Level 3   Other
Assets
Not Held
at Fair
Value
  Total
Cash equivalents   $     $ 314,452     $     $     $ 314,452  
Investments:
                                            
Consolidated funds:
                                            
Debt securities   $     $ 55,523     $     $     $ 55,523  
Equity securities     101,950       5,688                   107,638  
Separately managed accounts:
                                            
Debt securities     4,451       16,761                   21,212  
Equity securities     39,625       339                   39,964  
Sponsored funds     33,015       4,308                   37,323  
CLO entity(1)                       449       449  
Investments in affiliates(2)                       26,246       26,246  
Other investments(3)           37             7,470       7,507  
Total investments   $ 179,041     $ 82,656     $     $ 34,165     $ 295,862  
Other financial assets:
                                            
Derivative financial assets   $     $ 905     $     $     $ 905  
Assets of consolidated CLO entity:
                                            
Cash equivalents     26,560                         26,560  
Bank loans and other investments     72       484,022       2,150             486,244  
Total other financial assets   $ 26,632     $ 484,927     $ 2,150     $     $ 513,709  
Financial liabilities:
                                            
Derivative financial liabilities   $     $ 545     $     $     $ 545  
Securities sold, not yet purchased           36,292                   36,292  
Liabilities of consolidated CLO entity:
                                            
Senior and subordinated
note obligations
          2,584       483,062             485,646  
Total financial liabilities   $     $ 39,421     $ 483,062     $     $ 522,483  

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October 31, 2011

         
(in thousands)   Level 1   Level 2   Level 3   Other
Assets
Not Held
at Fair
Value
  Total
Cash equivalents   $ 6,691     $ 360,676     $     $     $ 367,367  
Investments:
                                            
Corporate debt securities   $     $ 4,832     $     $     $ 4,832  
Consolidated funds:
                                            
Debt securities     6,879       62,204                   69,083  
Equity securities     69,279       5,155                   74,434  
Separately managed accounts:
                                            
Debt securities     4,429       6,878                   11,307  
Equity securities     33,511       42                   33,553  
Sponsored funds     36,128       3,713                   39,841  
CLO entity(1)                       278       278  
Investments in affiliates(2)                       46,900       46,900  
Other investments(3)           37             7,470       7,507  
Total investments   $ 150,226     $ 82,861     $     $ 54,648     $ 287,735  
Other financial assets:
                                            
Derivative financial assets   $     $ 1,060     $     $     $ 1,060  
Assets of consolidated CLO entity:
                                            
Cash equivalents     15,829                         15,829  
Bank loans and other investments     85       456,591       5,910             462,586  
Total other financial assets   $ 15,914     $ 457,651     $ 5,910     $     $ 479,475  
Financial liabilities:
                                            
Derivative financial liabilities   $     $ 6,654     $     $     $ 6,654  
Securities sold, not yet purchased           6,270                   6,270  
Liabilities of consolidated CLO entity:
 
Senior and subordinated note obligations                 477,699             477,699  
Total financial liabilities   $     $ 12,924     $ 477,699     $     $ 490,623  

(1) The Company’s investment in this CLO entity is measured at fair value on a non-recurring basis based on Level 3 inputs. The investment is carried at amortized cost unless facts and circumstances indicate that the investment has been impaired, at which point the investment is written down to fair value. There was no re-measurement of this asset during the six month period ended April 30, 2012.
(2) Investments in affiliates include equity method investments which, in accordance with GAAP, are not measured at fair value.
(3) Other investments include investments carried at cost which, in accordance with GAAP, are not measured at fair value.

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and six months ended April 30, 2012 and 2011 were as follows:

       
  Three Months Ended
April 30, 2012
  Three Months Ended
April 30, 2011
(in thousands)   Bank loans
and other investments of consolidated CLO entity
  Senior and subordinated note obligations of consolidated CLO entity   Bank loans
and other investments of consolidated CLO entity
  Senior and subordinated note obligations of consolidated CLO entity
Beginning balance   $ 4,728     $ 480,345     $ 4,379     $ 456,963  
Net gains (losses) on investments and note obligations included in net income(1)     (9 )      5,301       395       22,314  
Transfers into Level 3     15                    
Transfers out of Level 3     (2,584 )      (2,584 )             
Net transfers in and/or out of Level 3                 (604 )       
Ending balance   $ 2,150     $ 483,062     $ 4,170     $ 479,277  
Change in unrealized (losses) gains included in net income relating to assets and liabilities held   $ (9 )    $ 5,301     $ 395     $ 22,314  

       
  Six Months Ended
April 30, 2012
  Six Months Ended
April 30, 2011
(in thousands)   Bank loans
and other investments of consolidated CLO entity
  Senior and subordinated note obligations of consolidated CLO entity   Bank loans
and other investments of consolidated CLO entity
  Senior and subordinated note obligations of consolidated CLO entity
Beginning balance   $ 5,910     $ 477,699     $     $  
Adjustment for adoption of new consolidation guidance                 5,265       444,087  
Net gains (losses) on investments and note obligations included in net income(1)     (49 )      7,947       825       35,190  
Purchases, sales and settlements, net                 (1,316 )       
Transfers into Level 3     15                    
Transfers out of Level 3     (3,726 )      (2,584 )             
Net transfers in and/or out of Level 3                 (604 )       
Ending balance   $ 2,150     $ 483,062     $ 4,170     $ 479,277  
Change in unrealized (losses) gains included in net income relating to assets and liabilities held   $ (49 )    $ 7,947     $ 825     $ 35,190  

(1) Substantially all net gains and losses on investments and note obligations attributable to the assets and borrowings of the Company's consolidated CLO entity are allocated to non-controlling and other beneficial interests on the Company's Consolidated Statements of Income.

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Transfers in and/or out of Levels

The Company’s policy is to recognize any transfers between levels at the end of each fiscal quarter.

During the six month period ended April 30, 2012, $6.9 million of debt securities within consolidated funds were transferred from Level 1 to Level 2 due to a decrease in the observability of inputs. During the six month period ended April 30, 2012, $0.3 million of equity securities within separately managed accounts were transferred from Level 1 to Level 2 due to a decrease in the observability of inputs. There were no significant transfers between Level 1 and Level 2 during the three and six month periods ended April 30, 2011.

During the three month period ended April 30, 2012, $2.6 million of equity securities within separately managed accounts were transferred from Level 2 to Level 1 due to an increase in the observability inputs. There were no transfers from Level 2 to Level 1 in the six month period ended April 30, 2012. There were no significant transfers between Level 2 and Level 1 during the three and six month periods ended April 30, 2011.

For the three and six month periods ended April 30, 2012, $15,000 of bank loans and other investments in the collateral portfolio of the consolidated CLO entity were transferred from Level 2 to level 3 as a result of a reduction in the availability of significant observable inputs in determining the fair value of a second lien bank loan that defaulted during the period. Fair value was determined utilizing a discounted cash flow analysis. For the three and six month periods ended April 30, 2012, $2.6 million and $3.7 million, respectively, of bank loans and other investments were transferred from Level 3 to level 2 within the collateral portfolio of the consolidated CLO entity due to an increase in the observable inputs used in determining the fair value of these investments. For the three and six month periods ended April 30, 2012, $2.6 million of the senior and subordinated note obligations of the consolidated CLO entity were transferred from Level 3 to level 2 due to an increase in the observable inputs used in determining the fair value of the notes.

Quantitative information about Level 3 fair value measurements

The following table shows the valuation technique and significant unobservable inputs utilized in the fair value measurement of level 3 liabilities at April 30, 2012:

       
($ in thousands)   Fair Value at
April 30, 2012
  Valuation
Technique
  Unobservable
Inputs*
  Range
Liabilities of consolidated
CLO entity:
                                   
Senior and subordinated                       Default rate       200 bps  
note obligations   $ 483,062       Income approach       Discount Rate       140-950 bps  

* Discount rate refers to spread over Libor. Lower spreads relate to the more senior tranches in the CLO note structure; higher spreads relate to the less senior tranches. The default rate refers to the constant annual default rate.

Valuation process

The Company elected the fair value option for both the collateral assets held and senior and subordinated notes issued by its consolidated CLO entity upon consolidation to mitigate any accounting inconsistencies between the carrying value of the assets held to provide cash flows for the note obligations and the carrying value of those note obligations.

Senior and subordinated note obligations issued by the Company’s consolidated CLO entity are issued in various tranches with different risk profiles. The notes are valued on a quarterly basis by the Company’s bank loan investment team utilizing an income approach that projects the cash flows of the collateral assets using the team’s assumptions about market yields, collateral reimbursement assumptions, prepayment speeds, forecasted default and recovery rates, callability and other market factors that vary based on the nature of the investments

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in the underlying collateral pool. Once the undiscounted cash flows of the collateral assets have been determined, the bank loan team applies appropriate discount rates that it believes a reasonable market participant would use to determine the discounted cash flow valuation of the notes. The bank loan team routinely monitors market conditions and model inputs for cyclical and secular changes in order to identify any material factors that could influence the Company’s valuation method.

Sensitivity to changes in significant unobservable inputs

For senior and subordinated notes issued by the Company’s consolidated CLO entity, a change in the assumption used for the probability of default is generally accompanied by a directionally similar change in the assumption used for discount rates. Significant increases in either of these inputs would result in a significantly lower measurement of fair value.

Although the Company believes the valuation methods described above are appropriate, the use of different methodologies or assumptions to determine fair value could result in a different estimate of fair value at the reporting date.

7. Derivative Financial Instruments

Derivative financial instruments designated as cash flow hedges

During the six months ended April 30, 2012 and 2011, the Company reclassified into interest expense $0.2 million of the loss recognized on a Treasury lock transaction in connection with the Company’s issuance of ten-year senior notes in October 2007. At April 30, 2012, the remaining unamortized loss on this transaction was $2.4 million. During the next twelve months, the Company expects to reclassify approximately $0.4 million of the loss on the Treasury lock transaction into interest expense.

Other derivative financial instruments not designated for hedge accounting

The Company has entered into a series of foreign exchange contracts, stock index futures contracts and commodity futures contracts to structurally hedge currency risk and market risk associated with its investments in separately managed accounts and consolidated funds seeded for new product development purposes.

At April 30, 2012, the Company had 13 outstanding foreign exchange contracts with five counterparties with an aggregate notional value of $17.8 million; 14 outstanding stock index futures contracts with one counterparty with an aggregate notional value of $77.6 million; and 24 outstanding commodity futures contracts with one counterparty with an aggregate notional value of $18.1 million.

The following tables present the fair value of derivative instruments not designated as hedging instruments as of April 30, 2012 and October 31, 2011:

April 30, 2012

       
  Assets   Liabilities
(in thousands)   Balance Sheet Location   Fair Value   Balance Sheet Location   Fair Value
Foreign exchange contracts     Other assets     $ 20       Other liabilities     $ 185  
Stock index futures contracts     Other assets       431       Other liabilities       255  
Commodity futures contracts     Other assets       454       Other liabilities       105  
Total                    $ 905                          $ 545  

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October 31, 2011

       
  Assets   Liabilities
(in thousands)   Balance Sheet Location   Fair Value   Balance Sheet Location   Fair Value
Foreign exchange contracts     Other assets     $ 24       Other liabilities     $ 124  
Stock index futures contracts     Other assets       157       Other liabilities       6,363  
Commodity futures contracts     Other assets       879       Other liabilities       167  
Total                    $ 1,060                          $ 6,654  

The following is a summary of the net gains (losses) recognized in income for the three and six months ended April 30, 2012 and 2011:

         
  Income Statement Location   Three Months Ended
April 30,
  Six Months Ended
April 30,
(in thousands)   2012   2011   2012   2011
Foreign exchange contracts     Gains and other
investment income, net
    $ 195     $ (2,196 )    $ 428     $ (1,917 ) 
Stock index futures contracts     Gains and other
investment income, net
      (5,756 )      (4,373 )      (9,901 )      (8,841 ) 
Commodity futures contracts     Gains and other
investment income, net
      519       (728 )      1,013       (2,192 ) 
Total         $ (5,042 )    $ (7,297 )    $ (8,460 )    $ (12,950 ) 

8. Fair Value Measurements of Other Financial Instruments

Certain financial instruments are not carried at fair value. The following is a summary of the carrying amounts and estimated fair values of these financial instruments at April 30, 2012 and October 31, 2011:

         
  April 30, 2012   October 31, 2011
(in thousands)   Carrying Value   Fair
Value
  Fair Value Level   Carrying Value   Fair
Value
Other investments   $ 7,470     $ 7,470       3     $ 7,470     $ 7,470  
Notes receivable from stock option exercises   $ 4,171     $ 4,171       3     $ 4,441     $ 4,441  
Debt   $ 500,000     $ 571,628       1     $ 500,000     $ 566,047  

All other investments are carried at cost. Fair values for these investments are not estimated unless events or changes in circumstances indicate that the carrying amounts of these assets are not recoverable. Included in other investments is a $6.6 million non-controlling capital interest in Atlanta Capital Management Holdings, LLC (“ACM Holdings”), a partnership that owns certain non-controlling interests of Atlanta Capital Management LLC (“Atlanta Capital Management”). The Company’s interest in ACM Holdings is non-voting and entitles the Company to receive $6.6 million when put or call options for certain non-controlling interests of Atlanta Capital Management are exercised. The carrying value of these investments approximates fair value.

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The fair value of the investment is determined using a cash flow model which projects future cash flows based upon contractual obligations. Once the undiscounted cash flows have been determined, the Company applied an appropriate discount rate. The inputs to the model are considered Level 3.

Notes receivable from stock option exercises represent loans to employees under the Employee Loan Program for the purpose of financing the exercise of employee stock options. Loans are made for a seven-year period, at varying fixed interest rates and are payable in annual installments. The carrying value of the notes receivable approximates fair value. The fair value of the notes is determined using a cash flow model which projects cash flows based upon the contractual terms of the notes. Once the undiscounted cash flows have been determined, the Company applies an appropriate market yield. The inputs to the model are considered Level 3.

The fair value of the Company’s debt has been determined using publicly available market prices, which are considered Level 1 inputs.

9. VIEs

In the normal course of business, the Company maintains investments in sponsored CLO entities and privately offered equity funds that are considered VIEs. These variable interests generally represent seed investments made by the Company, as collateral manager or investment advisor, to launch or market these vehicles. The Company receives management fees for the services it provides as collateral manager or investment advisor to these entities. These fees may also be considered variable interests.

To determine whether or not the Company should be treated as the primary beneficiary of a VIE, management must make significant estimates and assumptions regarding probable future cash flows of the VIE. These estimates and assumptions relate primarily to market interest rates, credit default rates, pre-payment rates, discount rates, the marketability of certain securities and the probability of certain outcomes.

Investments in VIEs that are consolidated

Consolidated CLO entity

As described in Note 2, the Company adopted the provisions of a new consolidation standard on November 1, 2010 that resulted in the consolidation of a CLO entity.

The Company irrevocably elected the fair value option for all financial assets and liabilities of the consolidated CLO entity upon adoption of the new accounting guidance. Unrealized gains and losses on assets and liabilities for which the fair value option has been elected are reported in earnings. Although the subordinated note obligations of the CLO entity have certain equity characteristics, the Company has determined that the subordinated notes should be recorded as liabilities on the Company’s Consolidated Balance Sheets.

The assets of this CLO entity are held solely as collateral to satisfy the obligations of the entity. The Company has no right to the benefits from, nor does the Company bear the risks associated with, the assets held by the entity beyond the Company’s minimal direct investment and beneficial interest therein and management fees generated from the entity. The note holders of the CLO entity have no recourse to the Company’s general assets. There are neither explicit arrangements nor does the Company hold implicit variable interests that would require the Company to provide any ongoing financial support to the entity.

The following tables present, as of April 30, 2012 and October 31, 2011, the fair value of the consolidated CLO entity’s assets and liabilities subject to fair value accounting:

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April 30, 2012

     
  CLO Bank Loan Investments  
(in thousands)   Total CLO bank loan investments   90 days or
more past due
  Senior and subordinated
note obligations
Unpaid principal balance   $ 482,930     $ 568     $ 500,085  
Excess unpaid principal balance over fair value     (2,859 )      (517 )      (14,439 ) 
Fair value   $ 480,071     $ 51     $ 485,646  

October 31, 2011

     
  CLO Bank Loan Investments  
(in thousands)   Total CLO bank loan investments   90 days or
more past due
  Senior and subordinated
note obligations
Unpaid principal balance   $ 474,515     $ 1,192     $ 500,066  
Excess unpaid principal balance over fair value     (17,820 )      (617 )      (22,367 ) 
Fair value   $ 456,695     $ 575     $ 477,699  

During the three months ended April 30, 2012 and 2011, the changes in the fair values of the CLO entity’s bank loans and other investments resulted in net gains of $8.5 million and $4.0 million, respectively, while an increase in the fair value of the CLO’s note obligations resulted in net losses of $5.3 million and $22.4 million, respectively. The combined net gains of $3.2 million and net losses of $18.3 million for the three months ended April 30, 2012 and 2011, respectively, were recorded as gains (losses) and other investment income of the consolidated CLO entity on the Company’s Consolidated Statements of Income for these periods.

During the six months ended April 30, 2012 and 2011, the changes in the fair values of the CLO entity’s bank loans and other investments resulted in net gains of $15.9 million and $13.5 million, respectively, while an increase in the fair value of the CLO’s note obligations resulted in net losses of $7.9 million and $35.3 million, respectively. The combined net gains of $8.0 million and net losses of $21.7 million for the six months ended April 30, 2012 and 2011, respectively, were recorded as gains (losses) and other investment income of the consolidated CLO entity on the Company’s Consolidated Statements of Income for these periods.

Substantially all gains (losses) related to the CLO entity’s bank loans, other investments and note obligations recorded in earnings for the periods were attributable to changes in instrument-specific credit risk.

The CLO entity’s note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread, which ranges from 0.21 percent to 1.50 percent. The principal amounts outstanding of the note obligations issued by the CLO entity mature on April 20, 2019. The CLO entity may elect to reinvest any prepayments received on bank loans or other investments prior to April 2012. Any subsequent prepayments received must be used to pay down its note obligations.

Interest income and expense are recorded on an accrual basis and reported as gains (losses) and other investment income and as interest expense in other income (expense) of the consolidated CLO entity on the Company’s Consolidated Statements of Income for the three and six months ended April 30, 2012.

At April 30, 2012 and October 31, 2011, the following carrying amounts related to the consolidated CLO entity were included in the Company’s Consolidated Balance Sheets:

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(in thousands)   April 30, 2012   October 31, 2011
Assets of consolidated CLO entity:
                 
Cash and cash equivalents   $ 27,236     $ 16,521  
Bank loans and other investments     486,244       462,586  
Other assets     5,887       2,715  
Liabilities of consolidated CLO entity:
                 
Senior and subordinated note obligations     485,646       477,699  
Other liabilities     26,089       5,193  
Appropriated retained earnings (deficit)     4,994       (3,867 ) 
Total net interest in consolidated CLO entity   $ 2,638     $ 2,797  

For the three months ended April 30, 2012 and 2011, the Company recorded net income of $4.7 million and net losses of $17.1 million, respectively, related to the consolidated CLO entity. A net gain of $3.9 million and a net loss of $18.0 million for three months ended April 30, 2012 and 2011, respectively, were included in net income (loss) attributable to non-controlling interests and other beneficial interests for those periods, reflecting the interests of third-party note holders of the consolidated CLO entity. Net income attributable to Eaton Vance Corp. shareholders included $0.8 million and $0.9 million related to the consolidated CLO entity for three months ended April 30, 2012 and 2011, respectively.

For the six months ended April 30, 2012 and 2011, the Company recorded net income of $10.5 million and net losses of $16.9 million, respectively, related to the consolidated CLO entity. A net gain of $8.9 million and a net loss of $18.6 million for the six months ended April 30, 2012 and 2011, respectively, were included in net income (loss) attributable to non-controlling interests and other beneficial interests for those periods, reflecting the interests of third-party note holders of the consolidated CLO entity. Net income attributable to Eaton Vance Corp. shareholders included $1.6 million and $1.7 million related to the consolidated CLO entity for the six months ended April 30, 2012 and 2011, respectively.

Other Entities

Our controlled subsidiary Parametric Portfolio Associates LLC (“Parametric Portfolio Associates”) maintains a 60 percent economic interest in Parametric Risk Advisors LLC (“Parametric Risk Advisors”), which meets the definition of a VIE. Consistent with its majority economic interest and other considerations, the Company has determined that Parametric Portfolio Associates is the primary beneficiary of the VIE.

Parametric Risk Advisors had assets of $4.9 million on both April 30, 2012 and October 31, 2011, consisting primarily of cash and cash equivalents and investment advisory fees receivable, and liabilities of $2.4 million and $2.5 million on April 30, 2012 and October 31, 2011, respectively, consisting primarily of accrued compensation, accounts payable, accrued expenses and intercompany payables. Neither the Company’s variable interest nor maximum risk of loss related to this VIE was material to the Company’s Consolidated Financial Statements at either balance sheet date.

Investments in VIEs that are not consolidated

Non-consolidated CLO entities

The Company is not deemed the primary beneficiary of three CLO entities in which it holds variable interests. These non-consolidated entities had total assets of $1.8 billion and $1.9 billion as of April 30, 2012 and October 31, 2011, respectively. The Company’s variable interests in these entities consist of the Company’s direct ownership in these entities and any collateral management fees earned but uncollected. The Company maintains an investment in one of these entities totaling $0.4 million and $0.3 million as of April 30, 2012 and October 31, 2011, respectively. Collateral management fees receivable for these three CLO entities totaled $2.0 million and $3.0 million on April 30, 2012 and October 31, 2011, respectively. In the first six months of fiscal 2012, the Company did not provide any financial or other support to these entities that it was not previously contractually

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required to provide. The Company’s risk of loss with respect to these managed CLO entities is limited to the carrying value of its investments in and collateral management fees receivable from the CLO entities as of April 30, 2012.

The Company’s investment in the CLO entity identified above is carried at amortized cost and is disclosed as a component of investments in Note 5. Income from this entity is recorded as a component of gains and other investment income based upon projected investment yields.

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 $9.8 billion and $9.6 billion as of April 30, 2012 and October 31, 2011, respectively. The Company’s variable interests in these entities consist of the Company’s direct ownership in these entities and any investment advisory fees earned but uncollected. The Company held investments in these entities totaling $4.3 million and $3.7 million on April 30, 2012 and October 31, 2011, respectively, and collateral management fees receivable totaling $0.5 million and $0.4 million on April 30, 2012 and October 31, 2011. In the first six months of fiscal 2012, the Company did not provide any financial or other support to these entities that it was not previously contractually required to provide. The Company’s risk of loss with respect to these managed entities is limited to the carrying value of its investments in and investment advisory fees receivable from the entities as of April 30, 2012.

The Company’s investments in privately offered equity funds are carried at fair value and included in investments in sponsored funds, which are disclosed as a component of investments in Note 5. These investments are classified as available-for-sale and the Company records any change in fair value, net of income tax, in other comprehensive income (loss).

10. Acquisitions

Tax Advantaged Bond Strategies (“TABS”)

In December 2008, the Company acquired the TABS business of M.D. Sass Investors Services for cash and future consideration. During the second quarter of fiscal 2012, the Company made a contingent payment of $12.3 million to the selling group based upon prescribed multiples of TABS’s revenue for the twelve months ended December 31, 2011. The payment increased goodwill by $12.3 million as the acquisition was completed prior to the change in accounting for contingent purchase price consideration. The Company will be obligated to make four additional annual contingent payments to the selling group based on prescribed multiples of TABS’s revenue for the twelve months ending December 31, 2012, 2014, 2015 and 2016. All future payments will be in cash and will result in an addition to goodwill. These payments are not contingent upon any member of the selling group remaining an employee of the Company.

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11. Intangible Assets

The following is a summary of intangible assets at April 30, 2012 and October 31, 2011:

April 30, 2012

     
(dollars in thousands)   Gross carrying amount   Accumulated amortization   Net carrying amount
Amortizing intangible assets:
                          
Client relationships acquired   $ 110,327     $ (54,715 )    $ 55,612  
Intellectual property acquired     1,000       (94 )      906  
Non-amortizing intangible assets:
                          
Mutual fund management contract acquired     6,708             6,708  
Total   $ 118,035     $ (54,809 )    $ 63,226  

October 31, 2011

     
(dollars in thousands)   Gross carrying amount   Accumulated amortization   Net carrying amount
Amortizing intangible assets:
                          
Client relationships acquired   $ 110,327     $ (50,749 )    $ 59,578  
Intellectual property acquired     1,000       (62 )      938  
Non-amortizing intangible assets:
                          
Mutual fund management contract acquired     6,708             6,708  
Total   $ 118,035     $ (50,811 )    $ 67,224  

Amortization expense was $2.0 million for both the three months ended April 30, 2012 and 2011 and $4.0 million and $3.9 million for the six months ended April 30, 2012 and 2011, respectively.

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12. Stock-Based Compensation Plans

The Company recognized total compensation cost related to its stock-based compensation plans as follows:

       
  Three Months Ended
April 30,
  Six Months Ended
April 30,
(in thousands)   2012   2011   2012   2011
2008 Plan:
                                   
Stock options   $ 6,260     $ 7,661     $ 15,443     $ 17,209  
Restricted shares     5,892       4,355       12,007       8,722  
Phantom stock units     69       110       124       209  
Employee Stock Purchase Plan                 108       253  
Incentive Plan – Stock Alternative                 126       265  
ACM Plan     232       160       463       320  
PPA Plan     594       380       1,173       760  
Total stock-based compensation expense   $ 13,047     $ 12,666     $ 29,444     $ 27,738  

The total income tax benefit recognized for stock-based compensation arrangements was $4.0 million and $9.1 million for the three months ended April 30, 2012 and 2011, respectively, and $9.2 million and $14.0 million for the six months ended April 30, 2012 and 2011, respectively.

2008 Omnibus Incentive Plan

The 2008 Plan, which is administered by the Compensation Committee of the Board, allows for awards of stock options, restricted shares and phantom stock units to eligible employees and non-employee Directors. A total of 16.8 million shares of Non-Voting Common Stock have been reserved for issuance under the 2008 Plan. Through April 30, 2012, 4.4 million restricted shares and options to purchase 11.6 million shares have been issued pursuant to the 2008 Plan.

Stock Options

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to dividend yield, volatility, an appropriate risk-free interest rate and the expected life of the option.

Many of these assumptions require management’s judgment. The Company’s stock volatility assumption is based upon its historical stock price fluctuations. The Company uses historical data to estimate option forfeiture rates and the expected term of options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average fair value per share of stock options granted during the six months ended April 30, 2012 and 2011 using the Black-Scholes option pricing model were as follows:

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<
   
  2012   2011
Weighted-average grant date fair value of options granted   $