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EXCEL - IDEA: XBRL DOCUMENT - COHEN & STEERS, INC. | Financial_Report.xls |
EX-32.2 - CFO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC. | cns10q-63014ex322.htm |
EX-31.1 - CEO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC. | cns10q-63014ex311.htm |
EX-32.1 - CEO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC. | cns10q-63014ex321.htm |
EX-31.2 - CFO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC. | cns10q-63014ex312.htm |
________________________________________________________
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 JUNE 30, 2014 |
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 Number: 001-32236
________________
COHEN & STEERS, INC.
(Exact name of Registrant as specified in its charter)
________________
Delaware | 14-1904657 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
280 Park Avenue New York, NY | 10017 | |
(Address of Principal Executive Offices) | (Zip Code) |
(212) 832-3232
(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 website, if any, every Interactive Data File required to be submitted and posted 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 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. (Check one):
Large Accelerated Filer | o | Accelerated Filer | x | |||
Non-Accelerated Filer | o (Do not check if a 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
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 5, 2014 was 44,777,442.
________________________________________________________
COHEN & STEERS, INC. AND SUBSIDIARIES
Form 10-Q
Index
Page | ||
Part I. | Financial Information | |
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II. | Other Information * | |
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 6. | ||
* Items other than those listed above have been omitted because they are not applicable.
Forward-Looking Statements
This report and other documents filed by us contain 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, which reflect management's current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “may,” “should,” “seeks,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these forward-looking statements. We believe that these factors include, but are not limited to, the risks described in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2013 (the "Form 10-K"), which is accessible on the Securities and Exchange Commission’s website at www.sec.gov and on our website at www.cohenandsteers.com. These factors are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this report, the Form 10-K and other filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
PART I—Financial Information
Item 1. Financial Statements
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands, except share data)
June 30, 2014 | December 31, 2013 | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 112,328 | $ | 128,277 | |||
Securities owned ($9,171 and $7,300) (1) | 49,822 | 15,668 | |||||
Equity method investments | 26,634 | 24,724 | |||||
Investments, available-for-sale | 7,328 | 10,449 | |||||
Accounts receivable | 42,352 | 40,888 | |||||
Due from broker | 4,071 | 2,906 | |||||
Property and equipment—net | 9,674 | 9,824 | |||||
Goodwill | 20,591 | 20,672 | |||||
Intangible assets—net | 1,657 | 1,701 | |||||
Deferred income tax asset—net | 11,047 | 14,144 | |||||
Other assets | 7,626 | 5,673 | |||||
Total assets | $ | 293,130 | $ | 274,926 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities: | |||||||
Accrued compensation | $ | 13,786 | $ | 25,214 | |||
Deferred rent | 5,830 | 4,344 | |||||
Income tax payable | 1,461 | 7,575 | |||||
Other liabilities and accrued expenses | 14,775 | 14,029 | |||||
Total liabilities | 35,852 | 51,162 | |||||
Commitments and contingencies (See Note 11) | |||||||
Redeemable noncontrolling interest | 7,406 | 207 | |||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value; 500,000,000 shares authorized; 48,572,376 and 47,735,793 shares issued at June 30, 2014 and December 31, 2013, respectively | 486 | 477 | |||||
Additional paid-in capital | 472,914 | 457,138 | |||||
Accumulated deficit | (109,853 | ) | (131,366 | ) | |||
Accumulated other comprehensive income, net of tax | 3,593 | 2,989 | |||||
Less: Treasury stock, at cost, 3,797,741 and 3,481,942 shares at June 30, 2014 and December 31, 2013, respectively | (117,268 | ) | (105,681 | ) | |||
Total stockholders’ equity | 249,872 | 223,557 | |||||
Total liabilities and stockholders’ equity | $ | 293,130 | $ | 274,926 |
_________________________
(1) Held as collateral attributable to the consolidated balances of Cohen & Steers Active Commodities Strategy Fund, Inc. and Cohen & Steers Active Commodities Fund, LP ("ACOM") as of June 30, 2014 and ACOM as of December 31, 2013.
See notes to condensed consolidated financial statements
1
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenue: | |||||||||||||||
Investment advisory and administration fees | $ | 72,907 | $ | 70,353 | $ | 140,471 | $ | 135,747 | |||||||
Distribution and service fees | 3,744 | 3,741 | 7,214 | 7,175 | |||||||||||
Portfolio consulting and other | 1,761 | 3,702 | 3,562 | 7,333 | |||||||||||
Total revenue | 78,412 | 77,796 | 151,247 | 150,255 | |||||||||||
Expenses: | |||||||||||||||
Employee compensation and benefits | 25,876 | 24,895 | 49,911 | 48,272 | |||||||||||
Distribution and service fees | 9,256 | 9,677 | 17,560 | 24,758 | |||||||||||
General and administrative | 12,065 | 12,517 | 23,158 | 23,696 | |||||||||||
Depreciation and amortization | 1,103 | 1,340 | 2,365 | 2,687 | |||||||||||
Amortization, deferred commissions | 444 | 810 | 989 | 1,575 | |||||||||||
Total expenses | 48,744 | 49,239 | 93,983 | 100,988 | |||||||||||
Operating income | 29,668 | 28,557 | 57,264 | 49,267 | |||||||||||
Non-operating income: | |||||||||||||||
Interest and dividend income—net | 592 | 743 | 831 | 1,289 | |||||||||||
Gain (loss) from trading securities—net | 2,762 | (10,963 | ) | 3,745 | (9,339 | ) | |||||||||
Gain from available-for-sale securities—net | 52 | 837 | 1,128 | 1,328 | |||||||||||
Equity in earnings (losses) of affiliates | 1,429 | (427 | ) | 2,364 | 109 | ||||||||||
Other income (losses) | 155 | (368 | ) | 103 | (639 | ) | |||||||||
Total non-operating income (loss) | 4,990 | (10,178 | ) | 8,171 | (7,252 | ) | |||||||||
Income before provision for income taxes | 34,658 | 18,379 | 65,435 | 42,015 | |||||||||||
Provision for income taxes | 11,734 | 9,870 | 22,911 | 18,005 | |||||||||||
Net income | 22,924 | 8,509 | 42,524 | 24,010 | |||||||||||
Less: Net (income) loss attributable to redeemable noncontrolling interest | (741 | ) | 6,773 | (896 | ) | 6,413 | |||||||||
Net income attributable to common stockholders | $ | 22,183 | $ | 15,282 | $ | 41,628 | $ | 30,423 | |||||||
Earnings per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 0.49 | $ | 0.34 | $ | 0.93 | $ | 0.69 | |||||||
Diluted | $ | 0.49 | $ | 0.34 | $ | 0.91 | $ | 0.68 | |||||||
Dividends declared per share | $ | 0.22 | $ | 0.20 | $ | 0.44 | $ | 0.40 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 44,825 | 44,306 | 44,730 | 44,222 | |||||||||||
Diluted | 45,530 | 45,002 | 45,507 | 44,942 |
See notes to condensed consolidated financial statements
2
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 22,924 | $ | 8,509 | $ | 42,524 | $ | 24,010 | |||||||
Less: Net (income) loss attributable to redeemable noncontrolling interest | (741 | ) | 6,773 | (896 | ) | 6,413 | |||||||||
Net income attributable to common stockholders | 22,183 | 15,282 | 41,628 | 30,423 | |||||||||||
Foreign currency translation gain (loss), net of tax of zero | 74 | 319 | 151 | (343 | ) | ||||||||||
Net unrealized gain (loss) from available-for-sale securities, net of tax of zero | 491 | (863 | ) | 1,581 | 933 | ||||||||||
Reclassification to statements of operations of gain from available-for-sale securities, net of tax of zero | (52 | ) | (837 | ) | (1,128 | ) | (1,328 | ) | |||||||
Total comprehensive income attributable to common stockholders | $ | 22,696 | $ | 13,901 | $ | 42,232 | $ | 29,685 |
See notes to condensed consolidated financial statements
3
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND
REDEEMABLE NONCONTROLLING INTEREST (Unaudited)
Six Months Ended June 30, 2014 and 2013
(in thousands)
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss), Net of Tax | Treasury Stock | Total Stockholders’ Equity | Redeemable Noncontrolling Interest | Shares of Common Stock, Net | ||||||||||||||||||||||||
Beginning balance, January 1, 2013 | $ | 470 | $ | 429,377 | $ | (117,889 | ) | $ | 2,341 | $ | (97,719 | ) | $ | 216,580 | $ | 53,188 | 43,763 | ||||||||||||||
Dividends | — | — | (18,204 | ) | — | — | (18,204 | ) | — | — | |||||||||||||||||||||
Issuance of common stock | 7 | 286 | — | — | — | 293 | — | 715 | |||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | (7,902 | ) | (7,902 | ) | — | (241 | ) | ||||||||||||||||||||
Tax benefits associated with restricted stock units—net | — | 2,122 | — | — | — | 2,122 | — | — | |||||||||||||||||||||||
Issuance of restricted stock units | — | 1,140 | — | — | — | 1,140 | — | — | |||||||||||||||||||||||
Amortization of restricted stock units—net | — | 10,708 | — | — | — | 10,708 | — | — | |||||||||||||||||||||||
Forfeitures of vested restricted stock units | — | (10 | ) | — | — | — | (10 | ) | — | — | |||||||||||||||||||||
Net income (loss) | — | — | 30,423 | — | — | 30,423 | (6,413 | ) | — | ||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (738 | ) | — | (738 | ) | — | — | |||||||||||||||||||||
Contributions from redeemable noncontrolling interest | — | — | — | — | — | — | 36,498 | — | |||||||||||||||||||||||
Redemptions of redeemable noncontrolling interest | — | — | — | — | — | — | (10,664 | ) | — | ||||||||||||||||||||||
Ending balance, June 30, 2013 | $ | 477 | $ | 443,623 | $ | (105,670 | ) | $ | 1,603 | $ | (105,621 | ) | $ | 234,412 | $ | 72,609 | 44,237 | ||||||||||||||
Beginning balance, January 1, 2014 | $ | 477 | $ | 457,138 | $ | (131,366 | ) | $ | 2,989 | $ | (105,681 | ) | $ | 223,557 | $ | 207 | 44,254 | ||||||||||||||
Dividends | — | — | (20,115 | ) | — | — | (20,115 | ) | — | — | |||||||||||||||||||||
Issuance of common stock | 9 | 338 | — | — | — | 347 | — | 837 | |||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | (11,587 | ) | (11,587 | ) | — | (316 | ) | ||||||||||||||||||||
Tax benefits associated with restricted stock units—net | — | 2,706 | — | — | — | 2,706 | — | — | |||||||||||||||||||||||
Issuance of restricted stock units | — | 588 | — | — | — | 588 | — | — | |||||||||||||||||||||||
Amortization of restricted stock units—net | — | 12,144 | — | — | — | 12,144 | — | — | |||||||||||||||||||||||
Net income | — | — | 41,628 | — | — | 41,628 | 896 | — | |||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 604 | — | 604 | — | — | |||||||||||||||||||||||
Contributions from redeemable noncontrolling interest | — | — | — | — | — | — | 7,257 | — | |||||||||||||||||||||||
Redemptions of redeemable noncontrolling interest | — | — | — | — | — | — | (745 | ) | — | ||||||||||||||||||||||
Transfer of redeemable noncontrolling interest in consolidated entity | — | — | — | — | — | — | (209 | ) | — | ||||||||||||||||||||||
Ending balance, June 30, 2014 | $ | 486 | $ | 472,914 | $ | (109,853 | ) | $ | 3,593 | $ | (117,268 | ) | $ | 249,872 | $ | 7,406 | 44,775 |
See notes to condensed consolidated financial statements
4
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended June 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 42,524 | $ | 24,010 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Stock compensation expense | 12,195 | 10,752 | |||||
Amortization, deferred commissions | 989 | 1,575 | |||||
Depreciation and amortization | 2,365 | 2,687 | |||||
Deferred rent | 1,486 | 969 | |||||
(Gain) loss from trading securities—net | (3,745 | ) | 9,339 | ||||
Equity in earnings of affiliates | (2,364 | ) | (109 | ) | |||
Gain from available-for-sale securities—net | (1,128 | ) | (1,328 | ) | |||
Deferred income taxes | 2,939 | 1,092 | |||||
Foreign currency (gain) loss | (298 | ) | 930 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (1,166 | ) | (2,296 | ) | |||
Due from broker | (1,165 | ) | (13,088 | ) | |||
Deferred commissions | (921 | ) | (1,746 | ) | |||
Securities owned | (30,409 | ) | (12,532 | ) | |||
Other assets | (2,012 | ) | 996 | ||||
Accrued compensation | (11,399 | ) | (12,011 | ) | |||
Securities sold but not yet purchased | — | (14,685 | ) | ||||
Income tax payable | (5,744 | ) | 1,145 | ||||
Other liabilities and accrued expenses | 691 | 3,885 | |||||
Net cash provided by (used in) operating activities | 2,838 | (415 | ) | ||||
Cash flows from investing activities: | |||||||
Proceeds from redemptions of equity method investments—net | 454 | 683 | |||||
Purchases of investments, available-for-sale | (3,603 | ) | (5,464 | ) | |||
Proceeds from sales of investments, available-for-sale | 8,289 | 17,756 | |||||
Purchases of property and equipment | (2,161 | ) | (2,826 | ) | |||
Net cash provided by investing activities | 2,979 | 10,149 | |||||
Cash flows from financing activities: | |||||||
Excess tax benefits associated with restricted stock units | 2,498 | 1,981 | |||||
Issuance of common stock | 295 | 250 | |||||
Repurchase of common stock | (11,587 | ) | (7,902 | ) | |||
Dividends to stockholders | (19,704 | ) | (17,703 | ) | |||
Redemptions of redeemable noncontrolling interest | (745 | ) | (10,664 | ) | |||
Contributions from redeemable noncontrolling interest | 7,257 | 36,498 | |||||
Net cash (used in) provided by financing activities | (21,986 | ) | 2,460 | ||||
Net (decrease) increase in cash and cash equivalents | (16,169 | ) | 12,194 | ||||
Effect of foreign exchange rate changes on cash and cash equivalents | 220 | (141 | ) | ||||
Cash and cash equivalents, beginning of the period | 128,277 | 95,412 | |||||
Cash and cash equivalents, end of the period | $ | 112,328 | $ | 107,465 |
See notes to condensed consolidated financial statements
5
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED)
Supplemental disclosures of cash flow information:
For the six months ended June 30, 2014 and 2013, the Company paid taxes, net of tax refunds, of approximately $24,328,000 and $13,784,000, respectively.
Supplemental disclosures of non-cash investing and financing activities:
In connection with its stock incentive plan, for the six months ended June 30, 2014 and 2013, the Company issued fully vested restricted stock units in the amount of $177,000 and $639,000, respectively. For the six months ended June 30, 2014 and 2013, the Company recorded restricted stock unit dividend equivalents, net of forfeitures, in the amount of $411,000 and $501,000, respectively.
6
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Description of Business
Cohen & Steers, Inc. (“CNS”) was organized as a Delaware corporation on March 17, 2004. CNS was formed to be the holding company for Cohen & Steers Capital Management, Inc. (“CSCM”), a New York corporation, and to allow for the issuance of common stock to the public.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The condensed consolidated financial statements set forth herein include the accounts of CNS and its direct and indirect subsidiaries. CNS’s wholly-owned subsidiaries are CSCM, Cohen & Steers Securities, LLC (“Securities”), Cohen & Steers Asia Limited and Cohen & Steers UK Limited; Cohen & Steers Europe SPRL is a wholly-owned subsidiary of Cohen & Steers UK Limited (collectively, the “Company”). Prior to a reorganization in February 2013, Cohen & Steers Europe SPRL was a wholly-owned subsidiary of CNS. Intercompany balances and transactions have been eliminated in consolidation.
Through CSCM, a registered investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”), the Company serves institutional and individual investors around the world. Founded in 1986, the Company is a leading global investment manager with a long history of innovation and a focus on real assets, including real estate, infrastructure and commodities. Its clients include Company-sponsored open-end and closed-end mutual funds, U.S. and non-U.S. pension plans, endowment funds, foundations and subadvised funds for other financial institutions. Through Securities, its registered broker/dealer, the Company provides distribution services for certain of its funds.
2. Basis of Presentation and Significant Accounting Policies
The condensed consolidated financial statements of the Company included herein are unaudited and 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”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the interim results have been made. The Company’s condensed consolidated financial statements and the related notes should be read together with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Accounting Estimates—The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes the estimates used in preparing the condensed consolidated financial statements are reasonable and prudent. Actual results could differ from those estimates.
Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation.
Consolidation—The Company consolidates operating entities deemed to be voting interest entities if the Company owns a majority of the voting interest. 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. The Company also consolidates any variable interest entities (“VIEs”) in which the Company is the primary beneficiary. The Company records noncontrolling interests in consolidated subsidiaries for which the Company’s ownership is less than 100 percent.
A VIE is an entity in which either (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b) the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns. Investments and redemptions or amendments to the governing documents of the respective entities could affect an entity's status as a VIE or the determination of the primary beneficiary. The Company assesses whether entities in which it has an interest are VIEs upon initial involvement and at each reporting date. The Company assesses whether it is the primary beneficiary of any VIEs identified
7
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
by evaluating its economic interests in the entity held either directly by the Company and its affiliates or indirectly through employees. See Note 4 for further discussion about the Company’s investments.
Cash and Cash Equivalents—Cash equivalents consist of short-term, highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.
Due from Broker—The Company conducts business with brokers for certain of its investment activities. The clearing and custody operations for these investment activities are performed pursuant to agreements with prime brokers. The due from broker balance represents cash and cash equivalents balances at brokers and net receivables and payables for unsettled security transactions related to the Company's consolidated seed investments.
Investments—Management of the Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each statement of financial condition date.
Securities owned are classified as trading securities and represent securities held within the affiliated funds that the Company consolidates. These securities are measured at fair value based on quoted market prices, market prices obtained from independent pricing services engaged by management or as determined by the Company’s valuation committee. Unrealized gains and losses are recorded as gain (loss) from trading securities—net in the Company’s condensed consolidated statements of operations.
Investments classified as equity method investments are accounted for using the equity method, under which the Company recognizes its respective share of the investee’s net income or loss for the period. As of June 30, 2014, the Company's equity method investments consisted of interests in affiliated funds which measure their underlying investments at fair value and report a net asset value on a recurring basis. The carrying amounts of these investments approximate their fair value.
Investments classified as available-for-sale are comprised of equity securities, investment-grade preferred instruments and investments in Company-sponsored open-end and closed-end mutual funds. These investments are carried at fair value based on quoted market prices or market prices obtained from independent pricing services engaged by management, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. The Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other than temporary. If the Company believes an impairment of a security position is other than temporary, the loss will be recognized in the Company’s condensed consolidated statements of operations. An other than temporary impairment is presumed to have occurred if the available-for-sale investment has an unrealized loss continuously for 12 or more months.
From time to time, the affiliated funds consolidated by the Company enter into derivative contracts to gain exposure to the underlying commodities markets or to hedge market and credit risks of the underlying portfolios utilizing options, total return swaps, credit default swaps and futures contracts. These instruments are measured at fair value with gains and losses recorded as gain (loss) from trading securities—net in the Company's condensed consolidated statements of operations. The fair values of these instruments are recorded in other assets or other liabilities and accrued expenses in the Company's condensed consolidated statements of financial condition. As of June 30, 2014, none of the outstanding derivative contracts were subject to any master netting arrangement or other similar agreement.
Additionally, from time to time, the Company enters into foreign exchange contracts to hedge its currency exposure related to client receivables. These instruments are measured at fair value with gains and losses recorded in other non-operating income in the Company's condensed consolidated statements of operations. The fair values of these contracts are recorded in other assets or other liabilities and accrued expenses in the Company's condensed consolidated statements of financial condition.
Goodwill and Intangible Assets—Goodwill represents the excess of the cost of the Company’s investment in the net assets of an acquired company over the fair value of the underlying identifiable net assets at the date of acquisition. Goodwill and indefinite lived intangible assets are not amortized but are tested at least annually for impairment by comparing the fair value to their carrying amounts. Finite lived intangible assets are amortized over their useful lives and are tested for
8
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. See Note 3 for further discussion about the Company’s goodwill and intangible assets.
Redeemable Noncontrolling Interest—Redeemable noncontrolling interest represents third-party interests in the Company's consolidated entities. This interest is redeemable at the option of the investors and therefore is not treated as permanent equity. Redeemable noncontrolling interest is remeasured at redemption value which approximates the fair value at each reporting period.
Investment Advisory and Administration Fees—The Company earns revenue by providing asset management services to institutional accounts and to Company-sponsored open-end and closed-end mutual funds. This revenue is earned pursuant to the terms of the underlying advisory contract, and is based on a contractual investment advisory fee applied to the assets in the client’s portfolio, net of applicable waivers, if any. The Company also earns revenue from administration fees paid by certain Company-sponsored open-end and closed-end mutual funds, based on the average assets under management of such funds. This revenue is recognized as such fees are earned.
Distribution and Service Fees—Distribution and service fee revenue is earned as the services are performed, based on predetermined percentages of the average assets under management of the Company-sponsored open-end load mutual funds. Distribution and service fee revenue is recorded gross of any third-party distribution and service fee expense arrangements. The expenses associated with these third-party distribution and service fee arrangements are recorded as incurred. During the first quarter of 2013, the Company made payments of approximately $7.2 million associated with an additional compensation agreement entered into in connection with the offering of Cohen & Steers MLP Income and Energy Opportunity Fund, Inc. ("MIE"), a closed-end mutual fund. These payments are included in distribution and service fees expense on the accompanying condensed consolidated statements of operations for the six months ended June 30, 2013.
Portfolio Consulting and Other—The Company earns portfolio consulting and other fees by: i) providing portfolio consulting services in connection with model-based strategies accounts; ii) earning a licensing fee for the use of the Company's proprietary indices; and iii) providing portfolio monitoring services related to a number of unit investment trusts. This revenue is earned pursuant to the terms of the underlying contract, and the fee schedules for these relationships vary based on the type of services the Company provides for each relationship. This revenue is recognized as such fees are earned.
Stock-based Compensation—The Company recognizes compensation expense for the grant-date fair value of awards of equity instruments granted to employees. This expense is recognized over the period during which employees are required to provide service. The Company also estimates forfeitures.
Income Taxes—The Company records the current and deferred tax consequences of all transactions that have been recognized in the condensed consolidated financial statements in accordance with the provisions of the enacted tax laws. Deferred tax assets are recognized for temporary differences that will result in deductible amounts in future years. Deferred tax liabilities are recognized for temporary differences that will result in taxable income in future years. The Company records a valuation allowance, when necessary, to reduce deferred tax assets to an amount that more likely than not will be realized. The effective tax rate for interim periods represents the Company’s best estimate of the effective tax rate expected to be applied to the full fiscal year.
Currency Translation and Transactions—Assets and liabilities of subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the applicable condensed consolidated statement of financial condition date. Revenue and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are included in the Company's condensed consolidated statements of comprehensive income. Gains or losses resulting from non-U.S. dollar currency transactions are included in other non-operating income in the condensed consolidated statements of operations. The cumulative translation adjustment was $2,415,000 and $2,264,000 as of June 30, 2014 and December 31, 2013, respectively.
Comprehensive Income—The Company reports all changes in comprehensive income in the condensed consolidated statements of comprehensive income. Comprehensive income includes net income or loss attributable to common stockholders, foreign currency translation gain and loss (net of tax), unrealized gain and loss from available-for-sale
9
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
securities (net of tax) and reclassification to statements of operations of gain and loss from available-for-sale securities (net of tax).
Recently Issued Accounting Pronouncements—In June 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding stock based compensation which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. This new guidance will be effective for the Company’s first quarter of 2016. The Company does not anticipate that the adoption of this new guidance will have a material impact on the Company's condensed consolidated financial statements.
In May 2014, the FASB issued new guidance which outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new guidance will be effective for the Company's first quarter of 2017 and requires either a retrospective or a modified retrospective approach to adoption. The Company is currently evaluating the potential impact on its condensed consolidated financial statements and related disclosures, as well as the available transition methods. Early application is prohibited.
In April 2014, the FASB issued new guidance which changed the requirements for reporting discontinued operations. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. This new guidance will be effective for the Company's first quarter of 2015. The Company does not anticipate that the adoption of this new guidance will have a material impact on the Company's condensed consolidated financial statements.
In March 2014, the FASB issued new guidance to make certain technical corrections to the FASB Accounting Standards Codification ("Codification") Master Glossary. The amendments affect various Codification topics and include deletion of Master Glossary terms, additions to the Master Glossary links, elimination of duplicate Master Glossary terms, and other technical corrections related to Master Glossary terms. The amendments in this new guidance do not have transition guidance and were effective upon issuance. The adoption of this new guidance did not have a material impact on the Company's condensed consolidated financial statements.
In December 2013, the FASB issued new guidance to provide a single definition of public business entity for use in future financial accounting and reporting guidance. The guidance specifies that an entity that is required by the SEC to file or furnish financial statements with the SEC, or does file or furnish financial statements with the SEC, is considered a public business entity. Additionally, a consolidated subsidiary of a public company is not considered a public business entity for purposes of its standalone financial statements other than those included in an SEC filing by its parent or by other registrants or those that are issuers and are required to file or furnish financial statements with the SEC. This new guidance was effective for all future accounting updates starting from 2014. The adoption of this new guidance did not have a material impact on the Company's condensed consolidated financial statements.
In July 2013, the FASB issued new guidance on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward unless a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available as of the reporting date or the entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice). This new guidance was effective for the Company's first quarter of 2014. The adoption of this new guidance did not have a material impact on the Company's condensed consolidated financial statements.
10
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
In June 2013, the FASB issued new guidance which clarifies the characteristics of an investment company and provides guidance for assessing whether an entity is an investment company. From time to time the Company consolidates certain of its affiliated funds which are considered investment companies. The Company retains the specialized investment company accounting for such funds in consolidation. This new guidance was effective for the Company’s first quarter of 2014. The adoption of this new guidance did not have a material impact on the Company’s condensed consolidated financial statements.
3. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of purchase price over the net tangible assets and identifiable intangible assets of an acquired business. At June 30, 2014 and December 31, 2013, goodwill was approximately $20,591,000 and $20,672,000, respectively. The Company’s goodwill decreased by $81,000 for the six months ended June 30, 2014 as a result of foreign currency revaluation.
Intangible Assets
The following table details the gross carrying amounts and accumulated amortization for the intangible assets at June 30, 2014 and December 31, 2013 (in thousands):
Remaining Amortization Period (in months) | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | ||||||||||
June 30, 2014: | |||||||||||||
Amortized intangible assets: | |||||||||||||
Client relationships | 54 | $ | 1,543 | $ | (1,136 | ) | $ | 407 | |||||
Non-amortized intangible assets: | |||||||||||||
Mutual fund management contracts | — | 1,250 | — | 1,250 | |||||||||
Total | $ | 2,793 | $ | (1,136 | ) | $ | 1,657 | ||||||
December 31, 2013: | |||||||||||||
Amortized intangible assets: | |||||||||||||
Client relationships | 60 | $ | 1,543 | $ | (1,092 | ) | $ | 451 | |||||
Non-amortized intangible assets: | |||||||||||||
Mutual fund management contracts | — | 1,250 | — | 1,250 | |||||||||
Total | $ | 2,793 | $ | (1,092 | ) | $ | 1,701 |
11
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Amortization expense related to the intangible assets was approximately $22,000 for both the three months ended June 30, 2014 and 2013, respectively, and approximately $44,000 for both the six months ended June 30, 2014 and 2013, respectively. Estimated future amortization expense is as follows (in thousands):
Periods Ending December 31, | Estimated Amortization Expense | ||
2014 | $ | 45 | |
2015 | 89 | ||
2016 | 89 | ||
2017 | 89 | ||
2018 | 95 | ||
Thereafter | — | ||
Total | $ | 407 |
4. Investments
The following is a summary of the Company's investments as of June 30, 2014 and December 31, 2013 (in thousands):
June 30, 2014 | December 31, 2013 | ||||||
Securities owned | $ | 49,822 | $ | 15,668 | |||
Equity method investments | 26,634 | 24,724 | |||||
Investments, available-for-sale | 7,328 | 10,449 |
Trading and equity method investments
The Cohen & Steers Active Commodities Strategy Fund, Inc. (“CDF”), which was launched by the Company in May 2014, is an open-end mutual fund for which the Company is the investment adviser. As of June 30, 2014, the Company owned all of the outstanding voting interest in CDF. Accordingly, the underlying assets and liabilities and results of operations of CDF have been included in the Company's condensed consolidated financial statements.
The Cohen & Steers MLP & Energy Opportunity Fund, Inc. (“MLO”), which was launched by the Company in December 2013, is an open-end mutual fund for which the Company is the investment adviser. As of June 30, 2014, the Company owned the majority of the outstanding voting interest in MLO. Accordingly, the underlying assets and liabilities and results of operations of MLO have been included in the Company's condensed consolidated financial statements with the third party interests classified as redeemable noncontrolling interest.
The Cohen & Steers Active Commodities Fund, LP (“ACOM”), launched by the Company in April 2013, is structured as a partnership. The Company is the investment adviser of ACOM for which it is entitled to receive a management fee. As of June 30, 2014, the Company owned all of the voting interest in ACOM. Accordingly, the underlying assets and liabilities and results of operations of ACOM have been included in the Company's condensed consolidated financial statements.
Cohen & Steers Global Realty Partners III-TE, L.P. ("GRP-TE"), which had its closing in October 2011, is structured as a partnership. The Company is the general partner and investment adviser of GRP-TE, for which it receives a management fee and is entitled to receive an incentive distribution, if earned. GRP-TE is a VIE and the Company is not the primary beneficiary. As the general partner, the Company has significant influence over the financial decisions of GRP-TE and therefore records its investment using the equity method of accounting. The Company's equity interest in GRP-TE represents a seed investment to launch the fund which was made during the first quarter of 2012, adjusted for the Company’s proportionate share of the fund’s earnings. As of June 30, 2014, the fair value of the Company's equity interest in GRP-TE was approximately $105,000. The Company's risk with respect to its investment in GRP-TE is limited to its equity ownership
12
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
and any uncollected management fees. In conjunction with the launch of GRP-TE, the Company established Cohen & Steers Co-Investment Partnership, L.P. (“GRP-CIP”), which is used by the Company to fulfill its contractual commitment to co-invest with GRP-TE. See Note 11 for further discussion regarding the Company's co-investment commitment. As of June 30, 2014, the Company owned all of the voting interest in GRP-CIP. Accordingly, the underlying assets and liabilities and results of operations of GRP-CIP have been included in the Company's condensed consolidated financial statements.
Prior to its liquidation in April 2014, the Company owned the majority of the voting interests in the Cohen & Steers Global Real Estate Long-Short Fund, L.P. (the “Onshore Fund”). Accordingly, the underlying assets and liabilities and results of operations of the Onshore Fund had been included in the Company's condensed consolidated financial statements. The Onshore Fund was structured as a partnership and the Company was the general partner and investment adviser of the fund.
The Cohen & Steers Global Real Estate Long-Short Offshore Fund, L.P. (the “Offshore Fund”), which was liquidated in April 2014, was structured as a partnership. The Company was the general partner and investment adviser of the Offshore Fund for which it received a management fee and was entitled to receive a performance fee, if earned. The Company determined that the Offshore Fund was not a VIE. The limited partners, unaffiliated with the Company, had the ability to dissolve the fund with a majority vote. As a result, the Company did not have financial control and the Offshore Fund was not consolidated into the Company's condensed consolidated financial statements. As the general partner, the Company had significant influence over the financial decisions of the Offshore Fund and therefore recorded its investment in this fund using the equity method of accounting. The Company’s equity interest in the Offshore Fund represented a seed investment to launch the fund, adjusted for the Company’s proportionate share of the fund’s earnings.
Cohen & Steers Real Assets Fund, Inc. ("RAP"), which was launched by the Company in January 2012, is an open-end mutual fund for which the Company is the investment adviser. The Company had a controlling financial interest in RAP through July 31, 2013 and therefore, the underlying assets and liabilities and results of operations of RAP had been included in the Company's condensed consolidated financial statements with the third party interests classified as redeemable noncontrolling interest. As a result of additional third party subscriptions into the fund, effective August 1, 2013, the Company no longer held a controlling financial interest in RAP, however it was determined that the Company had significant influence over RAP. Accordingly, effective August 1, 2013, the Company records its investment in RAP using the equity method of accounting.
The following is a summary of the fair value of securities owned and equity method investments as of June 30, 2014 and December 31, 2013 (in thousands):
June 30, 2014 | December 31, 2013 | ||||||||||||||
Securities Owned | Equity Method Investments | Securities Owned | Equity Method Investments | ||||||||||||
ACOM | $ | 8,600 | $ | — | $ | 7,300 | $ | — | |||||||
CDF | 8,400 | — | — | — | |||||||||||
GRP-CIP | 2,378 | — | 2,740 | — | |||||||||||
GRP-TE | — | 105 | — | 116 | |||||||||||
MLO | 30,444 | — | 5,125 | — | |||||||||||
Offshore Fund | — | — | — | 412 | |||||||||||
Onshore Fund | — | — | 503 | — | |||||||||||
RAP | — | 26,529 | — | 24,196 | |||||||||||
Total | $ | 49,822 | $ | 26,634 | $ | 15,668 | $ | 24,724 |
13
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Gain (loss) from trading securities—net for the three and six months ended June 30, 2014 and 2013, which represent realized and unrealized gains and losses recorded by the funds the Company consolidates, are summarized below (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
ACOM | $ | 279 | $ | (626 | ) | $ | 816 | $ | (626 | ) | |||||
CDF | 46 | — | 46 | — | |||||||||||
GRP-CIP | 153 | (23 | ) | 163 | (23 | ) | |||||||||
MLO | 2,284 | — | 2,696 | — | |||||||||||
Onshore Fund | — | (1,100 | ) | 24 | 521 | ||||||||||
RAP | — | (9,214 | ) | — | (9,211 | ) | |||||||||
Total gain (loss) from trading securities—net | $ | 2,762 | $ | (10,963 | ) | $ | 3,745 | $ | (9,339 | ) |
Equity in earnings (losses) of affiliates for the three and six months ended June 30, 2014 and 2013 are summarized below (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
GRP-TE | $ | — | $ | — | $ | 20 | $ | — | |||||||
Offshore Fund | — | (427 | ) | 11 | 109 | ||||||||||
RAP | 1,429 | — | 2,333 | — | |||||||||||
Total equity in earnings (losses) of affiliates | $ | 1,429 | $ | (427 | ) | $ | 2,364 | $ | 109 |
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COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Available-for-sale
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of investments, available-for-sale as of June 30, 2014 and December 31, 2013 (in thousands):
June 30, 2014 | |||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses (1) | Fair Value | ||||||||||||
Preferred securities | $ | 1,013 | $ | 55 | $ | (2 | ) | $ | 1,066 | ||||||
Common stocks | 5,151 | 1,149 | (39 | ) | 6,261 | ||||||||||
Company-sponsored mutual funds | 1 | — | — | 1 | |||||||||||
Total investments, available-for-sale | $ | 6,165 | $ | 1,204 | $ | (41 | ) | $ | 7,328 |
_________________________
(1) At June 30, 2014, there were no securities with unrealized losses continuously for a period of more than 12 months.
December 31, 2013 | |||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses (1) | Fair Value | ||||||||||||
Preferred securities | $ | 4,142 | $ | 183 | $ | (40 | ) | $ | 4,285 | ||||||
Common stocks | 5,400 | 698 | (132 | ) | 5,966 | ||||||||||
Company-sponsored mutual funds | 197 | 1 | — | 198 | |||||||||||
Total investments, available-for-sale | $ | 9,739 | $ | 882 | $ | (172 | ) | $ | 10,449 |
_________________________
(1) At December 31, 2013, there were no securities with unrealized losses continuously for a period of more than 12 months.
The aggregate fair value of available-for-sale securities in an unrealized loss position was approximately $942,000 and $1,785,000 at June 30, 2014 and December 31, 2013, respectively.
Unrealized losses on investments, available-for-sale as of June 30, 2014 were generally caused by market conditions. When evaluating whether an unrealized loss on an investment, available-for-sale is other than temporary, the Company reviews such factors as extent and duration of the loss, deterioration in the issuer’s credit quality, reduction or cessation of dividend payments and overall financial strength of the issuer. As of June 30, 2014, the Company determined that it had the ability and intent to hold the remaining investments for which no other-than-temporary impairment has occurred until a recovery of fair value. Accordingly, impairment of these investments is considered temporary.
Sales proceeds, gross realized gains and losses from investments, available-for-sale for the three and six months ended June 30, 2014 and 2013 are summarized below (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Proceeds from sales | $ | 1,548 | $ | 13,984 | $ | 8,298 | $ | 17,756 | |||||||
Gross realized gains | 143 | 1,024 | 1,249 | 1,563 | |||||||||||
Gross realized losses | (91 | ) | (187 | ) | (121 | ) | (235 | ) |
15
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
5. Fair Value
Codification Topic 820, Fair Value Measurement (“ASC 820”) specifies a hierarchy of valuation classifications based on whether the inputs to the valuation techniques used in each valuation classification are observable or unobservable. These classifications are summarized in the three broad levels listed below:
• | Level 1—Unadjusted quoted prices for identical instruments in active markets. |
• | Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable. |
• | Level 3—Valuations derived from valuation techniques in which significant inputs or significant value drivers are unobservable. |
Inputs used to measure fair value might fall in different levels of the fair value hierarchy, in which case the Company defaults to the lowest level input that is significant to the fair value measurement in its entirety. These levels are not necessarily an indication of the risk or liquidity associated with the investments. In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820. Transfers among levels, if any, are recorded at the beginning of the reporting period. There were no transfers between level 1 and level 2 during the six months ended June 30, 2014.
The following table presents fair value measurements as of June 30, 2014 (in thousands):
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents (1) | $ | 55,358 | $ | — | $ | — | $ | 55,358 | |||||||
Securities owned | |||||||||||||||
Common stocks | $ | 30,444 | $ | — | $ | — | $ | 30,444 | |||||||
Fixed income securities | — | 17,000 | — | 17,000 | |||||||||||
Limited partnership interests | — | — | 2,378 | 2,378 | |||||||||||
Total securities owned | $ | 30,444 | $ | 17,000 | $ | 2,378 | $ | 49,822 | |||||||
Equity method investments | $ | 26,529 | $ | — | $ | 105 | $ | 26,634 | |||||||
Investments, available-for-sale | |||||||||||||||
Preferred securities | $ | 1,066 | $ | — | $ | — | $ | 1,066 | |||||||
Common stocks | 6,261 | — | — | 6,261 | |||||||||||
Company-sponsored mutual funds | 1 | — | — | 1 | |||||||||||
Total investments, available-for-sale | $ | 7,328 | $ | — | $ | — | $ | 7,328 | |||||||
Derivatives - assets | |||||||||||||||
Commodity contracts | $ | 1,184 | $ | — | $ | — | $ | 1,184 | |||||||
Total derivatives - assets | $ | 1,184 | $ | — | $ | — | $ | 1,184 | |||||||
Derivatives - liabilities | |||||||||||||||
Foreign exchange contracts | $ | — | $ | 110 | $ | — | $ | 110 | |||||||
Commodity contracts | 563 | — | — | 563 | |||||||||||
Total derivatives - liabilities | $ | 563 | $ | 110 | $ | — | $ | 673 |
_________________________
(1) Comprised of investments in money market funds.
Securities owned classified as level 2 in the above table were primarily comprised of investments in United States Treasury Bills carried at amortized cost, which approximates fair value.
Securities owned classified as level 3 in the above table were comprised of limited partnership interests which represent the Company's co-investments through GRP-CIP, which along with the Company's interest in GRP-TE, represent the
16
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Company's collective ownership interests in limited partnership vehicles that invest in private real estate funds which are valued based on the net asset values of the underlying funds and direct investments in real estate which are generally valued using a discounted cash flow model.
Equity method investments classified as level 3 in the above table represent the carrying amount of the Company's partnership interest in GRP-TE, which approximates its fair value based on the fund's net asset value. GRP-TE invests in non-registered real estate funds and in private equity vehicles that invest directly in real estate. As of June 30, 2014, the Company did not have the ability to redeem its investment in GRP-TE.
The following table presents fair value measurements as of December 31, 2013 (in thousands):
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents (1) | $ | 61,551 | $ | — | $ | — | $ | 61,551 | |||||||
Securities owned | |||||||||||||||
Common stocks | $ | 5,125 | $ | — | $ | 503 | $ | 5,628 | |||||||
Fixed income securities | — | 7,300 | — | 7,300 | |||||||||||
Limited partnership interests | — | — | 2,740 | 2,740 | |||||||||||
Total securities owned | $ | 5,125 | $ | 7,300 | $ | 3,243 | $ | 15,668 | |||||||
Equity method investments | $ | 24,196 | $ | — | $ | 528 | $ | 24,724 | |||||||
Investments, available-for-sale | |||||||||||||||
Preferred securities | $ | 960 | $ | — | $ | 3,325 | $ | 4,285 | |||||||
Common stocks | 5,966 | — | — | 5,966 | |||||||||||
Company-sponsored mutual funds | 198 | — | — | 198 | |||||||||||
Total investments, available-for-sale | $ | 7,124 | $ | — | $ | 3,325 | $ | 10,449 | |||||||
Derivatives - assets | |||||||||||||||
Foreign exchange contracts | $ | — | $ | 398 | $ | — | $ | 398 | |||||||
Commodity contracts | 305 | — | — | 305 | |||||||||||
Total derivatives - assets | $ | 305 | $ | 398 | $ | — | $ | 703 | |||||||
Derivatives - liabilities | |||||||||||||||
Commodity contracts | $ | 275 | $ | — | $ | — | $ | 275 | |||||||
Total derivatives - liabilities | $ | 275 | $ | — | $ | — | $ | 275 |
_________________________
(1) Comprised of investments in money market funds.
Securities owned classified as level 2 in the above table were primarily comprised of investments in United States Treasury Bills carried at amortized cost, which approximates fair value.
Securities owned classified as level 3 in the above table were comprised of investments in the common stock of a privately held bank holding company and limited partnership interests. The investments in the common stock of a privately held bank holding company were valued by the Company's valuation committee using a market approach which utilized market multiples derived from a set of comparable public companies. The limited partnership interests represent the Company's co-investments through GRP-CIP, which along with the Company's interest in GRP-TE, represent the Company's collective ownership interests in limited partnership vehicles that invest in private real estate funds which are valued based on the net asset values of the underlying funds and direct investments in real estate which are generally valued using a discounted cash flow model. The methodology used to value the investments held by GRP-CIP was changed during the year ended December 31, 2013 as the transaction cost was no longer a reasonable approximation of value due to the passage of time.
Equity method investments classified as level 3 in the above table represent the carrying amount of partnership interests in the Offshore Fund and GRP-TE, which approximate their fair value based on each fund's net asset value. The Offshore
17
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Fund made long and short investments in listed real estate equity securities to maximize absolute and risk-adjusted returns with modest volatility. GRP-TE invests in non-registered real estate funds and in private equity vehicles that invest directly in real estate. As of December 31, 2013, the Company did not have the ability to redeem its investment in either fund.
Investments, available-for-sale classified as level 3 in the above table were comprised of an auction rate preferred security of a closed-end fund which was measured at fair value using a a third party pricing service which utilized a combination of a market approach based on the quoted prices for identical or similar instruments in markets that are not active and an income approach in which the expected cash flows of the securities were discounted back to the measurement date. The Company reviewed the fair value provided by the pricing service and confirmed its understanding of the methodology utilized.
The following table summarizes the changes in level 3 investments measured at fair value on a recurring basis for the three and six months ended June 30, 2014 (in thousands):
Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 | ||||||||||||||||||||||||||||||
Securities Owned | Equity Method Investments | Investments, available-for-sale | Securities Owned | Equity Method Investments | Investments, available-for-sale | ||||||||||||||||||||||||||
Common Stocks | Limited Partnership Interests | GRP-TE/Offshore Fund | Preferred Securities | Common Stocks | Limited Partnership Interests | GRP-TE/Offshore Fund | Preferred Securities | ||||||||||||||||||||||||
Balance at beginning of period | $ | — | $ | 2,251 | $ | 537 | $ | — | $ | 503 | $ | 2,740 | $ | 528 | $ | 3,325 | |||||||||||||||
Purchases / contributions | — | 24 | 2 | — | — | 305 | 9 | — | |||||||||||||||||||||||
Sales / distributions | — | — | (434 | ) | — | (527 | ) | (721 | ) | (463 | ) | (4,000 | ) | ||||||||||||||||||
Realized (losses) gains | — | (145 | ) | — | — | 24 | 64 | — | 675 | ||||||||||||||||||||||
Unrealized gains (1) | — | 248 | — | — | — | (10 | ) | 31 | — | ||||||||||||||||||||||
Transfers into (out of) level 3 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Balance at end of period | $ | — | $ | 2,378 | $ | 105 | $ | — | $ | — | $ | 2,378 | $ | 105 | $ | — |
_________________________
(1) Pertains to unrealized gains (losses) from securities held at June 30, 2014.
The following table summarizes the changes in level 3 investments measured at fair value on a recurring basis for the three and six months ended June 30, 2013 (in thousands):
Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | ||||||||||||||||||||||||||||||
Securities Owned | Equity Method Investments | Investments, available-for-sale | Securities Owned | Equity Method Investments | Investments, available-for-sale | ||||||||||||||||||||||||||
Common Stocks | Limited Partnership Interests | GRP-TE | Preferred Securities | Common Stocks | Limited Partnership Interests | GRP-TE | Preferred Securities | ||||||||||||||||||||||||
Balance at beginning of period | $ | 1,075 | $ | 2,292 | $ | 95 | $ | 3,079 | $ | 1,168 | $ | 2,142 | $ | 89 | $ | 3,080 | |||||||||||||||
Purchases / contributions | — | 53 | 1 | — | — | 203 | 7 | — | |||||||||||||||||||||||
Sales / distributions | (419 | ) | (113 | ) | — | — | (419 | ) | (113 | ) | — | — | |||||||||||||||||||
Realized losses | (211 | ) | — | — | — | (211 | ) | — | — | — | |||||||||||||||||||||
Unrealized (losses) gains (1) | (32 | ) | (22 | ) | — | 13 | (125 | ) | (22 | ) | — | 12 | |||||||||||||||||||
Transfers into (out of) level 3 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Balance at end of period | $ | 413 | $ | 2,210 | $ | 96 | $ | 3,092 | $ | 413 | $ | 2,210 | $ | 96 | $ | 3,092 |
_________________________
(1) Pertains to unrealized gains (losses) from securities held at June 30, 2013.
18
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Realized gains (losses) from investments classified as securities owned, equity method investments and investments, available-for-sale in the above tables were recorded as gain (loss) from trading securities, equity in earnings (losses) of affiliates and gain (loss) from available-for-sale securities, respectively, in the Company's condensed consolidated statements of operations. Unrealized gains (losses) from investments classified as securities owned and equity method investments in the above tables were recorded as gain (loss) from trading securities and equity in earnings (losses) of affiliates, respectively, in the Company's condensed consolidated statements of operations. Unrealized gains (losses) from investments, available-for-sale in the above tables were recorded as unrealized gain (loss) from available-for-sale securities in the Company's condensed consolidated statements of comprehensive income.
Valuation Techniques
In certain instances, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable brokers/dealers or pricing services. In determining the value of a particular investment, pricing services may use information with respect to transactions in such investments, broker quotes, pricing matrices, market transactions in comparable investments and various relationships between investments. As part of its independent price verification process, the Company selectively performs detailed reviews of valuations provided by broker/dealers or pricing services.
Foreign exchange contracts are valued by interpolating a value using the spot foreign exchange rate and forward points (based on the spot rate and currency interest rate differentials), which are all inputs that are observable in active markets (level 2).
In the absence of observable market prices, the Company values its investments using valuation methodologies applied on a consistent basis. For some investments, little market activity may exist; management's determination of fair value is then based on the best information available in the circumstances, and may incorporate management's own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors. Such investments are valued on a quarterly basis, taking into consideration any changes in key inputs and changes in economic and other relevant conditions, and valuation models are updated accordingly. The valuation process also includes a review by the Company's valuation committee which is primarily comprised of senior members from various departments within the Company, including investment management. The valuation committee provides independent oversight of the valuation policies and procedures.
The valuation techniques and significant unobservable inputs used in the fair value measurement of the following level 3 investments as of June 30, 2014 were:
Fair Value | Fair Value | Significant | |||||||
(in thousands) | Methodology | Unobservable Inputs | Range | ||||||
Limited partnership interests - direct investments in real estate | $ | 1,454 | Discounted cash flows | Discount rate Exit capitalization rates Market rental rates | 9% - 15% 8% - 8.5% $15.00 - 18.50 psf |
The valuation techniques and significant unobservable inputs used in the fair value measurement of the following level 3 investments as of December 31, 2013 were:
Fair Value | Fair Value | Significant | Input / | ||||||
(in thousands) | Methodology | Unobservable Inputs | Range | ||||||
Common shares of privately-held company | $ | 503 | Market comparable companies | Price / tangible book ratio Liquidity discount | 1.48x 33% | ||||
Limited partnership interests - direct investments in real estate | $ | 2,101 | Discounted cash flows | Discount rate Exit capitalization rates Market rental rates | 9% - 15% 8.5% - 9% $15.00 - 16.25 psf |
19
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Changes in the significant unobservable inputs in the tables above may result in a materially higher or lower fair value measurement. The disclosure in the above tables excludes the Company's ownership interests in limited partnership vehicles which are valued based on the net asset values of the underlying funds. The disclosure in the above table as of December 31, 2013 also excludes auction rate preferred securities for which fair value is based on unobservable but non-quantitative inputs. Such items include financial instruments for which the determination of fair value is based on unadjusted quotations provided by a third party pricing service.
6. Derivatives
The following is a summary of the notional and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts at June 30, 2014 (in thousands):
June 30, 2014 | |||||||||||||||
Assets | Liabilities | ||||||||||||||
Notional | Fair Value | Notional | Fair Value | ||||||||||||
Total foreign exchange contracts | $ | — | $ | — | $ | 11,733 | $ | 110 | |||||||
Total commodity contracts | 29,596 | 1,184 | 13,354 | 563 | |||||||||||
Total derivatives | $ | 29,596 | $ | 1,184 | $ | 25,087 | $ | 673 |
The following is a summary of the notional and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts at December 31, 2013 (in thousands):
December 31, 2013 | |||||||||||||||
Assets | Liabilities | ||||||||||||||
Notional | Fair Value | Notional | Fair Value | ||||||||||||
Total foreign exchange contracts | $ | 10,853 | $ | 398 | $ | — | $ | — | |||||||
Total commodity contracts | 8,115 | 305 | 5,738 | 275 | |||||||||||
Total derivatives | $ | 18,968 | $ | 703 | $ | 5,738 | $ | 275 |
Cash included in due from broker in the condensed consolidated statement of financial condition of approximately $1,359,000 and $2,110,000 as of June 30, 2014 and December 31, 2013, respectively, was held as collateral for futures contracts. Securities included in securities owned in the condensed consolidated statement of financial condition of approximately $9,171,000 and $7,300,000 as of June 30, 2014 and December 31, 2013, respectively, were held as collateral for futures contracts.
Gains and losses from derivative financial instruments for the three and six months ended June 30, 2014 and 2013 are summarized below (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, 2014 | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Equity contracts | $ | — | $ | (184 | ) | $ | — | $ | (584 | ) | |||||
Foreign exchange contracts | (340 | ) | 27 | (508 | ) | 1,329 | |||||||||
Commodity contracts | (198 | ) | (3,747 | ) | 350 | (3,840 | ) | ||||||||
Credit contracts | — | (10 | ) | — | (21 | ) | |||||||||
Total derivatives | $ | (538 | ) | $ | (3,914 | ) | $ | (158 | ) | $ | (3,116 | ) |
20
COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
7. Earnings Per Share
Basic earnings per share are calculated by dividing net income attributable to common stockholders by the weighted average shares outstanding. Diluted earnings per share are calculated by dividing net income attributable to common stockholders by the total weighted average shares of common stock outstanding and common stock equivalents. Common stock equivalents are comprised of dilutive potential shares from restricted stock unit awards. Common stock equivalents are excluded from the computation if their effect is anti-dilutive. Diluted earnings per share are computed using the treasury stock method.
No anti-dilutive common stock equivalents were excluded from the computation for the three and six months ended June 30, 2014 and 2013.
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and six months ended June 30, 2014 and 2013 (in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 22,924 | $ | 8,509 | $ | 42,524 | $ | 24,010 | |||||||
Less: Net (income) loss attributable to redeemable noncontrolling interest | (741 | ) | 6,773 | (896 | ) | 6,413 |