COHEN & STEERS, INC. - FORM 10-Q - November 6, 2015

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EX-32.1 - CEO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC.cns10q-93015ex321.htm
EX-31.1 - CEO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC.cns10q-93015ex311.htm
EX-32.2 - CFO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC.cns10q-93015ex322.htm
EX-31.2 - CFO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC.cns10q-93015ex312.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 SEPTEMBER 30, 2015
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
 
x
  
Accelerated Filer
 
o
 
 
 
 
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 November 3, 2015 was 45,436,698.
________________________________________________________


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, 2014 (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 our 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)
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
146,247

 
$
124,938

Trading investments (1)
12,851

 
9,509

Equity method investments
6,309

 
28,550

Available-for-sale investments
30,531

 
21,269

Accounts receivable
52,225

 
43,392

Due from broker
6,111

 
1,805

Income tax receivable
4,033

 
56

Property and equipment—net
9,894

 
11,189

Goodwill and intangible assets—net
19,798

 
20,732

Deferred income tax asset—net
2,941

 
15,108

Other assets
5,083

 
4,173

Total assets
$
296,023

 
$
280,721

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Accrued compensation
$
22,175

 
$
28,300

Deferred rent
6,089

 
5,728

Due to broker
4,497

 
5

Income tax payable
1,508

 
4,141

Other liabilities and accrued expenses
15,092

 
13,959

Total liabilities
49,361

 
52,133

Commitments and contingencies (See Note 11)

 

Redeemable noncontrolling interest
720

 
607

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 500,000,000 shares authorized; 49,684,690 and 48,593,812 shares issued at September 30, 2015 and December 31, 2014, respectively
497

 
486

Additional paid-in capital
512,943

 
489,266

Accumulated deficit
(118,914
)
 
(142,786
)
Accumulated other comprehensive loss, net of tax
(11,947
)
 
(1,582
)
Less: Treasury stock, at cost, 4,250,476 and 3,800,920 shares at September 30, 2015 and December 31, 2014, respectively
(136,637
)
 
(117,403
)
Total stockholders’ equity
245,942

 
227,981

Total liabilities and stockholders’ equity
$
296,023

 
$
280,721

_________________________
(1) Includes $535 and $650 held as collateral attributable to the consolidated balances of Cohen & Steers Active Commodities Strategy Fund, Inc. (CDF) as of September 30, 2015 and December 31, 2014, respectively.
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
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Investment advisory and administration fees
$
73,487

 
$
75,210

 
$
228,460

 
$
215,681

Distribution and service fees
3,961

 
3,738

 
11,881

 
10,952

Portfolio consulting and other
2,219

 
1,897

 
6,643

 
5,459

Total revenue
79,667

 
80,845

 
246,984

 
232,092

Expenses:
 
 
 
 
 
 
 
Employee compensation and benefits
25,892

 
26,679

 
80,270

 
76,590

Distribution and service fees
8,578

 
9,048

 
27,354

 
26,608

General and administrative
12,175

 
11,313

 
37,463

 
34,471

Depreciation and amortization
1,545

 
1,478

 
4,700

 
4,832

Total expenses
48,190

 
48,518

 
149,787

 
142,501

Operating income
31,477

 
32,327

 
97,197

 
89,591

Non-operating income:
 
 
 
 
 
 
 
Interest and dividend income—net
291

 
610

 
1,040

 
1,441

(Loss) gain from seed investments—net
(2,993
)
 
(3,501
)
 
(2,815
)
 
3,736

Other losses
(270
)
 
(666
)
 
(952
)
 
(563
)
Total non-operating (loss) income
(2,972
)
 
(3,557
)
 
(2,727
)
 
4,614

Income before provision for income taxes
28,505

 
28,770

 
94,470

 
94,205

Provision for income taxes
11,541

 
10,733

 
35,961

 
33,644

Net income
16,964

 
18,037

 
58,509

 
60,561

Less: Net loss (income) attributable to redeemable noncontrolling interest
129

 
147

 
163

 
(749
)
Net income attributable to common stockholders
$
17,093

 
$
18,184

 
$
58,672

 
$
59,812

 
 
 
 
 
 
 
 
Earnings per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.38

 
$
0.41

 
$
1.29

 
$
1.34

Diluted
$
0.37

 
$
0.40

 
$
1.28

 
$
1.31

Dividends declared per share
$
0.25

 
$
0.22

 
$
0.75

 
$
0.66

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
45,500

 
44,839

 
45,402

 
44,766

Diluted
45,830

 
45,689

 
45,873

 
45,568

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
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
16,964

 
$
18,037

 
$
58,509

 
$
60,561

Less: Net loss (income) attributable to redeemable noncontrolling interest
129

 
147

 
163

 
(749
)
Net income attributable to common stockholders
17,093

 
18,184

 
58,672

 
59,812

Foreign currency translation loss (net of tax of $0)
(748
)
 
(2,256
)
 
(1,292
)
 
(2,105
)
Net unrealized (loss) gain from available-for-sale investments (net of tax of $0)
(6,859
)
 
254

 
(9,122
)
 
1,835

Reclassification to statements of operations of loss (gain) from available-for-sale investments (net of tax of $0)
469

 
(760
)
 
49

 
(1,888
)
Other comprehensive loss
(7,138
)
 
(2,762
)
 
(10,365
)
 
(2,158
)
Total comprehensive income attributable to common stockholders
$
9,955

 
$
15,422

 
$
48,307

 
$
57,654

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)
Nine Months Ended September 30, 2015 and 2014
(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, 2014
 
$
477

 
$
457,138

 
$
(131,366
)
 
$
2,989

 
$
(105,681
)
 
$
223,557

 
$
207

 
44,254

Dividends
 
—

 
—

 
(30,229
)
 
—

 
—

 
(30,229
)
 
—

 
—

Issuance of common stock
 
9

 
467

 
—

 
—

 
—

 
476

 
—

 
851

Repurchase of common stock
 
—

 
—

 
—

 
—

 
(11,685
)
 
(11,685
)
 
—

 
(318
)
Tax benefits associated with restricted stock units—net
 
—

 
2,849

 
—

 
—

 
—

 
2,849

 
—

 
—

Issuance of restricted stock units
 
—

 
920

 
—

 
—

 
—

 
920

 
—

 
—

Amortization of restricted stock units—net
 
—

 
18,461

 
—

 
—

 
—

 
18,461

 
—

 
—

Net income
 
—

 
—

 
59,812

 
—

 
—

 
59,812

 
749

 
—

Other comprehensive income, net of tax
 
—

 
—

 
—

 
(2,158
)
 
—

 
(2,158
)
 
—

 
—

Contributions from redeemable noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
23,977

 
—

Distributions to redeemable noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,958
)
 
—

Transfer of redeemable noncontrolling interest in consolidated entity
 
—

 
—

 
—

 
—

 
—

 
—

 
(209
)
 
—

Ending balance, September 30, 2014
 
$
486

 
$
479,835

 
$
(101,783
)
 
$
831

 
$
(117,366
)
 
$
262,003

 
$
19,766

 
44,787

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, January 1, 2015
 
$
486

 
$
489,266

 
$
(142,786
)
 
$
(1,582
)
 
$
(117,403
)
 
$
227,981

 
$
607

 
44,793

Dividends
 
—

 
—

 
(34,800
)
 
—

 
—

 
(34,800
)
 
—

 
—

Issuance of common stock
 
11

 
519

 
—

 
—

 
—

 
530

 
—

 
1,091

Repurchase of common stock
 
—

 
—

 
—

 
—

 
(19,234
)
 
(19,234
)
 
—

 
(450
)
Tax benefits associated with restricted stock units—net
 
—

 
5,065

 
—

 
—

 
—

 
5,065

 
—

 
—

Issuance of restricted stock units
 
—

 
1,047

 
—

 
—

 
—

 
1,047

 
—

 
—

Amortization of restricted stock units—net
 
—

 
17,046

 
—

 
—

 
—

 
17,046

 
—

 
—

Net income (loss)
 
—

 
—

 
58,672

 
—

 
—

 
58,672

 
(163
)
 
—

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
(10,365
)
 
—

 
(10,365
)
 


 
—

Contributions from redeemable noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
283

 
—

Distributions to redeemable noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(7
)
 
—

Ending balance, September 30, 2015
 
$
497

 
$
512,943

 
$
(118,914
)
 
$
(11,947
)
 
$
(136,637
)
 
$
245,942

 
$
720

 
45,434

See notes to condensed consolidated financial statements


4

COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)

 
Nine Months Ended
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
58,509

 
$
60,561

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Stock compensation expense
17,123

 
18,535

Depreciation and amortization
4,700

 
4,832

Deferred rent
361

 
1,434

Loss (gain) from seed investments—net
2,815

 
(3,736
)
Deferred income taxes
9,897

 
647

Foreign currency (gain) loss
(187
)
 
1,798

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(8,646
)
 
(11,860
)
Due from broker
(4,306
)
 
(2,157
)
Deferred commissions
(1,812
)
 
(1,426
)
Trading investments
(4,974
)
 
(42,653
)
Income tax receivable
(3,977
)
 
106

Other assets
(200
)
 
(573
)
Accrued compensation
(6,100
)
 
(4,049
)
Due to broker
4,492

 
—

Income tax payable
(41
)
 
(3,850
)
Other liabilities and accrued expenses
700

 
1,312

Net cash provided by operating activities
68,354

 
18,921

Cash flows from investing activities:
 
 
 
Proceeds from redemptions of equity method investments—net
4

 
10,894

Purchases of available-for-sale investments
(4,106
)
 
(6,051
)
Proceeds from sales of available-for-sale investments
6,956

 
10,969

Purchases of property and equipment
(1,640
)
 
(4,889
)
Net cash provided by investing activities
1,214

 
10,923

Cash flows from financing activities:
 
 
 
Excess tax benefits associated with restricted stock units
4,736

 
2,537

Issuance of common stock
450

 
405

Repurchase of common stock
(19,234
)
 
(11,685
)
Dividends to stockholders
(34,078
)
 
(29,562
)
Distributions to redeemable noncontrolling interest
(7
)
 
(4,958
)
Contributions from redeemable noncontrolling interest
283

 
23,977

Net cash used in financing activities
(47,850
)
 
(19,286
)
Net increase in cash and cash equivalents
21,718

 
10,558

Effect of foreign exchange rate changes on cash and cash equivalents
(409
)
 
(1,028
)
Cash and cash equivalents, beginning of the period
124,938

 
128,277

Cash and cash equivalents, end of the period
$
146,247

 
$
137,807


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 nine months ended September 30, 2015 and 2014, the Company paid taxes, net of tax refunds, of approximately $25,307,000 and $34,209,000, respectively.
Supplemental disclosures of non-cash investing and financing activities:
In connection with its stock incentive plan, for the nine months ended September 30, 2015 and 2014, the Company issued fully vested restricted stock units in the amount of $325,000 and $252,000, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded dividend equivalent restricted stock units, net of forfeitures, in the amount of $722,000 and $667,000, respectively.
As further described in Note 4, during the nine months ended September 30, 2015, the Company's proportionate ownership interest in Cohen & Steers MLP & Energy Opportunity Fund, Inc. (MLO) decreased and the Company recorded a non-cash reclassification of $21,103,000, which represented the Company's proportionate share of MLO, from equity method investments into available-for-sale investments.




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 is the holding company for its direct and indirect subsidiaries, including Cohen & Steers Capital Management, Inc. (CSCM), Cohen & Steers Securities, LLC (CSS), Cohen & Steers Asia Limited (CSAL), Cohen & Steers UK Limited (CSUK) and Cohen & Steers Japan, LLC (collectively, the Company).
The Company is a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. Founded in 1986, the Company is headquartered in New York City, with offices in London, Hong Kong, Tokyo and Seattle.


2. Basis of Presentation and Significant Accounting Policies
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. Intercompany balances and transactions have been eliminated in consolidation.
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, 2014.
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. On the condensed consolidated statements of operations and the condensed consolidated statements of cash flows, the captions “gain (loss) from trading investments—net”, “gain (loss) from available-for-sale investments—net” and “equity in earnings (losses) of affiliates” have been combined into a single caption “gain (loss) from seed investments—net”. The breakdown of these amounts is provided in Note 4, Investments.
Consolidation—The Company consolidates operating entities deemed to be voting interest entities if the Company owns a majority of the voting interest. 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. The equity method of accounting is used for investments in affiliates in which the Company’s ownership ranges from 20 to 50 percent, or instances in which the Company is able to exercise significant influence but not control.
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/to Broker—The Company conducts business, primarily with respect to its consolidated seed investments, with brokers for certain of its investment activities. The clearing and custody operations for these investment activities are performed pursuant to contractual agreements. The due from/to broker balance represents cash and cash equivalents balances at brokers/custodians and/or net receivables and payables for unsettled security transactions.
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.
Investments classified as trading represent securities held within the affiliated funds that the Company consolidates and 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 seed investments—net in the Company’s condensed consolidated statements of operations.
Investments classified as equity method investments represent seed investments that 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 gain (loss) from seed investments—net in the Company’s condensed consolidated statements of operations. As of September 30, 2015, 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 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, based on available quantitative and qualitative information as of the report date, the loss will be recognized as gain (loss) from seed investments—net in the Company’s condensed consolidated statements of operations.
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 seed investments—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 September 30, 2015, none of the outstanding derivative contracts were subject to a master netting agreement or other similar arrangement.
Additionally, from time to time, the Company enters into foreign exchange contracts to hedge its currency exposure related to certain 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 mutual funds and closed-end funds. Investment advisory fees are earned pursuant to the terms of investment management agreements, and are based on a contractual fee rate applied to the assets in the portfolio. The Company also earns administration fees from certain Company-sponsored open-end mutual funds and closed-end funds pursuant to the terms of underlying administration contracts. Administration fees are based on the average assets under management of such funds. Investment advisory and administration fee revenue is recognized as such fees are earned.
Distribution and Service Fee Revenue—CSS acts as the principal distributor of the Company’s sponsored open-end mutual funds which may offer the following classes: Class A (initial sales load), Class C (back end sales load), Class R (load retirement) and Class Z (no load retirement). Effective May 2007, the Company suspended sales of Class B shares and all remaining Class B shares converted to Class A shares in 2015. Distribution and service fee revenue is based on the average daily net assets of the funds as detailed below. Distribution and service fee revenue is earned daily and is recorded gross of any third-party distribution and service fee expense for applicable share classes.
Pursuant to distribution plans with the Company's sponsored open-end mutual funds, CSS receives distribution fees of up to 25bps for Class A shares, 75bps for Class C shares and 50bps for Class R shares. CSS also receives shareholder servicing fees of up to 10bps on Class A shares, 25bps on Class C shares and 15bps on Class Z shares, pursuant to shareholder servicing plans with the funds. Effective October 1, 2014, the Company no longer receives shareholder servicing fees on Class Z shares.
Distribution and Service Fee Expense—Distribution and service fee expense includes distribution fees, service fees and intermediary assistance payments. Distribution and service fee expense is recorded as incurred.
Distribution fee expense represents payments made to qualified dealers/institutions for (i) assistance in connection with the distribution of the Company's sponsored open-end mutual funds' shares and (ii) for other expenses such as advertising costs and printing and distribution of prospectuses to investors. Such amounts may also be used to pay financial intermediaries for services as specified in the terms of written agreements complying with Rule 12b-1 of the Investment Company Act of 1940 (Rule 12b-1). CSS pays distribution fee expense based on the average daily net assets under management of up to 25bps on Class A shares, 75bps on Class C shares and 50bps on Class R shares.
Shareholder servicing fee expense represents payments made to qualified dealers/institutions for shareholder account service and maintenance. These services are provided pursuant to written agreements with such qualified institutions. CSS pays service fee expenses based on the average daily net assets under management of up to 10bps on Class A shares, 25bps on Class C shares and 15bps on Class Z shares. Effective October 1, 2014, the Company no longer pays shareholder service fees on Class Z shares.
Intermediary assistance payments represent payments to qualified dealers/institutions for activities related to distribution, shareholder servicing and marketing and support of Company-sponsored open-end mutual funds and are incremental to those described above. Intermediary assistance payments are generally based on the average assets under management or the number of accounts being serviced.
Portfolio Consulting and Other—The Company earns portfolio consulting and other fees by: (i) providing portfolio consulting services in connection with model-based strategy accounts; (ii) earning a licensing fee for the use of the Company's proprietary indexes; 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


9




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

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 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 at tax rates that are expected to apply in those years. Deferred tax liabilities are recognized for temporary differences that will result in taxable income in future years at tax rates that are expected to apply in those 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 of such subsidiaries 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. The cumulative translation adjustment was $(2,738,000) and $(1,446,000) as of September 30, 2015 and December 31, 2014, respectively. 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.
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 investments (net of tax) and reclassification to statements of operations of gain and loss from available-for-sale investments (net of tax).
Recently Issued Accounting Pronouncements—In May 2015, the Financial Accounting Standards Board (FASB) issued new guidance amending the current disclosure requirement for investments in certain entities that calculate net asset value per share. The guidance requires investments for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy. Instead, those investment amounts shall be provided as a separate item to permit reconciliation of the fair value of investments included in the fair value hierarchy to the line items presented in the statement of financial position. 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 its condensed consolidated financial statements.
In February 2015, the FASB issued new guidance amending the current accounting for consolidation of certain legal entities. These amendments modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and provide a scope exception from consolidation guidance for reporting entities with interests in certain investment funds. This new guidance will be effective for the Company’s first quarter of 2016. The Company is currently evaluating the potential impact on its condensed consolidated financial statements and related disclosures.
In August 2014, the FASB issued new guidance regarding disclosure of going concern uncertainties in the financial statements. The guidance requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued at each annual and interim reporting period. This new guidance will be effective for the Company’s first quarter of 2017. The Company does not anticipate that the adoption of this new guidance will have a material impact on its condensed consolidated financial statements.


10




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

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 2018 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.


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 September 30, 2015 and December 31, 2014, goodwill was approximately $18,252,000 and $19,120,000, respectively. The Company’s goodwill decreased by $868,000 for the nine months ended September 30, 2015 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 September 30, 2015 and December 31, 2014 (in thousands):

 
Remaining
Amortization
Period
(in months)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Intangible
Assets, Net
September 30, 2015:
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Client relationships
39
 
$
1,543

 
$
(1,247
)
 
$
296

Non-amortized intangible assets:
 
 
 
 
 
 
 
Mutual fund management contracts
—
 
1,250

 
—

 
1,250

Total
 
 
$
2,793

 
$
(1,247
)
 
$
1,546

December 31, 2014:
 
 
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
 
 
Client relationships
48
 
$
1,543

 
$
(1,181
)
 
$
362

Non-amortized intangible assets:
 
 
 
 
 
 
 
Mutual fund management contracts
—
 
1,250

 
—

 
1,250

Total
 
 
$
2,793

 
$
(1,181
)
 
$
1,612




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 September 30, 2015 and 2014, respectively, and approximately $66,000 for both the nine months ended September 30, 2015 and 2014, respectively. Estimated future amortization expense is as follows (in thousands):
 
Periods Ending December 31,
Estimated
Amortization
Expense
2015
$
23

2016
89

2017
89

2018
95

2019
—

Total
$
296



4. Investments
The following is a summary of the Company's investments as of September 30, 2015 and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
Trading investments
$
12,851

 
$
9,509

Equity method investments
6,309

 
28,550

Available-for-sale investments
30,531

 
21,269

Gain (loss) from seed investments for the three and nine months ended September 30, 2015 and 2014 are summarized below (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
(Loss) gain from trading investments—net (1)
$
(1,386
)
 
$
(2,690
)
 
$
(1,632
)
 
$
1,055

Equity in (losses) earnings of affiliates
(1,138
)
 
(1,571
)
 
(1,134
)
 
793

(Loss) gain from available-for-sale investments—net
(469
)
 
760

 
(49
)
 
1,888

Total (loss) gain from seed investments—net
$
(2,993
)
 
$
(3,501
)
 
$
(2,815
)
 
$
3,736

 
 
 
 
 
 
 
 
Number of new funds seeded
1

 
—

 
1

 
1

_________________________
(1)    Includes net income/(loss) attributable to redeemable noncontrolling interest for the periods presented.
The Cohen & Steers SICAV Global Listed Infrastructure Fund (GLI SICAV), a Luxembourg-domiciled undertaking for collective investments in transferable securities (UCITS), was launched by the Company in September 2015, and meets the definition of an investment company. The Company is the investment adviser of GLI SICAV for which it receives a management fee. GLI SICAV is a VIE and the Company is the primary beneficiary. As of September 30, 2015, the Company was the only investor in the fund and therefore, the Company would absorb all of the expected losses and residual returns. Accordingly, the underlying assets and liabilities and results of operations of GLI SICAV have been included in the Company's condensed consolidated financial statements.


12




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

The following represents the portion of the condensed consolidated statements of financial condition attributable to the consolidated GLI SICAV as of September 30, 2015. The assets may only be used to settle obligations of GLI SICAV and the liabilities are the sole obligation of GLI SICAV, for which creditors do not have recourse to the general credit of the Company (in thousands):
 
September 30, 2015
Assets:
 
Trading investments
$
4,830

Due from broker
4,556

Other assets
48

Total assets
$
9,434

 
 
Liabilities:
 
Due to broker
$
4,502

Other liabilities and accrued expenses
24

Total liabilities
$
4,526

The Cohen & Steers Active Commodities Strategy Fund, Inc. (CDF) is a voting interest entity. CDF was launched by the Company in May 2014 and is an open-end mutual fund for which the Company is the investment adviser. As of September 30, 2015, the Company owned the majority 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 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. The Company owned all of the voting interest in ACOM through September 30, 2014. Accordingly, the underlying assets and liabilities and results of operations of ACOM had been included in the Company's condensed consolidated financial statements. As a result of third-party investments into the fund, effective October 1, 2014, the Company no longer held a controlling financial interest in ACOM. The Company determined that ACOM was not a VIE as the limited partners, unaffiliated with the Company, have the ability to liquidate the fund with a majority vote. As a result, the Company does not have financial control and ACOM is not consolidated into the Company's condensed consolidated financial statements. The Company's equity interest in ACOM represents a seed investment to launch the fund, adjusted for the Company's proportionate share of the fund's earnings. As of September 30, 2015, the Company's ownership in ACOM was approximately 11%; however, as the general partner, the Company has significant influence over the financial decisions of ACOM and therefore records its investment in ACOM using the equity method of accounting.
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, adjusted for the Company’s proportionate share of the fund’s earnings. As of September 30, 2015, the Company's ownership in GRP-TE was approximately 0.2%. The Company's risk with respect to its investment in GRP-TE is limited to its equity ownership 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 September 30, 2015, 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.


13




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

The Cohen & Steers MLP & Energy Opportunity Fund, Inc. (MLO) is a voting interest entity. MLO was launched by the Company in December 2013 and is an open-end mutual fund for which the Company is the investment adviser. The Company owned the majority of the outstanding voting interest in MLO through October 31, 2014. Accordingly, the underlying assets and liabilities and results of operations of MLO had been included in the Company's condensed consolidated financial statements with the third-party interests classified as redeemable noncontrolling interest. During the period of November 1, 2014 through April 30, 2015, as a result of additional third-party subscriptions into the fund, the Company no longer owned the majority of the outstanding voting interest in MLO, however it was determined that the Company had significant influence over MLO and recorded its investment in MLO using the equity method of accounting. Effective May 1, 2015, the Company's ownership interest in MLO fell below 20% and the Company no longer has significant influence over MLO. Accordingly, the Company began recording its investment in MLO as an available-for-sale investment.
Cohen & Steers Real Assets Fund, Inc. (RAP) is a voting interest entity. RAP was launched by the Company on January 31, 2012 and is an open-end mutual fund for which the Company is the investment adviser. During the period of August 1, 2013 through September 30, 2014, the Company did not hold a controlling financial interest in RAP, however it was determined that the Company had significant influence over RAP. Accordingly, the Company recorded its investment in RAP using the equity method of accounting. Effective September 30, 2014, the Company's ownership interest in RAP fell below 20% and the Company no longer has significant influence over RAP. Accordingly, the Company began recording its investment in RAP as an available-for-sale investment.
The Company owned the majority of the voting interests in Cohen & Steers Global Real Estate Long-Short Fund, L.P. (the Onshore Fund) prior to its liquidation in April 2014. 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 as 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.
The following is a summary of the fair value of trading investments and equity method investments as of September 30, 2015 and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
 
Trading Investments
 
Equity Method Investments
 
Trading Investments
 
Equity Method Investments
ACOM
$
—

 
$
6,199

 
$
—

 
$
7,612

CDF
5,710

 
—

 
7,000

 
—

GLI SICAV
4,830

 
—

 
—

 
—

GRP-CIP
2,311

 
—

 
2,509

 
—

GRP-TE
—

 
110

 
—

 
111

MLO
—

 
—

 
—

 
20,827

Total
$
12,851

 
$
6,309

 
$
9,509

 
$
28,550




14




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

Gain (loss) from trading investments—net for the three and nine months ended September 30, 2015 and 2014, which represent realized and unrealized gains and losses recorded by the funds the Company consolidates, are summarized below (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
ACOM
$
—

 
$
(1,321
)
 
$
—

 
$
(505
)
CDF
(1,221
)
 
(1,450
)
 
(1,521
)
 
(1,404
)
GLI SICAV
(98
)
 
—

 
(98
)
 
—

GRP-CIP
(67
)
 
5

 
(13
)
 
168

MLO
—

 
76

 
—

 
2,772

Onshore Fund
—

 
—

 
—

 
24

Total (loss) gain from trading investments—net
$
(1,386
)
 
$
(2,690
)
 
$
(1,632
)
 
$
1,055


Equity in earnings (losses) of affiliates for the three and nine months ended September 30, 2015 and 2014 are summarized below (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015

2014
 
2015
 
2014
ACOM
$
(1,138
)
 
$
—

 
$
(1,413
)
 
$
—

GRP-TE
—

 
—

 
3

 
20

MLO
—

 
—

 
276

 
—

Offshore Fund
—

 
9

 
—

 
20

RAP
—

 
(1,580
)
 
—

 
753

Total equity in (losses) earnings of affiliates
$
(1,138
)
 
$
(1,571
)
 
$
(1,134
)
 
$
793



15




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale investments as of September 30, 2015 and December 31, 2014 (in thousands):
 
September 30, 2015
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses (1)
 
Fair
Value
Preferred securities
$
1,121

 
$
39

 
$
(7
)
 
$
1,153

Common stocks
4,124

 
160

 
(435
)
 
3,849

Company-sponsored mutual funds
34,511

 
—

 
(8,982
)
 
25,529

Total available-for-sale investments
$
39,756

 
$
199

 
$
(9,424
)
 
$
30,531

_________________________
(1)    At September 30, 2015, there were no securities with unrealized losses continuously for a period of more than 12 months.

 
December 31, 2014
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses (1)
 
Fair
Value
Preferred securities
$
1,043

 
$
54

 
$
(2
)
 
$
1,095

Common stocks
5,366

 
627

 
(155
)
 
5,838

Company-sponsored mutual funds
15,010

 
4

 
(678
)
 
14,336

Total available-for-sale investments
$
21,419

 
$
685

 
$
(835
)
 
$
21,269

_________________________
(1)    At December 31, 2014, there were no securities with unrealized losses continuously for a period of more than 12 months.
Available-for-sale investments with a fair value of approximately $28,307,000 and $15,875,000 at September 30, 2015 and December 31, 2014, respectively, were in an unrealized loss position.
Unrealized losses on available-for-sale investments as of September 30, 2015 were generally caused by market conditions. When evaluating whether an unrealized loss on an available-for-sale investment is other than temporary, the Company reviews such factors as the extent and duration of the loss, as well as qualitative and quantitative information about the financial condition and near term prospects of the funds. As of September 30, 2015, 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 available-for-sale investments for the three and nine months ended September 30, 2015 and 2014 are summarized below (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Proceeds from sales
$
2,942

 
$
2,713

 
$
7,558

 
$
11,011

Gross realized gains
79

 
775

 
743

 
2,024

Gross realized losses
(548
)
 
(15
)
 
(792
)
 
(136
)




16




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

5. Fair Value
Accounting Standards 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 nine months ended September 30, 2015.
The following table presents fair value measurements as of September 30, 2015 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents (1)
$
56,631

 
$
—

 
$
—

 
$
56,631

Trading investments
 
 
 
 
 
 
 
Common stocks
$
4,830

 
$
—

 
$
—

 
$
4,830

Fixed income securities
—

 
5,710

 
—

 
5,710

Limited partnership interests
—

 
—

 
2,311

 
2,311

Total trading investments
$
4,830

 
$
5,710

 
$
2,311

 
$
12,851

Equity method investments
$
—

 
$
6,199

 
$
110

 
$
6,309

Available-for-sale investments
 
 
 
 
 
 
 
Preferred securities
$
1,153

 
$
—

 
$
—

 
$
1,153

Common stocks
3,849

 
—

 
—

 
3,849

Company-sponsored mutual funds
25,529

 
—

 
—

 
25,529

Total available-for-sale investments
$
30,531

 
$
—

 
$
—

 
$
30,531

Derivatives - assets
 
 
 
 
 
 
 
Commodity contracts
$
141

 
$
—

 
$
—

 
$
141

Total derivatives - assets
$
141

 
$
—

 
$
—

 
$
141

Derivatives - liabilities
 
 
 
 
 
 
 
Foreign exchange contracts
$
—

 
$
374

 
$
—

 
$
374

Commodity contracts
342

 
—

 
—

 
342

Total derivatives - liabilities
$
342

 
$
374

 
$
—

 
$
716

_________________________
(1)    Comprised of investments in actively traded money market funds measured at net asset value.
Trading investments 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.
Trading investments 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


17




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

the Company's collective ownership interests in limited partnership vehicles that invest in non-registered real estate funds, which are valued based on the net asset values of the underlying funds, and private equity vehicles that invest directly in real estate which are generally valued using a discounted cash flow model.
Equity method investments classified as level 2 in the above table represent the carrying amount of the Company's partnership interest in ACOM, which approximates its fair value based on the fund's net asset value. ACOM invests in exchange-traded commodity futures contracts and other commodity related derivatives. The Company has the ability to redeem its investment in the fund monthly at net asset value per share with prior written notice of 5 days and there are no significant restrictions to redemption.
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 September 30, 2015, 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, 2014 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents (1)
$
59,281

 
$
—

 
$
—

 
$
59,281

Trading investments
 
 
 
 
 
 
 
Fixed income securities
$
—

 
$
7,000

 
$
—

 
$
7,000

Limited partnership interests
—

 
—

 
2,509

 
2,509

Total trading investment
$
—

 
$
7,000

 
$
2,509

 
$
9,509

Equity method investments
$
20,827

 
$
7,612

 
$
111

 
$
28,550

Available-for-sale investments
 
 
 
 
 
 
 
Preferred securities
$
1,095

 
$
—

 
$
—

 
$
1,095

Common stocks
5,838

 
—

 
—

 
5,838

Company-sponsored mutual funds
14,336

 
—

 
—

 
14,336

Total available-for-sale investments
$
21,269

 
$
—

 
$
—

 
$
21,269

Derivatives - assets
 
 
 
 
 
 
 
Foreign exchange contracts
$
—

 
$
505

 
$
—

 
$
505

Commodity contracts
234

 
—

 
—

 
234

Total derivatives - assets
$
234

 
$
505

 
$
—

 
$
739

Derivatives - liabilities
 
 
 
 
 
 
 
Foreign exchange contracts
$
—

 
$
12

 
$
—

 
$
12

Commodity contracts
754

 
—

 
—

 
754

Total derivatives - liabilities
$
754

 
$
12

 
$
—

 
$
766

_________________________
(1)    Comprised of investments in actively traded money market funds measured at net asset value.
Trading investments 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.
Trading investments 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 Company's collective ownership interests in limited partnership vehicles that invest in non-registered real estate funds, which are valued based on the net asset values of the underlying funds, and private equity vehicles that invest directly in real estate which are generally valued using a discounted cash flow model.


18




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

Equity method investments classified as level 2 in the above table represent the carrying amount of the Company's partnership interest in ACOM, which approximates its fair value based on the fund's net asset value. ACOM invests in exchange-traded commodity futures contracts and other commodity related derivatives. The Company has the ability to redeem its investment in the fund monthly at net asset value per share with prior written notice of 5 days and there are no significant restrictions to redemption.
Equity method investments classified as level 3 in the above table represent the carrying amount of the Company's partnership interests in GRP-TE, which approximate 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 December 31, 2014, the Company did not have the ability to redeem its investment in GRP-TE.
The following table summarizes the changes in level 3 investments measured at fair value on a recurring basis for the three and nine months ended September 30, 2015 (in thousands):
 
Three Months Ended
September 30, 2015
 
Nine Months Ended
September 30, 2015
 
Trading
Investments
 
Equity Method Investments
 
Trading
Investments
 
Equity Method Investments
 
Limited Partnership Interests
 
GRP-TE
 
Limited Partnership Interests
 
GRP-TE
Balance at beginning of period
$
2,463

 
$
110

 
$
2,509

 
$
111

Purchases / contributions
13

 
—

 
57

 
2

Sales / distributions
(98
)
 
—

 
(245
)
 
(6
)
Realized gains
40

 
—

 
136

 
2

Unrealized (losses) gains (1)
(107
)
 
—

 
(146
)
 
1

Transfers into (out of) level 3
—

 
—

 
—

 
—

Balance at end of period
$
2,311

 
$
110

 
$
2,311

 
$
110

 
_________________________
(1)    Pertains to unrealized gains (losses) from securities held at September 30, 2015.
The following table summarizes the changes in level 3 investments measured at fair value on a recurring basis for the three and nine months ended September 30, 2014 (in thousands):
 
Three Months Ended
September 30, 2014
 
Nine Months Ended
September 30, 2014
 
Trading
Investments
 
Equity Method Investments
 
Available-for-sale investments
 
Trading
Investments
 
Equity Method Investments
 
Available-for-sale investments
 
Common Stocks
 
Limited Partnership Interests
 
GRP-TE
 
Preferred Securities
 
Common Stocks
 
Limited Partnership Interests
 
GRP-TE/Offshore Fund
 
Preferred Securities
Balance at beginning of period
$
—

 
$
2,378

 
$
105

 
$
—

 
$
503

 
$
2,740

 
$
528

 
$
3,325

Purchases / contributions
—

 
151

 
2

 
—

 
—

 
456

 
11

 
—

Sales / distributions
—

 
—

 
—

 
—

 
(527
)
 
(721
)
 
(463
)
 
(4,000
)
Realized gains
—

 
—

 
—

 
—

 
24

 
64

 
—

 
675

Unrealized (losses) gains (1)
—

 
(113
)
 
—

 
—

 
—

 
(123
)
 
31

 
—

Transfers into (out of) level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at end of period
$
—

 
$
2,416

 
$
107

 
$
—

 
$
—

 
$
2,416

 
$
107

 
$
—

 
_________________________
(1)    Pertains to unrealized gains (losses) from securities held at September 30, 2014.


19




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

Realized gains (losses) from investments classified as trading investments, equity method investments and available-for-sale investments in the above tables were recorded as gain (loss) from seed investments in the Company's condensed consolidated statements of operations. Unrealized gains (losses) from investments classified as trading investments and equity method investments in the above tables were recorded as gain (loss) from seed investments in the Company's condensed consolidated statements of operations. Unrealized gains (losses) from available-for-sale investments in the above tables were recorded as unrealized gain (loss) from available-for-sale investments 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. Investments in Company-sponsored mutual funds are valued at their closing net asset value.
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 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 September 30, 2015 were:
 
Fair Value
 
Fair Value
 
Significant
 
Input /
 
(in thousands)
 
Methodology
 
Unobservable Inputs
 
Range
Limited partnership interests - direct investments in real estate
$
1,324

 
Discounted cash flows
 
Discount rate
Exit capitalization rates
Market rental rates
 
10% - 12.5%
8% - 8.5%
$15.00 - 17.00 psf
The valuation techniques and significant unobservable inputs used in the fair value measurement of the following level 3 investments as of December 31, 2014 were:
 
Fair Value
 
Fair Value
 
Significant
 
Input /
 
(in thousands)
 
Methodology
 
Unobservable Inputs
 
Range
Limited partnership interests - direct investments in real estate
$
1,465

 
Discounted cash flows
 
Discount rate
Exit capitalization rates
Market rental rates
 
9% - 15%
8% - 8.5%
$15.00 - 17.00 psf
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.


20




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)



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 September 30, 2015 (in thousands):
 
September 30, 2015
 
Assets
 
Liabilities
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Total foreign exchange contracts
$
—

 
$
—

 
$
18,423

 
$
374

Total commodity contracts
4,525

 
141

 
5,745

 
342

Total derivatives
$
4,525

 
$
141

 
$
24,168

 
$
716

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, 2014 (in thousands):
 
December 31, 2014
 
Assets
 
Liabilities
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Total foreign exchange contracts
$
11,349

 
$
505

 
$
222

 
$
12

Total commodity contracts
6,095

 
234

 
8,977

 
754

Total derivatives
$
17,444

 
$
739

 
$
9,199

 
$
766

Cash included in due from broker in the condensed consolidated statement of financial condition of approximately $242,000 and $422,000 as of September 30, 2015 and December 31, 2014, respectively, was held as collateral for futures contracts. Securities included in trading investments in the condensed consolidated statement of financial condition of approximately $535,000 and $650,000 as of September 30, 2015 and December 31, 2014, respectively, were held as collateral for futures contracts.
Gains and losses from derivative financial instruments for the three and nine months ended September 30, 2015 and 2014 are summarized below (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Foreign exchange contracts
$
(492
)
 
$
1,275

 
$
(866
)
 
$
767

Commodity contracts
(1,221
)
 
(2,221
)
 
(1,522
)
 
(1,871
)
Total derivatives
$
(1,713
)
 
$
(946
)
 
$
(2,388
)
 
$
(1,104
)


7. Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average shares outstanding. Diluted earnings per share is 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 is computed using the treasury stock method.


21




COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)

Anti-dilutive common stock equivalents of approximately 90,000 and 36,000 shares, respectively, were excluded from the computation for the three and nine months ended September 30, 2015. No anti-dilutive common stock equivalents were excluded from the computation for the three and nine months ended September 30, 2014.
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 nine months ended September 30, 2015 and 2014 (in thousands, except per share data):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
16,964

 
$
18,037

 
$
58,509

 
$
60,561

Less: Net loss (income) attributable to redeemable noncontrolling interest
129

 
147

 
163

 
(749
)
Net income attributable to common stockholders
$
17,093

 
$
18,184

 
$
58,672

 
$
59,812

Basic weighted average shares outstanding
45,500

 
44,839

 
45,402

 
44,766

Dilutive potential shares from restricted stock units
330

 
850

 
471

 
802

Diluted weighted average shares outstanding
45,830

 
45,689

 
45,873

 
45,568

Basic earnings per share attributable to common stockholders
$
0.38