COHEN & STEERS, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - CFO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC.	cns10q-33117ex322.htm
EX-32.1 - CEO CERTIFICATION - SECTION 906 - COHEN & STEERS, INC.	cns10q-33117ex321.htm
EX-31.2 - CFO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC.	cns10q-33117ex312.htm
EX-31.1 - CEO CERTIFICATION - SECTION 302 - COHEN & STEERS, INC.	cns10q-33117ex311.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 MARCH 31, 2017



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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	x	Accelerated filer	o

		Smaller reporting company	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 May 2, 2017 was 46,293,601.

________________________________________________________

COHEN & STEERS, INC. AND SUBSIDIARIES

Form 10-Q

Index



		Page
Part I.	Financial Information

Item 1.	Financial Statements	1

	Condensed Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2017 and December 31, 2016	1

	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2017 and 2016	2

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2017 and 2016	3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Noncontrolling Interest (Unaudited) for the Three Months Ended March 31, 2017 and 2016	4

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2017 and 2016	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

Part II.	Other Information *

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	42

Signatures		43

* 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, 2016 (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)



	March 31, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	156,685		$	183,234
Trading investments ($637 and $487) ⁽¹⁾($7,634 and $6,987) ⁽²⁾	15,162			12,689
Equity method investments	6,170			6,459
Available-for-sale investments	38,843			35,396
Accounts receivable	58,676			46,288
Due from brokers ($520 and $475) ⁽²⁾	2,159			1,579
Property and equipment—net	15,557			15,964
Goodwill and intangible assets—net	19,233			19,118
Deferred income tax asset—net	—			5,619
Other assets ($40 and $43) ⁽²⁾	7,055			7,382
Total assets	$	319,540		$	333,728

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accrued compensation	$	9,536		$	35,333
Distribution and service fees payable	6,448			6,452
Income tax payable	15,906			9,375
Deferred rent	6,172			6,229
Deferred income tax liability—net	54			—
Other liabilities and accrued expenses ($75 and $75) ⁽²⁾	7,088			9,672
Total liabilities	45,204			67,061
Commitments and contingencies (See Note 11)
Redeemable noncontrolling interest	975			853
Stockholders’ equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 51,078,878 and 50,415,152 shares issued at March 31, 2017 and December 31, 2016, respectively	511			504
Additional paid-in capital	550,249			543,829
Accumulated deficit	(118,663		)	(127,957		)
Accumulated other comprehensive loss, net of tax	(5,019		)	(5,885		)
Less: Treasury stock, at cost, 4,787,094 and 4,524,694 shares at March 31, 2017 and December 31, 2016, respectively	(153,717		)	(144,677		)
Total stockholders’ equity	273,361			265,814
Total liabilities and stockholders’ equity	$	319,540		$	333,728

_________________________


(1)	Pledged as collateral attributable to the consolidated balances of Cohen & Steers Active Commodities Strategy Fund, Inc. as of March 31, 2017 and December 31, 2016, respectively.


(2)	Asset and liability amounts in parentheses represent the aggregated balances at March 31, 2017 and December 31, 2016 attributable to Cohen & Steers SICAV Global Listed Infrastructure Fund and Cohen & Steers Co-Investment Partnership, L.P., which were variable interest entities as of March 31, 2017 and December 31, 2016, respectively.

See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)



	Three Months Ended March 31,
	2017			2016
Revenue:
Investment advisory and administration fees	$	81,903		$	73,088
Distribution and service fees	5,046			4,233
Portfolio consulting and other	2,737			2,360
Total revenue	89,686			79,681
Expenses:
Employee compensation and benefits	29,383			28,040
Distribution and service fees	9,780			8,702
General and administrative	12,930			12,735
Depreciation and amortization	2,065			1,897
Total expenses	54,158			51,374
Operating income	35,528			28,307
Non-operating income:
Interest and dividend income	499			542
Gain (loss) from trading investments—net	273			(207		)
Equity in (losses) earnings of affiliates	(289		)	427
Gain (loss) from available-for-sale investments—net	35			(30		)
Other losses	(291		)	(89		)
Total non-operating income	227			643
Income before provision for income taxes	35,755			28,950
Provision for income taxes	12,811			11,083
Net income	22,944			17,867
Less: Net loss attributable to redeemable noncontrolling interest	41			216
Net income attributable to common stockholders	$	22,985		$	18,083

Earnings per share attributable to common stockholders:
Basic	$	0.50		$	0.39
Diluted	$	0.49		$	0.39
Dividends declared per share	$	0.28		$	0.26
Weighted average shares outstanding:
Basic	46,243			45,808
Diluted	46,603			46,195

See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2017			2016
Net income	$	22,944		$	17,867
Less: Net loss attributable to redeemable noncontrolling interest	41			216
Net income attributable to common stockholders	22,985			18,083
Other comprehensive income, net of tax:
Foreign currency translation gain	487			372
Net unrealized gain from available-for-sale investments	414			787
Reclassification to statements of operations of (gain) loss from available-for-sale investments	(35		)	30
Other comprehensive income	866			1,189
Total comprehensive income attributable to common stockholders	$	23,851		$	19,272

See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND

REDEEMABLE NONCONTROLLING INTEREST (Unaudited)

Three Months Ended March 31, 2017 and 2016

(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, 2016	$	497	$	519,855		$	(148,096	)	$	(3,843	)	$	(136,637	)	$	231,776		$	11,334		45,440
Dividends	—		—			(12,253		)	—			—			(12,253		)	—			—
Issuance of common stock	6		237			—			—			—			243			—			662
Repurchase of common stock	—		—			—			—			(7,375		)	(7,375		)	—			(258	)
Tax deficiency associated with restricted stock units—net	—		(1,517		)	—			—			—			(1,517		)	—			—
Issuance of restricted stock units	—		408			—			—			—			408			—			—
Amortization of restricted stock units—net	—		7,063			—			—			—			7,063			—			—
Forfeitures of vested restricted stock units	—		(29		)	—			—			—			(29		)	—			—
Net income (loss)	—		—			18,083			—			—			18,083			(216		)	—
Other comprehensive loss, net of tax	—		—			—			1,189			—			1,189			—			—
Contributions from redeemable noncontrolling interest	—		—			—			—			—			—			3,734			—
Distributions to redeemable noncontrolling interest	—		—			—			—			—			—			(127		)	—
Transfer of redeemable noncontrolling interest in consolidated entity	—		—			—			—			—			—			(14,036		)	—
Ending balance, March 31, 2016	$	503	$	526,017		$	(142,266	)	$	(2,654	)	$	(144,012	)	$	237,588		$	689		45,844

Beginning balance, January 1, 2017	$	504	$	543,829		$	(127,957	)	$	(5,885	)	$	(144,677	)	$	265,814		$	853		45,890
Dividends	—		—			(13,406		)	—			—			(13,406		)	—			—
Issuance of common stock	7		250			—			—			—			257			—			664
Repurchase of common stock	—		—			—			—			(9,040		)	(9,040		)	—			(262	)
Issuance of restricted stock units	—		596			—			—			—			596			—			—
Amortization of restricted stock units—net	—		5,578			(285		)	—			—			5,293			—			—
Forfeitures of restricted stock units	—		(4		)	—			—			—			(4		)	—			—
Net income (loss)	—		—			22,985			—			—			22,985			(41		)	—
Other comprehensive income, net of tax	—		—			—			866			—			866			—			—
Contributions from redeemable noncontrolling interest	—		—			—			—			—			—			174			—
Distributions to redeemable noncontrolling interest	—		—			—			—			—			—			(11		)	—
Ending balance, March 31, 2017	$	511	$	550,249		$	(118,663	)	$	(5,019	)	$	(153,717	)	$	273,361		$	975		46,292

See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net income	$	22,944		$	17,867
Adjustments to reconcile net income to net cash used in operating activities:
Stock compensation expense	5,328			7,072
Depreciation and amortization	2,065			1,897
Deferred rent	(57		)	42
(Gain) loss from trading investments—net	(273		)	207
Equity in losses (earnings) of affiliates	289			(427		)
(Gain) loss from available-for-sale investments—net	(35		)	30
Deferred income taxes	5,406			4,066
Foreign currency loss (gain)	1,452			(1,635		)
Changes in operating assets and liabilities:
Accounts receivable	(13,840		)	(8,294		)
Due from broker	(580		)	(646		)
Deferred commissions	(443		)	(954		)
Trading investments	(2,200		)	(4,470		)
Other assets	(44		)	(763		)
Accrued compensation	(25,770		)	(23,537		)
Distribution and service fees payable	(4		)	(399		)
Due to broker	—			1,820
Income tax payable	6,531			5,578
Other liabilities and accrued expenses	(2,581		)	15
Net cash used in operating activities	(1,812		)	(2,531		)
Cash flows from investing activities:
Proceeds from redemptions of equity method investments—net	—			51
Purchases of available-for-sale investments	(9,545		)	(2,128		)
Proceeds from sales of available-for-sale investments	6,746			1,942
Purchases of property and equipment	(649		)	(1,448		)
Net cash used in investing activities	(3,448		)	(1,583		)
Cash flows from financing activities:
Issuance of common stock	219			206
Repurchase of common stock	(9,040		)	(7,375		)
Dividends to stockholders	(12,979		)	(11,970		)
Distributions to redeemable noncontrolling interest	(11		)	(127		)
Contributions from redeemable noncontrolling interest	174			3,734
Net cash used in financing activities	(21,637		)	(15,532		)
Net decrease in cash and cash equivalents	(26,897		)	(19,646		)
Effect of foreign exchange rate changes on cash and cash equivalents	348			(168		)
Cash and cash equivalents, beginning of the period	183,234			142,728
Cash and cash equivalents, end of the period	$	156,685		$	122,914

See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(UNAUDITED)

Supplemental disclosures of cash flow information:

For the three months ended March 31, 2017 and 2016, the Company paid taxes, net of tax refunds, of approximately $989,000 and $1,526,000, respectively.

Supplemental disclosures of non-cash investing and financing activities:

In connection with its stock incentive plan, the Company issued fully vested restricted stock units in the amount of $168,000 and $125,000 for the three month periods ended March 31, 2017 and 2016, respectively. For the three months ended March 31, 2017 and 2016, the Company recorded restricted stock unit dividend equivalents, net of forfeitures, in the amount of $427,000 and $283,000, respectively.

During the three months ended March 31, 2016, the Company's proportionate ownership interest in Cohen & Steers Low Duration Preferred and Income Fund, Inc. (LPX) decreased and the Company deconsolidated the assets and liabilities of LPX resulting in a non-cash reduction of $14,036,000 from redeemable noncontrolling interest and a non-cash increase of $14,550,000 to equity method investments.

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, 2016.

New Accounting Pronouncements Adopted—In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance amending the current accounting for an investment that becomes qualified for the equity method of accounting. The guidance requires that the cost of acquiring an additional interest in the investment, if any, that resulted in it qualifying for the equity method be added to the carrying value of the investment. The equity method will then be applied from that point forward without any retroactive application or adjustment. This new guidance was effective for the Company's first quarter of 2017. The adoption of this new guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, excess tax benefits, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted this guidance on January 1, 2017. Prospectively beginning January 1, 2017, excess tax benefits or tax deficiencies are now reflected in the condensed consolidated statements of operations as a component of the provision for income taxes. For the three months ended March 31, 2017, the Company recognized $54,000 of excess tax benefits. Additionally, the condensed consolidated statement of cash flows now reflects excess tax benefits from share-based payments as an operating activity, rather than a financing activity. Finally, the Company elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result, the Company reclassified $285,000 from additional paid-in capital to retained earnings.

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.

Consolidation of Company-sponsored Funds—The Company consolidates entities, including sponsored funds, that are deemed to be voting interest entities (VOE) when it has financial control over the entity which is generally when the Company owns a majority of the outstanding voting interest. Investments in Company-sponsored funds and management fees

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

are evaluated at inception and subsequently if there is a reconsideration event to determine if the fund is a Variable Interest Entities (VIEs) or VOE and which consolidation model to apply. All of the Company's management fees are presumed to be commensurate and at market and are therefore not considered variable interests. VIEs for which the Company is deemed to be the primary beneficiary are consolidated. Investments in Company-sponsored funds that are determined to be VOEs are consolidated when the Company’s ownership interest is greater than 50% of the outstanding voting interests of the fund or when the Company is the general partner of the fund and the limited partners do not have substantive kick-out or participating rights in the fund. 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 (a) the power to direct the activities of the VIE that most significantly affect its performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. 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 it is the primary beneficiary of any VIEs identified 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 seed 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 Brokers—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 brokers balance represents cash and cash equivalents balances at brokers/custodians and/or receivables and payables for unsettled securities 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 management and approved by the Company’s valuation committee. Unrealized gains and losses are recorded as gain (loss) from trading investments—net in the Company’s condensed consolidated statements of operations.

Investments classified as equity method investments represent seed investments in which the Company owns between 20-50% of the outstanding voting interests in the affiliated fund or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the affiliated investee fund net income or loss for the period which is recorded as equity in earnings (losses) of affiliates in the Company’s condensed consolidated statements of operations. As of March 31, 2017, the Company's equity method investments consisted of interests in affiliated funds which measure their underlying investments at fair value based on quoted market prices or NAV (or its equivalent) as a practical expedient 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, fixed income securities, investment-grade preferred instruments and investments in Company-sponsored open-end funds where the Company has neither control nor the ability to exercise significant influence. 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

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

information as of the report date, the loss will be recognized as gain (loss) from available-for-sale 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 based on their settlement price at the close of trading on the associated commodities exchange or board of trade with gains and losses recorded as gain (loss) from trading 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 March 31, 2017, 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 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 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 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 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). 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 funds, CSS receives distribution fees of up to 25bps for Class A shares and 75bps for Class C shares. CSS also receives shareholder servicing fees of up to 10bps on Class A shares and 25bps on Class C shares, pursuant to shareholder servicing plans with the funds.

CSS receives combined distribution and shareholder servicing fees of up to 50bps for Class R 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.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Distribution fee expense represents payments made to qualified intermediaries for (i) assistance in connection with the distribution of the Company’s sponsored open-end 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 and 75bps on Class C shares.

Shareholder servicing fee expense represents payments made to qualified intermediaries 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 and 25bps on Class C shares.

CSS pays combined distribution and service fee expenses based on the average daily net assets under management of up to 50bps on Class R shares.

Intermediary assistance payments represent payments to qualified intermediaries for activities related to distribution, shareholder servicing and marketing and support of Company-sponsored open-end 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 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.

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.

The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

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 $(6,358,000) and $(6,845,000) as of March 31, 2017 and December 31, 2016, 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.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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 realized gain and loss from available-for-sale investments (net of tax).

Recently Issued Accounting Pronouncements—In January 2017, the FASB issued guidance to simplify the impairment test by removing the requirement to perform a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This new guidance will be effective for the Company’s first quarter of 2020. The Company is currently evaluating the potential effect of this new guidance on its condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued new guidance amending the current guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to unify the currently diverse presentations and classifications, which address eight classification issues related to the statement of cash flows, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This new guidance will be effective for the Company’s first quarter of 2018 and requires a retrospective approach to adoption. The Company is currently evaluating the potential effect of this new guidance on its condensed consolidated financial statements and the related disclosures.

In February 2016, the FASB issued guidance introducing a new lease model which requires all operating leases to be recorded on the balance sheet as right of use assets and offsetting lease liability obligations. The guidance requires disclosures by lessees and lessors to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This new guidance will be effective for the Company’s first quarter of 2019. The Company is currently evaluating the potential effect of this new guidance on its condensed consolidated financial statements and related disclosures.

In January 2016, the FASB issued new guidance amending the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This new guidance will be effective for the Company’s first quarter of 2018. Upon adoption of this guidance, changes in the fair value of the Company’s available-for-sale investments will be reported through earnings rather than through other comprehensive income.

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. In March 2016, the FASB issued revised guidance which clarifies the guidance related to (a) determining the appropriate unit of account under the revenue standard’s principal versus agent guidance and (b) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. In April 2016, the FASB issued an amendment to provide more detailed guidance including additional implementation guidance and examples related to a) identifying performance obligations and b) licenses of intellectual property. In May 2016, the FASB amended the standard to clarify the guidance on assessing collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. 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’s implementation analysis is ongoing, however, it does not expect the adoption of the guidance to have a significant effect on the timing of the recognition of revenue. The Company is currently evaluating performance obligations and the related transaction costs. The overall effect upon adoption may change based on further analysis and implementation efforts. The Company has not yet determined which transition method will be employed.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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 March 31, 2017 and December 31, 2016, goodwill was approximately $17,821,000 and $17,684,000, respectively. The Company’s goodwill increased by $137,000 for the three months ended March 31, 2017 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 March 31, 2017 and December 31, 2016 (in thousands):



	Remaining Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization			Intangible Assets, Net
March 31, 2017:
Amortized intangible assets:
Client relationships	21	$	1,543	$	(1,381	)	$	162
Non-amortized intangible assets:
Fund management contracts	—	1,250		—			1,250
Total		$	2,793	$	(1,381	)	$	1,412
December 31, 2016:
Amortized intangible assets:
Client relationships	24	$	1,543	$	(1,359	)	$	184
Non-amortized intangible assets:
Fund management contracts	—	1,250		—			1,250
Total		$	2,793	$	(1,359	)	$	1,434

Amortization expenses related to the intangible assets was approximately $22,000 for both the three months ended March 31, 2017 and 2016. Estimated future amortization expense is as follows (in thousands):



Periods Ending December 31,	Estimated Amortization Expense
2017	$	67
2018	95
Total	$	162

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

4. Investments

The following is a summary of the Company’s investments as of March 31, 2017 and December 31, 2016 (in thousands):



	March 31, 2017		December 31, 2016
Trading investments	$	15,162	$	12,689
Equity method investments	6,170		6,459
Available-for-sale investments	38,843		35,396

Gain (loss) from investments for the three months ended March 31, 2017 and 2016 are summarized below (in thousands):



	Three Months Ended March 31,
	2017			2016
Gain (loss) from trading investments—net ⁽¹⁾	$	273		$	(207	)
Equity in (losses) earnings of affiliates	(289		)	427
Gain (loss) from available-for-sale investments—net	35			(30		)
Total gain from seed investments—net	$	19		$	190

Number of new funds seeded	1			—

_________________________

(1) Includes net income/(loss) attributable to redeemable noncontrolling interest for the periods presented.

Voting Interest Entities

The Cohen & Steers Funds ICAV (ICAV), an Irish alternative investment fund (AIF), and the Cohen & Steers Active Commodities Fund (Commodities Sub-Fund), a sub-fund within the ICAV, were launched by the Company in January 2017, and meet the definition of an investment company. The Company is the investment adviser of the Commodities Sub-Fund for which it receives a management fee. The ICAV and the Commodities Sub-Fund are each a VOE and the Company’s ownership interest in the ICAV is less than 20%; therefore, the Company records its investment in the Commodities Sub-Fund as an available-for-sale investment.

The Cohen & Steers Low Duration Preferred and Income Fund, Inc. (LPX), launched by the Company in December 2015, is an open-end fund for which the Company is the investment adviser. LPX is a VOE and the Company owned the majority of the outstanding voting interests through February 29, 2016. Accordingly, the underlying assets and liabilities and results of operations of LPX had been included in the Company's 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 March 1, 2016, the Company no longer owned the majority of the outstanding voting interest in LPX, however it was determined that the Company had significant influence over the financial decisions of LPX and therefore records its investment in LPX using the equity method of accounting. Effective October 1, 2016, the Company's ownership interest in LPX fell below 20% and the Company no longer had significant influence over LPX. Accordingly, the Company began recording its investment in LPX as an available-for-sale investment.

The Cohen & Steers Active Commodities Strategy Fund, Inc. (CDF), launched by the Company in May 2014, is an open-end fund for which the Company is the investment adviser. CDF is a VOE and the Company owned the majority of the outstanding voting interests in the fund as of March 31, 2017. 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.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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 limited partners of ACOM, 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 a VOE. 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 March 31, 2017, the Company's ownership in ACOM was approximately 10%; 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.

The Cohen & Steers MLP & Energy Opportunity Fund, Inc. (MLO), launched by the Company in December 2013, is an open-end fund for which the Company is the investment adviser. MLO is a VOE. Effective November 1, 2014, as a result of its ownership interest, it was determined that the Company has significant influence over the financial decisions of MLO and therefore recorded its investment in MLO using the equity method of accounting. Effective June 1, 2016, the Company's ownership interest in MLO fell below 20% and the Company no longer had 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), launched by the Company in January 2012, is an open-end fund for which the Company is the investment adviser. RAP is a VOE. The Company recorded its investment in RAP as an available-for-sale investment until the fourth quarter of 2016 when the Company sold its remaining interest in RAP.

Variable Interest Entities

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. 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 March 31, 2017, the Company's ownership in GRP-TE was approximately 0.2%; however, 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 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. GRP-CIP is a VIE and the Company is the primary beneficiary as it owns 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.

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 March 31, 2017, the Company was the only investor in the fund and therefore, the Company would absorb all of the expected losses and residual returns of GLI SICAV. Accordingly, the underlying assets and liabilities and results of operations of GLI SICAV have been included in the Company’s condensed consolidated financial statements.

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 VIEs as of March 31, 2017 and December 31, 2016. The assets may only be used to settle obligations of each VIE and the liabilities are the sole obligation of each VIE, for which creditors do not have recourse to the general credit of the Company (in thousands):



	March 31, 2017				December 31, 2016
	GRP-CIP		GLI SICAV		GRP-CIP		GLI SICAV
Assets:
Trading investments	$	2,239	$	5,395	$	1,918	$	5,069
Due from broker	263		257		294		181
Other assets	—		40		—		43
Total assets	$	2,502	$	5,692	$	2,212	$	5,293

Liabilities:
Due to broker	$	—	$	—	$	—	$	—
Other liabilities and accrued expenses	5		70		5		70
Total liabilities	$	5	$	70	$	5	$	70

The following is a summary of the fair value of trading investments and equity method investments as of March 31, 2017 and December 31, 2016 (in thousands):



	March 31, 2017				December 31, 2016
	Trading Investments		Equity Method Investments		Trading Investments		Equity Method Investments
Voting Interest Entities
ACOM	$	—	$	6,069	$	—	$	6,371
CDF	7,528		—		5,702		—

Variable Interest Entities
GLI SICAV	5,395		—		5,069		—
GRP-CIP	2,239		—		1,918		—
GRP-TE	—		101		—		88
Total	$	15,162	$	6,170	$	12,689	$	6,459

Gain (loss) from trading investments—net for the three months ended March 31, 2017 and 2016, which represent realized and unrealized gains and losses recorded by the funds the Company consolidates, are summarized below (in thousands):



	Three Months Ended March 31,
	2017			2016
Voting Interest Entities
CDF	$	(425	)	$	100
LPX	—			(769		)

Variable Interest Entities
GLI SICAV	401			392
GRP-CIP	297			70
Total gain (loss) from trading investments—net	$	273		$	(207	)

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Equity in earnings (losses) of affiliates for the three months ended March 31, 2017 and 2016 are summarized below (in thousands):



	Three Months Ended March 31,
	2017			2016
Voting Interest Entities
ACOM	$	(302	)	$	76
LPX	—			246
MLO	—			119

Variable Interest Entities
GRP-TE	13			(14		)
Total equity in (losses) earnings of affiliates	$	(289	)	$	427

The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale investments as of March 31, 2017 and December 31, 2016 (in thousands):



	March 31, 2017
	Cost		Gross Unrealized Gains		Gross Unrealized Losses ⁽¹⁾			Fair Value
Preferred securities	$	1,072	$	34	$	(3	)	$	1,103
Common stocks	8,424		337		(254		)	8,507
Fixed income	3,759		10		(8		)	3,761
Company-sponsored funds	23,366		2,010		(12		)	25,364
Other	100		8		—			108
Total available-for-sale investments	$	36,721	$	2,399	$	(277	)	$	38,843

_________________________

(1) At March 31, 2017, there were no securities with material unrealized losses continuously for a period of more than 12 months.



	December 31, 2016
	Cost		Gross Unrealized Gains		Gross Unrealized Losses ⁽¹⁾			Fair Value
Preferred securities	$	1,020	$	13	$	(22	)	$	1,011
Common stocks	4,639		194		(325		)	4,508
Company-sponsored funds	28,232		1,755		(110		)	29,877
Total available-for-sale investments	$	33,891	$	1,962	$	(457	)	$	35,396

_________________________

(1) At December 31, 2016, 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 $6,622,000 and $18,521,000 at March 31, 2017 and December 31, 2016, respectively, were in an unrealized loss position.

Unrealized losses on available-for-sale investments as of March 31, 2017 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.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

As of March 31, 2017, the Company determined that it had the ability and intent to hold the remaining available-for-sale 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 months ended March 31, 2017 and 2016 are summarized below (in thousands):



	Three Months Ended March 31,
	2017			2016
Proceeds from sales	$	6,886		$	1,955
Gross realized gains	98			150
Gross realized losses	(63		)	(180		)

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 as of the beginning of the reporting period. There were no transfers between level 1 and level 2 during the period ended March 31, 2017.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The following table presents fair value measurements as of March 31, 2017 (in thousands):



	Level 1		Level 2		Level 3		Investments Measured at NAV ⁽²⁾		Total
Cash equivalents ⁽¹⁾	$	121,598	$	—	$	—	$	—	$	121,598
Trading investments
Common stocks	$	5,395	$	—	$	—	$	—	$	5,395
Fixed income securities	—		7,528		—		—		7,528
Limited partnership interests	—		—		1,476		763		2,239
Total trading investments	$	5,395	$	7,528	$	1,476	$	763	$	15,162
Equity method investments	$	—	$	—	$	—	$	6,170	$	6,170
Available-for-sale investments
Preferred securities	$	981	$	122	$	—	$	—	$	1,103
Common stocks	8,507		—		—		—		8,507
Fixed income securities	—		3,761		—		—		3,761
Company-sponsored funds	25,364		—		—		—		25,364
Other	—		—		—		108		108
Total available-for-sale investments	$	34,852	$	3,883	$	—	$	108	$	38,843
Derivatives - assets
Foreign exchange contracts	$	—	$	562	$	—	$	—	$	562
Commodity contracts	108		—		—		—		108
Total derivatives - assets	$	108	$	562	$	—	$	—	$	670
Derivatives - liabilities
Commodity contracts	$	385	$	—	$	—	$	—	$	385
Total derivatives - liabilities	$	385	$	—	$	—	$	—	$	385

_________________________

(1) Comprised of investments in actively traded U.S. Treasury money market funds measured at NAV.


(2)	Comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated statement of financial position.

Trading investments classified as level 2 in the above table were comprised of 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 in limited partnership vehicles that invest in private equity vehicles that invest directly in real estate which are generally valued using a discounted cash flow model.

Trading investments classified as investments measured at NAV (or its equivalent) as a practical expedient in the above table were comprised of limited partnership interests which represent the Company's co-investments through GRP-CIP in limited partnership vehicles that invest in non-registered real estate funds, which are valued based on the NAVs of the underlying funds. As of March 31, 2017, the Company did not have the ability to redeem these interests.

Equity method investments classified as investments measured at NAV (or its equivalent) as a practical expedient in the above table were comprised of the Company's partnership interests in ACOM and GRP-TE, which approximate their fair value based on the funds' NAVs. ACOM invests in exchange-traded commodity futures contracts and other commodity related derivatives. The Company has the ability to redeem its investment in ACOM monthly at NAV with prior written notice of 5 days and there are no significant restrictions to redemption. GRP-TE invests in non-registered real estate funds and in private equity vehicles that invest directly in real estate. As of March 31, 2017, the Company did not have the ability to redeem its investment in GRP-TE.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Available-for-sale investments classified as level 2 in the above table were primarily comprised of corporate bonds with the fair value generally determined using third-party pricing services. The pricing services may utilize pricing models, and inputs into those models may include reported trades, executable bid and ask prices, broker-dealer quotations, prices or yields of similar securities, benchmark curves and other market information. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security.

Available-for-sale investments classified as investments measured at NAV (or its equivalent) as a practical expedient in the above table were comprised of the Company’s co-investment in a Cayman trust invested in global listed infrastructure securities.

The following table presents fair value measurements as of December 31, 2016 (in thousands):



	Level 1		Level 2		Level 3		Investments Measured at NAV ⁽²⁾		Total
Cash equivalents ⁽¹⁾	$	140,872	$	—	$	—	$	—	$	140,872
Trading investments
Common stocks	$	5,069	$	—	$	—	$	—	$	5,069
Fixed income securities	—		5,702		—		—		5,702
Limited partnership interests	—		—		1,196		722		1,918
Total trading investments	$	5,069	$	5,702	$	1,196	$	722	$	12,689
Equity method investments	$	—	$	—	$	—	$	6,459	$	6,459
Available-for-sale investments
Preferred securities	$	1,001	$	10	$	—	$	—	$	1,011
Common stocks	4,508		—		—		—		4,508
Company-sponsored funds	29,877		—		—		—		29,877
Total available-for-sale investments	$	35,386	$	10	$	—	$	—	$	35,396
Derivatives - assets
Foreign exchange contracts	$	—	$	1,417	$	—	$	—	$	1,417
Commodity contracts	343		—		—		—		343
Total derivatives - assets	$	343	$	1,417	$	—	$	—	$	1,760
Derivatives - liabilities
Commodity contracts	$	266	$	—	$	—	$	—	$	266
Total derivatives - liabilities	$	266	$	—	$	—	$	—	$	266

_________________________

(1) Comprised of investments in actively traded U.S. Treasury money market funds measured at NAV.


(2)	Comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated statement of financial position.

Trading investments classified as level 2 in the above table were comprised of United States Treasury Bills carried at amortized cost, which approximates fair value.

Trading investments classified as investments measured at NAV (or its equivalent) as a practical expedient in the above table were comprised of limited partnership interests which represent the Company's co-investments through GRP-CIP in limited partnership vehicles that invest in non-registered real estate funds, which are valued based on the NAVs of the underlying funds. As of December 31, 2016, the Company did not have the ability to redeem these interests.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Equity method investments classified as investments measured at NAV (or its equivalent) as a practical expedient in the above table were comprised of the Company's partnership interests in ACOM and GRP-TE, which approximate their fair value based on the funds' NAVs. ACOM invests in exchange-traded commodity futures contracts and other commodity related derivatives. The Company has the ability to redeem its investment in ACOM monthly at NAV with prior written notice of 5 days and there are no significant restrictions to redemption. GRP-TE invests in non-registered real estate funds and in private equity vehicles that invest directly in real estate. As of December 31, 2016, 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 months ended March 31, 2017 and 2016 (in thousands):



	Three Months Ended March 31,
	2017		2016
	Trading Investments
	Limited Partnership Interests
Balance at beginning of period	$	1,196	$	1,312
Purchases / contributions	24		—
Sales / distributions	—		—
Realized gains (losses)	—		—
Unrealized gains (losses) ⁽¹⁾	256		26
Transfers into (out of) level 3	—		—
Balance at end of period	$	1,476	$	1,338

_________________________

(1) Pertains to unrealized gains (losses) from securities held at March 31, 2017 and March 31, 2016.

Realized and unrealized gains (losses) from investments classified as trading investments in the above table were recorded as gain (loss) from trading investments in the Company's condensed consolidated statements of operations.

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 independent pricing services. In determining the value of a particular investment, independent 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 generally performs reviews of valuations provided by broker-dealers or independent pricing services. Investments in Company-sponsored funds are valued at their closing price or NAV (or its equivalent) as a practical expedient.

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 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.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The valuation techniques and significant unobservable inputs used in the fair value measurement of the following level 3 investments as of March 31, 2017 were:



	Fair Value		Fair Value	Significant	Input /
	(in thousands)		Methodology	Unobservable Inputs	Range
Limited partnership interests - direct investments in real estate	$	1,476	Discounted cash flows	Discount rates Exit capitalization rates Market rental rates	11% - 12.5% 7% - 8% $14.50 - 16.80 psf

The valuation techniques and significant unobservable inputs used in the fair value measurement of the following level 3 investments as of December 31, 2016 were:



	Fair Value		Fair Value	Significant	Input /
	(in thousands)		Methodology	Unobservable Inputs	Range
Limited partnership interests - direct investments in real estate	$	1,196	Discounted cash flows	Discount rates Exit capitalization rates Market rental rates	11% - 12.5% 8% - 8.5% $14.00 - 17.00 psf

Changes in the significant unobservable inputs in the tables above may result in a materially higher or lower fair value measurement.

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 as of March 31, 2017 (in thousands):



	March 31, 2017
	Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value
Total foreign exchange contracts	$	20,828	$	562	$	—	$	—
Total commodity contracts	4,644		108		8,763		385
Total derivatives	$	25,472	$	670	$	8,763	$	385



	December 31, 2016
	Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value
Total foreign exchange contracts	$	13,839	$	1,417	$	—	$	—
Total commodity contracts	6,538		343		4,825		266
Total derivatives	$	20,377	$	1,760	$	4,825	$	266

Cash included in due from broker in the condensed consolidated statement of financial condition of approximately $278,000 as of March 31, 2017 was held as collateral for futures contracts. Securities included in trading investments in the condensed consolidated statement of financial condition of approximately $637,000 and $487,000 as of March 31, 2017 and December 31, 2016, respectively, were held as collateral for futures contracts.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Gains (losses) from derivative financial instruments for the three months ended March 31, 2017 and 2016 are summarized below (in thousands):



	Three Months Ended March 31,
	2017			2016
Foreign exchange contracts	$	(855	)	$	(1,256	)
Commodity contracts	(447		)	100
Total losses from derivatives	$	(1,302	)	$	(1,156	)

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.

Anti-dilutive common stock equivalents of approximately 17,000 and 56,000 shares were excluded from the computation for the three months ended March 31, 2017 and 2016, respectively.

The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three months ended March 31, 2017 and 2016 (in thousands, except per share data):



	Three Months Ended March 31,
	2017		2016
Net income	$	22,944	$	17,867
Less: Net loss attributable to redeemable noncontrolling interest	41		216
Net income attributable to common stockholders	$	22,985	$	18,083
Basic weighted average shares outstanding	46,243		45,808
Dilutive potential shares from restricted stock units	360		387
Diluted weighted average shares outstanding	46,603		46,195
Basic earnings per share attributable to common stockholders	$	0.50	$	0.39
Diluted earnings per share attributable to common stockholders	$	0.49	$	0.39

8. Income Taxes

The provision for income taxes includes U.S. federal, state, local and foreign taxes. The effective tax rate was approximately 35.8% for the three months ended March 31, 2017, which differs from the U.S. federal statutory rate primarily due to discrete items recorded during the quarter. The effective rate for the three months ended March 31, 2016 was approximately 38.0%.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Deferred income taxes represent the tax effects of the temporary differences between book and tax bases and are measured using enacted tax rates that will be in effect when such items are expected to reverse. The Company's net deferred tax asset at December 31, 2016 was primarily comprised of future income tax deductions attributable to the delivery of unvested restricted stock units. The Company records a valuation allowance, when necessary, to reduce deferred tax assets to an amount that more likely than not will be realized.

9. Regulatory Requirements

CSS, a registered broker-dealer in the U.S., is subject to the SEC’s Uniform Net Capital Rule 15c3-1 (the Rule), which requires that broker-dealers maintain a minimum level of net capital, as prescribed under the Rule. As of March 31, 2017, CSS had net capital of approximately $4,025,000, which exceeded its requirements by approximately $3,845,000. The Rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital of a broker-dealer is less than the amount required under the Rule and requires prior notice to the SEC for certain withdrawals of capital.

CSS does not carry customer accounts and is exempt from SEC Rule 15c3-3 pursuant to provisions (k)(1) and (k)(2)(i) of such rule.

CSAL and CSUK are regulated outside the U.S. by the Hong Kong Securities and Futures Commission and the United Kingdom Financial Conduct Authority, respectively. As of March 31, 2017, CSAL and CSUK had aggregate regulatory capital of approximately $70,053,000, which exceeded aggregate regulatory capital requirements by approximately $67,216,000.

10. Related Party Transactions

The Company is an investment adviser to, and has administrative agreements with, affiliated funds for which certain employees are officers and/or directors. The following table sets forth the amount of revenue the Company earned from these affiliated funds for the three months ended March 31, 2017 and 2016 (in thousands):



	Three Months Ended March 31,
	2017		2016
Investment advisory and administration fees	$	57,400	$	51,911
Distribution and service fees	5,046		4,233
	$	62,446	$	56,144

Sales proceeds, gross realized gains, gross realized losses and dividend income from available-for-sale investments in Company-sponsored funds for the three months ended March 31, 2017 and 2016 are summarized below (in thousands):



	Three Months Ended March 31,
	2017		2016
Proceeds from sales	$	5,035	$	—
Gross realized gains	20		—
Gross realized losses	—		—
Dividend income	255		—

The Company has agreements with certain affiliated open-end and closed-end funds to reimburse certain fund expenses. For the three months ended March 31, 2017 and 2016, expenses of approximately $2,373,000 and $2,034,000, respectively, were incurred by the Company pursuant to these agreements and are included in general and administrative expenses.

COHEN & STEERS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Included in accounts receivable at March 31, 2017 and December 31, 2016 are receivables due from Company-sponsored funds of approximately $20,792,000 and $20,221,000, respectively.

11. Commitments and Contingencies

Rent expense charged to operations, including escalation charges for real estate and other expenses, totaled approximately $2,800,000 for both the three months ended March 31, 2017 and 2016.

From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its condensed consolidated results of operations, cash flows or financial position.

The Company has committed to co-invest up to $5.1 million alongside GRP-TE, a portion of which is made through GRP-TE and the remainder of which is made through GRP-CIP for up to 12 years through the life of GRP-TE. As of March 31, 2017, the Company has funded approximately $3.5 million of this commitment. The actual timing for funding the unfunded portion of this commitment is currently unknown, as the drawdown of the Company's unfunded commitment is contingent on the timing of drawdowns by the underlying funds and co-investments in which GRP-TE invests. The unfunded commitment was not recorded on the Company's condensed consolidated statements of financial condition as of March 31, 2017.

12. Concentration of Credit Risk

The Company's cash and cash equivalents are principally on deposit with three major financial institutions. The Company is subject to credit risk should these financial institutions be unable to fulfill their obligations.

13. Subsequent Events

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the condensed consolidated financial statements were issued. Other than the items described below, the Company determined that there were no additional subsequent events that require disclosure and/or adjustment.

On May 4, 2017, CNS declared a quarterly dividend on its common stock in the amount of $0.28 per share. The dividend will be payable on June 22, 2017 to stockholders of record at the close of business on June 1, 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Set forth on the following pages is management’s discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2017 and March 31, 2016. Such information should be read in conjunction with our condensed consolidated financial statements and the related notes included herein. The condensed consolidated financial statements of the Company are unaudited. When we use the terms “Cohen & Steers,” the “Company,” “we,” “us,” and “our,” we mean Cohen & Steers, Inc., a Delaware corporation, and its consolidated subsidiaries.

Executive Overview

General

We are 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, we are headquartered in New York City, with offices in London, Hong Kong, Tokyo and Seattle.

Our primary investment strategies include U.S. real estate securities, global/international real estate securities, global listed infrastructure, master limited partnerships (MLPs), commodities, real assets multi-strategy, preferred securities, large cap value and global natural resource equities. Our strategies seek to achieve a variety of investment objectives for different risk profiles and are actively managed by specialist teams of investment professionals who employ fundamental-driven research and portfolio management processes. We offer our strategies through a variety of investment vehicles, including U.S. registered funds and other commingled vehicles and separate accounts, including subadvised portfolios for financial institutions and individuals around the world.

Our products and services are marketed through multiple distribution channels. We distribute our U.S. registered funds principally through financial intermediaries, including broker-dealers, registered investment advisers, banks and fund supermarkets. Our funds domiciled in Europe are marketed to individual and institutional investors through financial intermediaries, as well as privately to institutional investors. Our institutional clients include corporate and public defined benefit and defined contribution pension plans, endowment funds and foundations, insurance companies and other financial institutions that access our investment management services directly, through consultants or through other intermediaries.

Our revenue is derived from fees received from our clients, including fees for managing or sub-advising client accounts; investment advisory, administration, distribution and service fees received from Company-sponsored open-end and closed-end funds; and fees for portfolio consulting and other services. Our fees are paid in arrears, based on contractually specified percentages of the value of the assets we manage and, in certain cases, investment performance. Our revenue fluctuates with changes in the total value of our assets under management, which may occur as a result of investment performance, market conditions, foreign currency fluctuations, or investor subscriptions or redemptions, and is recognized over the period that the assets are managed.

Quarterly Highlights

Revenue increased 0.3% from the fourth quarter of 2016 to $89.7 million for the first quarter of 2017. The increase in revenue was primarily attributable to higher average assets under management in all three investment vehicles in the quarter, partially offset by two fewer days in the quarter. Operating income decreased 0.9% from the fourth quarter of 2016 to $35.5 million for the first quarter of 2017. Operating margin decreased to 39.6% for the first quarter of 2017 compared with 40.1% for the fourth quarter of 2016. Our effective tax was 35.8% for the first quarter of 2017.

Assets under management increased by $1.3 billion, or 2%, in the first quarter of 2017 from $57.2 billion as of December 31, 2016 to $58.5 billion as of March 31, 2017, primarily driven by market appreciation combined with net inflows. Average assets under management increased by 2% during the first quarter of 2017 from $57.4 billion for the fourth quarter of 2016 to $58.3 billion for the first quarter of 2017. Our overall annualized organic growth rate was 6% for the first quarter of 2017. The organic growth rate represents the ratio of annualized net flows for the quarter to the beginning assets under management.

Recent Business Developments

•

Cohen & Steers Real Estate Securities Fund (Class I: CSDIX) and Cohen & Steers Preferred Securities and Income Fund (Class I: CPXIX) received 2017 Thomson Reuters Lipper Fund Awards for consistently strong risk-adjusted performance relative to their peers. Lipper’s proprietary performance-based methodology earned CSDIX the distinction for its risk-adjusted returns among funds in the Real Estate category during the 3-, 5- and 10-year periods ended December 31, 2016. CPXIX was singled out among its Flexible Income category peers for its risk-adjusted returns during the same 3- and 5-year periods. Lipper Leader ratings for Consistent Return reflect funds' historic returns, adjusted for volatility, relative to peers. Ratings for consistent return are computed for all Lipper classifications with five or more distinct portfolios and span both equity and fixed-income funds.


•	The Company received awards for investment performance of Global REITs (3 Years and 10 Years) at the Asia Asset Management "2017 Best of the Best Awards." These awards recognized the Company’s leadership and performance in REIT investments.

•

Cohen & Steers SICAV Global Real Estate Securities Fund earned the 2017 Thompson Reuters Lipper Award Netherlands for consistently strong risk-adjusted performance for the 5-year period ended December 31, 2016. Lipper Leader ratings for Consistent Return reflect funds' historic returns, adjusted for volatility, relative to peers. Ratings for consistent return are computed for all Lipper classifications with five or more distinct portfolios and span both equity and fixed-income funds.


•	The Company was awarded two new model-based sub-advisory mandates in South Korea and Taiwan focused on global preferred securities and MLPs. Both mandates are expected to fund during the second quarter and will be included in the Company’s Assets under Advisement.


•	The Company received regulatory approval for the Cohen & Steers SICAV Global Preferred Securities Fund as part of its Luxembourg undertakings for collective investments in transferable securities products. The Company expects to launch the fund, which will enhance our offshore distribution capabilities, on May 15, 2017.

Assets Under Management

The following table sets forth information about net flows, appreciation (depreciation) and distributions of assets under management by investment vehicle for the periods presented (in millions):



	Three Months Ended March 31,
	2017			2016
Institutional Accounts
Assets under management, beginning of period	$	28,659		$	26,105
Inflows	844			1,772
Outflows	(529		)	(582		)
Net inflows	315			1,190
Market appreciation	643			1,215
Distributions	(811		)	(653		)
Other ⁽¹⁾	129			—
Total increase	276			1,752
Assets under management, end of period	$	28,935		$	27,857
Average assets under management for period	$	29,019		$	25,775

Open-end Funds
Assets under management, beginning of period	$	19,576		$	17,460
Inflows	2,316			2,022
Outflows	(1,726		)	(1,698		)
Net inflows	590			324
Market appreciation	498			495
Distributions	(174		)	(133		)
Other ⁽¹⁾	(129		)	—
Total increase	785			686
Assets under management, end of period	$	20,361		$	18,146
Average assets under management for period	$	20,122		$	17,099

COHEN & STEERS, INC. - FORM 10-Q - May 10, 2017

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