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CNS > SEC Filings for CNS > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for COHEN & STEERS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for COHEN & STEERS INC


8-Nov-2013

Quarterly Report


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 and nine months ended September 30, 2013 and September 30, 2012. Such information should be read in conjunction with our condensed consolidated financial statements together with the notes to the condensed consolidated financial statements. The interim condensed consolidated financial statements of the Company, included herein, 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.

Overview
Founded in 1986, we are a leading global investment manager with a long history of innovation and a focus on real assets, including real estate, infrastructure and commodities. We serve institutional and individual investors around the world.


Assets Under Management
We manage three types of accounts: institutional accounts, open-end mutual funds
and closed-end mutual funds.
The following table sets forth information regarding the net flows and
appreciation/(depreciation) of assets under management for the periods presented
(in millions):
                                            Three Months Ended             Nine Months Ended
                                              September 30,                  September 30,
                                           2013            2012           2013           2012
Institutional Accounts
Assets under management, beginning of
period                                 $    24,538     $   25,599     $   24,850     $   25,380
Inflows                                         91            362            614          1,728
Outflows                                    (1,395 )       (2,044 )       (3,351 )       (6,262 )
Net outflows                                (1,304 )       (1,682 )       (2,737 )       (4,534 )
Market appreciation                             57            727          1,178          3,798
Total decrease                              (1,247 )         (955 )       (1,559 )         (736 )
Assets under management, end of period $    23,291     $   24,644     $   23,291     $   24,644
Average assets under management for
period                                 $    23,729     $   25,393     $   25,061     $   25,591

Open-End Mutual Funds
Assets under management, beginning of
period                                 $    14,442     $   12,114     $   12,962     $    9,619
Inflows                                      1,121          1,225          4,418          3,984
Outflows                                    (1,167 )       (1,061 )       (3,446 )       (2,589 )
Net (outflows) inflows                         (46 )          164            972          1,395
Market (depreciation) appreciation            (134 )          250            328          1,514
Total (decrease) increase                     (180 )          414          1,300          2,909
Assets under management, end of period $    14,262     $   12,528     $   14,262     $   12,528
Average assets under management for
period                                 $    14,385     $   12,490     $   14,397     $   11,533

Closed-End Mutual Funds
Assets under management, beginning of
period                                 $     8,843     $    6,678     $    7,985     $    6,285
Inflows                                          -            889            739            889
Outflows                                         -              -              -              -
Inflows                                          -            889            739            889
Market (depreciation) appreciation             (60 )          206             59            599
Total (decrease) increase                      (60 )        1,095            798          1,488
Assets under management, end of period $     8,783     $    7,773     $    8,783     $    7,773
Average assets under management for
period                                 $     8,864     $    7,312     $    8,723     $    6,826

Total
Assets under management, beginning of
period                                 $    47,823     $   44,391     $   45,797     $   41,284
Inflows                                      1,212          2,476          5,771          6,601
Outflows                                    (2,562 )       (3,105 )       (6,797 )       (8,851 )
Net outflows                                (1,350 )         (629 )       (1,026 )       (2,250 )
Market (depreciation) appreciation            (137 )        1,183          1,565          5,911
Total (decrease) increase                   (1,487 )          554            539          3,661
Assets under management, end of period $    46,336     $   44,945     $   46,336     $   44,945
Average assets under management for
period                                 $    46,978     $   45,195     $   48,181     $   43,950


Assets under management were $46.3 billion at September 30, 2013, compared with $44.9 billion at September 30, 2012. The increase was due to market appreciation of $2.8 billion, partially offset by net outflows of $1.4 billion during the prior twelve month period.
Average assets under management were $47.0 billion in the three months ended September 30, 2013, an increase of 4% from $45.2 billion in the three months ended September 30, 2012. Average assets under management were $48.2 billion in the nine months ended September 30, 2013, an increase of 10% from $44.0 billion in the nine months ended September 30, 2012. Institutional accounts
Institutional accounts assets under management were $23.3 billion at September 30, 2013, a decrease of 5% from $24.6 billion at September 30, 2012. The decrease in assets under management was due to net outflows of $3.3 billion, primarily from global/international real estate strategies associated with subadvisory relationships, partially offset by market appreciation of $1.9 billion during the prior twelve month period.
Average assets under management for institutional accounts were $23.7 billion in the three months ended September 30, 2013, a decrease of 7% from $25.4 billion in the three months ended September 30, 2012. Average assets under management for institutional accounts were $25.1 billion in the nine months ended September 30, 2013, a decrease of 2% from $25.6 billion in the nine months ended September 30, 2012.
Net outflows for institutional accounts were $1.3 billion in the three months ended September 30, 2013, compared with $1.7 billion in the three months ended September 30, 2012. Gross inflows were $91 million in the three months ended September 30, 2013, compared with $362 million in the three months ended September 30, 2012. Gross outflows totaled $1.4 billion in the three months ended September 30, 2013, compared with $2.0 billion in the three months ended September 30, 2012. Market appreciation was $57 million in the three months ended September 30, 2013, compared with $727 million in the three months ended September 30, 2012.
Net outflows for institutional accounts were $2.7 billion in the nine months ended September 30, 2013, compared with $4.5 billion in the nine months ended September 30, 2012. Gross inflows were $614 million in the nine months ended September 30, 2013, compared with $1.7 billion in the nine months ended September 30, 2012. Gross outflows totaled $3.4 billion in the nine months ended September 30, 2013, compared with $6.3 billion in the nine months ended September 30, 2012. Market appreciation was $1.2 billion in the nine months ended September 30, 2013, compared with $3.8 billion in the nine months ended September 30, 2012.
Open-end mutual funds
Open-end mutual fund assets under management were $14.3 billion at September 30, 2013, an increase of 14% from $12.5 billion at September 30, 2012. The increase in assets under management was due to net inflows of $1.1 billion, primarily from preferred securities and U.S. real estate strategies, and market appreciation of $677 million during the prior twelve month period.
Average assets under management for open-end mutual funds were $14.4 billion in the three months ended September 30, 2013, an increase of 15% from $12.5 billion in the three months ended September 30, 2012. Average assets under management for open-end mutual funds were $14.4 billion in the nine months ended September 30, 2013, an increase of 25% from $11.5 billion in the nine months ended September 30, 2012.
Net outflows for open-end mutual funds were $46 million in the three months ended September 30, 2013, compared with net inflows of $164 million in the three months ended September 30, 2012. Gross inflows were $1.1 billion in the three months ended September 30, 2013, compared with $1.2 billion in the three months ended September 30, 2012. Gross outflows totaled $1.2 billion in the three months ended September 30, 2013, compared with $1.1 billion in the three months ended September 30, 2012. Market depreciation was $134 million in the three months ended September 30, 2013, compared with market appreciation of $250 million in the three months ended September 30, 2012.
Net inflows for open-end mutual funds were $972 million in the nine months ended September 30, 2013, compared with $1.4 billion in the nine months ended September 30, 2012. Gross inflows were $4.4 billion in the nine months ended September 30, 2013, compared with $4.0 billion in the nine months ended September 30, 2012. Gross outflows totaled $3.4 billion in the nine months ended September 30, 2013, compared with $2.6 billion in the nine months ended September 30,


2012. Market appreciation was $328 million in the nine months ended September 30, 2013, compared with $1.5 billion in the nine months ended September 30, 2012.
Closed-end mutual funds
Closed-end mutual funds assets under management were $8.8 billion at September 30, 2013, an increase of 13% from $7.8 billion at September 30, 2012. The increase in assets under management was due to net inflows of $854 million, primarily from the launches of Cohen & Steers Limited Duration Preferred and Income Fund, Inc. ("LDP") and Cohen & Steers MLP Income and Energy Opportunity Fund, Inc. ("MIE"), and market appreciation of $156 million during the prior twelve month period.
Average assets under management for closed-end mutual funds were $8.9 billion in the three months ended September 30, 2013, an increase of 21% from $7.3 billion in the three months ended September 30, 2012. Average assets under management for closed-end mutual funds were $8.7 billion in the nine months ended September 30, 2013, an increase of 28% from $6.8 billion in the nine months ended September 30, 2012.
Market depreciation was $60 million in the three months ended September 30, 2013, compared with market appreciation of $206 million in the three months ended September 30, 2012.
Closed-end mutual funds had inflows of $739 million in the nine months ended September 30, 2013 from the launch of MIE, compared with $889 million in the nine months ended September 30, 2012 from the launch of LDP. Market appreciation was $59 million in the nine months ended September 30, 2013, compared with $599 million in the nine months ended September 30, 2012.

Results of Operations
Three Months Ended September 30, 2013 compared with Three Months Ended
September 30, 2012
                                            Three Months Ended
                                              September 30,
(in thousands)                              2013          2012
Results of operations
Total revenue                            $  74,026     $ 71,296
Total expenses                             (46,307 )    (59,057 )
Total non-operating income                   3,303        5,315
Income before provision for income taxes $  31,022     $ 17,554

Revenue
Total revenue increased 4% to $74.0 million in the three months ended September 30, 2013 from $71.3 million in the three months ended September 30, 2012. This increase was primarily attributable to higher investment advisory and administration fees resulting from higher average assets under management, partially offset by lower portfolio consulting and other fees. Average assets under management in the three months ended September 30, 2013 were $47.0 billion compared with $45.2 billion in the three months ended September 30, 2012. In the three months ended September 30, 2013, total investment advisory and administration revenue from institutional accounts decreased 11% to $19.7 million from $22.2 million in the three months ended September 30, 2012. The decrease in institutional account revenue was attributable to lower average assets under management. Average assets under management for institutional accounts in the three months ended September 30, 2013 were $23.7 billion compared with $25.4 billion in the three months ended September 30, 2012.

In the three months ended September 30, 2013, total investment advisory and administration revenue from open-end mutual funds increased 13% to $28.9 million from $25.5 million in the three months ended September 30, 2012. The increase in open-end mutual fund revenue was attributable to higher average assets under management resulting from net inflows of $1.1 billion, primarily from preferred securities and U.S. real estate strategies, and market appreciation of $677 million during the prior twelve month period. Average assets under management for open-end mutual funds in the three months ended September 30, 2013 were $14.4 billion compared with $12.5 billion in the three months ended September 30, 2012.


In the three months ended September 30, 2013, total investment advisory and administration revenue from closed-end mutual funds increased 23% to $19.1 million from $15.5 million in the three months ended September 30, 2012. The increase in closed-end mutual fund revenue was attributable to higher average assets under management resulting from net inflows of $854 million, primarily from the launches of LDP and MIE, and market appreciation of $156 million during the prior twelve month period. Average assets under management for closed-end mutual funds in the three months ended September 30, 2013 were $8.9 billion compared with $7.3 billion in the three months ended September 30, 2012. In the three months ended September 30, 2013, total distribution and service fee revenue increased 26% to $3.6 million from $2.9 million in the three months ended September 30, 2012. The increase was primarily due to higher average assets under management in our open-end mutual funds in 2013.
In the three months ended September 30, 2013, total portfolio consulting and other revenue decreased 48% to $2.7 million from $5.2 million in the three months ended September 30, 2012. The decrease was primarily attributable to lower average assets under advisement from model-based strategies. Expenses
Total operating expenses decreased 22% to $46.3 million in the three months ended September 30, 2013 from $59.1 million in the three months ended September 30, 2012, primarily due to decreases in distribution and service fees and employee compensation and benefits, partially offset by an increase in general and administrative expenses.
Distribution and service fee expenses decreased 61% to $8.4 million in the three months ended September 30, 2013 from $21.4 million in the three months ended September 30, 2012. The three months ended September 30, 2012 results included approximately $14.4 million of distribution costs associated with the launch of LDP. After adjusting for these costs, distribution and service fee expenses would have been $7.0 million. The increase over the adjusted distribution and service fee expenses was primarily due to higher average assets under management in our open-end mutual funds.
Employee compensation and benefits decreased 4% to $24.1 million in the three months ended September 30, 2013 from $25.1 million in the three months ended September 30, 2012, primarily due to lower incentive and production compensation, net of deferrals, of approximately $3.1 million, partially offset by higher amortization of restricted stock units of approximately $1.2 million and higher salaries of approximately $510,000.
General and administrative expenses increased 10% to $11.7 million in the three months ended September 30, 2013 from $10.6 million in the three months ended September 30, 2012. The increase was primarily due to higher fund related expenses of approximately $1.8 million, partially offset by lower professional fees of approximately $784,000.
Non-operating Income
Non-operating income decreased to $3.3 million in the three months ended September 30, 2013 from $5.3 million in the three months ended September 30, 2012, primarily due to lower earnings from our seed investments. Income Taxes
We recorded an income tax expense of $11.2 million in the three months ended September 30, 2013, compared with $5.0 million in the three months ended September 30, 2012. The provision for income taxes in the three months ended September 30, 2013 included U.S. federal, state, local and foreign taxes at an approximate effective tax rate of 38%. The effective tax rate for the three months ended September 30, 2012 was approximately 33%, which included discrete items, the most significant of which was attributable to the offering costs for LDP. Excluding the discrete items, the effective tax rate for the three months ended September 30, 2012 was approximately 36%. We expect our tax rate for the full year 2013 to approximate 38%, excluding discrete items.


Nine Months Ended September 30, 2013 compared with Nine Months Ended

September 30, 2012
                                             Nine Months Ended
                                               September 30,
(in thousands)                              2013          2012
Results of operations
Total revenue                            $ 224,281     $ 202,458
Total expenses                            (147,295 )    (138,759 )
Total non-operating (loss) income           (3,949 )       6,340
Income before provision for income taxes $  73,037     $  70,039

Revenue
Total revenue increased 11% to $224.3 million in the nine months ended September 30, 2013 from $202.5 million in the nine months ended September 30, 2012. This increase was primarily attributable to higher investment advisory and administration fees resulting from higher average assets under management, partially offset by lower portfolio consulting and other fees. Average assets under management in the nine months ended September 30, 2013 were $48.2 billion compared with $44.0 billion in the nine months ended September 30, 2012. In the nine months ended September 30, 2013, total investment advisory and administration revenue from institutional accounts decreased 7% to $62.3 million from $67.2 million in the nine months ended September 30, 2012. The decrease in institutional account revenue was primarily attributable to a lower effective fee rate and lower average assets under management. Average assets under management for institutional accounts in the nine months ended September 30, 2013 were $25.1 billion compared with $25.6 billion in the nine months ended September 30, 2012.
In the nine months ended September 30, 2013, total investment advisory and administration revenue from open-end mutual funds increased 21% to $85.8 million from $70.8 million in the nine months ended September 30, 2012. The increase in open-end mutual fund revenue was attributable to higher average assets under management. Average assets under management for open-end mutual funds in the nine months ended September 30, 2013 were $14.4 billion compared with $11.5 billion in the nine months ended September 30, 2012.
In the nine months ended September 30, 2013, total investment advisory and administration revenue from closed-end mutual funds increased 29% to $55.3 million from $43.0 million in the nine months ended September 30, 2012. The increase in closed-end mutual fund revenue was attributable to higher average assets under management resulting primarily from the launches of LDP and MIE. Average assets under management for closed-end mutual funds in the nine months ended September 30, 2013 were $8.7 billion compared with $6.8 billion in the nine months ended September 30, 2012.
In the nine months ended September 30, 2013, total distribution and service fee revenue increased 33% to $10.8 million from $8.1 million in the nine months ended September 30, 2012. The increase was primarily due to higher average assets under management in our open-end mutual funds in 2013.
In the nine months ended September 30, 2013, total portfolio consulting and other revenue decreased 24% to $10.0 million from $13.3 million in the nine months ended September 30, 2012. The decrease was primarily attributable to lower average assets under advisement from model-based strategies. Expenses
Total operating expenses increased 6% to $147.3 million in the nine months ended September 30, 2013 from $138.8 million in the nine months ended September 30, 2012, primarily due to increases in general and administrative expenses and employee compensation and benefits, partially offset by a decrease in distribution and service fees.
General and administrative expenses increased 22% to $35.4 million in the nine months ended September 30, 2013 from $29.1 million in the nine months ended September 30, 2012. The increase was primarily due to higher fund related expenses of approximately $2.7 million, higher rent of approximately $1.5 million resulting from the extension of the lease for our corporate headquarters in New York City and higher information technology costs of approximately $752,000 primarily related to upgrades made to our infrastructure, including trading and application systems.


Employee compensation and benefits increased 4% to $72.3 million in the nine months ended September 30, 2013 from $69.7 million in the nine months ended September 30, 2012, primarily due to higher amortization of restricted stock units of approximately $2.8 million and higher salaries of approximately $1.5 million, partially offset by lower incentive and production compensation, net of deferrals, of approximately $2.6 million.
Distribution and service fee expenses decreased 3% to $33.1 million in the nine months ended September 30, 2013 from $34.1 million in the nine months ended September 30, 2012. The nine months ended September 30, 2013 results included approximately $7.2 million of distribution costs associated with the launch of MIE. After adjusting for these costs, distribution and service fee expenses would have been $25.9 million. The nine months ended September 30, 2012 results included approximately $14.4 million of distribution costs associated with the launch of LDP. After adjusting for these costs, distribution and service fee expenses would have been $19.8 million. The increase in distribution and service fee expenses after adjustments was primarily due to higher average assets under management in our open-end mutual funds and additional expenses related to the exercise of the underwriters' over-allotment option for MIE during the nine months ended September 30, 2013.
Non-operating Income
Non-operating loss was $3.9 million in the nine months ended September 30, 2013, compared with non-operating income of $6.3 million in the nine months ended September 30, 2012. The decrease was primarily due to net losses in our consolidated seed investments.
Income Taxes
We recorded an income tax expense of $29.2 million in the nine months ended September 30, 2013, compared with $24.2 million in the nine months ended September 30, 2012. The provision for income taxes in the nine months ended September 30, 2013 included U.S. federal, state, local and foreign taxes at an approximate effective tax rate of 37.5%, which included discrete items, the most significant of which was attributable to the launch costs for MIE. Excluding the discrete items, the effective tax rate for the nine months ended September 30, 2013 was approximately 38%. The effective tax rate for the nine months ended September 30, 2012 was approximately 35%, which included discrete items, the most significant of which was attributable to the offering costs of LDP. Excluding the discrete items, the effective tax rate for the nine months ended September 30, 2012 was approximately 36%. We expect our tax rate for the full year 2013 to approximate 38%, excluding discrete items.

Changes in Financial Condition, Liquidity and Capital Resources Our investment advisory business does not require us to maintain significant capital balances. Our current financial condition is highly liquid, with a significant amount of our assets comprised of cash and cash equivalents, securities owned, investments, available-for-sale and accounts receivable. Our cash flows generally result from the operating activities of our business, with investment advisory and administrative fees being the most significant contributor. Cash and cash equivalents, equity method investments, investments, available-for-sale and accounts receivable were 78% and 50% of total assets as of September 30, 2013 and December 31, 2012, respectively, excluding investments classified as level 3 in accordance with Accounting Standard Codification (the "Codification") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). Included in equity method investments was approximately $8.0 million invested in our offshore global real estate long-short fund which was classified as level 2 at December 31, 2012. See Notes 4 and 5 to the condensed consolidated financial statements relating to investments.
Cash and cash equivalents increased by $47.9 million, excluding the effect of foreign exchange rate changes, in the nine months ended September 30, 2013. Net cash provided by operating activities was $41.1 million in the nine months ended September 30, 2013. Net cash of $15.5 million was provided by investing activities, from proceeds from sales of investments, available-for-sale in the amount of $20.2 million and proceeds from redemption of equity method investments of $7.7 million, partially offset by purchases of $8.2 million of investments, available-for-sale and purchases of $4.3 million of property and equipment. Net cash of $8.7 million was used in financing activities, primarily for dividends to stockholders of $26.6 million, redemptions of redeemable noncontrolling interest of $14.2 million and repurchases of common stock of $8.0 million to satisfy employee withholding tax obligations on the delivery of restricted stock units, partially offset by contributions from redeemable noncontrolling interest of $37.7 million and excess tax benefits associated with the delivery of restricted stock units of $2.0 million.


Cash and cash equivalents decreased by $6.5 million, excluding the effect of foreign exchange rate changes, in the nine months ended September 30, 2012. Net cash used in operating activities was $21.7 million in the nine months ended September 30, 2012. Net cash of $3.6 million was provided by investing activities, primarily from proceeds from sales of investments, available-for-sale in the amount of $23.7 million, partially offset by purchases of $18.5 million of investments, available-for-sale and purchases of $2.4 million of property and equipment. Net cash of $11.6 million was provided by financing activities, primarily from contributions from redeemable noncontrolling interest of $44.1 million and excess tax benefits associated with the delivery of restricted stock units of $2.8 million, partially offset by . . .

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