UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
| (Mark One) | |
| S | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
| OR | |
| £ | 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)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 757 Third Avenue New York, NY (Address of principal executive offices) | 10017 | |
| (212) 832-3232 (Registrant’s telephone number, including area code) | ||
(Former name, former address and former fiscal year, if changed since last report)
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. YesSNo£
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) COHEN & STEERS, INC. AND SUBSIDIARIES 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 and Section 21E of the Securities Exchange Act of 1934, which reflect our 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,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “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 statements. We believe that these factors include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2004, which is accessible on the Securities and Exchange Commission’s Part I – Financial Information See notes to condensed consolidated financial statements 3 See notes to condensed consolidated financial statements 4 See notes to condensed consolidated financial statements COHEN & STEERS, INC. AND SUBSIDIARIES 1. Organization and Description of Business Cohen & Steers, Inc. (“CNS”) completed the initial public offering of its common stock on August 18, 2004. On August 17, 2004, prior to the completion of the initial public offering and pursuant to a reorganization into a holding company structure, CNS became the parent holding company of Cohen & Steers Capital Management, Inc. (“CSCM”). CNS, The unaudited condensed consolidated financial statements include the accounts of CNS and its direct and indirect subsidiaries, which include CSCM, Cohen & Steers Securities, LLC (“Securities, LLC”), and Cohen & Steers Capital Advisors, LLC (“Advisors, LLC” and collectively, the “Company”) The Company 2. Basis of Presentation and Significant Accounting Policies The unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the 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 preparation of the unaudited condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s unaudited 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, 2004 and the unaudited condensed 6 consolidated financial statements and the related notes included in the Company’s Quarterly Reports on Form 10-Q for the 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. Investments—The 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. Marketable securities classified as available-for-sale consist of investments in Company-sponsored open-end and closed-end mutual funds as well as highly rated debt and preferred instruments. These investments are carried at fair value based on quoted market prices, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. Goodwill and Intangible Asset—Intangible assets are amortized over their useful life. 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 is not amortized but is tested at least annually for impairment by comparing the fair value to carrying amount, including goodwill. See Note 3 for further discussion about the Company’s goodwill and intangible assets. Deferred Commissions—Deferred commissions consist of commissions paid in advance to broker-dealers in connection with the sale of certain shares of Company-sponsored open-end load mutual funds and are capitalized and amortized over a period not to exceed six years. Investment Advisory and Administration Fees—The Company earns the majority of its revenue by providing asset management services to Company-sponsored open-end and closed-end mutual funds and to institutional separate accounts. This revenue is earned pursuant to the terms of the underlying advisory contract and is based on a contractual investment advisory fee applied to the assets in the respective portfolios. The Company also earns revenue from administration fees paid by certain Company-sponsored open-end and closed-end mutual funds, based on the average daily net assets of such funds. This revenue is recognized as such fees are earned. Distribution and Service Fee Revenue—Distribution and service fee revenue is Portfolio Consulting Fees—The Company earns revenue for various portfolio consulting services provided to clients, as well as for providing a license to use its name. This revenue is recognized pursuant to the terms of individual agreements and is based on the net assets of the clients’ funds. New Accounting Pronouncements—In March 2005, a Financial Accounting Standards Board (“FASB”) Staff Position was issued addressing the application of Emerging Issues Task Force (“EITF”) Issue No. 85-24 (“FSP EITF 85-24-1”), “Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,” when cash for the right to future distribution fees for shares previously sold is received from third parties. FSP EITF 85-24-1 did not materially impact the Company’s unaudited condensed consolidated financial position or results of operations. 3. Intangible Asset The Company’s intangible asset, which expires in January 2008, reflects the independently determined value of the non-competition agreements that the Company received from certain employees who received fully vested restricted stock units (“RSUs”) at the time of Amortization expense 4. Investments Marketable Securities The following is a summary of the cost and fair value of investments in marketable securities at (1) Debt securities consist of U.S. Treasury and U.S. Government agency securities. In the three months ended 8 funds were approximately Equity Investment At 5. Property and Equipment On September 30, 2005, the Company sold its fractional ownership interest in an aircraft for approximately $485,000, net of commissions. The aircraft had a net book value of approximately $196,000 at September 30, 2005. Pursuant to this transaction, the Company recognized a gain on sale of approximately $289,000. 6. Earnings Per Share Basic earnings per share are calculated by dividing net income by the weighted average shares outstanding. Diluted earnings per share are calculated by dividing net income by the total weighted average shares of common stock outstanding and common stock equivalents. Common stock equivalents are comprised of dilutive potential shares from restricted stock unit awards. Common stock equivalents are excluded from the computation if their effect is anti-dilutive. Diluted earnings per share are computed using the treasury stock method. The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations in the three and 9 On August 16, 2004, the Company terminated its status as an S-corporation and converted to a C-corporation. For all periods prior to such date, the Company operated as an S-corporation and was not subject to U.S. Federal and certain state income taxes. The Company’s historical income tax expense consisted of New York State and New York City income taxes. As a C-corporation, the Company is liable for U.S. Federal and certain state and local income taxes to which it had not been previously subject. The Company accounts for taxes in accordance with the guidance set forth in Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting For Income Taxes.” In accordance with SFAS No. 109, recognition of tax benefits or expenses is required for temporary differences between the book and tax bases of assets and liabilities. Deferred income taxes represent the tax effects of the temporary differences between book and tax bases and are measured using the tax rates expected during the periods in which the differences are expected to reverse. The provision for income taxes for the three 8. Long-Term Debt During the three As previously disclosed, on October 11, 2004, the Company’s Compensation Committee canceled fully vested RSUs previously granted to an employee who resigned from the Company due to such employee’s violation of the non-competition covenants relating to the RSUs. On October 29, 2004, this former employee filed a lawsuit against the Company challenging the forfeiture of these RSUs. On November 18, 2004, the Company filed a motion to dismiss this action and on April 1, 2005, the court granted the Company’s motion to dismiss. On November 7, 2005, this former employee appealed the Supreme Court’s decision to dismiss the matter to the Appellate Division of the Supreme Court, First Department. Based on information currently available and advice of counsel, the Company believes that the eventual outcome of the action against it will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations or liquidity. 10 10. Comprehensive Income Total comprehensive income includes net income and other comprehensive income, net of tax. The components of comprehensive income in the three months and Securities, LLC and Advisors, LLC, as registered broker-dealers and member firms of the NASD, are subject to the SEC’s Uniform Net Capital Rule 15c3-1 (the “Net Capital Rule”), which requires that broker-dealers maintain a minimum level of net capital, as defined. At The Net Capital 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 Net Capital Rule. Securities, LLC and Advisors, LLC do not carry customer accounts and are exempt from the SEC’s Rule 15c3-3 pursuant to provisions (k)(2)(i) and (k)(2)(ii) of such rule. The Company is an investment advisor to, and has administrative agreements with, affiliated open-end and closed-end mutual funds for which certain employees are officers and/or directors. In the three months ended 11 The Company incurs expenses associated with the launch of its open and closed-end totaled approximately The Company has an agreement with an affiliated open-end mutual fund The Company has agreements with General and administrative expenses include See Note 4 relating to additional investments in Company-sponsored mutual funds. The Company does not record revenue between segments (referred to as inter-segment revenue). The Company evaluates performance of its segments based on profit or loss from operations before taxes. Information on the unaudited condensed consolidated statement of financial condition data by segment is not disclosed because it is not used in evaluating segment performance and deciding how to allocate resources to segments. Summarized financial information for the Company’s reportable segments is presented in the following tables (in thousands): 12 On On 13 Set forth on the following pages is management’s discussion and analysis of our financial condition and results of operations for the three and Overview Cohen & Steers Assets Under Management We manage three types of accounts: closed-end mutual funds, open-end load and no-load mutual funds and institutional separate accounts. The following table sets forth information regarding the net flows and appreciation/(depreciation) of assets under management for the periods 14 (1) As of 15 Assets under management were Closed-end mutual funds Closed-end mutual fund assets under management increased Closed-end mutual fund inflows were $755 million in the Market appreciation was Open-end mutual funds Open-end mutual fund assets under management increased Net inflows for open-end mutual funds were $49 million in the three months ended September 30, 2005, compared with net inflows of $100 million in the three months ended September 30, 2004. Gross inflows increased to $448 million in the three months ended September 30, 2005 from $315 million in the three months ended September 30, 2004. Gross outflows totaled $399 million in the three months ended September 30, 2005, compared with $215 million in the three months ended September 30, 2004. Market appreciation across all of our open-end mutual funds was $119 million in the three months ended September 30, 2005, compared with market appreciation of $336 million in the three months ended September 30, 2004. 16 Net outflows for open-end mutual funds were Market appreciation across all of our open-end mutual funds was Institutional separate accounts Institutional separate account assets under management increased Institutional separate accounts had net Market appreciation was $165 million in the three months ended September 30, 2005, compared with market appreciation of $324 million in the three months ended September 30, 2004. Institutional separate accounts had net outflows of $110 million in the nine months ended September 30, 2005, compared with net inflows of Market appreciation was 17 Results of Operations Three Months Ended The following table of selected financial data presents our business segments in a manner consistent with the way that we manage our businesses (in thousands): Revenue Total revenue increased Asset Management Revenue increased 29% to In the three months ended In the three months ended three months ended In the three months ended September 30, 2005, total investment advisory and administration revenue from institutional separate accounts increased 34% to $4.1 million from $3.1 million in the three months 18 ended September 30 2004. This increase was attributable to higher levels of assets resulting from market appreciation, despite net outflows during the period. Investment Banking Revenue Expenses Total operating expenses Employee compensation and benefits expense Distribution and service fee expenses increased General and administrative expenses increased Depreciation and amortization increased 55% to $1.4 million in the three months ended 19 2008, reflects the independently determined value of the non-competition agreements we have received from each of the employees that received fully vested RSUs at our initial public Non-operating Income Non-operating income, including our share of the net income of Houlihan Rovers, was Income Taxes Historical income tax expense consisted solely of New York state and local income taxes; prior to The following table of selected financial data presents our business segments in a manner consistent with the way that we manage our businesses (in thousands): 20 Revenue Total revenue increased Asset Management Revenue increased In the In the In the nine months ended September 30, 2005, total investment advisory and administration revenue from institutional separate accounts increased 35% to $11.5 million from $8.5 million in the nine months ended September 30 2004. This increase was attributable to higher levels of assets resulting from market appreciation, despite net outflows during the period. Distribution and service fee revenue increased revenue was primarily due to increased assets in two open-end mutual funds. 21 Investment Banking Revenue increased Expenses Total operating expenses Employee compensation and benefits expense Distribution and service fee expenses increased General and administrative expenses increased Depreciation and amortization increased to determined value of the non-competition agreements we have received from each of the 22 employees that received fully vested RSUs at Non-operating Income Non-operating income, including our share of the net income of Houlihan Rovers, was Income Taxes Historical income tax expense consisted solely of New York state and local income taxes; prior to 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 the majority of our assets comprised of cash and cash equivalents and marketable securities. Our cash flows are generally created as a result of the operating activities of our business segments, with investment advisory and administrative fees a significant contributor. Cash, cash equivalents, accounts receivable and marketable securities were Net cash from operating activities was Net cash from operating activities was 23 made to shareholders. It is our policy to continuously monitor and evaluate the adequacy of our capital. We have consistently maintained net capital in excess of the regulatory requirements for our broker-dealers, as prescribed by the Securities and Exchange Commission (“SEC”). At Contractual Obligations We have contractual obligations to make future payments in connection with our non-cancelable operating lease agreements for office space Off-Balance Sheet Arrangements We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any leasing activities that expose us to any liability that is not reflected in our unaudited condensed consolidated financial statements. Critical Accounting Policies and Estimates The preparation of our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. A thorough understanding of our accounting policies is essential when reviewing our reported results of operations and our financial position. Our management considers the following accounting policies critical to an informed review of our consolidated financial statements. For a summary of these and 24 additional accounting policies, see the notes to the annual audited consolidated financial statements on our Annual Report on Form 10-K for the year ended December 31, 2004. Investments Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each statement of financial condition date. Marketable securities classified as available-for-sale consist of investments in our prices, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. Deferred Commissions Deferred commissions consist of commissions paid in advance to broker-dealers in connection with the sale of certain shares of our sponsored open-end load mutual funds Investment Advisory and Administration Fees We earn the majority of our revenue by providing Distribution and Service Fee Revenue Distribution and service fee revenue is recognized as the services are performed, generally based on contractually-predetermined percentages of the average daily net assets of the open-end load mutual funds. Distribution and service fee revenue is recorded gross of any third-party distribution and service arrangements; the expenses associated with these third-party distribution and service arrangements are recorded in distribution and service fee expenses. Portfolio Consulting Fees We earn revenue for various portfolio consulting services provided to clients, as well as for providing a license to use our name. This revenue is recognized pursuant to the terms of individual agreements and is based on the net assets of the clients’ funds. New Accounting Pronouncements In March 2005, a Financial Accounting Standards Board (“FASB”) Staff Position was issued addressing the application of Emerging Issue Task Force (“EITF”) Issue No. 85-24 (“FSP EITF 85-24-1”), “Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,” when cash for the right to future distribution fees for shares previously sold is received from third parties. FSP EITF 85-24-1 did not materially impact our unaudited condensed consolidated financial position or results of operations. 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 and Section 21E of the Securities Exchange Act of 1934, which reflect our 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,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “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 statements. We believe that these factors include, but are not limited to, those described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, which is accessible on the Securities and Exchange Commission’s ITEM 3. Quantitative and Qualitative Disclosures About Market Risk In the normal course of our business, we are exposed to the risk of interest rate, securities market and general economic fluctuations which may have an adverse impact on the value of our marketable securities. As of In addition, market conditions may preclude us from increasing the assets we manage in closed-end mutual funds. A significant portion of our recent growth in the assets we manage has resulted from public offerings of the shares of closed-end mutual funds. The market conditions for these offerings may not be as favorable in the future, which could adversely impact our ability to grow the assets we manage and realize higher fee revenue associated with such growth. 26 The returns for REIT common stocks have demonstrated ITEM 4. Controls and Procedures Based on their evaluation as of a date as of the end of the period covered by this Quarterly Report on Form 10-Q, our co-chief executive officers and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There has been no change in our internal control over financial reporting that occurred during the 27 As previously disclosed, on October 11, 2004, our Compensation Committee canceled fully vested RSUs previously granted to an employee who resigned from Cohen & Steers, due to such employee’s violation of the non-competition covenants relating to the RSUs. On October 29, 2004, this former employee filed a lawsuit in the Supreme Court of the State of New York against Cohen & Steers, Inc. and its wholly owned subsidiary, Cohen & Steers Capital Management, Inc., challenging the forfeiture of these RSUs. On November 18, 2004, we filed a motion to dismiss this action and on April 1, 2005, the court granted our motion to dismiss. On November 7, 2005, this former employee appealed the Supreme Court’s decision to dismiss the matter to the Appellate Division of the Supreme Court, First Department. Although the Company cannot predict with certainty the outcome of this action at this time, the Company believes that the Complaint is without merit and will defend this matter vigorously. In addition, the Company believes that the eventual outcome of the action against it will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations or liquidity. ITEM 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of Cohen & Steers was held on May 9, 2005, for the purpose of considering and acting upon the following: (1)Election of Directors. Six directors were elected and the votes cast for or against/withheld were as follows: (2)Ratification of Independent Registered Public Accounting Firm. The appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm was ratified and the votes cast for or against and the abstentions were as follows: 28 There were no broker non-votes. With respect to the preceding matters, holders of the Company’s common stock are entitled to one vote per share. 29 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Yes£ NoS
The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of August 12,November 9, 2005 was 35,407,029.
Form 10-Q
IndexwebsiteWeb site athttp://www.sec.gov and on our websiteWeb site atcohenandsteers.com. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Item 1. Financial StatementsCOHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data) September 30,
2005 December 31,
2004 (Unaudited) Current assets: Cash and cash equivalents $ 27,731 $ 30,164 Marketable securities available-for-sale 90,629 69,935 Accounts receivable: Company-sponsored mutual funds 10,405 8,498 Other 6,366 4,654 Due from company-sponsored mutual funds 309 386 Income tax refunds receivable 170 380 Prepaid expenses and other current assets 5,273 2,119 Total current assets 140,883 116,136 Property and equipment-net 4,621 2,638 Intangible asset-net 10,362 13,693 Other assets: Deferred commissions-net 4,740 5,716 Investments, company-sponsored mutual funds — 100 Equity investment 4,276 3,961 Deferred income tax asset 21,455 18,003 Deposits 1,990 43 Total other assets 32,461 27,823 Total assets $ 188,327 $ 160,290 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accrued expenses and compensation $ 20,982 $ 7,328 Dividends payable 4,385 3,983 Current portion of long-term debt — 115 Current portion of obligations under capital leases 56 20 Deferred income tax liability 1,795 1,301 Other current liabilities 121 254 Total current liabilities 27,339 13,001 Long-term liabilities: Long-term debt — 1,558 Deferred rent less current maturities 1,230 66 Obligations under capital leases less current maturities 70 30 Total long-term liabilities 1,300 1,654 Stockholders’ equity: Common stock, $0.01 par value; 500,000,000 shares authorized;
35,407,029 shares issued and outstanding at September 30, 2005
and 35,388,736 shares issued and outstanding at December 31, 2004 354 354 Additional paid-in capital 183,538 178,594 Accumulated deficit (10,336 ) (21,557 ) Unearned compensation (14,711 ) (13,546 ) Accumulated other comprehensive income, net of tax 843 1,790 Total stockholders’ equity 159,688 145,635 Total liabilities and stockholders’ equity $ 188,327 $ 160,290 See notes to condensed consolidated financial statements COHEN & STEERS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(in thousands, except share data)2June 30,
2005December 31,
2004(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 26,649 $ 30,164 Marketable securities available-for-sale 90,302 69,935 Accounts receivable: Company-sponsored mutual funds 9,814 8,498 Other 4,661 4,654 Due from company-sponsored mutual funds 375 386 Income tax refunds receivable 200 380 Prepaid expenses and other current assets 1,146 2,119
Total current assets 133,147 116,136
Property and equipment-net 3,085 2,638
Intangible asset-net 11,472 13,693
Other assets: Deferred commissions-net 5,019 5,716 Investments, company-sponsored mutual funds — 100 Equity investment 4,321 3,961 Deferred income tax asset 19,933 18,003 Deposits 1,611 43
Total other assets 30,884 27,823
Total assets $ 178,588 $ 160,290
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accrued expenses and compensation $ 16,650 $ 7,328 Dividends payable 3,984 3,983 Current portion of long-term debt 129 115 Current portion of obligations under capital leases 56 20 Deferred income tax liability 855 1,301 Income taxes payable 321 — Other current liabilities 92 254
Total current liabilities 22,087 13,001
Long-term liabilities: Long-term debt 1,486 1,558 Deferred rent less current maturities 708 66 Obligations under capital leases less current maturities 85 30
Total long-term liabilities 2,279 1,654
Stockholders’ equity: Common stock, $0.01 par value; 500,000,000 shares authorized;
35,407,029 shares issued and outstanding at June 30, 2005
and 35,388,736 shares issued and outstanding at December 31, 2004 354 354 Additional paid-in capital 179,756 178,594 Accumulated deficit (13,956 ) (21,557 ) Unearned compensation (13,126 ) (13,546 ) Accumulated other comprehensive income, net of tax 1,194 1,790
Total stockholders’ equity 154,222 145,635
Total liabilities and stockholders’ equity $ 178,588 $ 160,290
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data) Three Months Ended Nine Months Ended September 30,
2005 September 30,
2004 September 30,
2005 September 30,
2004 Revenue Investment advisory and administration fees $ 31,402 $ 24,174 $ 87,732 $ 66,077 Distribution and service fee revenue 3,122 2,554 8,941 7,246 Portfolio consulting and other 720 512 2,515 2,136 Investment banking fees 1,187 1,881 9,618 6,599 Total revenue 36,431 29,121 108,806 82,058 Expenses Employee compensation and benefits 10,154 55,183 27,963 71,006 Distribution and service fee expenses 7,838 7,072 21,861 16,202 General and administrative 5,195 2,789 16,400 8,916 Depreciation and amortization 1,380 889 4,144 1,454 Amortization, deferred commissions 826 1,005 2,625 3,295 Total expenses 25,393 66,938 72,993 100,873 Operating income (loss) 11,038 (37,817 ) 35,813 (18,815 ) Non-operating income (expense) Interest and dividend income 877 302 2,232 515 Gain from sale of marketable securities 827 — 1,976 — Gain from sale of property and equipment 289 — 289 — Foreign currency transaction loss (33 ) — (64 ) — Interest expense (54 ) (30 ) (102 ) (111 ) Total non-operating income 1,906 272 4,331 404 Income (loss) before provision for income
taxes and equity in earnings of affiliate 12,944 (37,545 ) 40,144 (18,411 ) Provision for income taxes 5,226 (16,956 ) 17,250 (15,753 ) Equity in earnings of affiliate 285 — 683 — Net income (loss) $ 8,003 $ (20,589 ) $ 23,577 $ (2,658 ) Earnings (loss) per share Basic $ 0.20 $ (0.60 ) $ 0.59 $ (0.09 ) Diluted $ 0.20 $ (0.60 ) $ 0.58 $ (0.09 ) Weighted average shares outstanding Basic 39,980 34,068 39,999 29,156 Diluted 40,371 34,138 40,303 29,226 COHEN & STEERS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(in thousands, except per share data)Three Months Ended June 30, Six Months Ended June 30, 2005 2004 2005 2004 Revenue: Investment advisory and administration fees $ 29,010 $ 22,174 $ 56,330 $ 41,903 Distribution and service fee revenue 2,950 2,284 5,819 4,692 Portfolio consulting and other 766 915 1,795 1,624 Investment banking fees 5,542 255 8,431 4,718 Total revenue 38,268 25,628 72,375 52,937 Expenses: Employee compensation and benefits 9,150 6,843 17,809 15,823 Distribution and service fee expenses 7,363 4,935 14,023 9,130 General and administrative 5,802 3,370 11,205 6,127 Depreciation and amortization 1,389 284 2,764 565 Amortization of deferred commissions 810 1,233 1,799 2,290 Total expenses 24,514 16,665 47,600 33,935 Operating income 13,754 8,963 24,775 19,002 Non-operating income (expense): Interest and dividend income 804 112 1,355 213 Gain from sale of marketable securities 642 — 1,149 — Foreign currency transaction loss (10 ) — (31 ) — Interest expense (26 ) (39 ) (48 ) (81 ) Total non-operating income 1,410 73 2,425 132 Income before provision for income taxes and equity in
earnings of affiliate 15,164 9,036 27,200 19,134 Provision for income taxes 6,901 436 12,024 1,203 Equity in earnings of affiliate 246 — 398 — Net income $ 8,509 $ 8,600 $ 15,574 $ 17,931 Earnings per share: Basic $ 0.21 $ 0.32 $ 0.39 $ 0.67 Diluted $ 0.21 $ 0.32 $ 0.39 $ 0.67 Weighted average shares outstanding: Basic 39,986 26,700 40,009 26,700 Diluted 40,293 26,700 40,301 26,700 COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(in thousands) Nine Months Ended September 30, 2005 Common
Stock Additional
Paid-In
Capital Accumulated
Deficit Unearned
Compensation Accumulated Other
Comprehensive
Income, Net Total Beginning balance, January 1, 2005 $ 354 $ 178,594 $ (21,557 ) $ (13,546 ) $ 1,790 $ 145,635 Dividends — — (12,356 ) — — (12,356 ) Issuance of common stock — 319 — — — 319 Tax benefit from issuance of dividends on restricted stock units — 941 — — — 941 Issuance of restricted stock units — 5,101 — (4,950 ) — 151 Amortization of unearned compensation — — — 3,437 — 3,437 Forfeitures of restricted stock awards — (1,417 ) — 348 — (1,069 ) Net income — — 23,577 — — 23,577 Other comprehensive loss, net of taxes — — — — (947 ) (947 ) Ending balance, September 30, 2005 $ 354 $ 183,538 $ (10,336 ) $ (14,711 ) $ 843 $ 159,688 COHEN & STEERS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)(in thousands) For The Three Months Ended March 31, 2005 and June 30, 2005 Common Stock Additional Paid-In Capital Accumulated Deficit Unearned Compensation Accumulated Other Comprehensive Income, Net Total Beginning balance, January 1, 2005 $ 354 $ 178,594 $ (21,557 ) $ (13,546 ) $ 1,790 $ 145,635 Dividends — — (3,990 ) — — (3,990 ) Issuance of restricted stock units — 649 — — — 649 Amortization of unearned compensation — — — 1,102 — 1,102 Forfeitures of restricted stock awards — (123 ) — (53 ) — (176 ) Net income — — 7,065 — — 7,065 Other comprehensive loss, net of taxes — — — — (782 ) (782 ) Ending balance, March 31, 2005 354 179,120 (18,482 ) (12,497 ) 1,008 149,503 Dividends — — (3,983 ) — — (3,983 ) Issuance of common stock — 319 — — — 319 Issuance of restricted stock units — 1,611 — (2,150 ) — (539 ) Amortization of unearned compensation — — — 1,045 — 1,045 Forfeitures of restricted stock awards — (1,294 ) — 476 — (818 ) Net income — — 8,509 — — 8,509 Other comprehensive income, net of taxes — — — — 186 186 Ending balance, June 30, 2005 $ 354 $ 179,756 $ (13,956 ) $ (13,126 ) $ 1,194 $ 154,222 COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands) Nine Months Ended September 30, 2005 2004 Cash flows from operating activities: Net income (loss) $ 23,577 $ (2,658 ) Adjustments to reconcile net income to net cash provided by operating activities: Stock compensation expense 4,020 46,330 Stock appreciation right plan expense — 869 Amortization, deferred commissions 2,625 3,295 Depreciation and amortization 4,144 1,454 Amortization, bond discount - net (131 ) — Deferred rent 1,164 (23 ) Gain from sale of marketable securities (1,976 ) — Equity in earnings of affiliate 683 — Deferred income taxes (2,958 ) (17,103 ) Foreign currency transaction loss 64 — Gain from sale of property and equipment (289 ) — Tax benefit from issuance of dividends on restricted stock units 941 — Changes in operating assets and liabilities: Accounts receivable, company-sponsored mutual funds (1,907 ) (2,152 ) Accounts receivable, others (1,776 ) 169 Due from company-sponsored mutual funds 77 230 Deferred initial public offering costs — 139 Income tax refunds receivable 210 46 Prepaid expenses and other current assets (3,154 ) (1,566 ) Deferred commissions (1,649 ) (2,524 ) Deposits (1,947 ) — Accrued expenses and compensation 12,323 13,617 Income taxes payable — (99 ) Other current liabilities (133 ) — Net cash provided by operating activities 33,908 40,024 Cash flows from investing activities: Purchases of marketable securities available-for-sale (52,450 ) (56,763 ) Proceeds from maturities of marketable securities available-for-sale 24,747 — Proceeds from sale of marketable securities available-for-sale 8,199 — Purchases of property and equipment (2,981 ) (333 ) Net cash used in investing activities (22,485 ) (57,096 ) Cash flows from financing activities: Distributions to S-corporation shareholders — (37,741 ) Dividends to stockholders (11,954 ) — Repayment of bank line of credit — (4,713 ) Payment of capital lease obligations (76 ) — Principal payments on long-term debt (1,673 ) (89 ) Offering costs — (4,837 ) Issuance of common stock 215 104,276 Net cash (used in) provided by financing activities (13,488 ) 56,896 Net increase (decrease) in cash and cash equivalents (2,065 ) 39,824 Effect of foreign currency translation (368 ) — Cash and cash equivalents, beginning of period 30,164 7,526 Cash and cash equivalents, end of period $ 27,731 $ 47,350 Supplementary disclosure of cash flow information: Cash paid for interest $ 107 $ 117 Cash paid for taxes, net $ 21,217 $ 530 COHEN & STEERS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(in thousands)5 Six Months Ended June 30, 2005 2004 Cash flows from operating activities: Net income $ 15,574 $ 17,931 Adjustments to reconcile net income to net cash provided by operating activities: Stock compensation expense 2,748 — Amortization, deferred commissions 1,799 2,291 Depreciation and amortization 2,764 565 Amortization, bond discount - net (88 ) — Deferred rent 647 (15 ) Gain on sale of marketable securities (1,149 ) — Equity in earnings of affiliate (360 ) — Deferred income taxes (1,930 ) (111 ) Foreign currency transaction loss 31 — Changes in operating assets and liabilities: Accounts receivable, company-sponsored mutual funds (1,316 ) (1,659 ) Accounts receivable, others (38 ) 37 Due (from) to company-sponsored mutual funds (155 ) 200 Income tax refunds receivable 180 43 Prepaid expenses and other current assets 117 138 Deferred commissions - net (1,067 ) (1,858 ) Deposits (1,568 ) — Accrued expenses and compensation 7,630 8,311 Income taxes payable 1,142 (589 ) Net cash provided by operating activities 24,961 25,284 Cash flows from investing activities: Purchases of marketable securities available-for-sale (38,675 ) (1,277 ) Proceeds from maturities of marketable securities available-for-sale 15,470 — Proceeds from sale of marketable securities available-for-sale 3,173 — Purchases of property and equipment (598 ) (252 ) Net cash used in investing activities (20,630 ) (1,529 ) Cash flows from financing activities: Distributions to S-corporation shareholders — (17,000 ) Dividends to stockholders (7,973 ) — Repayment of bank line of credit — (441 ) Payment of capital lease obligations (19 ) (9 ) Principal payments on long-term debt (58 ) (23 ) Offering costs — (1,984 ) Issuance of common stock 243 — Cash used in financing activities (7,807 ) (19,457 ) Net increase (decrease) in cash and cash equivalents (3,476 ) 4,298 Effect of foreign currency translation (39 ) — Cash and cash equivalents, beginning of period 30,164 7,526 Cash and cash equivalents, end of period $ 26,649 $ 11,824 Supplementary disclosure of cash flow information: Cash paid for interest $ 55 $ 86 Cash paid for taxes, net $ 12,808 $ 1,903 Non-cash transactions: Acquisition of property and equipment under capital leases $ 110 $ — See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)together withthrough its direct and indirect subsidiaries, succeeded to the business conducted by CSCM and its subsidiaries. The reorganization is described in greater detail in the Registration Statement on Form S-1 (File No. 333-114027) (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) in connection with the initial public offering. On August 16, 2004, the Company terminated its status as an S-corporation under Subchapter S of the Internal Revenue Code and converted to a C-corporation. The results for the three and sixnine months ended JuneSeptember 30, 2004 representinclude operations as a private company and include results that are not necessarily comparable with the results of operations as a public company in the three and sixnine months ended JuneSeptember 30, 2005. and. On September 9, 2005, CNS terminated Cohen & Steers Holdings, LLC (collectively,(“Holdings, LLC”). Holdings, LLC was organized to retain fractional ownership interests in two aircraft. During the “Company”).quarter ended September 30, 2005, these interests were transferred to CSCM. Material intercompany transactions and balances have been eliminated in consolidation.is a registered investment advisor providingprovides investment management services to individual and institutional investors through a wide range of open-end mutual funds, closed-end mutual funds and institutional separate accounts. As a registered investment advisor, theThe Company manages high-income equity portfolios, specializing in real estate investment trusts, globalU.S. REITs, international real estate securities, preferred securities, utilities value equity securities and other high-dividend paying commonlarge cap value stocks. Through its registered broker-dealers, Securities, LLC and Advisors, LLC, the Company provides distribution services for certain of its funds as well as investment banking services to companies in real estate and real estate intensive businesses. On January 27, 2005, the National Association of Securities Dealers (“NASD”(the “NASD”) approved the expansion of Advisors, LLC’s underwriting business to include firm commitment underwriting.periodperiods ended March 31, 2005 and June 30, 2005. Certain prior period amounts have been reclassified to conform to the three and sixnine months ended JuneSeptember 30, 2005 presentation.recognizedearned as the services are performed, generally based on contractually-predetermined percentages of the average daily net assets of the open-end load mutual funds. Distribution and service fee revenue is recorded gross of any third-party distribution and service arrangements; the expenses associated with these third-party distribution and service arrangements are recorded in distribution and service fee expenses. In December 2004, the FASB issued the revised Statement of Financial Accounting Standards No. 123, (“SFAS No. 123 (R)”), which requires public companies to recognize the7cost resulting from all share-based transactions in their financial statements. SFAS No. 123 (R) eliminates the ability to account for share-based compensation using the intrinsic value method under Accounting Principles Board Opinion (“APB”) 25. The adoption of SFAS No. 123 (R) did not materially impact the Company’s unaudited condensed consolidated financial position or results of operations. In September 2004, EITF reached a consensus on Issue 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.” This EITF requires that individual operating segments that do not meet the quantitative thresholds set forth in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable for fiscal years ending after September 15, 2005. The adoption of EITF 04-10 will not materially impact the Company’s identified segments.CNS’sthe Company’s initial public offering in exchange for terminated stock appreciation rights granted to such holders prior to CNS’sthe Company’s initial public offering. The intangible asset, with an original value of $15,400,000, is being amortized on a straight-line basis over the life of these agreements. The following table details the gross carrying amounts and accumulated amortization for the intangible asset at JuneSeptember 30, 2005 and December 31, 2004 (in thousands): June 30,
2005 December 31,
2004 Gross carrying amount $ 15,400 $ 15,400 Accumulated amortization (3,928 ) (1,707 ) Intangible asset, net $ 11,472 $ 13,693 September 30,
2005 December 31,
2004 Gross carrying amount $ 15,400 $ 15,400 Accumulated amortization (5,038 ) (1,707 ) Intangible asset, net $ 10,362 $ 13,693 ofrelated to the intangible asset was approximately $1,110,000 and $2,221,000$3,331,000 in the three and sixnine months ended JuneSeptember 30, 2005, respectively. Estimated amortization expense from JulyOctober 1, 2005 through January 31, 2008, the date of expiration, is as follows (in thousands): Years Ended December 31, Estimated Amortization Expense 2005 $ 2,220 2006 4,441 2007 4,441 2008 370 Years Ending December 31, Estimated Amortization Expense 2005 $ 1,110 2006 4,441 2007 4,441 2008 370 JuneSeptember 30, 2005 and December 31, 2004 (in thousands): September 30, 2005
Gross Unrealized December 31, 2004
Gross Unrealized June 30, 2005
Gross Unrealized December 31, 2004
Gross Unrealized Cost Gains Losses Market Value Cost Gains Losses Market Value Cost Gains Losses Market Value Cost Gains Losses Market Value Debt securities (1): Maturity Less than 1 year $ 29,928 $ — $ (152 ) $ 29,776 $ 27,451 $ — $ (65 ) $ 27,386 23,953 — (120 ) 23,833 27,451 — (65 ) 27,386 Maturity Between 1yr - 5 yrs 25,922 — (97 ) 25,825 19,990 — (150 ) 19,840 34,880 — (250 ) 34,630 19,990 — (150 ) 19,840 Preferred securities 19,997 — (104 ) 19,893 13,000 72 — 13,072 17,689 117 — 17,806 13,000 72 — 13,072 Company-sponsored mutual funds 12,365 2,443 — 14,808 6,403 3,235 (1 ) 9,637 Company sponsored mutual funds 12,033 2,327 — 14,360 6,403 3,235 (1 ) 9,637 Total investments, available for sale $ 88,212 $ 2,443 $ (353 ) $ 90,302 $ 66,844 $ 3,307 $ (216 ) $ 69,935 Total marketable securities, available for sale 88,555 2,444 (370 ) 90,629 66,844 3,307 (216 ) 69,935 JuneSeptember 30, 2005, sales proceeds and gross realized gains from Company-sponsored mutual funds were approximately $1,651,000$1,797,000 and $642,000,$775,000, respectively. In the sixnine months ended JuneSeptember 30, 2005, sales proceeds and gross realized gains from Company-sponsored mutual$3,173,000$4,970,000 and $1,149,000,$1,924,000, respectively. There was no sales activity in the three and sixnine months ended JuneSeptember 30, 2004. Dividend income from Company-sponsored mutual funds was approximately $159,000$85,000 and $77,000,$138,000, in the three months ended JuneSeptember 30, 2005 and 2004, respectively and approximately $203,000$288,000 and $177,000$315,000 in the sixnine months ended JuneSeptember 30, 2005 and 2004, respectively.JuneSeptember 30, 2005, the Company had a non-controlling 50% investment of approximately $4,321,000$4,276,000, which includes approximately $2,721,000 of goodwill, in Houlihan Rovers, S.A. (“Houlihan Rovers”), the Company’s Brussels-based investment advisor affiliate. The Company accounts for its investment in Houlihan Rovers using the equity method of accounting. Under such accounting method, the investor recognizes its respective share of the investee’s net income for the period. In the three and sixnine months ended JuneSeptember 30, 2005, the Company recognized approximately $246,000$285,000 and $398,000,$683,000, respectively, of income from Houlihan Rovers.sixnine months ended JuneSeptember 30, 2005 and 2004 (in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30, 2005 2004 2005 2004 2005 2004 2005 2004 Net income $ 8,509 $ 8,600 $ 15,574 $ 17,931 Net income (loss) $ 8,003 $ (20,589 ) $ 23,577 $ (2,658 ) Basic weighted average shares outstanding 39,986 26,700 40,009 26,700 39,980 34,068 39,999 29,156 Dilutive potential shares from restricted stock awards 307 — 292 — 391 70 304 70 Dilutive weighted average shares outstanding 40,293 26,700 40,301 26,700 40,371 34,138 40,303 29,226 Basic earnings per share $ 0.21 $ 0.32 $ 0.39 $ 0.67 Basic earnings (loss) per share $ 0.20 $ (0.60 ) $ 0.59 $ (0.09 ) Diluted earnings per share $ 0.21 $ 0.32 $ 0.39 $ 0.67 Diluted earnings (loss) per share $ 0.20 $ (0.60 ) $ 0.58 $ (0.09 ) 6.7. Income Taxesand six months ended JuneSeptember 30, 2005, reflects U.S. federal, state and local income taxes at an effective tax rate equal to 39.5%. Under Accounting Principles Board Opinion 23 –Accounting for income taxes-special areas(“APB 23”), the Company has not provided for U.S. taxes for the undistributed earnings of Houlihan Rovers, which reduced the Company’s effective tax rate for the three months ended September 30, 2005. The provision for income taxes for the nine months ended September 30, 2005, includes U.S. Federal,federal, state and local income taxes at a 44.8% and 43.6%an effective tax rate respectively.equal to 42.3%. Included in the tax provision for the nine months ended September 30, 2005 is an adjustment to the net deferred tax asset resulting from a recent change in the New York State tax law. The deferred tax asset is primarily attributable to a benefitfuture income tax deductions derived from vested restricted stock units granted at the time of the Company'sCompany’s initial public offering. Before adjusting for the deferred tax rate change and including the effect of a higher percentage of investment income, the effective tax rate was 41% forand six months ended JuneSeptember 30, 2005.2005, the Company prepaid its long-term debt, which included two loans with original principal of approximately $1,440,000 and $620,000, respectively. These loans were collateralized by fractional ownership interests in certain aircraft. Amounts paid pursuant to these loan pre-payments as of September 30, 2005, were approximately $1,135,000 million and $493,000 respectively. No gains or losses were recognized on such pre-payments.7.9. Contingenciessixnine months ended JuneSeptember 30, 2005 and 2004 are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30, 2005 2004 2005 2004 2005 2004 2005 2004 Net income $ 8,509 $ 8,600 $ 15,574 $ 17,931 Net income (loss) $ 8,003 $ (20,589 ) $ 23,577 $ (2,658 ) Foreign currency translation adjustment — — (39 ) — (330 ) — (368 ) — Net unrealized gain (loss) on available-for-sale securities, net of tax (198 ) (476 ) (1,235 ) 103 (509 ) (307 ) (1,744 ) (204 ) Reclassification of realized gain on available-for-sale securities, net of tax 384 — 678 — 488 — 1,165 — Total comprehensive income $ 8,695 $ 8,124 $ 14,978 $ 18,034 Total comprehensive income (loss) $ 7,652 $ (20,896 ) $ 22,630 $ (2,862 ) 8.11. Regulatory RequirementsJuneSeptember 30, 2005, Securities, LLC and Advisors, LLC had net capital of approximately $2,100,000$2,325,000 and $7,200,000,$7,143,000, respectively, which exceeded their requirements by approximately $1,900,000$2,097,000 and $6,900,000$6,827,000, respectively.9.12. Related Party TransactionsJuneSeptember 30, 2005 and 2004, the Company earned advisory and administrative fee revenue of approximately $25,179,000$27,269,000 and $19,313,000,$21,126,000, respectively, from these affiliated funds. In the sixnine months ended JuneSeptember 30, 2005 and 2004, the Company earned advisory and administrative fee revenue of approximately $48,979,000$76,248,000 and $36,413,000,$57,539,000, respectively, from these affiliated funds. In the three months ended JuneSeptember 30, 2005 and 2004, distribution and service fee revenue from such funds aggregated approximately $2,950,000$3,091,000 and $2,285,000,$2,561,000, respectively. In the sixnine months ended JuneSeptember 30, 2005 and 2004, distribution and service fee revenue from such funds aggregated approximately $5,850,000$8,941,000 and $4,685,000,$7,246,000, respectively.The Company has investment advisory agreements with certain affiliated closed-end mutual funds which contractually require the waiver of a portion of the advisory fees it is otherwise entitled to receive. These fee waivers, which can last for up to ten years from the respective funds’ inception date, are scheduled to decrease for certain funds beginning in 2006. In the three months ended June 30, 2005 and 2004, the Company waived advisory fees of approximately $4,241,000 and $3,418,000, respectively. In the six months ended June 30, 2005 and 2004, approximately $8,441,000 and $6,018,000 of advisory fees were waived by the Company, respectively.mutual funds. These organizational costs, which are included in general and administrative expenses,$369,000$242,000 and $500,000$100,000 in the three months ended JuneSeptember 30, 2005 and 2004, respectively, and $2,169,000$2,411,000 and $500,000$600,000 in the sixnine months ended JuneSeptember 30, 2005 and 2004, respectively.whichthat contractually requires the Company to pay expenses of the fund so that its total annual operating expenses do not exceed 0.75% of average daily net assets. This commitment will remain in place for the fund’s life. In the three months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $200,000$270,000 and $100,000,$200,000, respectively, were incurred by the Company pursuant to this agreement and are included in general and administrative expenses. In the sixnine months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $500,000$770,000 and $400,000,$600,000, respectively, were incurred.fourfive other affiliated open-end mutual funds to waive and/or reimburse certain fund expenses. These commitments will remain in place through December 31, 2005. In the three months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $300,000$167,000 and $100,000,$54,000, respectively, were incurred by the Company pursuant to these agreements and are included in general and administrative expenses. In the sixnine months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $400,000$567,000 and $100,000,$154,000, respectively, were incurred.$117,000$227,000 and $344,000 of sub-advisory fees paid to Houlihan Rovers in the three and sixnine months ended JuneSeptember 30, 2005.2005, respectively.10.13. Segment Reporting Statement of Financial Accounting Standards (“SFAS”) SFAS No. 131, Disclosures“Disclosures about Segments of an Enterprise and Related Information,,” establishes disclosure requirements relating to operating segments in financial statements. The Company operates in two business segments: Asset Management and Investment Banking. The Company’s reporting segments are strategic divisions that offer different services and are managed separately, as each division requires different resources and marketing strategies. Three Months Ended September 30,
2005 September 30,
2004 Asset Management Total revenue $ 35,244 $ 27,240 Total expenses (23,693 ) (62,420 ) Net non-operating income, including equity in earnings of affiliate 2,123 257 Income (loss) before provision for income taxes $ 13,674 $ (34,923 ) Investment Banking Total revenue $ 1,187 $ 1,881 Total expenses (1,700 ) (4,518 ) Net non-operating income 68 15 Loss before provision for income taxes $ (445 ) $ (2,622 ) Total Total revenue $ 36,431 $ 29,121 Total expenses (25,393 ) (66,938 ) Net non-operating income, including equity in earnings of affiliate 2,191 272 Income (loss) before provision for income taxes $ 13,229 $ (37,545 ) Nine Months Ended September 30,
2005 September 30,
2004 Asset Management Total revenue $ 99,188 $ 75,459 Total expenses (65,982 ) (92,618 ) Net non-operating income, including equity in earnings of affiliate 4,865 374 Income (loss) before provision for income taxes $ 38,071 $ (16,785 ) Investment Banking Total revenue $ 9,618 $ 6,599 Total expenses (7,011 ) (8,255 ) Net non-operating income 149 30 Income (loss) before provision for income taxes $ 2,756 $ (1,626 ) Total Total revenue $ 108,806 $ 82,058 Total expenses (72,993 ) (100,873 ) Net non-operating income, including equity in earnings of affiliate 5,014 404 Income (loss) before provision for income taxes $ 40,827 $ (18,411 ) Statement of Income Segment Data Three Months Ended June 30,
2005 June 30,
2004 Asset Management Total revenue $ 32,726 $ 25,373 Total expenses (21,434 ) (15,920 ) Net non-operating income, including equity in earnings of affiliate 1,599 64 Income before provision for income taxes $ 12,891 $ 9,517 Investment Banking Total revenue $ 5,542 $ 255 Total expenses (3,080 ) (745 ) Net non-operating income 57 9 Income (loss) before provision for income taxes $ 2,519 $ (481 ) Total Total revenue $ 38,268 $ 25,628 Total expenses (24,514 ) (16,665 ) Net non-operating income, including equity in earnings of affiliate 1,656 73 Income before provision for income taxes $ 15,410 $ 9,036 Six Months Ended June 30,
2005 June 30,
2004 Asset Management Total revenue $ 63,944 $ 48,219 Total expenses (42,289 ) (30,198 ) Net non-operating income, including equity in earnings of affiliate 2,742 117 Income before provision for income taxes $ 24,397 $ 18,138 Investment Banking Total revenue $ 8,431 $ 4,718 Total expenses (5,311 ) (3,737 ) Net non-operating income 81 15 Income before provision for income taxes $ 3,201 $ 996 Total Total revenue $ 72,375 $ 52,937 Total expenses (47,600 ) (33,935 ) Net non-operating income, including equity in earnings of affiliate 2,823 132 Income before provision for income taxes $ 27,598 $ 19,134 11.14. Subsequent EventsJulyOctober 18, 2005, the Company paid a cash dividend of $0.10$0.11 per share to the Company’s stockholders of record at the close of business on JuneSeptember 29, 2005.August 10,November 9, 2005, the Company’s Board of Directors declared a cash dividend of $0.11 per share to the Company’s stockholders, increasing the dividend by $0.01 per share, or 10%, from the prior quarter's dividend of $0.10 per share.stockholders. The dividend will be payable on OctoberJanuary 18, 20052006 to stockholders of record at the close of business on SeptemberDecember 29, 2005.Item 2.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations sixnine months ended JuneSeptember 30, 2005 and JuneSeptember 30, 2004. Such information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements together with the Notesnotes to the Unaudited Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements. 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.Inc. is a manager of high-income equity portfolios, specializing in U.S. REITs, globalinternational real estate securities, preferred securities, utilities, value equity securities and other high-dividend paying commonlarge cap value stocks. We serve individual and institutional investors through a wide range of open-end mutual funds, closed-end mutual funds and institutional separate accounts. As a complement to our asset management business, we also provide investment banking services to companies in real estate and real estate intensive businesses.presented.presented (in millions):Changes in Assets Under Management(in millions) Three Months Ended Six Months Ended Three Months Ended Nine Months Ended June 30,
2005 June 30,
2004 June 30,
2005 June 30,
2004 September 30,
2005 September 30,
2004 September 30,
2005 September 30,
2004 Closed-End Mutual Funds Assets under management, beginning of period $ 9,126 $ 7,664 $ 8,984 $ 4,790 $ 10,007 $ 7,671 $ 8,984 $ 4,791 Inflows 150 459 755 2,931 — — 755 2,931 Market appreciation (depreciation) 731 (453 ) 268 (51 ) Market appreciation 78 334 346 283 Total increase 881 6 1,023 2,880 78 334 1,101 3,214 Assets under management, end of period $ 10,007 $ 7,670 $ 10,007 $ 7,670 $ 10,085 $ 8,005 $ 10,085 $ 8,005 Open-End Mutual Funds Assets under management, beginning of period $ 4,824 $ 4,514 $ 5,199 $ 3,897 $ 5,428 $ 4,029 $ 5,199 $ 3,897 Net outflows (101 ) (232 ) (106 ) (65 ) Market appreciation (depreciation) 705 (253 ) 335 197 Inflows 448 315 1,287 998 Outflows (399 ) (215 ) (1,345 ) (963 ) Total increase (decrease) 604 (485 ) 229 132 Net inflows (outflows) 49 100 (58 ) 35 Market appreciation 119 336 455 533 Total increase 168 436 397 568 Assets under management, end of period (1) $ 5,428 $ 4,029 $ 5,428 $ 4,029 $ 5,596 $ 4,465 $ 5,596 $ 4,465 Institutional Separate Accounts Assets under management, beginning of period $ 3,828 $ 3,361 $ 4,118 $ 2,993 $ 4,428 $ 3,280 $ 4,118 $ 2,992 Net inflows 30 79 4 79 Market appreciation (depreciation) 570 (159 ) 306 209 Inflows 83 75 351 360 Outflows (197 ) (82 ) (461 ) (287 ) Total increase (decrease) 600 (80 ) 310 288 Net inflows (outflows) (114 ) (7 ) (110 ) 73 Market appreciation 165 324 471 532 Total increase 51 317 361 605 Assets under management, end of period $ 4,428 $ 3,281 $ 4,428 $ 3,281 $ 4,479 $ 3,597 $ 4,479 $ 3,597 Total Assets under management, beginning of period $ 17,778 $ 15,539 $ 18,301 $ 11,680 $ 19,863 $ 14,980 $ 18,301 $ 11,680 Net inflows 79 306 653 2,945 Market appreciation (depreciation) 2,006 (865 ) 909 355 Inflows 531 390 2,393 4,289 Outflows (596 ) (297 ) (1,806 ) (1,250 ) Total increase (decrease) 2,085 (559 ) 1,562 3,300 Net inflows (outflows) (65 ) 93 587 3,039 Market appreciation 362 994 1,272 1,348 Total increase 297 1,087 1,859 4,387 Assets under management, end of period (1) $ 19,863 $ 14,980 $ 19,863 $ 14,980 $ 20,160 $ 16,067 $ 20,160 $ 16,067 JuneSeptember 30, 2005, assets under management included $330$387 million of assets
sub-advised by Houlihan Rovers.$19.9$20.2 billion at JuneSeptember 30, 2005, a 33%25% increase from $15.0$16.1 billion at JuneSeptember 30, 2004.30%26% to $10.0$10.1 billion at JuneSeptember 30, 2005, compared with $7.7$8.0 billion at JuneSeptember 30, 2004. The increase in assets under management was attributable to offerings of both common stockshares for new funds and preferred stockshares for new and existing funds as well as market appreciation.Closed-endThere were no closed-end mutual fund net inflows in the three months ended September 30, 2005 or 2004 as no new common or preferred shares were $150offered during these periods. Market appreciation was $78 million in the three months ended JuneSeptember 30, 2005, compared with $459market appreciation of $334 million in the three months ended June 30, 2004. Inflows in the second quarter of 2005 were generated through an offering of variable rate preferred shares issued for the purpose of establishing leverage in one of our funds, launched in March 2005. The assets raised in the second quarter of 2004 were the result of establishing leverage for a closed-end mutual fund launched in March 2004. Market appreciation was $731 million in the three months ended June 30, 2005, compared with market depreciation of $453 million in the three months ended JuneSeptember 30, 2004.sixnine months ended JuneSeptember 30, 2005, compared with $2.9 billion in the sixnine months ended JuneSeptember 30, 2004. In January 2005, we launched Cohen & Steers Dividend Majors Fund, our first diversified portfolio of high dividend-paying common stocks. This fund raised $244 million, net of underwriting fees. In March 2005, we launched Cohen & Steers Worldwide Realty Income Fund, a closed-end fund that invests primarily in a portfolio of global real estate equity securities, which raised $287 million, net of underwriting fees, from the launch offees. In May 2005, Cohen & Steers Worldwide Realty Income Fund. In the first half of 2005, we also raised $224Fund issued $150 million in variable rate preferred shares bringing the total raised for new andthis fund to $437 million. Also, one of our existing funds. The assets raised in the first half of 2004 were the result of two new closed-end funds and the associatedraised $74 million of variable rate preferred shares with both of these funds.during the nine months ended September 30, 2005.$268$346 million in the sixnine months ended JuneSeptember 30, 2005, compared with market depreciationappreciation of $51$283 million in the sixnine months ended JuneSeptember 30, 2004.35%25% to $5.4$5.6 billion at JuneSeptember 30, 2005 from $4.0$4.5 billion at JuneSeptember 30, 2004. The increase was primarily attributable to market appreciation.$101$58 million in the threenine months ended JuneSeptember 30, 2005, compared with net outflowsinflows of $232$35 million in the threenine months ended JuneSeptember 30, 2004. Gross inflows increased to $421$1.3 billion in the nine months ended September 30, 2005 from $998 million in the threenine months ended June 30, 2005 from $267 million in the three months ended JuneSeptember 30, 2004. Gross outflows totaled $522$1.3 billion in the nine months ended September 30, 2005, compared with $963 million in the threenine months ended June 30, 2005, a slight increase from $499 million in the three months ended JuneSeptember 30, 2004. Included in our open-end mutual fund gross outflows for the nine months ended September 30, 2005 was a client transfer of $100 million into our institutional separate accounts.$705$455 million in the threenine months ended June 30, 2005, compared with market depreciation of $253 million in the three months ended June 30, 2004. Net outflows for open-end mutual funds were $106 million in the six months ended June 30, 2005, compared with net outflows of $65 million in the six months ended June 30, 2004. Gross inflows increased to $839 million in the six months ended June 30, 2005 from $683 million in the six months ended June 30, 2004. However, gross outflows totaled $945 million in the six months ended June 30, 2005, compared with $748 million in the six months ended June 30, 2004. Included in our open-end mutual fund gross outflows was a client transfer of $100 million into our institutional separate accounts. Market appreciation across all of our open-end mutual funds was $335 million in the six months ended JuneSeptember 30, 2005, compared with market appreciation of $197$533 million in the sixnine months ended JuneSeptember 30, 2004.35%25% to $4.4$4.5 billion at JuneSeptember 30, 2005 from $3.3$3.6 billion at JuneSeptember 30, 2004. The majority of the increase in assets under management during this period was due to market appreciation.inflowsoutflows of $30$114 million in the three months ended JuneSeptember 30, 2005, compared with net outflows of $7 million in the three months ended September 30, 2004. Gross inflows increased to $83 million in the three months ended September 30, 2005 from $75 million in the three months ended September 30, 2004. Gross outflows were $197 million in the three months ended September 30, 2005, compared with $82 million in the three months ended September 30, 2004.$79$73 million in the threenine months ended JuneSeptember 30, 2004. Gross inflows were $186$351 million in the threenine months ended JuneSeptember 30, 2005, compared with $174$360 million in the threenine months ended JuneSeptember 30, 2004. Included in our institutional separate account gross inflows for the nine months ended September 30, 2005 was a client transfer in the amount of $100 million from one of our open-end mutual funds. Gross outflows were $156$461 million in the threenine months ended JuneSeptember 30, 2005, compared with $95$287 million in the threenine months ended JuneSeptember 30, 2004.$570$471 million in the threenine months ended June 30, 2005, compared with market depreciation of $159 million in the three months ended June 30, 2004. Institutional separate accounts had net inflows of $4 million in the six months ended June 30, 2005, compared with net inflows of $79 million in the six months ended June 30, 2004. Gross inflows were $272 million in the six months ended June 30, 2005, compared with $284 million in the six months ended June 30, 2004. Included in our institutional separate account inflows was a client transfer in the amount of $100 million from one of our open-end mutual funds. Gross outflows were $268 million in the six months ended June 30, 2005, compared with $205 million in the six months ended June 30, 2004. Market appreciation was $306 million in the six months ended JuneSeptember 30, 2005, compared with market appreciation of $209$532 million in the sixnine months ended JuneSeptember 30, 2004.JuneSeptember 30, 2005 compared with Three Months Ended JuneSeptember 30, 2004 Three Months Ended Three Months Ended June 30,
2005 June 30,
2004 September 30,
2005September 30,
2004 Asset Management Total revenue $ 32,726 $ 25,373 $ 35,244 $ 27,240 Total expenses (21,434 ) (15,920 ) (23,693 ) (62,420 ) Net non-operating income, including equity in earnings of affiliate 1,599 64 2,123 257 Income before provision for income taxes $ 12,891 $ 9,517 Income (loss) before provision for income taxes $ 13,674 $ (34,923 ) Investment Banking Total revenue $ 5,542 $ 255 $ 1,187 $ 1,881 Total expenses (3,080 ) (745 ) (1,700 ) (4,518 ) Net non-operating income 57 9 68 15 Income (loss) before provision for income taxes $ 2,519 $ (481 ) Loss before provision for income taxes $ (445 ) $ (2,622 ) Total Total revenue $ 38,268 $ 25,628 $ 36,431 $ 29,121 Total expenses (24,514 ) (16,665 ) (25,393 ) (66,938 ) Net non-operating income, including equity in earnings of affiliate 1,656 73 2,191 272 Income before provision for income taxes $ 15,410 $ 9,036 Income (loss) before provision for income taxes $ 13,229 $ (37,545 ) 49%25% to $38.3$36.4 million in the three months ended JuneSeptember 30, 2005 from $25.6$29.1 million in the three months ended JuneSeptember 30, 2004. This increase was primarily due to an increase in investment advisory and administration fees attributable to higher asset levels and an increase in investment banking fees.assets under management.$32.7$35.2 million in the three months ended JuneSeptember 30, 2005 from $25.4$27.2 million in the three months ended JuneSeptember 30, 2004. Investment advisory and administration fees increased 31%30% to $29.0$31.4 million in the three months ended JuneSeptember 30, 2005, compared with $22.2$24.2 million in the three months ended JuneSeptember 30, 2004.JuneSeptember 30, 2005, total investment advisory and administration revenue from closed-end mutual funds increased 30%28% to $15.1$16.2 million from $11.6$12.6 million in the three months ended JuneSeptember 30, 2004. The secondthird quarter of 2005 included a full quarter of revenue from the completion of two new fund offerings during the first quarter of 2005. The remaining increase in closed-end mutual fund revenue was due to higher levels of average daily net assets resulting from market appreciation and additional auction market preferred share offerings for certain funds during the fourth quarter of 2004 and the first half of 2005.JuneSeptember 30, 2005, total investment advisory and administration revenue from open-end mutual funds increased 29%31% to $10.1$11.2 million from $7.8$8.5 million in theJuneSeptember 30, 2004. The increase was attributable to increased assets under management across all of our new and existing open-end mutual funds. Distribution and service fee revenue increased 30%22% to $3.0$3.1 million in the three months ended JuneSeptember 30, 2005 from $2.3$2.6 million in the three months ended JuneSeptember 30, 2004. This increase in distribution and service fee revenue was primarily due to increased assets in two open-end mutual funds.increaseddecreased 37% to $5.5$1.2 million in the three months ended JuneSeptember 30, 2005 from $0.3$1.9 million in the three months ended JuneSeptember 30, 2004. RevenueThird quarter 2005 revenue was primarily attributable to success fees generated in connection with a merger advisory assignmentassignments and a restructuring assignment and a placement fee generated in connection with a public offering. In addition, we served as co-manager incapital raising transactions, including the final settlement of two co-managed underwritten public offerings, representing our first firm commitment underwriting transactions.offerings.increased 47%decreased 62% to $24.5$25.4 million in the three months ended JuneSeptember 30, 2005 from $16.7$66.9 million in the three months ended JuneSeptember 30, 2004, primarily due to increasesa decrease in employee compensation and benefits distribution and service fee expenses, general and administrative and depreciation and amortization.expense.increased 34%decreased 82% to $9.2$10.2 million in the three months ended JuneSeptember 30, 2005, from $6.8$55.2 million in the three months ended JuneSeptember 30, 2004. This was primarily due to a third quarter 2004 one-time non-cash compensation charge of $46.0 million and an increaseassociated Medicare tax expense of $1.0 million related to the termination of a stock appreciation rights plan for the predecessor company and the simultaneous grant of fully-vested restricted stock unit awards (“RSUs”) to certain employees coincident with the initial public offering of Cohen & Steers, Inc. common stock, partially offset by increases in base and incentive compensation which included proportionately higher compensation expense resulting from the increase in Investment Banking feesfor new employees and amortization of unearned compensation related to restricted stock unit awardsRSUs and deferred compensation plans. As a result of the new hires that occurred during the third quarter of 2005, we expect employee compensation and benefits to be higher in the fourth quarter.49%11% to $7.4$7.8 million in the three months ended JuneSeptember 30, 2005 from $4.9$7.1 million in the three months ended JuneSeptember 30, 2004. This increase was primarily due to higher levels of average daily net assets resulting from market appreciation as well as up front distribution costs associated withand the launch of one of ournew closed-end mutual funds.funds in 2005.72%86% to $5.8$5.2 million in the three months ended JuneSeptember 30, 2005 from $3.4$2.8 million in the three months ended JuneSeptember 30, 2004. The majority of the increase was attributable to higher professional fees resulting from costs related to implementing Sarbanes Oxley,compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), sub-advisory fees paid to Houlihan Rovers, higher recruiting fees and higher accounting, tax and auditing fees associated with the requirements of being a public company, the recognition of sub-placement and other fees related to investment banking transactions consummated during the quarter, and additional organization costs incurred as part of the launch of four new mutual funds during the first quarter of 2005.company. Occupancy costs were primarily higher due to the recognition of a full quarter’s rent expense for our new corporate headquarters.headquarters to which we will relocate in November 2005. In connection with our relocation, we will record a charge of approximately $1.8 million comprised primarily of moving costs and remaining lease payments, partially offset by sublease income for our current location.JuneSeptember 30, 2005 from $0.3$0.9 million in the three months ended JuneSeptember 30, 2004. Included in depreciation and amortization expense in the secondthird quarter of 2005 was a full quarter of non-cash expense of $1.1 million relating to amortization of the intangible asset recorded in connection with the grant of fully vested RSUs at ourthe initial public offering.offering of Cohen & Steers, Inc. common stock. The intangible asset, which expires inoffering and is allocatedoffering. As a result of our relocation to our two business segments.new corporate headquarters in November, we will record a charge of approximately $0.7 million attributable to the abandonment of certain furniture and fixtures and leasehold improvements.$1.7$2.2 million in the three months ended JuneSeptember 30, 2005, compared with $0.1$0.3 million in the three months ended JuneSeptember 30, 2004. The increase inthird quarter 2005 non-operating income was primarily reflects $0.8attributable to $0.9 million of interest and dividend income, and $0.6$0.8 million of realized gains earned on marketable securities.from the sale of investments in our Company-sponsored mutual funds and a $0.3 million gain from the sale of our fractional interest in an aircraft.ourthe initial public offering of Cohen & Steers, Inc. common stock, we were exempt from federal income taxes due to our status as an S-corporation. However, upon our conversion from an S-corporation to C-corporation status on August 16, 2004, we became subject to U.S. Federalfederal and certain state and local income taxes. We recorded an income tax expense of $6.9$5.2 million in the three months ended JuneSeptember 30, 2005, compared with an income tax expensebenefit of $0.4$17.0 million in the three months ended JuneSeptember 30, 2004. The provision for income taxes for the three months ended JuneSeptember 30, 2005, includesreflects U.S. federal, state and local income taxes at a 44.8%an effective tax rate. Includedrate equal to 39.5%. Under Accounting Principles Board Opinion 23 –Accounting for income taxes-special areas(“APB 23”), we have not provided for U.S. taxes for the undistributed earnings of Houlihan Rovers, which reduced our effective tax rate for the three months ended September 30, 2005. The income tax benefit in the secondthird quarter tax provision is an adjustment to our net deferred tax asset resulting from a recent change in the New York State tax law. Our deferred tax asset is attributableof 2004 was due primarily to a benefit derived from vested restricted stock units granted at the time of ourthe initial public offering. Before adjusting for the deferred tax rate change and including the effectoffering of a higher percentage of investment income,Cohen & Steers, Inc. common stock. We expect our effective tax rate was 41%to be approximately 40% for the three months ended June 30,fourth quarter of 2005.SixNine Months Ended JuneSeptember 30, 2005 compared with SixNine Months Ended JuneSeptember 30, 2004 Six Months Ended Nine Months Ended June 30,
2005 June 30,
2004 September 30,
2005 September 30,
2004 Asset Management Total revenue $ 63,944 $ 48,219 $ 99,188 $ 75,459 Total expenses (42,289 ) (30,198 ) (65,982 ) (92,618 ) Net non-operating income, including equity in earnings of affiliate 2,742 117 4,865 374 Income before provision for income taxes 24,397 18,138 Income (loss) before provision for income taxes $ 38,071 $ (16,785 ) Investment Banking Total revenue $ 8,431 $ 4,718 $ 9,618 $ 6,599 Total expenses (5,311 ) (3,737 ) (7,011 ) (8,255 ) Net non-operating income 81 15 149 30 Income before provision for income taxes 3,201 996 Income (loss) before provision for income taxes $ 2,756 $ (1,626 ) Total Total revenue $ 72,375 $ 52,937 $ 108,806 $ 82,058 Total expenses (47,600 ) (33,935 ) (72,993 ) (100,873 ) Net non-operating income, including equity in earnings of affiliate 2,823 132 5,014 404 Income before provision for income taxes 27,598 19,134 Income (loss) before provision for income taxes $ 40,827 $ (18,411 ) 37%33% to $72.4$108.8 million in the sixnine months ended JuneSeptember 30, 2005, from $52.9$82.1 million in the sixnine months ended JuneSeptember 30, 2004. This increase was primarily the result of an increase in investment advisory and administration fees attributable to higher asset levelsassets under management and an increase in investment banking fees.33%31% to $63.9$99.2 million in the sixnine months ended JuneSeptember 30, 2005, from $48.2$75.5 million in the sixnine months ended JuneSeptember 30, 2004. Investment advisory and administration fees increased 34%33% to $56.3$87.7 million in the sixnine months ended JuneSeptember 30, 2005, compared with $41.9$66.1 million in the sixnine months ended JuneSeptember 30, 2004.sixnine months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from closed-end mutual funds increased 43%38% to $29.2$45.3 million from $20.4$33.0 million in the sixnine months ended JuneSeptember 30, 2004. The sixnine months ended JuneSeptember 30, 2005 included revenue from the completion of two new closed-end fund offerings during the first half of 2005. The remaining increase in closed-end mutual fund revenue was due to higher levels of average daily net assets from market appreciation and common and additional auction market preferred share offerings for certain funds during the fourth quarter of 2004 and the first half of 2005.sixnine months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from open-end mutual funds increased 23%26% to $19.8$30.9 million from $16.1$24.6 million in the sixnine months ended JuneSeptember 30, 2004. The increase was attributable to increased assets under management across all of our new and existing open-end mutual funds.24%23% to $5.8$8.9 million in the sixnine months ended JuneSeptember 30, 2005 from $4.7$7.2 million in the sixnine months ended JuneSeptember 30, 2004. This increase in distribution and service fee79%46% to $8.4$9.6 million in the sixnine months ended JuneSeptember 30, 2005 from $4.7$6.6 million in the sixnine months ended JuneSeptember 30, 2004. RevenueThis increased revenue was primarily attributable to a mix of merger advisory, restructuring and capital raising assignments.increased 40%decreased 28% to $47.6$73.0 million in the sixnine months ended JuneSeptember 30, 2005 from $33.9$100.9 million in the sixnine months ended JuneSeptember 30, 2004, primarily due to increasesa decrease in employee compensation and benefits distribution and service fee expenses,expense, partially offset by decreases in general and administrative expenses and depreciationdistribution and amortization.service fee expenses.increased 13%decreased 61% to $17.8$28.0 million in the sixnine months ended JuneSeptember 30, 2005 from $15.8$71.0 million in the sixnine months ended JuneSeptember 30, 2004. This was primarily due to a third quarter 2004 one-time non-cash compensation charge of $46.0 million and an increaseassociated Medicare tax expense of $1.0 million related to the termination of a stock appreciation rights plan for the predecessor company and the simultaneous grant of fully-vested RSUs to certain employees coincident with the initial public offering of Cohen & Steers, Inc. common stock, partially offset by increases in base and incentive compensation which included proportionately higher compensation expense resulting from the increase in Investment Banking feesfor new employees and amortization of unearned compensation related to restricted stock unit awardsRSUs and deferred compensation plans. As a result of the new hires that occurred during the third quarter of 2005, we expect employee compensation and benefits to be higher in the fourth quarter.54%35% to $14.0$21.9 million in the sixnine months ended JuneSeptember 30, 2005 from $9.1$16.2 million in the sixnine months ended JuneSeptember 30, 2004. This increase was primarily due to higher levels of average daily net assets resulting from market appreciation as well as up front distribution costs associated withand the launch of one of ournew closed-end mutual funds.funds in 2005.83%84% to $11.2$16.4 million in the sixnine months ended JuneSeptember 30, 2005, from $6.1$8.9 million in the sixnine months ended JuneSeptember 30, 2004. The majority of the increase was attributable to higher professional fees resulting from costs related to implementing Sarbanes Oxley,compliance with Sarbanes-Oxley, sub-advisory fees paid to Houlihan Rovers, increased recruiting fees, higher accounting, tax and auditing fees associated with the requirements of being a public company the recognition of sub-placement and other fees related to investment banking transactions consummated during the first half of 2005, and additional organization costsorganizational expenses incurred as part of the launch of four new mutual funds during the first half ofnine months ended September 30, 2005. Occupancy costs were primarily higher due to the recognition of atwo full quarter’s rent expense for our new corporate headquarters. In connection with our relocation, we will record a charge of approximately $1.8 million comprised primarily of moving costs remaining lease payments, partially offset by sublease income for our current location.$2.8$4.1 million in the sixnine months ended JuneSeptember 30, 2005 from $0.6$1.5 million in the sixnine months ended JuneSeptember 30, 2004. Included in depreciation and amortization expense infor the first half ofnine months ended September 30, 2005 was a non-cash expense of $2.2$3.3 million relating to amortization of anthe intangible asset recorded in connection with the grant of fully vested RSUs at ourthe initial public offering.offering of Cohen & Steers, Inc. common stock. The intangible asset, which expires in 2008, reflects the independentlyourthe initial public offering and is allocatedoffering. As a result of our relocation to our two business segments.new corporate headquarters in November, we will record a charge of approximately $0.7 million attributable to the abandonment of certain furniture and fixtures and leasehold improvements.$2.8$5.0 million in the sixnine months ended JuneSeptember 30, 2005, compared with $0.1$0.4 million in the sixnine months ended JuneSeptember 30, 2004. The increase in non-operatingNon-operating income for the 2005 period was primarily reflects $1.4attributable to $2.2 million of interest and dividend income and $1.1on our investments, $2.0 million of realized gains earned on marketable securities.from the sale of investments in our sponsored mutual funds and a $0.3 million gain from the sale of our fractional interest in an aircraft.ourthe initial public offering of Cohen & Steers, Inc. common stock, we were exempt from federal income taxes due to our status as an S-corporation. However, upon our conversion from an S-corporation to C-corporation status on August 16, 2004, we became subject to U.S. Federalfederal and certain state and local income taxes. We recorded an income tax expense of $12.0$17.3 million in the sixnine months ended JuneSeptember 30, 2005, compared with an income tax expensebenefit of $1.2$15.8 million in the sixnine months ended JuneSeptember 30, 2004. The provision for income taxes for the sixnine months ended JuneSeptember 30, 2005, includes U.S. federal, state and local income taxes at a 43.6%an effective tax rate.rate equal to 42.3%. Included in the tax provision for the first half of the yearnine months ended September 30, 2005 is an adjustment to ourthe net deferred tax asset resulting from a recent change in the New York State tax law. OurThe deferred tax asset is primarily attributable to future income tax deductions derived from vested restricted stock units granted at the time of our initial public offering. The income tax benefit in the nine months ended September 30, 2004 was due primarily to a benefit derived from vested restricted stock units granted at the time of our initial public offering. Before adjusting for the deferred tax rate change and including the effect of a higher percentage of investment income,We expect our effective tax rate was 41%to be approximately 40% for the six months ended June 30,fourth quarter of 2005.74%72% and 71% of total assets as of JuneSeptember 30, 2005 and December 31, 2004, respectively. Working capital was $111.1$113.5 million at JuneSeptember 30, 2005, compared with $103.1 million at December 31, 2004.$25.0$33.9 million in the sixnine months ended JuneSeptember 30, 2005. Cash of $20.6$22.5 million was used in investing activities, primarily for the purchase of $38.7$52.5 million of marketable securities, partially offset by proceeds from sales and maturities of marketable securities in the amount of $18.6$32.9 million. Cash of $7.8$13.5 million was used in financing activities, primarily for dividends paid to stockholders.$25.3$40.0 million in the sixnine months ended JuneSeptember 30, 2004. Cash of $1.5$57.1 million was used in investing activities, primarily for the purchase of marketable securities. Cash of $19.5$56.9 million was used inprovided by financing activities, primarily related to S-corporation cash distributions made to shareholders and offering costs paid pursuant toproceeds from our initial public offering.offering of Cohen & Steers, Inc. common stock net of related offering costs partially offset by S-corporation cash distributionsJuneSeptember 30, 2005, our regulatory net capital exceeded the minimum requirement by $8.8$8.9 million. The SEC’s Uniform Net Capital Rule 15c3-1 imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital. We believe that our cash flows from operations will be more than adequate to meet our anticipated capital requirements and debt and other obligations as they become due.long-term debt on aircraft, and capital leases for office equipment. The following summarizes our contractual obligations as of JuneSeptember 30, 2005 (in thousands): Contractual Obligations Contractual Obligations 2005 2006 2007 2008 2009 2010
and
after Total 2005 2006 2007 2008 2009 2010
and
after Total Operating leases $ 884 $ 3,515 $ 3,515 $ 2,167 $ 2,071 $ 9,164 $ 21,316 $ 534 $ 3,516 $ 3,516 $ 2,167 $ 2,071 $ 9,164 $ 20,968 Long-term debt 52 1,079 484 — — — 1,615 Capital lease obligations, net 27 57 46 10 — — 140 14 57 46 9 — — 126 Total contractual obligations $ 963 $ 4,651 $ 4,045 $ 2,177 $ 2,071 $ 9,164 $ 23,071 $ 548 $ 3,573 $ 3,562 $ 2,176 $ 2,071 $ 9,164 21,094 opensponsored open-end and closed-end mutual funds as well as highly rated debt and preferred instruments. These investments are carried at fair value based on quoted market sponsored by us and are capitalized and amortized over a period not to exceed six years. from asset management services to our sponsored open-end and closed-end mutual funds and to institutional separate accounts. This revenue is earned pursuant to the terms of the underlying advisory contract and is based on a contractual investment advisory fee applied to the assets in the portfolio. We also earn revenue from administration fees paid by certain sponsored open-end and closed-end mutual funds, based on the average daily net assets of such funds. We recognize this revenue as we earn such fees.fees are earned. In December 2004, the FASB issued a revised Statement of Financial Accounting Standards No. 123 (“SFAS No. 123 (R)”), which requires public companies to recognize the cost resulting from all share-based transactions in their financial statements. SFAS No. 123 (R) eliminates the ability to account for share-based compensation using the intrinsic value method under Accounting Principles Board Opinion (“APB”) 25. The adoption of SFAS No. 123 (R) did not materially impact our unaudited condensed consolidated statement of financial position or results of operations.25 In September 2004, EITF reached a consensus on Issue 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.” This EITF requires that individual operating segments that do not meetthe quantitative thresholds set forth in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable for fiscal years ending after September 15, 2005. The adoption of EITF 04-10 will not materially impact our identified segments.websiteWeb site athttp://www.sec.gov and on Cohen & Steers’ websiteWeb site atcohenandsteers.com. cohenandsteers.com. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.JuneSeptember 30, 2005, our marketable securities totalled $90.3totaled $90.6 million and consisted of investments in our sponsored openopen-end and closed-end mutual funds as well as highly ratedinvestment grade debt and preferred instruments. In addition, a significant majority of our revenue—approximately 76%86% and 87%83% in the three months ended JuneSeptember 30, 2005 and 2004, respectively—is derived from investment advisory and administrative agreements with our clients. Under these agreements, the investment advisory and administration fees we receive are typically based on the market value of the assets we manage. Accordingly, a decline in the prices of securities generally, and real estate securities in particular, may cause our revenue and income to decline by:Ÿ causing the value of the assets we manage to decrease, which would result in lower investment advisory and administration fees; or Ÿ causing our clients to withdraw funds in favor of investments that they perceive as offering greater opportunity or lower risk, which would also result in lower investment advisory and administration fees. littlea relatively low correlation with interest rates over longer periods of time. However, an increase in interest rates could have a negative impact on the valuation of REITs and other securities in our clients’ portfolios, which could reduce our revenue. In addition, an increase in interest rates could negatively impact our ability to increase open-end mutual fund assets and to offer new mutual funds.sixnine months ended JuneSeptember 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Aggregate Votes For Withheld Nominees Martin Cohen 35,050,502 8,763 Robert H. Steers 35,050,502 8,763 Richard E. Bruce 34,408,974 650,291 Peter L. Rhein 34,409,709 649,456 Richard P. Simon 34,409,709 649,556 Edmond D. Villani 34,409,709 649,556 Aggregate Votes For Against Abstained Ratification of the appointment of Deloitte
& Touche LLP as the Company’s
independent registered public accounting
firm 32,600,962 2,455,402 2,900 Exhibit No. Description 3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1) 3.2 Form of Amended and Restated Bylaws of the Registrant (1) 4.1 Specimen Common Stock Certificate (1) 4.2 Form of Registration Rights Agreement among the Registrant, Martin Cohen, Robert H. Steers, The Martin Cohen 1998 Family Trust and Robert H. Steers Family Trust (1) 31.1 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (1) Incorporated by Reference to the Registrant’s Registration Statement on Form S-1 (Registration No.
333-114027), as amended, originally filed with the Securities and Exchange Commission on March 30, 2004.Date: August 15,November 10, 2005 Cohen & Steers, Inc. /s/ Matthew S. Stadler Name: Matthew S. Stadler
Title: Executive Vice President & Chief
Financial Officer3130