Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the quarterly period ended March 31, 2010.
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 1-31234

WESTWOOD HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)

 
 	 	 	
DELAWARE	 	75-2969997	
(State or other jurisdiction of
incorporation or organization)	 	(IRS Employer
Identification No.)	
200 CRESCENT COURT, SUITE 1200
DALLAS, TEXAS
75201
(Address of principal executive office)
(Zip Code)
(214) 756-6900
(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.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “ smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	¨	  	Accelerated filer	 	x	
 	 	 	 	
Non-accelerated filer	 	¨  (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of the issuer’s common stock, par value $0.01 per share, outstanding as of April 19, 2010: 7,294,843.

 

Table of Contents
WESTWOOD HOLDINGS GROUP, INC.
INDEX

 	  	 	  	PAGE	
PART I	  	FINANCIAL INFORMATION	  	 	
 	 	 	
Item 1.	  	Unaudited Consolidated Financial Statements	  	 	
 	 	 	
 	  	Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (audited)	  	1	
 	 	 	
 	  	Consolidated Statements of Income for the three months ended March 31, 2010 and March 31, 2009	  	2	
 	 	 	
 	  	Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2010	  	3	
 	 	 	
 	  	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and March 31, 2009	  	4	
 	 	 	
 	  	Notes to Interim Consolidated Financial Statements	  	5	
 	 	 	
Item 2.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	14	
 	 	 	
Item 3.	  	Quantitative And Qualitative Disclosures About Market Risk	  	19	
 	 	 	
Item 4.	  	Controls and Procedures	  	19	
 	 	 	
PART II	  	OTHER INFORMATION	  	 	
 	 	 	
Item 1.	  	Legal Proceedings	  	20	
 	 	 	
Item 1A.	  	Risk Factors	  	20	
 	 	 	
Item 2.	  	Unregistered Sales of Equity Securities and Use of Proceeds	  	20	
 	 	 	
Item 6.	  	Exhibits	  	20	
 	 	
Signatures	  	21	

Table of Contents
PART I - FINANCIAL INFORMATION
 
ITEM 1.	UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2010 and December 31, 2009
(in thousands, except par value and share amounts)

 	  	March 31,
2010
(unaudited)	 	 	December 31,
2009	 	
ASSETS	  	 	 	 	 	 	 	 	
Current Assets:	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	3,171	  	 	$	2,879	  	
Accounts receivable	  	 	6,262	  	 	 	6,406	  	
Investments, at market value	  	 	39,430	  	 	 	42,246	  	
Deferred income taxes	  	 	1,638	  	 	 	2,187	  	
Other current assets	  	 	883	  	 	 	625	  	
 	  	 	 	 	 	 	 	 	
Total current assets	  	 	51,384	  	 	 	54,343	  	
Goodwill	  	 	3,915	  	 	 	3,915	  	
Intangible assets, net	  	 	1,024	  	 	 	1,050	  	
Property and equipment, net of accumulated depreciation of $1,393 and $1,315	  	 	504	  	 	 	578	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	56,827	  	 	$	59,886	  	

LIABILITIES AND STOCKHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
Current Liabilities:	  	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities	  	$	1,090	  	 	$	995	  	
Dividends payable	  	 	2,411	  	 	 	2,359	  	
Compensation and benefits payable	  	 	2,719	  	 	 	6,273	  	
Income taxes payable	  	 	129	  	 	 	823	  	
Deferred acquisition liability	  	 	924	  	 	 	900	  	
Other current liabilities	  	 	12	  	 	 	11	  	
 	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	7,285	  	 	 	11,361	  	
Deferred acquisition liability	  	 	818	  	 	 	796	  	
Deferred income taxes	  	 	525	  	 	 	238	  	
Deferred rent	  	 	228	  	 	 	273	  	
 	  	 	 	 	 	 	 	 	
Total long-term liabilities	  	 	1,571	  	 	 	1,307	  	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	8,856	  	 	 	12,668	  	
 	  	 	 	 	 	 	 	 	
Stockholders’ Equity:	  	 	 	 	 	 	 	 	
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 7,516,762 and outstanding 7,306,593 shares at March 31, 2010; issued 7,308,812 and outstanding 7,151,472 shares at December 31, 2009	  	 	75	  	 	 	73	  	
Additional paid-in capital	  	 	50,414	  	 	 	47,741	  	
Treasury stock, at cost – 210,169 shares at March 31, 2010; 157,340 shares at December 31, 2009	  	 	(8,081	) 	 	 	(6,026	) 	
Accumulated other comprehensive income	  	 	1,170	  	 	 	1,559	  	
Retained earnings	  	 	4,393	  	 	 	3,871	  	
 	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	47,971	  	 	 	47,218	  	
 	  	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	56,827	  	 	$	59,886	  	
 	  	 	 	 	 	 	 	 	
See notes to interim consolidated financial statements.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)

 	  	Three months ended
March 31,	 	
 	  	2010	  	2009	 	
REVENUES:	  	 	 	  	 	 	 	
Advisory fees - Asset-based	  	$	10,080	  	$	6,130	  	
Trust fees	  	 	3,009	  	 	2,421	  	
Other revenues, net	  	 	127	  	 	(334	) 	
 	  	 	 	  	 	 	 	
Total revenues	  	 	13,216	  	 	8,217	  	

EXPENSES:	  	 	 	  	 	 	 	
Employee compensation and benefits	  	 	6,796	  	 	4,694	  	
Sales and marketing	  	 	133	  	 	130	  	
WHG mutual funds	  	 	143	  	 	177	  	
Information technology	  	 	327	  	 	310	  	
Professional services	  	 	572	  	 	395	  	
General and administrative	  	 	692	  	 	582	  	
 	  	 	 	  	 	 	 	
Total expenses	  	 	8,663	  	 	6,288	  	
 	  	 	 	  	 	 	 	
Income before income taxes	  	 	4,553	  	 	1,929	  	
Provision for income taxes	  	 	1,620	  	 	699	  	
 	  	 	 	  	 	 	 	
Net income	  	$	2,933	  	$	1,230	  	

Earnings per share:	  	 	 	  	 	 	 	
Basic	  	$	0.45	  	$	0.20	  	
Diluted	  	$	0.43	  	$	0.19	  	
See notes to interim consolidated financial statements.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2010
(in thousands, except share amounts)
(unaudited)

 	  	Westwood Holdings
Group, Inc.
Common Stock, Par	  	Additional
Paid-In	 	 	Treasury	 	 	Other
Comprehensive	 	 	Retained	 	 	 	 	
 	  	Shares	 	 	Amount	  	Capital	 	 	Stock	 	 	Income	 	 	Earnings	 	 	Total	 	
BALANCE, January 1, 2010	  	7,151,472	  	 	$	73	  	$	47,741	  	 	$	(6,026	) 	 	$	1,559	  	 	$	3,871	  	 	$	47,218	  	
Net income	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	2,933	  	 	 	2,933	  	
Issuance of restricted stock, net	  	203,500	  	 	 	2	  	 	(2	) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—  	  	
Dividends declared ($0.33 per share)	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	(2,411	) 	 	 	(2,411	) 	
Restricted stock amortization	  	 	 	 	 	 	  	 	1,891	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,891	  	
Other comprehensive income-unrealized loss on investment securities	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	(389	) 	 	 	 	 	 	 	(389	) 	
Tax benefit related to equity compensation	  	 	 	 	 	 	  	 	727	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	727	  	
Stock options exercised	  	4,450	  	 	 	—  	  	 	57	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	57	  	
Purchase of treasury stock	  	(52,829	) 	 	 	 	  	 	 	 	 	 	(2,055	) 	 	 	 	 	 	 	 	 	 	 	(2,055	) 	
 	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, March 31, 2010	  	7,306,593	  	 	$	75	  	$	50,414	  	 	$	(8,081	) 	 	$	1,170	  	 	$	4,393	  	 	$	47,971	  	
 	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See notes to interim consolidated financial statements.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 	  	For the three months
ended March 31,	 	
 	  	2010	 	 	2009	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	2,933	  	 	$	1,230	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation	  	 	78	  	 	 	59	  	
Amortization of intangible assets	  	 	26	  	 	 	—  	  	
Fair market valuation of deferred acquisition liabilities	  	 	46	  	 	 	—  	  	
Unrealized (gains) and losses on investments	  	 	(84	) 	 	 	379	  	
Restricted stock amortization	  	 	1,891	  	 	 	1,483	  	
Deferred income taxes	  	 	1,045	  	 	 	(169	) 	
Excess tax benefits from stock-based compensation	  	 	(643	) 	 	 	(471	) 	
Net sales (purchases) of investments – trading securities	  	 	982	  	 	 	(3,756	) 	
Change in operating assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	144	  	 	 	8,735	  	
Other assets	  	 	(273	) 	 	 	(178	) 	
Accounts payable and accrued liabilities	  	 	96	  	 	 	(388	) 	
Compensation and benefits payable	  	 	(3,554	) 	 	 	(5,129	) 	
Income taxes payable	  	 	33	  	 	 	(255	) 	
Other liabilities	  	 	(17	) 	 	 	70	  	
 	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	2,703	  	 	 	1,610	  	

CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Purchases of money market funds – available for sale	  	 	(10,196	) 	 	 	(16,640	) 	
Sales of money market funds – available for sale	  	 	11,516	  	 	 	16,565	  	
Purchase of property and equipment	  	 	(16	) 	 	 	(9	) 	
 	  	 	 	 	 	 	 	 	
Net cash provided by (used in) investing activities	  	 	1,304	  	 	 	(84	) 	

CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Purchase of treasury stock	  	 	(2,055	) 	 	 	(869	) 	
Excess tax benefits from stock-based compensation	  	 	643	  	 	 	471	  	
Cash dividends	  	 	(2,360	) 	 	 	(2,087	) 	
Proceeds from exercise of stock options	  	 	57	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(3,715	) 	 	 	(2,485	) 	

NET INCREASE (DECREASE) IN CASH	  	 	292	  	 	 	(959	) 	
Cash and cash equivalents, beginning of period	  	 	2,879	  	 	 	3,498	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	3,171	  	 	$	2,539	  	

Supplemental cash flow information:	  	 	 	 	 	 	 	 	
Cash paid during the period for income taxes	  	$	541	  	 	$	1,124	  	
Issuance of restricted stock, net	  	 	7,981	  	 	 	7,120	  	
See notes to interim consolidated financial statements.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF THE BUSINESS:
Westwood Holdings Group, Inc. (“Westwood,” the “Company,” “we,” or “our”) was incorporated under the laws of the State of Delaware on December 12, 2001. Westwood manages investment assets and provides services for its clients through two subsidiaries, Westwood Management Corp. (“Westwood Management”) and Westwood Trust (“Westwood Trust”). Westwood Management provides investment advisory services to corporate and public retirement plans, endowments and foundations, mutual funds and clients of Westwood Trust. Westwood Trust provides institutions and high net worth individuals trust and custodial services and participation in common trust funds that it sponsors. Revenue is largely dependent on the total value and composition of assets under management (“AUM”). Accordingly, fluctuations in financial markets and in the composition of AUM impact revenue and results of operations.
Westwood Management is a registered investment advisor under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements have been prepared without an audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly our financial position as of March 31, 2010, and results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements are presented using the accrual basis of accounting and have been prepared in accordance with the instructions for the presentation of interim financial information as prescribed by the Securities and Exchange Commission (“SEC”) and, therefore, as permitted by SEC rules, do not contain certain information and footnote disclosures required by accounting principles generally accepted in the United States of America. We have examined our relationships for potential variable interest entities (“VIE”) and determined that the common trust funds and the WHG Funds mutual funds we manage are VIEs in which we have variable interests, but for which consolidation is not required.
The accompanying consolidated financial statements should be read in conjunction with our consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2009. Refer to the accounting policies described in the notes to our annual financial statements, which were consistently followed in preparing this interim financial information. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results for the year ending December 31, 2010 or any future period.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Investment advisory and trust fees are recognized as services are provided. These fees are determined in accordance with contracts between our subsidiaries and their clients and are generally based on a percentage of AUM. A limited number of our clients have a performance-based fee component in their contract, which would pay us an additional fee if we outperform a specified index over a specific period of time. We would record revenue from performance-based fees at the end of the measurement period. Most advisory and trust fees are payable in advance or in arrears on a calendar quarterly basis. Advance payments are deferred and recognized over the periods
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
services are performed. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter. Consequently, there is not a significant amount of deferred revenue contained in these financial statements. Deferred revenue is shown on the balance sheet under the heading of “Other current liabilities”. Other revenues generally consist of unrealized gains and losses on our investments and interest and investment income. These revenues are recognized as earned or as the services are performed.
Cash and Cash Equivalents
Cash and cash equivalents consist of short-term, highly liquid investments with maturities of three months or less.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of acquired assets over the fair value of the underlying identifiable assets at the date of acquisition. Goodwill is not amortized, but is tested annually for impairment.
During the third quarter of 2009, we completed our annual goodwill impairment assessments. No impairment losses were required. We perform our annual impairment assessment as of July 1 and would reassess if circumstances indicated a potential impairment between our annual assessment dates. We assess the fair value of our business units with goodwill using a market multiple approach. No events occurred in the last half of 2009 or first quarter of 2010 that would indicate that these assets should be retested for impairment.
Our intangible assets represent the acquisition date fair value of the mutual fund assets acquired and are reflected net of amortization. In valuing these assets, we made significant estimates regarding the useful life, growth rates and potential attrition of the assets acquired. We periodically review our intangible assets for events or circumstances that would indicate impairment. If the carrying value of these assets exceeded the fair value, we would record an impairment to remove the excess.
Federal Income Taxes
We file a Federal income tax return as a consolidated group for Westwood and its subsidiaries. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and income tax bases of assets and liabilities as measured at enacted income tax rates. Deferred income tax expense is generally the result of changes in the deferred tax assets and liabilities and relates primarily to stock-based compensation expense.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB ASC No. 718, Compensation-Stock Compensation. Under ASC No. 718, stock-based compensation expense reflects the fair value of stock-based awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The compensation cost we record for these awards is based on their grant-date fair value as required by ASC No. 718.
We have issued restricted stock and stock options in accordance with our Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the “Plan”). We valued stock options issued based upon the Black-Scholes option-pricing model and recognized this value as an expense over the periods in which the options vested. Implementation of the Black-Scholes option-pricing model required us to make certain assumptions, including expected volatility, risk-free interest rate, expected dividend yield and expected life of the options. We utilized assumptions that we believed to be most appropriate at the time of the valuation. Had we used different assumptions in the pricing model, the expense recognized for stock options may have been different than the expense recognized in our financial statements. We must also apply judgment in developing an expectation of awards of restricted stock and stock options that may be forfeited. If actual experience differs significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the periods ended March 31, 2010 and 2009, respectively. Diluted earnings per share for these periods is computed based on the weighted average number of shares outstanding plus the effect of the dilutive shares of restricted stock and stock options granted to employees and non-employee directors. Diluted earnings per common share is computed using the treasury stock method.
The following table sets forth the computation of basic and diluted shares (in thousands, except per share and share amounts):

 	  	Three months ended
March 31,	
 	  	2010	  	2009	
Net income	  	$	2,933	  	$	1,230	
Weighted average shares outstanding – basic	  	 	6,518,565	  	 	6,267,504	
Dilutive potential shares from stock options	  	 	25,553	  	 	26,221	
Dilutive potential shares from restricted shares	  	 	226,021	  	 	264,997	
 	  	 	 	  	 	 	
Weighted average shares outstanding – diluted	  	 	6,770,139	  	 	6,558,722	

Earnings per share:	  	 	 	  	 	 	
Basic	  	$	0.45	  	$	0.20	
Diluted	  	$	0.43	  	$	0.19	
4. INVESTMENTS:
Money market securities are generally classified as available for sale securities and have no significantly fluctuating values. We own 200,000 Class A shares of Teton Advisors, Inc. (“Teton shares”) that are classified as available for sale. All other marketable securities are classified as trading securities. All securities, except the Teton shares, are carried at quoted market value on the accompanying consolidated balance sheet. Net unrealized holding gains or losses on investments classified as trading securities are reflected as a component of other revenues. The Teton shares are carried at quoted market value with a 25% discount for lack of marketability. Unrealized gains and losses on the Teton shares are recorded through other comprehensive income. We measure realized gains and losses on investments using the specific identification method.
Investment balances are presented in the table below (in thousands). All of these investments are carried at fair value. The money market funds and Teton shares are accounted for as available for sale securities. The other investments are accounted for as trading securities.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 	  	Cost	  	Gross
Unrealized
Gains	  	Gross
Unrealized
Losses	 	 	Estimated
Market
Value	
March 31, 2010:	  	 	 	  	 	 	  	 	 	 	 	 	 	
U.S. Government and Government agency obligations	  	$	32,910	  	$	44	  	$	—  	  	 	$	32,954	
Funds:	  	 	 	  	 	 	  	 	 	 	 	 	 	
Money market	  	 	1,910	  	 	—  	  	 	—  	  	 	 	1,910	
Equity – available for sale	  	 	—  	  	 	1,800	  	 	—  	  	 	 	1,800	
Equity – trading	  	 	2,842	  	 	36	  	 	(112	) 	 	 	2,766	
 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Marketable securities	  	$	37,662	  	$	1,880	  	$	(112	) 	 	$	39,430	

December 31, 2009:	  	 	 	  	 	 	  	 	 	 	 	 	 	
U.S. Government and Government agency obligations	  	$	33,949	  	$	3	  	$	—  	  	 	$	33,952	
Funds:	  	 	 	  	 	 	  	 	 	 	 	 	 	
Money market	  	 	3,230	  	 	—  	  	 	—  	  	 	 	3,230	
Equity – available for sale	  	 	—  	  	 	2,399	  	 	—  	  	 	 	2,399	
Equity – trading	  	 	2,823	  	 	35	  	 	(193	) 	 	 	2,665	
 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Marketable securities	  	$	40,002	  	$	2,437	  	$	(193	) 	 	$	42,246	
 	  	 	 	  	 	 	  	 	 	 	 	 	 	
5. FAIR VALUE MEASUREMENTS
The estimated fair values of our financial instruments have been determined by us using available information. The fair value amounts discussed in Note 4 are not necessarily indicative of either the amounts we would realize upon disposition of these instruments or our intent or ability to dispose of these assets. The estimated fair value of cash and cash equivalents, as well as accounts receivable and payable, approximates their carrying value due to their short-term maturities. The carrying amount of investments designated as “trading” securities, primarily U.S. Government and Government agency obligations as well as mutual funds and common trust fund shares, equals their fair value, which is equal to prices quoted in active markets and, with respect to funds, the net asset value of the shares held as reported by the fund. The carrying amount of investments designated as “available for sale” securities, including money market accounts and Teton shares, equals their fair value. The fair value of money market accounts is equal to the net asset value of the shares held as reported by the fund. The market values of our money market holdings generally do not fluctuate. The fair value of the Teton shares is equal to the closing market price as of March 31, 2010 less a 25% discount for lack of marketability.
Effective January 1, 2008, we adopted the provisions of FASB ASC No. 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements. ASC No. 820 establishes a three tier hierarchy for measuring fair value as follows:
 
 	•	 	level 1 – quoted market prices in active markets,	
 
 	•	 	level 2 – inputs other than quoted prices that are directly or indirectly observable and	
 
 	•	 	level 3 – unobservable inputs where there is little or no market activity.	
The following table summarizes the values of our assets as of March 31, 2010 within the fair value hierarchy.

Assets	  	Level 1	  	Level 2	  	Level 3	  	Total	
Investments in securities:	  	 	 	  	 	 	  	 	 	  	 	 	
Trading	  	$	35,720	  	$	—  	  	$	—  	  	$	35,720	
Available-for-sale	  	 	1,910	  	 	—  	  	 	1,800	  	 	3,710	
 	  	 	 	  	 	 	  	 	 	  	 	 	
Total Financial instruments	  	$	37,630	  	$	—  	  	$	1,800	  	$	39,430	

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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
The following table presents information regarding the assets that we used level 3 inputs to determine fair value (in thousands). This represents our ownership of 200,000 Class A shares of Teton Advisors, Inc. We determined the fair value of these shares as the closing market price as of March 31, 2010 less a 25% discount for lack of marketability. Our determination of this fair value amount is not necessarily indicative of either the amount we would realize upon disposition of these shares or our intent or ability to dispose of them. There were no transfers of level 3 assets to or from other asset classes and there were no gains, losses, purchases or sales of the Teton shares.

Asset	  	Beginning
balance	  	Unrealized losses
included  in Other
Comprehensive
Income	 	 	Ending
balance	
Investment in securities, available-for-sale	  	$	2,399	  	$	(599	) 	 	$	1,800	
6. OTHER COMPREHENSIVE INCOME
We record all changes in other comprehensive income in the Consolidated Statement of Stockholder’s Equity. Other comprehensive income includes unrealized gains on available for sale securities. A summary of other comprehensive income follows (in thousands):

 	  	Three months ended
March 31,	
 	  	2010	 	 	2009	
Net income	  	$	2,933	  	 	$	1,230	
Other comprehensive income (loss), net of tax:	  	 	 	 	 	 	 	
Change in unrealized gain on available-for-sale-securities	  	 	(389	) 	 	 	—  	
 	  	 	 	 	 	 	 	
Comprehensive income	  	$	2,554	  	 	$	1,230	
 	  	 	 	 	 	 	 	
7. INTANGIBLE ASSETS
The intangible assets we purchased in 2009 primarily consisted of the customer accounts of the Philadelphia Fund, but also included allocations to trade-name and a non-solicitation agreement, which together comprise approximately 1% of the purchase price. The following is a summary of our intangible assets at March 31, 2010 (in thousands):

 	  	Weighted
Average
Amortization
Period	  	Gross
Carrying
Amount	  	Accumulated
Amortization	 	 	Net
Carrying
Amount	
Intangible assets	  	10.8 years	  	$	1,063	  	$	(39	) 	 	$	1,024	
8. EQUITY
On February 23 and 24, 2010, we purchased 26,943 and 25,886 shares of our common stock, respectively, from employees of Westwood to assist our employees in satisfying their tax obligations related to vested restricted shares. The shares purchased on February 23 were purchased at $38.61 per share and the shares purchased on February 24 were purchased at $39.22 per share, the closing price of our common stock on those dates, and are shown as treasury shares in the equity section of our balance sheet at cost.
On February 24, 2010, we granted an aggregate of 203,500 shares of restricted stock to certain employees. These shares are subject to vesting conditions as described in “Note 10. Stock-Based Compensation”.
On February 4, 2010, we declared a quarterly cash dividend of $0.33 per share on common stock payable on April 1, 2010 to stockholders of record on March 15, 2010.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
9. VARIABLE INTEREST ENTITIES
Westwood Trust sponsors common trust funds (“CTFs”) for its clients. These funds allow clients to commingle assets to achieve economies of scale. Westwood Management provides investment advisory services to the WHG Funds, a family of mutual funds. The CTFs and the WHG Funds are considered VIEs because we formed these entities, we are the decision maker for most of their activities and we cannot be removed from our role as sponsor and investment advisor. We receive management fees for managing the assets in these entities that are commensurate with market rates.
We evaluate all of our advisory relationships and CTFs to determine whether or not we qualify as the primary beneficiary based on whether there is an obligation to absorb the majority of the expected losses or a right to receive the majority of the residual returns. Since all losses and returns are distributed to the shareholders of the WHG Funds and the CTFs, we are not the primary beneficiary. Consequently, the CTFs and the WHG Funds are not consolidated into our consolidated financial statements.
We have not provided any financial support that we were not previously contractually obligated to provide and there are no arrangements that would require us to provide additional financial support to the CTFs or the WHG Funds. Our investments in the WHG Funds and CTFs are accounted for as investments in accordance with our other investments described in “Note. 4 INVESTMENTS”. The following table displays the assets under management, the amount of corporate money invested and the risk of loss in each vehicle.

 	  	As of March 31, 2010	
 	  	Assets
Under
Management
(millions)	  	Corporate
Investment
(thousands)	  	Risk
of
Loss
(thousands)	
WHG Funds	  	$	652	  	$	2,540	  	$	2,540	
Common Trust Funds	  	 	1,497	  	 	226	  	 	226	
10. STOCK-BASED COMPENSATION
We have issued stock options and restricted shares to our employees, non-employee directors and a non-employee consultant. The Plan reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock and stock options. The total number of shares that may be issued under the Plan (including the predecessor plans to the Plan) may not exceed 2,648,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock and stock options. At March 31, 2010, approximately 496,000 shares remained available for issuance under the Plan.
The following table presents the total stock-based compensation expense we recorded and the total income tax benefit recognized for stock-based compensation arrangements (in thousands):

 	  	Three months ended
March  31,	
 	  	2010	  	2009	
Total stock-based compensation expense	  	$	1,891	  	$	1,483	
Total income tax benefit recognized related to stock-based compensation	  	 	2,218	  	 	951	
Restricted Stock
Under the Plan, we have granted restricted stock to employees, non-employee directors and a non-employee consultant, which are subject to a service condition, and to our Chief Executive Officer and Chief Investment Officer,
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
which are subject to a service condition and performance goals. Until the shares vest, they are restricted from sale, transfer or assignment in accordance with the terms of the agreements under which they were issued. We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued and an estimate of shares that will not vest due to forfeitures. This compensation cost is amortized on a straight-line basis over the applicable vesting period. As of March 31, 2010, there was approximately $19.8 million of unrecognized compensation cost, which we expect to recognize over a weighted-average period of 2.6 years. In order to satisfy tax liabilities employees will owe on their vested shares, we may withhold a sufficient number of vested shares from employees on the date vesting occurs. For 2010, we expect the number of shares withheld for this purpose could total 72,000 shares. Our two types of restricted stock grants are discussed below.
Employee and non-employee director restricted share grants
Restricted shares granted to employees vest over four years and the non-employee directors’ shares vest over one year. For the three months ended March 31, 2010, we recorded approximately $1.7 million of expense for these grants. The following table details the status and changes in our restricted stock grants that are subject only to a service condition for the three months ended March 31, 2010:

Restricted shares subject only to a service condition:	  	Shares	 	 	Weighted Average
Grant Date Fair
Value	
 	 	 	
Non-vested, January 1, 2010	  	549,150	  	 	$	31.62	
Granted	  	203,500	  	 	 	39.22	
Vested	  	(89,750	) 	 	 	35.65	
Forfeited	  	—  	  	 	 	—  	
 	  	 	 	 	 	 	
Non-vested, March 31, 2010	  	662,900	  	 	 	33.41	
 	  	 	 	 	 	 	
CEO and CIO performance-based restricted share grants
Under the Plan, we granted restricted shares to our Chief Executive Officer and Chief Investment Officer that vest over four years and six years, respectively, provided annual performance goals established by the Compensation Committee of Westwood’s board of directors are met. The shares granted to our Chief Executive Officer became fully vested in 2009. Each year during the applicable vesting period, the Compensation Committee will establish a specific goal for that year’s vesting of the restricted shares, which will be based in all cases upon Westwood’s adjusted pre-tax income, as defined. In February 2010, the Compensation Committee established the goal for 2010 as adjusted pre-tax income of at least $14,774,000, representing a compound annual growth rate of 10% over the adjusted pre-tax income for the year 2005. If in any year during the vesting period the performance goal is not met, the Compensation Committee may establish a goal for a subsequent vesting period, which if achieved or exceeded may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. However, in no event will the maximum number of shares, which may become vested over the vesting period, exceed 100,000 shares in the case of our Chief Executive Officer and 300,000 shares in the case of our Chief Investment Officer. If a portion of the performance-based restricted shares do not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to the shares that do not vest would be reversed.

Restricted shares subject to service and performance conditions:	  	Shares	  	Weighted Average
Grant Date Fair
Value	
 	 	 	
Non-vested, January 1, 2010	  	100,000	  	$	18.81	
Granted	  	—  	  	 	—  	
Vested	  	—  	  	 	—  	
Forfeited	  	—  	  	 	—  	
 	  	 	  	 	 	
Non-vested, March 31, 2010	  	100,000	  	 	18.81	

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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
Because the performance goal was met in 2009, the shares subject to vesting were vested in substance, but required certification by the Compensation Committee, at which time a share price was determined for tax purposes. On February 24, 2010, the 2009 shares, which were expensed in 2009, were certified as vested and the total fair value of the shares was determined to be $2,942,000, utilizing a share price of $39.22, the closing price of our common stock as of the day of certification. In the first quarter of 2010, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Investment Officer to vest this year and recognized approximately $235,000 in the current quarter related to this performance-based restricted stock grant.
Stock Options
Options granted under the Plan have a maximum ten-year term and vested over a period of four years. All of our stock options are vested and exercisable and became fully expensed in 2006. The following table sets forth the summary of option activity under our stock option program for the three months ended March 31, 2010:

 	  	Options	 	 	Weighted
Average
Exercise
Price	  	Weighted
Average
Remaining
Contractual
Term
(years)	  	Aggregate
Intrinsic
Value	
Options outstanding, January 1, 2010	  	54,900	  	 	$	12.90	  	 	  	 	 	
Granted	  	—  	  	 	 	—  	  	 	  	 	 	
Exercised	  	(4,450	) 	 	 	12.90	  	 	  	 	 	
Forfeited/expired	  	—  	  	 	 	—  	  	 	  	 	 	
 	  	 	 	 	 	 	  	 	  	 	 	
Options outstanding, March 31, 2010	  	50,450	  	 	 	12.90	  	2.25	  	$	1,206,000	
 	  	 	 	 	 	 	  	 	  	 	 	
The total intrinsic value of options exercised during the three month periods ended March 31, 2010 and 2009 were $117,000 and $0, respectively. Options exercised represent newly issued shares.
11. SUBSEQUENT EVENTS
We have reviewed events through April 21, 2010, the date the financial statements were issued.
On April 21, 2010, the Compensation Committee of Westwood’s board of directors approved an award of 175,000 shares of performance-based restricted stock to our Chief Executive Officer that will vest over a period of five years, provided that annual performance goals established by the Compensation Committee are met.
12. SEGMENT REPORTING:
We operate two segments: Westwood Management and Westwood Trust. These segments are managed separately based on the types of products and services offered and their related client bases. We evaluate the performance of our segments based primarily on income before income taxes. The entity Westwood Holdings, the parent company of Westwood Management and Westwood Trust, does not have revenues or employees and is the entity in which we record stock-based compensation expense.
Westwood Management
Westwood Management provides investment advisory services to corporate retirement plans, public retirement plans, endowments, foundations and the WHG Funds, as well as investment subadvisory services to mutual funds and clients of Westwood Trust.
 
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WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
Westwood Trust
Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals.
All segment accounting policies are the same as those described in the summary of significant accounting policies. Intersegment balances that eliminate in consolidation have been applied to the appropriate segment.

 	  	Westwood
Management	  	Westwood
Trust	  	Westwood
Holdings	 	 	Eliminations	 	 	Consolidated	
 	  	(in thousands)	
Three months ended March 31, 2010	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Net revenues from external sources	  	$	10,205	  	$	3,011	  	$	—  	  	 	$	—  	  	 	$	13,216	
Net intersegment revenues	  	 	1,074	  	 	4	  	 	—  	  	 	 	(1,078	) 	 	 	—  	
Income before income taxes	  	 	5,911	  	 	533	  	 	(1,891	) 	 	 	—  	  	 	 	4,553	
Segment assets	  	 	50,208	  	 	4,257	  	 	2,362	  	 	 	—  	  	 	 	56,827	
Segment goodwill	  	 	3,403	  	 	512	  	 	—  	  	 	 	—  	  	 	 	3,915	
 	 	 	 	 	 	
Three months ended March 31, 2009	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Net revenues from external sources	  	$	5,794	  	$	2,423	  	$	—  	  	 	$	—  	  	 	$	8,217	
Net intersegment revenues	  	 	838	  	 	3	  	 	—  	  	 	 	(841	) 	 	 	—  	
Income before income taxes	  	 	2,905	  	 	507	  	 	(1,483	) 	 	 	—  	  	 	 	1,929	
Segment assets	  	 	36,354	  	 	4,132	  	 	4,308	  	 	 	—  	  	 	 	44,794	
Segment goodwill	  	 	1,790	  	 	512	  	 	—  	  	 	 	—  	  	 	 	2,302	
 
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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
Forward-Looking Statements
Statements in this report that are not purely historical facts, including statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC, and those set forth below:
 
 	•	 	our ability to identify and successfully market services that appeal to our customers;	
 
 	•	 	the significant concentration of our revenues in four of our customers;	
 
 	•	 	our relationships with investment consulting firms;	
 
 	•	 	our relationships with current and potential customers;	
 
 	•	 	our ability to retain qualified personnel;	
 
 	•	 	our ability to successfully develop and market new asset classes;	
 
 	•	 	our ability to maintain our fee structure in light of competitive fee pressures;	
 
 	•	 	our ability to realize potential performance-based advisory fees;	
 
 	•	 	competition in the marketplace;	
 
 	•	 	downturn in the financial markets;	
 
 	•	 	the passage of legislation adversely affecting the financial services industries;	
 
 	•	 	interest rates;	
 
 	•	 	changes in our effective tax rate;	
 
 	•	 	our ability to maintain an effective system of internal controls; and	
 
 	•	 	the other risks detailed from time to time in our SEC reports.	
You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.
Overview
We manage investment assets and provide services for our clients through our two subsidiaries, Westwood Management and Westwood Trust. Westwood Management provides investment advisory services to corporate and public retirement plans, endowments and foundations, a family of mutual funds, which we call the WHG Funds, other mutual funds and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of assets under management. We have been providing investment advisory services since 1983 and, according to recognized industry sources, including Morningstar, Inc., when measured over multi-year periods ten years and longer, our principal asset classes rank above the median in performance within their peer groups. Percentages stated in this section are rounded to the nearest whole percent.
 
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Revenues
We derive our revenues from investment advisory fees, trust fees, and other revenues. Our advisory fees are generated by Westwood Management, which manages its clients’ accounts under investment advisory and subadvisory agreements. Advisory fees are calculated based on a percentage of assets under management, and are paid in accordance with the terms of the agreements. Westwood Management’s advisory fees are paid quarterly in advance based on the assets under management on the last day of the preceding quarter, quarterly in arrears based on the assets under management on the last day of the quarter just ended, or are based on a daily or monthly analysis of assets under management for the stated period. Westwood Management recognizes revenues as services are rendered. A limited number of our clients have a performance-based fee component in their contract, which would pay us an additional fee if we outperform a specified index over a specific period of time. We record revenue from performance-based fees at the end of the measurement period. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, our financial statements do not contain a significant amount of deferred revenue.
Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of assets under management, which in turn is influenced by the complexity of the operations of the trust and the services provided. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. Most trust fees are paid quarterly in advance and are recognized as services are rendered. Since the majority of Westwood Trusts’ advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, our financial statements do not contain a significant amount of deferred revenue.
Our other revenues generally consist of unrealized gains and losses on our investments and interest and investment income. We invest most of our cash in U.S. Treasury Bills, although we also invest smaller amounts in money market funds and equity instruments.
Assets Under Management
Assets under management increased $3.4 billion to $10.6 billion at March 31, 2010, compared with $7.2 billion at March 31, 2009. The average of beginning and ending assets under management for the first quarter of 2010 was $10.4 billion compared to $7.2 billion for the first quarter of 2009, an increase of 45%. The increase in period ending assets under management was due to market appreciation of assets under management and asset inflows from new and existing clients and was partially offset by the withdrawal of assets by certain clients. The following table sets forth Westwood Management’s and Westwood Trust’s assets under management as of March 31, 2010 and 2009:

 	  	As of March 31,
(in millions)	  	% Change
March 31, 2010
vs.
March 31, 2009	 	
 	  	2010	  	2009	  	 	 	
Westwood Management	  	 	 	  	 	 	  	 	 	
Separate Accounts	  	$	5,382	  	$	3,361	  	60	% 	
Subadvisory	  	 	1,877	  	 	1,435	  	31	  	
WHG Funds	  	 	652	  	 	285	  	129	  	
Westwood Funds	  	 	286	  	 	263	  	9	  	
Managed Accounts	  	 	455	  	 	329	  	38	  	
 	  	 	 	  	 	 	  	 	 	
Total	  	 	8,652	  	 	5,673	  	53	  	
 	 	 	 	
Westwood Trust	  	 	 	  	 	 	  	 	 	
Commingled Funds	  	 	1,497	  	 	1,088	  	38	  	
Private Accounts	  	 	354	  	 	334	  	6	  	
Agency/Custody Accounts	  	 	128	  	 	88	  	45	  	
 	  	 	 	  	 	 	  	 	 	
Total	  	 	1,979	  	 	1,510	  	31	  	
 	 	 	 	
Total Assets Under Management	  	$	10,631	  	$	7,183	  	48	% 	

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Westwood Management. In the preceding table, “Separate Accounts” represent corporate pension and profit sharing plans, public employee retirement funds, Taft Hartley plans, endowments, foundations and individuals. “Subadvisory” represents relationships where Westwood Management provides investment management services for funds offered by other financial institutions. “WHG Funds” represent the family of institutional mutual funds for which Westwood Management serves as advisor. “Westwood Funds” represent the family of mutual funds for which Westwood Management serves as subadvisor. “Managed Accounts” represent relationships with brokerage firms and other registered investment advisors who offer Westwood Management’s products to their customers.
Westwood Trust. In the preceding table, “Commingled Funds” represent funds that have been established to facilitate investment of fiduciary funds of multiple clients by combining assets into a single trust for taxable and tax-exempt entities. “Private Accounts” represent discretionary accounts where Westwood Trust acts as trustee or agent and has full investment discretion. “Agency/Custody Accounts” represent non-discretionary accounts in which Westwood Trust provides agent or custodial services, but does not act in an advisory capacity. For certain assets in this category, Westwood Trust currently provides limited custody services for a minimal or zero fee, but views these assets as potentially converting to fee-generating managed assets in the future. As an example, some assets in this category consist of low-basis stock currently being held in custody for clients, but will likely transfer to fee-generating managed assets during an inter-generational transfer of wealth at some future date.
Results of Operations
The following table (dollars in thousands) and discussion of our results of operations for the three months ended March 31, 2010 is based upon data derived from the consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements, which are included elsewhere in this quarterly report.

 	  	Three months ended
March  31,	 	 	Three months ended
March 31, 2010
vs.
March 31, 2009	 	
 	  	2010	  	2009	 	 	 	 	
Revenues	  	 	 	  	 	 	 	 	 	 	
Advisory fees – asset based	  	$	10,080	  	$	6,130	  	 	64	% 	
Trust fees	  	 	3,009	  	 	2,421	  	 	24	  	
Other revenues, net	  	 	127	  	 	(334	) 	 	—  	  	
 	  	 	 	  	 	 	 	 	 	 	
Total revenues	  	 	13,216	  	 	8,217	  	 	61	  	

Expenses	  	 	 	  	 	 	 	 	 	 	
Employee compensation and benefits	  	 	6,796	  	 	4,694	  	 	45	  	
Sales and marketing	  	 	133	  	 	130	  	 	2	  	
WHG mutual funds	  	 	143	  	 	177	  	 	(19	) 	
Information technology	  	 	327	  	 	310	  	 	5	  	
Professional services	  	 	572	  	 	395	  	 	45	  	
General and administrative	  	 	692	  	 	582	  	 	19	  	
 	  	 	 	  	 	 	 	 	 	 	
Total expenses	  	 	8,663	  	 	6,288	  	 	38	  	
 	  	 	 	  	 	 	 	 	 	 	
Income before income taxes	  	 	4,553	  	 	1,929	  	 	136	  	
Provision for income taxes	  	 	1,620	  	 	699	  	 	132	  	
 	  	 	 	  	 	 	 	 	 	 	
Net income	  	$	2,933	  	$	1,230	  	 	138	% 	
 	  	 	 	  	 	 	 	 	 	 	
Three months ended March 31, 2010 compared to three months ended March 31, 2009
Total Revenues. Our total revenues increased by 61% to $13.2 million for the three months ended March 31, 2010 compared with $8.2 million for the three months ended March 31, 2009. Asset-based advisory fees increased by 64% to $10.1 million for the three months ended March 31, 2010 compared with $6.1 million for the three months ended March 31, 2009, as a result of increased average assets under management by Westwood Management due to market appreciation of assets and inflows from new and existing clients, partially offset by the withdrawal of assets by certain clients. Trust fees increased by 24% to $3.0 million for the three months ended
 
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March 31, 2010 compared with $2.4 million for the three months ended March 31, 2009 as a result of increased assets under management by Westwood Trust due to market appreciation of assets and inflows from new accounts. Net asset outflows from existing clients partially offset these increases. Other revenues, which generally consist of interest and investment income, increased to $127,000 for the three months ended March 31, 2010 compared with $(334,000) for the three months ended March 31, 2009. Other revenues are presented net and increased primarily due to an increase of $493,000 in net unrealized and realized gains on investments, partially offset by a decrease of $34,000 in interest income due to lower interest rates.
Employee Compensation and Benefits. Employee compensation and benefits costs generally consist of salaries, incentive compensation, equity based compensation expense and benefits. Employee compensation and benefits costs increased by 45% to $6.8 million for the three months ended March 31, 2010 compared with $4.7 million for the three months ended March 31, 2009. The increase was primarily due to increases of $1,352,000 in incentive compensation expense as a result of higher pretax income, $408,000 in restricted stock expense due to $235,000 of expense related to performance-based grants and $173,000 related to additional employee restricted stock grants in February 2010 that were granted at a higher price compared to prior grants, $126,000 in payroll taxes due to higher taxable compensation as well as restricted shares that vested in the first quarter and $109,000 in salary expense due primarily to salary increases and increased average headcount. In the first quarter of 2010, we concluded that it was probable that we would meet the performance goal required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Investment Officer to vest. As a result, we recognized expense of approximately $235,000 in the first quarter related to these performance-based restricted stock grants. We did not record such an expense in the prior year until the second quarter. We expect to recognize a similar amount in the second, third and fourth quarters of 2010 related to this performance-based restricted stock grant. We had 65 full-time employees as of March 31, 2010 compared to 63 full-time employees as of March 31, 2009.
Sales and Marketing. Sales and marketing costs generally consist of costs associated with our marketing efforts, including travel and entertainment, direct marketing and advertising costs. Sales and marketing costs increased by 2% to $133,000 for the three months ended March 31, 2010 compared with $130,000 for the three months ended March 31, 2009. The increase is primarily the result of increased direct marketing expense and travel.
WHG Mutual Funds. WHG Mutual Funds expenses generally consist of costs associated with our marketing, distribution and administration efforts related to the WHG Funds. WHG Mutual Funds expenses decreased by 19% to $143,000 for the three months ended March 31, 2010 compared with $177,000 for the three months ended March 31, 2009 due to decreased legal costs related to a mutual fund acquisition we completed in 2009.
Information Technology. Information technology expenses are generally costs associated with proprietary investment research tools, maintenance and support, computing hardware, software licenses, telecommunications and other related costs. Information technology costs increased by 5% to $327,000 for the three months ended March 31, 2010 compared with $310,000 for the three months ended March 31, 2009. The increase is primarily due to increased expenses for software, data fees and quotations, partially offset by a decrease in support expenses.
Professional Services. Professional services expenses generally consist of costs associated with subadvisory fees, audit, legal and other professional services. Professional services expenses increased by 45% to $572,000 for the three months ended March 31, 2010 compared with $395,000 for the three months ended March 31, 2009. The increase is primarily due to growth common trust funds sponsored by Westwood Trust being temporarily invested in passive index funds in the prior year quarter and increased audit and other professional fees. A decrease in legal expenses partially offset these increases.
General and Administrative. General and administrative expenses generally consist of costs associated with the lease of our office space, investor relations, licenses and fees, depreciation, insurance, office supplies and other miscellaneous expenses. General and administrative expenses increased by 19% to $692,000 for the three months ended March 31, 2010 compared with $582,000 for the three months ended March 31, 2009. The increase is primarily due to increases in amortization, custody, insurance and research expenses. These increases were partially offset by a decrease in occupancy expenses.
 
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Provision for Income Tax Expense. Provision for income tax expenses increased by 132% to $1,620,000 for the three months ended March 31, 2010 compared with $699,000 for the three months ended March 31, 2009. The effective tax rate was 35.6% for the three months ended March 31, 2010 compared to 36.3% for the three months ended March 31, 2009.
Supplemental Financial Information
As supplemental information, we provide non-generally accepted accounting principles (“non-GAAP”) performance measures that we refer to as cash earnings and cash expenses. We provide these measures in addition to, but not as a substitute for, net income and total expenses, which are reported on a U.S. generally accepted accounting principles (“GAAP”) basis. Management and our board of directors review cash earnings and cash expenses to evaluate our ongoing performance, allocate resources and review dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income and total expenses, are useful for both management and investors to evaluate our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without considering financial information prepared in accordance with GAAP.
In calculating cash earnings, we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock and stock options, amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill. We define cash expenses as total expenses less non-cash equity-based compensation expense and amortization of intangible assets. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating cash earnings or deduct it when calculating cash expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust cash earnings for tax deductions related to restricted stock expense.
Our cash earnings increased by 79% to $4.9 million for the three months ended March 31, 2010 compared with $2.7 million for the three months ended March 31, 2009 primarily due to an increase in total revenues.
The following tables provide a reconciliation of net income to cash earnings and total expenses to cash expenses (in thousands):

 	  	Three Months Ended
March 31	 	 	%
Change	 	
 	  	2010	 	 	2009	 	 	 	 	
Net Income	  	$	2,933	  	 	$	1,230	  	 	138	% 	
Add: Restricted stock expense	  	 	1,891	  	 	 	1,483	  	 	28	  	
Add: Intangible amortization	  	 	26	  	 	 	—  	  	 	—  	  	
Add: Deferred taxes on goodwill	  	 	9	  	 	 	—  	  	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	
Cash earnings	  	$	4,859	  	 	$	2,713	  	 	79	  	

Total expenses	  	$	8,663	  	 	$	6,288	  	 	38	  	
Less: Restricted stock expense	  	 	(1,891	) 	 	 	(1,483	) 	 	28	  	
Less: Intangible amortization	  	 	(26	) 	 	 	—  	  	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	
Cash expenses	  	$	6,746	  	 	$	4,805	  	 	40	% 	
 	  	 	 	 	 	 	 	 	 	 	 	
Liquidity and Capital Resources
We fund our operations and cash requirements with cash generated from operating activities. As of March 31, 2010, we had no long-term debt. The changes in net cash provided by operating activities generally reflect the changes in earnings plus the effect of non-cash items and changes in working capital. Changes in working capital, especially accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses.
During the three months ended March 31, 2010, cash flow provided by operating activities, principally our investment advisory business, was $2.7 million. The cash we generated from operations was supplemented by the realization of deferred taxes and the net sales of trading securities, partially offset by incentive compensation payments. At March 31, 2010, we had working capital of $44.1 million. Cash flow provided by investing activities
 
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during the three months ended March 31, 2010 of $1.3 million was related to net sales of investments, partially offset by purchases of fixed assets. Cash flow used in financing activities during the three months ended March 31, 2010 of $3.7 million was due to cash dividends paid to our stockholders and the purchase of treasury shares. Those cash uses were partially offset by tax benefits from stock-based compensation.
We had cash and investments of $42.6 million as of March 31, 2010 and $45.1 million as of December 31, 2009. Dividends payable were $2.4 million as of March 31, 2010 and December 31, 2009. We had no liabilities for borrowed money at March 31, 2010. We have deferred acquisition liabilities that will be paid in the fourth quarters of 2010 and 2011, which we expect to pay with funds generated from operations.
Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures and strategic initiatives (if any) and our dividend policy. We believe that current cash and short-term investment balances and cash generated from operations will be sufficient to meet the operating and capital requirements of our ordinary business operations through at least the next twelve months. However, there can be no assurance that we will not require additional financing within this time frame. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary. The failure to raise needed capital on attractive terms, if at all, could have a material adverse effect on our business, financial condition and results of operations.
Contractual Obligations
There have been no significant changes in our contractual obligations since December 31, 2009.
Recent Accounting Pronouncements
In January 2010, the FASB issued further guidance under ASC No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The guidance requires disclosures about the transfers of investments between levels in the fair value hierarchy and disclosures relating to the reconciliation of fair value measurements using significant unobservable inputs (level 3 investments). This guidance is effective for the fiscal years and interim periods beginning after December 15, 2010. We do not expect these disclosures to have a material impact on our financial statements.
Critical and Significant Accounting Policies and Estimates
There have been no significant changes in our critical or significant accounting policies and estimates since December 31, 2009.
 
ITEM 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK	
There have been no significant changes in our Quantitative and Qualitative Disclosures about Market Risk from that previously reported in our annual report on Form 10-K for 2009.
 
ITEM 4.	CONTROLS AND PROCEDURES	
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 
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For the quarter ended March 31, 2010, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
 
ITEM 1.	LEGAL PROCEEDINGS	
We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. We do not believe the outcome of these proceedings will have a material impact on our financial position, operations or cash flow.
 
ITEM 1A.	RISK FACTORS	
We face a number of significant risks and uncertainties in our business, which are detailed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 and summarized in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties may affect our current position and future prospects and should be considered carefully in evaluating us and an investment in our common stock.
 
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	
The following table displays information with respect to the treasury shares we purchased during the three months ended March 31, 2010.

Period	  	Total
number of
shares
purchased	  	Average
price paid
per share	  	Total number
of shares
purchased as
part of publicly
announced
plans or
programs	  	Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs	
January 1 through January 31, 2010	  	—  	  	 	—  	  	—  	  	—  	
February 1 through February 28, 2010	  	52,829	  	$	38.91	  	—  	  	—  	
March 1 through March 31, 2010	  	—  	  	 	—  	  	—  	  	—  	
 	  	 	  	 	 	  	 	  	 	
Total	  	52,829	  	$	38.91	  	—  	  	—  	
Note: The treasury shares were purchased from Westwood employees at the market close price on the date of purchase in order to assist our employees in satisfying their tax obligations from restricted shares that vested. We anticipate purchasing additional treasury shares in subsequent years for the same purpose.
 
ITEM 6.	EXHIBITS	

 	 	
31.1	  	Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)	
 	 	
31.2	  	Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a)	
 	 	
32.1*	  	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	
32.2*	  	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 
*	Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are furnished rather than filed with this report.	
 
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SIGNATURES
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.

Dated: April 21, 2010	 	WESTWOOD HOLDINGS GROUP, INC.	
 	 	 	
 	 	By:	 	/S/    BRIAN O. CASEY        	
 	 	 	 	Brian O. Casey	
 	 	 	 	Chief Executive Officer	
 	 	 	
 	 	By:	 	/S/    WILLIAM R. HARDCASTLE, JR.        	
 	 	 	 	William R. Hardcastle, Jr.	
 	 	 	 	Chief Financial Officer	
 
21

Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14(a)
I, Brian O. Casey, certify that:
 
1.	I have reviewed this report on Form 10-Q of Westwood Holdings Group, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: April 21, 2010

/s/ Brian O. Casey	
Brian O. Casey	
Chief Executive Officer	

Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a)
I, William R. Hardcastle, Jr., certify that:
 
1.	I have reviewed this report on Form 10-Q of Westwood Holdings Group, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: April 21, 2010

/s/ William R. Hardcastle, Jr.	
William R. Hardcastle, Jr.	
Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westwood Holdings Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian O. Casey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 21, 2010

/s/ Brian O. Casey	
Brian O. Casey
Chief Executive Officer	
A signed original of this written statement required by Section 906 has been provided to Westwood Holdings Group, Inc. and will be retained by Westwood Holdings Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westwood Holdings Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William R. Hardcastle, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 21, 2010

/s/ William R. Hardcastle, Jr.	
William R. Hardcastle, Jr.	
Chief Financial Officer	
A signed original of this written statement required by Section 906 has been provided to Westwood Holdings Group, Inc. and will be retained by Westwood Holdings Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.