| Item 1. | Business. |
2015. We were incorporated under the laws of the State of Delaware on December 12, 2001. the acquisition date. Corporate Governance Guidelines and International and encompasses three distinct investment teams – the U.S. Value Team, the Global Convertible Securities Team, and the Global and Emerging Markets Equity Team. SMidCap Value, This investment approach is intended to preserve capital during unfavorable periods and provide superior real returns over the long term. We believe that we have established a track record of delivering competitive risk-adjusted returns for our clients. Our ten largest clients accounted for over 20% of our fee revenues for the year ended December 31, 2015. The loss of some or all of these large clients could have a material adverse effect on our business and our results of operations. Clients generally have at least $1 million in investable assets. funds, respectively. generate growth from new and existing clients and consultant attract and retain key grow assets in our existing investment foster continued growth of the Westwood Trust and predecessors taken as a whole. This Report contains some forward-looking statements within the meaning of the federal securities laws. 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 those set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors”.(“and Westwood Advisors, LLC (together, “Westwood Management”), Westwood Trust, and Westwood International Advisors Inc. (“Westwood International”). and Westwood Trust. Westwood Management, founded in 1983, provides investment advisory services to corporate and public retirement plans, endowments and foundations,institutional investors, a family of mutual funds called the Westwood FundsTMFunds®, other mutual funds, individualsan Ireland-domiciled fund organized pursuant to the European Union’s Undertakings for Collective Investment in Transferable Securities (“UCITS”), individual investors and clients of Westwood Trust. We changed the name of our mutual fund familyWestwood International was established in early 2012 from the WHG Fundsand provides investment advisory services to institutional clients, the Westwood FundsTMFunds®, other mutual funds, UCITS funds and clients of Westwood Trust. Westwood Trust, founded as part of an effort to consolidate our branding strategies under the Westwood name, which has significant meaning to our firm. Westwood Trusta state-chartered trust company in 1974, provides trust and custodial services and participation in self-sponsored common trust funds to institutions and high net worth individuals. Westwood International, based in Toronto, Canada, was established in the second quarter of 2012 and provides global and emerging markets investment advisory services to institutional clients, the Westwood FundsTM, other mutual funds and clients of Westwood Trust. Our revenues are generally derived from fees based on a percentage of assets under management. Westwood Management, Westwood TrustInternational and Westwood InternationalTrust collectively managed assets valued at approximately $14.2$20.8 billion at December 31, 2012.The success of our business is very dependent on client relationships. We believe that, in addition to investment performance, client service is paramount in the asset management business. Accordingly, a major focus of our business strategy is to build strong relationships with clients to enhance our ability to anticipate their needs and satisfy their investment objectives. Our team approach is designed to deliver efficient, responsive service to our clients. Our success is dependent to a significant degree on investment performance and our ability to provide attentive client service.We are an independent public company and ourOur common stock is listed on the New York Stock Exchange under the ticker symbol “WHG.” We are a holding company whose principal assets consist of the capital stock of Westwood Management, Westwood Trust and Westwood International.Oneseveral prioritiesour business is very dependent on which weclient relationships. We believe that, in addition to investment performance, client service is paramount in the asset management business. Accordingly, a major business focus is to build strong relationships with clients to enhance our ability to anticipate their needs and satisfy their investment objectives. Our team approach is designed to deliver efficient, responsive service to our clients.since 2002 is theon building of aour foundation in terms of personnel and infrastructure to support a much larger business. We have also developed productsinvestment strategies that we expect to be desirable within our target institutional, private wealth and mutual fund markets. The costs of developingDeveloping new productsinvestment strategies and building the organization can result in incurring expenses before significant offsetting revenues are realized. We believecontinue to evaluate new strategies and resources in terms of meeting actual and potential investor needs.foundationof Woodway for the twelve-month period ending March 31, 2016 (the “Earn-Out Period”), adjusted for certain clients or accounts that have terminated, and capped at $15 million (the “Earn-Out Amount”).rangebusiness in a transaction using the purchase method of appropriate products are now in place,accounting for business combinations. Accordingly, the purchase price was allocated to the tangible and we have been taking these products in recent years to our served markets where they have been received with a high levelintangible assets acquired and the liabilities assumed based on their estimated fair values as of interest, thereby generating new revenue streams.Form 10-KReport and should not be considered part of this Report or any other filing that we make with the Securities and Exchange Commission (“SEC”). All of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are available free of charge on our website. Additionally, ourOur Code of Business Conduct, and Ethics, our our Audit Committee, Compensation Committee and Governance/Nominating Committee Charters are available without charge on our website. Stockholders also may obtain print copies of these documents free of charge by submitting a written request to Mark A. Wallace,Tiffany B. Kice, our Chief Financial Officer, at the address set forth in the front of this Report. The public can also obtain any document we file with the SEC atwww.sec.gov.International.depend on thevary by investment strategy offered butand generally range from $10$5 million to $25 million. Westwood Management also provides advisory services to individuals, and the Westwood FundsTMFunds® and UCITS funds, as well as subadvisory services to other mutual funds.funds and pooled investment vehicles. Westwood Management’s investment strategies are managed by the U.S. Value Team, based in Dallas, Texas, and by the Global Convertible Securities Team, based in Boston, Massachusetts. Our overall investment philosophy was developed by our Founder and Chairman, Susan M. Byrne, and is implemented by a teamprofessionals average fifteen years of investment professionals under the leadership of our Chief Investment Officer, Mark Freeman. With respect to the bulk of assets under management we utilize a “value” investment style focused on achieving a superior long-term, risk-adjusted return by investing in companies with high levels of free cash flow, improving returns on equity, strengthening balance sheets and well positioned for growth but whose value is not fully recognized in the marketplace. This investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term. Our investmentexperience. We believe team members average investment experience of fifteen years and one third of the team has worked together at Westwood for more than six years. Team continuity and years of experience are among the critical elements required for successfully managing investments.Funds, common trust funds sponsored by Westwood Trust.Funds®, pooled investment vehicles and large U.S. institutions under the supervision of Westwood Management.allowingwhich allows us to serve variousa variety of client types andwith different investment objectives. Approximately 37% of ourWe currently manage five investment strategies each with over $1 billion in assets under management, are invested inincluding our Income Opportunity, LargeCap Value, strategy. The principal investment strategies currently managed by Westwood Management are as follows:LargeCap Value: Investments in equity securities of approximately 40-60 well-seasoned companies with market capitalizations generally over $5 billion. This portfolio is invested in companies where we expect that future profitability, driven by operational improvements, will exceed expectations reflected in current share prices.Dividend Growth: Investments in equity securities of approximately 40-60 high quality companies with market capitalizations generally over $1 billion. This portfolio is invested in companies of which at least 80% are paying dividends and whose prospects for dividend growth are strong. This strategy combines quantitative and fundamental research to create a diversified portfolio of companies we believe can create value for shareholders.SMidCap Plus+: Investments in equity securities of approximately 45-65 companies with market capitalizations between $2 billion and $15 billion. Similar to our other value-oriented investment strategies, we seek to discover operational improvements driving earnings growth within small to mid-sized companies that can be purchased inexpensively.: Investments in equity securities of approximately 45-60 companies with market capitalizations between $500 million Emerging Markets and $10 billion. Similar to our other value-oriented investment strategies, we seek to discover operational improvements driving earnings growth within small to mid-size companies that can be purchased inexpensively. This strategy reached its asset capacity in 2010 and is now closed to new investors.SmallCapEmerging Markets Plus strategies.: Investments in equity securities of approximately 50-70 companies with market capitalizations between $100 million and $2 billion. Similar to our other value-oriented investment strategies, we seek to invest in high quality companies whose earnings growth is driven by operational improvements not yet fully recognized by the market.AllCap Team: Investments in equity securities of approximately 50-80 well-seasoned companies. The portfolio generally comprises our investment professionals’ best ideas among companies with market capitalizations above $100 million. Similar to our other value-oriented investment strategies, we seek to invest in companies across a broad range of market capitalizations where we expect that future profitability, driven by operational improvements, will be higher than expectations currently reflected in share prices.Balanced: Investments in a combination of equity and fixed income securities, designed to provide both growth opportunities and income, while also emphasizing asset preservation in “down” markets. Westwood Management applies its expertise in dynamic asset allocation and security selection decisions in carrying out this balanced strategy approach.Income Opportunity: Investments in dividend-paying common stocks, preferred stocks, convertible securities, master limited partnerships, royalty trusts, REITs and selected debt instruments. This portfolio’s strategy focuses on companies with strong and improving cash flow sufficient to support a sustainable or rising income stream for investors. This strategy is targeted towards investors seeking current income, a competitive total return and low volatility through dividend-paying or interest-bearing securities.Master Limited Partnerships (“MLPs”): Investments include MLPs (including limited partnerships and general partnerships) and other securities. Within these types of securities, the portfolio focuses on partnerships that exhibit higher distribution yields, stable and predictable cash flows, low correlations to other asset classes, and growth potential.Investment Grade Fixed Income: Investments in high-grade, intermediate term corporate and government bonds. We seek to add value to client portfolios through yield curve positioning and investing in debt instruments with improving credit quality potential.Each investment strategy consists of a portfolio of equity or fixed income securities selected by Westwood’s portfolio teams and chosen to optimize long-term returns consistent with Westwood’s investment philosophy. Our portfolio teams make decisions for Westwood Management investment strategies in accordance with the investment objectives and policies of those strategies, including determining when and which securities to purchase and sell.We employ team employs a value-oriented approach for our domestic equity investment strategies.approach. The common thread that permeates thesethe team's strategies is oura disciplined approach to controlling risk and preserving client assets whenever possible. Our investment teams seekThe team seeks to invest in companies with high levels of free cash flow, improving returns on equity and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the marketplace. Through investments in companies that exhibit these characteristics, we seek to demonstrategenerate consistently superior performance relative to our industry peers and relevant benchmark indices.On an asset-weighted basis, more than 90 percent of ourThe principal investment strategies have delivered above-benchmark performancecurrently managed by the U.S. Value Team are as follows:more than 95 percent have experienced below-benchmark volatility.Westwood International offers$15 billion. Similar to our other value-oriented investment strategies, we seek to discover operational improvements driving earnings growth within small to mid-sized companies that allow uscan be purchased at reasonable prices.serve clients wishingour other value-oriented investment strategies, we seek to discover operational improvements driving earnings growth within small to mid-size companies that can be purchased at reasonable prices. This strategy reached its asset capacity in 2010 and is now closed to new investors.offering accesswe seek to invest in companies across a broad range of market capitalizations where we expect that future profitability, driven by operational improvements, will be higher than expectations currently reflected in share prices.markets. Over 70% of Westwood International’s $888 million of assets under management at December 31, 2012 is invested in our Emerging Marketsmarkets equity investment strategies. The principal investment strategies currently managed by Westwood Internationalthe Global and Emerging Markets Equity Team are as follows:Markets: Markets: This strategy invests in the common stocks of 70-90 companies that are located or have primary operations in emerging markets and havewith market capitalizations above USD $500 million. The portfolio is invested in companies that we believe arerepresents sound businesses that are mispriced and can generate positive and sustainable earnings growth, thus generating economic profits growth over time.growth. Similar to Emerging Markets, thisThis strategy invests in the common stockstocks of 50-70 companies that are located or have primary operations in emerging markets and have market capitalizations above USD $1.5 billion. The portfolio is invested in companies that we believe represent sound businesses that are mispriced and can generate sustainable earnings growth.positive and sustainable earnings growth, thus generating economic profits growth over time.growth.InvestsThis strategy invests in the common stockstocks of 65-85 companies located throughout the world, with market capitalizations above USD $1 billion. Similar to our Emerging Markets strategy, the portfolio invests in companies that we believe are sound businesses that are mispriced and can generate positive and sustainable earnings growth, thus generating economic profits growth over time.growth.InvestsThis strategy invests in the common stockstocks of 65-90 well-established companies around the world, with an emphasis on the sustainability and growth of dividends. This strategyIt seeks to invest in businessesstrong franchises that we believe are mispriced, and can generate positive and sustainable earnings growth, thus achieving economic profits over time. The Global Dividend strategy searches for companies with good liquidity, the ability to generate sustainable and positive economic profits strong franchises with attractive valuations, earnings sustainability and an ability or prospective ability topotentially pay dividends.“—Growth“Growth Strategy” below. Our growth strategy provides clients with more investment opportunities and diversifies our assets under management, thereby reducing risk in any one area of investment and increasing our competitive ability to attract new clients.As is typical inTypical for the asset management industry, suchthese agreements are usually terminable upon short notice and provide for compensation based on the market value of client assets under management. Westwood’s advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter, quarterly in arrears based on assets under management on the last day of the previous quarter, or are based on a daily or monthly analysis of assets under management for the stated period. A few clients have contractual performance-based fee arrangements, which generate additional revenues if we outperform a specified index over a specific period of time. Revenue for performance-based fees is recorded at the end of the measurement period. Revenue from advance payments is deferred and recognized over the period that services are performed. Pursuant to these agreements, Westwood provides overall investment management services, including directing investments in conformity with client-established investment objectives and restrictions. Unless otherwise directed in writing by clients, Westwood has the authority to vote all proxies with respect to securities in client portfolios. as they do under advisory agreements. Our subadvisory fees are generally computed based upon the average daily assets under management and are payable on a monthly basis. As with our advisory agreements, these agreements are terminable upon short notice.Under our subadvisory agreement with Teton Advisors, Inc., an affiliate of GAMCO Investors, Inc., Teton Westwood FundsFunds® family of mutual funds. Based on SEC filings, we believe that GAMCO Investors, Inc. owned 10.2% of our common stock as of December 31, 2012. Westwood Management received subadvisory payments from Teton Advisors, Inc. totaling $414,000, $502,000 and $573,000 for the twelve months ended December 31, 2012, 2011 and 2010, respectively.While Westwood Management provides subadvisory services with respect to the Teton Westwood Funds family of mutual funds, Westwood Management provides investment advisory services directly to the Westwood FundsTM family of mutual funds, which includes the Westwood Income Opportunity Fund, the Westwood SMidCap Fund, the Westwood LargeCap Value Fund, the Westwood SmallCap Value Fund, the Westwood Dividend Growth Fund, the Westwood SMidCap Plus+ Fund, the Westwood Short Duration High Yield Fund, the Westwood Emerging Markets Fund, the Westwood Global Equity Fund and the Westwood Global Dividend Fund. The Westwood Short Duration High Yield Fund is subadvised by SKY Harbor Capital Management, LLC, a registered investment adviser based in Greenwich, Connecticut. funds:*Subadvised by SKY Harbor Capital Management, LLC, a registered investment adviser based in Greenwich, Connecticut 2012,2015, the Westwood FundsTMFunds® had assets under management of $1.6$3.6 billion.Our four largest clients accounted for approximately 12.6%our fee revenues for the year ended December 31, 2012. The lossDallas, Omaha and Houston offices of some or all of these large clients could have a material adverse effect on our business and our results of operations.TrustGeneralThrough Westwood Trust, we provide trustfiduciary and investment services and participation in Westwood Trust sponsored common trust funds to institutions and high net worth individuals and families, generally having at least $2 million in investable assets. Westwood Trust seeks to definenon-profit endowments and improve risk/return profiles of client investment portfolios by complementing or enhancing existing investment strategies. Westwood Trust provides back office services to clients, including tax reporting, distribution of income to beneficiaries, preparation of account statementsfoundations, public and attending to the special needs of particular trusts,private retirement plans and also serves as trustee for tax and estate-planning purposes and for special needs trusts.individual retirement accounts ("IRAs"). Westwood Trust is chartered and regulated by the Texas Department of Banking.Westwood Trust primarily provides services for employee benefit trusts and personal trusts. Employee benefit trusts include retirement plans of businesses to benefit their employees, including defined contribution plans, pensions and profit sharing plans. Westwood Trust may also be appointed as a trustee and may provide administrative support for these plans, as well as investment advisory and custodial services. Personal trusts are developed to achieve a number of different objectives and Westwood Trust acts as trustee to such trusts and assists them in developing tax-efficient trust portfolios. Fees charged by Westwood Trust are separately negotiated with each client and are typically based on assets under management.undertakes a fiduciary responsibility with regard to the managementalso provides custodial services, tax reporting, accounting of each client’s assetstrust income and principal, beneficiary and retiree distributions and safekeeping of assets.allocation approach. Thisallocation. Our approach involves our examining the client’s financial situation, including the client’stheir current portfolio of investments, and advising the client on ways to reduce risk, enhance investment returns and strengthen itstheir financial position. position based on each client’s unique objectives and constraints. Westwood Trust seeks to define and improve risk/return profiles of client investment portfolios by offering a comprehensive investment solution or enhancing clients’ existing investment strategies. Westwood Trust manages separate portfolios of equity and fixed income securities for certain agency and trust clients. Equity portfolios are generally patterned after the institutional strategies offered by Westwood Management or developed by the internal investment team in our Houston Woodway office. Fixed income portfolios consist of targeted laddered portfolios of primarily high quality municipal securities.provides custodial services, safekeeping and accounting services.Common Trust FundsWestwood Trust sponsors a number ofseveral common trust funds in which client assets are commingled to achieve economies of scale. Westwood Trust’s common trust funds fall within two basic categories: personal trusts and employee benefit trusts. Westwood Trust sponsors common trust funds for most of the investment strategies managed by Westwood Management.Management and Westwood International. Westwood Trust has also engages third-party subadvisors for some common trust funds, such asengaged SKY Harbor Capital Management, LLC, William Blair & Company, LLC and Brandywine Global Investment Management, LLC, all registered investment advisors, to subadvise our High Yield Bond, Domestic Growth Equity and High Yield BondInternational Fixed Income common trust funds.BalancedBalanced® PortfoliosBalanced™Balanced® portfolios combine these asset classes into a customizable portfolio for clients seeking to maximize return for a given level of risk. Periodic adjustments are made to asset class weightings in Enhanced Balanced ™Balanced® portfolios based on historical returns, risk and correlation data and our current capital markets outlook.expandoptimize the reach of our investment advisory and trust services. These channels enable us to leverage the distribution infrastructures and capabilities of other financial services firms and intermediaries while focusing on our core competency of developing and managing investment strategies.Investment ConsultantsInvestment management consulting firmsinvestment consultants serve as gatekeepers to the majority of corporate retirement plans, public retirement plans, endowments and foundations, which represent Westwood’s primary institutional target markets. Consultants provide guidance to their clients in setting asset allocation strategy,strategies, as well as creating investment policies. Consultants also make recommendations for investment firms they believe can best meet their client’s investment objectives. We have established strong relationships with many global, national and regional investment consulting firms, which collectively have contributed to our being considered and hired by their clients. Continuing to enhance existing consulting firm relationships, as well as forging new relationships, serves to increaseincreases the awareness of our services in both the consultant community and within their served institutional client base.Subadvisory RelationshipsOurallowallows us to extend the reach of our investment advisory services to clients of other investment companies with broad, established distribution capabilities. In subadvisory arrangements, our client is generally the investment company through which our services are offered to investors, typically via mutual fund offerings. The investment company that sponsors the mutual fund is responsible for relevantappropriate marketing, distribution and operational and accounting activities.Managed Accountsrelationshipsemployeesstrategiesplatformfoster expandedexpand distribution via mutual funds
pursueseek strategic corporate development opportunities
pursue opportunities internationally through targeted sales and relationships with international distributors
and institutional investors;continue to strengthen our brand name
develop or acquire new investment strategies
winning.
If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating expenses would increase.
minimum capital maintenance requirements
restrictions on dividends
restrictions on investments of restricted capital
lending and borrowing limitations
prohibitions against engaging in certain activities
periodic fiduciary and information technology examinations by the office of the Texas Department of Banking Commissioner
furnishing periodic financial statements to the Texas Department of Banking Commissioner
fiduciary record keeping requirements
prior regulatory approval for certain corporate events (such as mergers, sale/the sale or purchase of all or substantially all of thetrust company assets and transactions transferring control of a trust company)
Québec.
provide assistance to consumers of financial products and services;
ensure that financial institutions and other regulated financial sector entities comply with applicable solvency and obligations imposed by law;
supervise activities connected with distribution of financial products and services;
supervise stock market and clearing house activities and monitor the securities market;
supervise derivatives markets, including derivatives exchanges and clearing houses and ensure that regulated entities and other derivatives market practitioners comply with obligations imposed by law; and
implement protection and compensation programs for consumers of financial products and services, and administer compensation funds set up by law.
Our employees may from time to time own shares of the funds we manage. Employee transactions in these funds and most other individual investments by employees require prior clearance and reporting of all securities transactions, and we restrict certain transactions to avoid the possibility of conflicts of interest.
| Item 1A. | Risk |
operations and cash flows may be materially and adversely impacted, and our stock price may decline as a result. For further information on our acquisition of Woodway, see Note 5 “Acquisitions, Goodwill and Intangible Assets” to our consolidated financial statements. While customers do not have legal recourse against us solely on the basis of poor investment results, if our investment strategies perform poorly, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent customers are successful in claiming that their losses resulted from fraud, negligence, willful misconduct, breach of contract or other similar misconduct, these clients may have remedies against us, the mutual funds and other funds we advise or our investment professionals under the federal securities laws or state law. See the discussion of our current legal proceedings in Item 3. “Legal Proceedings”. make for strategies in which they have invested and our operations. The pleadings phase was completed in 2013, and we are currently in the discovery phase. For the Quarter Ended: March 31 June 30 September 30 December 31 2012 Fourth Quarter Third Quarter Second Quarter First Quarter 2011 Fourth Quarter Third Quarter Second Quarter First Quarter Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Cumulative Five-Year Index Westwood Holdings Group, Inc. Russell 2000 Index SNL Asset Manager Index Consolidated Statements of Income Data: Total revenues Total expenses Income before income taxes Provision for income taxes Net income Earnings per share – basic Earnings per share – diluted Cash dividends declared per common share Consolidated Balance Sheet Data (in thousands): Cash and investments Total assets Stockholders’ equity Assets Under Management (unaudited) (in millions) Historical results are not necessarily indicative of future results. our ability to develop and market new investment strategies successfully; our ability to pursue and properly integrate acquired businesses; Additional factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed under the section entitled We believe we have established a track record of delivering competitive risk-adjusted returns for our clients. Assets under management as of December 31, Total revenue was a record In October advisory fee revenues. revenues. support, computing hardware, software licenses, telecommunications and other related costs. 2014. 2013. Institutional Private Wealth Mutual Funds Total Assets Under Management 2013: Beginning of period assets Client flows: Inflows/new accounts Outflows/closed accounts Net inflows/(outflows) Market appreciation/(depreciation) Net change End of period assets Beginning of period assets Client flows: Inflows/new accounts Outflows/closed accounts Net inflows/(outflows) Market appreciation/(depreciation) Net change End of period assets our Westwood Income Opportunity, SMidCap and Short Duration High Yield mutual funds. Beginning of period assets Client flows: Inflows/new accounts Outflows/closed accounts Net inflows/(outflows) Acquisition related Market appreciation/(depreciation) Net change End of period assets in our LargeCap Value strategy. in our LargeCap Value strategy. Revenues Advisory fees Asset-based Performance-based Trust fees Other revenues Total revenues Expenses Employee compensation and benefits Sales and marketing Westwood mutual funds Information technology Professional services General and administrative Total expenses Income before income taxes Provision for income taxes Net income revenues outpacing increases in expenses. Net Income Add: Restricted stock expense Add: Intangible amortization Add: Tax benefit from goodwill amortization Economic Earnings Total expenses Less: Restricted stock expense Less: Intangible amortization Economic Expenses (in thousands) Balance Sheet Data: Assets: Cash and cash equivalents Accounts Receivable Total liquid assets Investments Cash Flow Data: Operating cash flows Investing cash flows Financing cash flows purchases of property and equipment. shares. Contractual Obligations Operating lease obligations any off-balance sheet arrangements. the acquisition purchase price and are expensed as incurred. Actual forfeitures may vary from our assumptions, which will result in modifications to future compensation costs. As changes in interest rates. Since we derive a substantial portion of our revenues from investment advisory and trust fees based on the value of assets under management, our revenues may be adversely affected by a decline in the prices of securities or changing interest rates. A hypothetical 10% decrease in our average assets under management during the year ended December 31, 2015 would have reduced our reported consolidated total revenue by approximately $13 million. its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title /s/ /s/ opinions. Current Assets: Cash and cash equivalents Accounts receivable Investments, at fair value Deferred income taxes Other current assets Total current assets Goodwill Deferred income taxes Intangible assets, net Property and equipment, net of accumulated depreciation of $1,747 and $1,647 Total assets Current Liabilities: Accounts payable and accrued liabilities Dividends payable Compensation and benefits payable Income taxes payable Other current liabilities Total current liabilities Deferred income taxes Deferred rent Total long-term liabilities Total liabilities Commitments and contingencies (Note 13) Stockholders’ Equity: Common stock, $0.01 par value, authorized 25,000,000 shares, issued 8,526,598 and outstanding 8,031,045 shares at December 31, 2012; issued 8,105,018 and outstanding 7,707,189 shares at December 31, 2011 Additional paid-in capital Treasury stock, at cost – 495,553 shares at December 31, 2012; 397,829 shares at December 31, 2011 Accumulated other comprehensive income Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity REVENUES: Advisory fees Asset-based Performance-based Trust fees Other revenues, net Total revenues EXPENSES: Employee compensation and benefits Sales and marketing Westwood mutual funds Information technology Professional services General and administrative Total expenses Income before income taxes Provision for income taxes Net income Other comprehensive income (loss): Available-for-sale investments: Change in unrealized gain on investment securities Less: reclassification adjustment for net gains included in earnings Net change (net of income taxes of $(1,058), $560 and $(341), respectively) Foreign currency translation adjustments Other comprehensive income Total comprehensive income Earnings per share: Basic Diluted Weighted average shares outstanding: Basic Diluted Addi- tional Paid-In Accumu- Other Comp- rehensive BALANCE, January 1, 2010 Net income Other comprehensive income Issuance of restricted stock Issuance of stock for business combination Amortization of stock compensation Tax benefit related to equity compensation Dividends declared ($1.65 per share) Stock options exercised Purchases of treasury stock BALANCE, December 31, 2010 Net income Other comprehensive income Issuance of restricted stock Amortization of stock compensation Tax benefit related to equity compensation Dividends declared ($1.42 per share) Stock options exercised Purchases of treasury stock BALANCE, December 31, 2011 Net income Other comprehensive income Issuance of restricted stock Amortization of stock compensation Tax benefit related to equity compensation Dividends declared ($1.51 per share) Stock options exercised Purchases of treasury stock BALANCE, December 31, 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities, net of business combinations: Depreciation Amortization of intangible assets Fair value adjustment of deferred acquisition liabilities Gain on sale of available for sale investment Unrealized losses (gains) on investments Loss on disposal of property Stock based compensation Deferred income taxes Excess tax benefits from stock based compensation Net purchases of investments – trading securities Changes in operating assets and liabilities: Accounts receivable Other current assets Accounts payable and accrued liabilities Compensation and benefits payable Income taxes payable and prepaid taxes Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available for sale investments Sales of available for sale investments Cash paid for business combination, net of cash acquired Purchases of property and equipment Sale of property and equipment Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock Excess tax benefits from stock based compensation Proceeds from exercise of stock options Cash dividends Net cash used in financing activities Effect of currency rate changes on cash NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental cash flow information: Cash paid during the year for income taxes 2013 Commission and the Autorité des marchés financiers (“AMF”) in Québec. VIE, or both. For VIEs that are not investment companies, the primary beneficiary of a VIE is defined as the party who, considering the involvement of related parties and de facto agents, has (i) the power to direct the activities of the VIE that most significantly affect its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. This evaluation is updated continuously. Consolidation of a VOE is required when a reporting entity owns a controlling financial interest in a VOE. Ownership of a majority of the voting interests is the usual condition for a controlling financial interest. At December 31, 2015, none of our sponsored investment entities were VOEs subject to this assessment by the Company. payment relates, revenue is fully recognized within the quarter. Consequently to vest the applicable performance-based awards. all deferred taxes are classified as noncurrent in our consolidated balance sheet at December 31, 2015. See further discussion in Note 7 "Income Taxes." Investments are presented below (in thousands) December 31, 2012: U.S. Government and Government agency obligations Money Market Funds Equity Funds – trading Fixed Income Funds – trading Marketable securities December 31, 2011: U.S. Government and Government agency obligations Money Market Funds Equity – available for sale Equity Funds – trading Fixed Income Funds – trading Marketable securities Realized gains Realized losses Net realized gains/(losses) Income tax expense/(benefit) from gains/(losses) Interest income – trading Interest income – available-for -sale Dividend income Unrealized gains/(losses) INSTRUMENTS: Level 2 – inputs other than quoted prices that are directly or indirectly observable Level 3 – unobservable inputs where there is little or no market activity. As of December 31, 2012 Investments in securities: Trading Total Financial instruments As of December 31, 2011 Investments in securities: Trading Available-for-sale Total Financial instruments We Beginning balance Proceeds from sale Change in unrealized gains included in Other Comprehensive Income Ending balance Goodwill: Other goodwill Assembled workforce Total goodwill Intangible assets: Customer accounts Trade name Non-compete agreements Total Intangible assets future. Tangible assets Cash Receivables Property and equipment Prepaid expenses Bonuses payable Unearned Income Other liabilities Net tangible assets Beginning balance Acquired goodwill Ending balance recorded during the year ended December 31, 2015, 2014 or 2013. 2012 Client relationships Trade names Non-compete agreements Total 2011 Client relationships Trade names Non-compete agreements Total For the Year ending December 31, 2013 2014 2015 2016 2017 Leasehold improvements cost Furniture and fixtures cost Computer hardware and office equipment cost Accumulated depreciation Net property and equipment 2014 (in thousands): Loss Foreign currency translation adjustment Net unrealized gains on available-for-sale investments, net of taxes Accumulated other comprehensive income United States Canada Total follows (in thousands): Income tax provision computed at US federal statutory rate Canadian rate differential State and local income taxes, net of federal income taxes Other, net Total income tax expense Effective income tax rate 2013. Current taxes: US Federal State and local Total Deferred taxes: State and local US Federal Non-US Total Total income tax expense Deferred tax assets: Restricted stock amortization Net operating loss Deferred rent Other Total deferred tax assets Deferred tax liabilities: Depreciation at rates different for tax than for financial reporting Intangibles Unrealized gains on investments Total deferred tax liabilities Net deferred tax assets Net current deferred tax asset Non-current deferred tax assets Non-current deferred tax liabilities, Net non-current deferred tax assets (liabilities) reflected on the balance sheet Total net deferred tax assets Total stock based compensation expense Total income tax benefit recognized related to stock-based compensation Restricted shares subject only to a service condition: Non-vested, January 1, 2012 Granted Vested Forfeited Non-vested, December 31, 2012 2015: Restricted shares subject only to a service condition: Weighted-average grant date fair value Fair value of shares vested (in thousands) meet the performance goals required to vest the applicable percentage of the performance-based restricted shares this year and began recording expense related to those shares. Restricted shares subject to service and performance conditions: Non-vested, January 1, 2012 Granted Vested Forfeited Non-vested, December 31, 2012 Restricted shares subject to a service and performance condition: Weighted-average grant date fair value Fair value of shares vested (in thousands) Outstanding, beginning of period Granted Exercised Forfeited Outstanding and exercisable, end of period Intrinsic value – outstanding and exercisable Total intrinsic value of options exercised Cash received from the exercise of stock options 2014, we had an accrued liability of $2.0 million and $844,000, respectively, related to mutual fund incentive awards. Profit sharing contributions 401(k) matching contributions Net income Less: Income allocated to participating restricted shares Net income available to common stockholders Weighted average shares outstanding – basic Dilutive potential shares from unvested restricted shares Dilutive contingently issuable shares Dilutive potential shares from stock options Weighted average shares outstanding – diluted Earnings per share: Basic Diluted ENTITIES: Westwood FundsTM Common Trust Funds Collective Investment Trusts LLCs : Year ending: 2013 2014 2015 2016 2017 Thereafter Total payments due markets investment team The pleadings phase was completed in 2013, and we are currently in the discovery phase. sheets. and benefits for holding company employees, directors’ fees and investor relations costs. 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. segment, along with Westwood Advisors, LLC. 2012 Net revenues from external sources Net intersegment revenues Net interest and dividend revenue Depreciation and amortization Income (loss) before income taxes Income tax expense (benefit) Segment assets Segment goodwill Expenditures for long-lived assets 2011 Net revenues from external sources Net intersegment revenues Net interest and dividend revenue Depreciation and amortization Income (loss) before income taxes Income tax expense (benefit) Segment assets Segment goodwill Expenditures for long-lived assets 2010 Net revenues from external sources Net intersegment revenues Net interest and dividend revenue Depreciation and amortization Income (loss) before income taxes Income tax expense (benefit) Segment assets Segment goodwill Expenditures for long-lived assets Advisory fees from Westwood Management’s largest client*: Asset-based fees Performance-based fees Percent of fee revenue 11, 2016. STATEMENTS — (Continued) 2012 Revenues Income before income taxes Net income Basic earnings per common share Diluted earnings per common share 2011 Revenues Income before income taxes Net income Basic earnings per common share Diluted earnings per common share Description of ExhibitsPoor investment performancemanaged by us could adversely affectunder management, which can fluctuate significantly based on various factors, some of which are beyond our results of operations.Because we compete with many asset management firms on the basis of the investment strategies we offer, our success is dependent to a significant extent on the investment performance of the assets that we manage. Because our revenue iscontrol.poor performance tends to result in the loss or reduction of client accounts, which correspondingly decreases revenues. Underperformance relative to peer groups for our various investment strategies could adversely affect our results of operations, especially if such underperformance continues for a lengthy period of time.Recently, we have experienced some client outflows that we believe may have resulted in part from the underperformance(“AUM”). The value of our LargeCap Value strategy, which invests in equity securities of companies with large market capitalizations and which represents about 37% of our assets under management. Our LargeCap Value strategy underperformed its Russell 1000 Value benchmark index and ranked below the median return of its peer group in 2010 and 2011. Our LargeCap Value strategy underperformed relative to its Russell 1000 Value benchmark, but ranked above the median return of its peer group, in 2012. While we believe this recent underperformance has resulted in some increased client outflows, manyAUM can be negatively impacted by several factors, are involved in client investment and allocation decisions and we cannot specifically quantify the amount of outflows resulting from this recent underperformance.Some key employees are considered critical to our success, and our inability to attract and retain key employees could compromise our future success.We believe that our future success will depend to a significant extent upon the services of our certain key employees, particularly Brian O. Casey, President and Chief Executive Officer, Mark Freeman, Chief Investment Officer, and Patricia Perez-Coutts, Senior Portfolio Manager. As with other asset management businesses, our future performance depends to a significant degree upon the continued contributions of these and other key officers, investment professionals, as well as marketing, client service and management personnel. There is substantial competition for skilled personnel and the loss of key employees or our failure to attract, retain and motivate qualified personnel, could negatively impact our business, financial condition, results of operations and future prospects.Our revenues are dependent upon the performance of the securities markets and negative performanceincluding:reducebe impacted by a number of factors beyond our revenues.Our resultscontrol, including, among others, general economic downturns, political uncertainty or acts of operations are affected by many economic factors, including the performance of the securities markets.terrorism. Negative performance within the securities markets or short-term volatility within the securities markets could result in investors withdrawing assets, decreasing their rates of investment or shifting assets to cash or other asset classes or strategies that we do not manage, all of which could reduce our revenues. Because most of our revenues are based on the value of assets under management, a decline in the value of those assets would also adversely affect our revenues. In addition, induring periods of slowing growth or declining revenues, profits and profit margins are adversely affected because certain expenses remain relatively fixed.In particular, a significant portioninvested in equity securities of companies with large market capitalizations. As a consequence, we are particularly susceptibledependent, to the volatility associated with changes in the market for large capitalization stocks. Due to this concentration, any change or reduction in such markets, including a shift of our clients’ and potential clients’ preference from investments in equity securities of large capitalization stocks to other equity or fixed income securities could have a significant negative impactextent, on our revenues and resultsthe investment performance of operations. This negative impact could occur due to the depreciation in value of our assets under management, the election by clients to select other firms to manage their assets or the election by clients to allocate assets away from asset classes that we manage. Any of these events wouldPoor performance tends to result in decreased assets under management and therefore reduced revenues and a decline in resultsthe loss or reduction of operations.If we are unableclient accounts, which decreases revenues. Underperformance relative to realize benefits from the costs we have incurred and are continuing to incur to develop newpeer groups for our various investment strategies and otherwise broaden our capabilities, our growth opportunities may becould adversely affected.We have incurred significant costs to develop new investment strategies, including Emerging Markets, Global Equity, Global Dividend, SmallCap Value, AllCap Value, Global Strategic Diversification, an MLP portfolio and SMidCap Plus+, to launch new mutual funds under the Westwood FundsTM name and to upgrade our business infrastructure and we expect to continue to incur significant costs to develop and launch new investment strategies. Some costs associated with these improvements and new investment strategies will continue to be incurred in future periods and are relatively fixed. We may not realize the benefits of these investments and, if unable to do so,affect our results of operations, especially if such underperformance continues for an extended period of time. The historical returns of our strategies and growth opportunitiesthe ratings and rankings we, or the mutual funds that we advise, have received in the past should not be considered indicative of the future results of these strategies or of any other strategies that we may develop in the future. The investment performance we achieve for our customers varies over time and variances can be adversely affected.Expansionwide. In addition, certain of our investment strategies have capacity constraints, as there is a limit to the number of securities available for certain strategies to operate effectively. In those instances, we may choose to limit access to new or existing investors.operational, regulatory and operational risks.risks.Weregulations, has generally resulted in increased compliance and administrative requirements. For example, the SEC’s adoption of Form PF and revisions to Form ADV impose additional reporting requirements for SEC-registered investment advisors. Additionally, ERISA Section 408(b)(2) and related regulations require additional information to be provided to ERISA-governed retirement plans. While we believe that changes in laws, rules and regulations, including those discussed above, have increased our administrative and compliance costs, we are unable to quantify the increased costs attributable to such changes. See “Item 1. Business — Regulation.”over the last year with the establishment of Westwood International and itsstrategies in global and emerging markets, strategies.global multi-asset and global convertible securities. Additionally, our client base continues to expand internationally. As of December 31, 2015, approximately 18% of our AUM is managed for clients who are domiciled outside the United States. As a result, we face increased operational, regulatory, compliance, reputation and foreign exchange rate risks. In particular, rapid regulatory change is occurring internationally with respect to financial institutions, including, but not limited to, anticipated revisions to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011. The failure of our compliance and internal control systems to properly identify and mitigate such additional risks, or of our operating infrastructure to support international activities, could result in operational failures and actions by regulatory agencies, which could have a material adverse effect on our business. in our industry, we may not be able to successfully introduce new investment strategies in a timely manner, or at all.marketintroduce the strategy to existing and prospective clients. Our ability to sell new investment strategies to existing and prospective clients depends on our ability to meet or exceed the performance of our competitors offering the same or a similar strategy. We may not be able to manage the assets within a given investment strategy profitably. Moreover,profitably, and it may take years before we are able to produce the level of results that will enable us to attract clients. If we are unable to realize the benefits of the costs and expenses incurred in developing new investment strategies, we may experience losses as a result of our management of these investment strategies, and our ability to introduce further new investment strategies and compete in our industry may be hampered.Ouris dependent onmodel, we may not be successful in further diversifying and increasing our investment advisory, subadvisorystrategies and trust agreements that are subject to termination or non-renewal. As a result, we could lose any of our clients on very short notice.Substantially all of our revenues are derived pursuant to investment advisory, subadvisory and trust agreements with our clients. In general, either party may terminate these agreements upon 30 days’ notice. Any termination of, or failure to renew, a material number of these agreements could have a material adverse impact on us, particularly because many of our costs are relatively fixed.A small number of clients account for a substantial portion of our business. As such, the reduction or loss of business with any of these clientsclient assets, which could have a material adverse effect on our business financial condition and resultsfuture prospects. The addition of operations.Our four largest clients accounted for approximately 12.6% of fee revenues for the year ended December 31, 2012. We are dependent to a significant degree on our ability to maintain our relationshipsnew team using an investment strategy with these clients. There can be no assurance that we will be successful in maintaining existing client relationships, securing additional clients or achieving the superior investment performance necessary to earn performance-based advisory fees. Any failure by us to retain one or more of these large clients or establish profitable relationships with additional clients could have a material adverse effect on our business, financial condition and results of operations.Competitive fee pressures could reduce revenues and profit margins.The investment management business is highly competitive and has relatively low barriers to entry. To the extent we have to compete on the basis of price,which we may not be able to maintainhave limited or no experience could strain our current fee structure. Although our investment management fees vary from product to product, we have competed primarily onoperational resources and increase the performancepossibility of our productsoperational error. If any such new teams or strategies perform poorly and client service rather than on the level of our investment management fees relative to our competitors. In recent years there has been a trend toward lower fees in the investment management industry. In order to maintain our fee structure in a competitive environment, we must be able to continue to provide clients with investment returns and service that make investors willing to pay our fees. We cannot be assured that we will succeed in providing investment returns and service that will allow us to maintain our current fee structure. Fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations.Performance fees could have a significant effect on our revenues and results of operations.We have performance fee agreements with a few clients, which pay us a fee if we outperform a specified index over predetermined periods of time. We may not be able to outperform such indexes and the failure to do so would cause us to earn none or only part of those potential revenues, which would have a material adverse effect on our revenues and results of operations. Our revenues from performance-based fees could fluctuate significantly from one measurement period to the next, depending on how we perform relative to the indexes specified in these agreements. For example, we earned performance fees of $1.3 million in 2012 and $1.0 million in 2011, but did not earn a performance fee in 2010.Any event that negatively affects the asset management industry in general could have a material adverse effect on us.Any event affecting the asset management industry that results in a general decrease in assets under management or a significant general decline in the number of advisory clients or accounts could negatively impact our revenues. Our future growth and success depends in part upon the growth of the asset management industry.Our business is subject to extensive regulation with attendant costs of compliance and serious consequences for violations.Virtually all aspects of our business are subject to laws and regulations, including the Investment Advisers Act, the Investment Company Act, and anti-money laundering laws. These laws and regulations generally grant regulatory agencies broad administrative powers, including the power to limit or restrict us from operating our business as well as the powers to place us under conservatorship or closure in the event we fail to comply with such laws and regulations. Violations of such laws or regulations could subject us orattract sufficient assets, our employees to disciplinary proceedings and civil or criminal liability, including revocation of licenses, censures, fines or temporary suspensions, permanent barring from the conduct of business, conservatorship, or closure. Any such proceeding or liability could have a material adverse effect upon our business, financial condition, results of operations and business prospects. Due to the extensive regulations and laws to which we are subject, our management devotes substantial time and effort to legal and regulatory compliance issues.In recent years, regulators have shown an increasing interest in oversight of the financial services industry. Some newly adopted regulations are focused directly on the investment management industry, while others are more broadly focused but affect our industry as well. The Dodd-Frank Act of 2010 significantly increased and revised the federal rules and regulations governing the financial services industry and, in addition to other regulations, has generally resulted in increased compliance and administrative burdens for us. For example, the SEC’s recent adoption of Form PF and revisions to Form ADV impose additional reporting requirements for SEC registered investment advisors, including us. Additionally, ERISA Section 408(b)(2) and related regulations require additional information to be provided to ERISA-governed retirement plans. While we believe that changes in laws, rules and regulations, including the ones discussed above, have increased our administrative and compliance costs, we are not able to quantify the amount of increased costs attributable to those changes.In addition, the regulatory environment in which we operate is subject to change. We mayreputation will be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations. See “Item 1.affected. — Regulation.”Misuse of assets and information in the possession of our investment professionals and employees could result in costly litigation and liability for us and our clients.Our investment professionals handle significant amounts of assets along with financial and personal information for our clients. We have implemented a system of controls to minimize the risk of a fraudulent use of assets and information, however our controls may not be sufficiently adequate to prevent such fraudulent actions by portfolio managers or employees. If our controls are ineffective, we could be subject to costly litigation, which could consume financial resources, distract management and result in regulatory sanctions. Such fraudulent actions could also adversely affect clients, causing them to seek redress.Any businessBusiness acquisitions are subject to the risks commonly associated with such transactions including, among others, potential exposure to unknown liabilities of acquired companies and to acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the acquired companies, potential disruptions to the business of the combined company and potential diversion of management’s time and attention, the impairment of relationships with and the possible loss of key employees and clients as a result of changes in management, potential litigation or other legal risks, potential write-downs related to goodwill impairments in connection with acquisitions, and dilution to the stockholders of the combined company if the acquisition is made for stock of the combined company. In addition, investment strategies, technologies or businesses of acquired companies may not be effectively assimilated into our business or may have a negative effect on the combined company’s revenues or earnings. The combined company may also incur significant expenseexpenses to complete acquisitions and support acquired investment strategies and businesses. Further, any such acquisitions may be funded with cash, debt or equity, which could have the effect of dilutingdilute the holdings or limitinglimit the rights of stockholders. Finally, we may not be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms.Our acquisitions were forecastedadd revenues, expensesrisks and earnings touncertainties, including the successful integration of Woodway's business and personnel. We may not realize the anticipated benefits of the Woodway acquisition.business.wholly-owned subsidiary, Westwood Trust. The failure to realize these revenues and earnings could adversely impact our results of operations.The McCarthy acquisition may not yield the forecasted benefits that we forecasted due to a variety of factors, including our failurefactors. Woodway may have unanticipated liabilities, for which we cannot be fully indemnified under the Merger Agreement. We may not be able to retainmaintain or increase the clientslevels of revenue, earnings and operating efficiency, or the client relationships, that Woodway achieved prior to the acquisition. The success of the businesses we acquired. If thisWoodway acquisition does not yield the expected benefits, our revenues and results of operations could be negatively impacted and we could be required to record an impairment against earnings for the intangible assets and goodwill acquiredwill depend, in this transaction.Damage to our reputation could harm our business and have a material adverse effectpart, on our results of operations.Our brand is a valuable intangible asset that could be vulnerable to threats that can be difficult or impossible to anticipate or control. Regulatory inquiries and rumors could damage our reputation, even if they are unfounded or satisfactorily addressed. Damage to our brand could impede our ability to attractrealize the anticipated synergies and retain customersother benefits from continuing to integrate Woodway’s business with our existing businesses. The integration process may be complex, costly and key employees,time-consuming. If we experience difficulties, delays or unexpected costs with the integration process or if the Woodway business deteriorates, the anticipated cost savings, growth opportunities and reduce our assets under management, which could have a material adverse effect on our resultsother synergies of operations.Wethe Woodway acquisition may not be realized fully, or realized at all, or may take longer to realize than expected. Additionally, because we are engaged in litigation related to the hiring of some employeesissuing shares of Westwood International that, depending on the outcome, could increase our expenses and have a material adverse effect on our results of operations.On August 3, 2012, AGF Management Limited and AGF Investments Inc. (“AGF”) filed a lawsuitcommon stock as consideration in the Ontario Superior Court of Justice against Westwood, certain Westwood employees and executive recruiting firm Warren International, LLC. The action relates toacquisition, the hiring of certain members of Westwood’s global and emerging markets investment team who were previously employed by AGF, including Ms. Patricia Perez-Coutts. AGF is alleging that the former employees breached certain obligations when they resigned from AGF, and that Westwood and Warren induced such breaches. AGF is seeking an unspecified amount of damages and punitive damages of $10 million (CAD) in the lawsuit. On November 5, 2012, Westwood issued a response to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood is seeking $1 million (CAD) in general damages, $10 million (CAD) in special damages, $1 million (CAD) in punitive damages and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and Ms. Perez-Coutts, alleging that Ms. Perez-Coutts made defamatory statements about AGF. In this second lawsuit, AGF is seeking $5 million (CAD) in general damages, $1 million (CAD) per defendant in punitive damages, unspecified special damages, interest and costs.While we intend to vigorously defend both actions and pursue the counterclaims, we are currently unable to estimate the ultimate aggregate amount of monetary gain, loss or financial impact of these actions and counterclaims. Defending these actions and pursuing these counterclaims may be expensive for us and time consuming for our personnel. While we do not currently believe these proceedingstransaction will have a material impact, adverse resolutionsthe effect of these actions and counterclaims could have a material adverse effect ondiluting the holdings of our existing stockholders. or results of operations.unableinsufficient to fully realize deferred tax assets related to net operating losses at Westwood International.As a result of start-up and ongoing operating costs, we have incurred net operating losses at Westwood International,prevent fraudulent actions by employees. If our Canadian subsidiary. We have not recorded an allowance against the related deferred tax asset, as we currently anticipate that it is more-likely-than-not that we will generate sufficient taxable income at Westwood International to utilize these net operating losses. However, forecasting results involves making significant assumptions and estimates about future events. If those forecastscontrols are incorrect,ineffective, we could be required to record valuation allowances against the net operating loss deferred tax assets, which would reduce our net income in future periods.Various factors may hinder the declaration and payment of dividends.We have historically paid a quarterly dividend. However, payment of future dividends is subject to costly litigation, which could consume financial resources, distract management, damage our reputation and result in regulatory sanctions. Such fraudulent actions could also adversely affect clients, causing them to seek redress.discretion ofasset management business, and the failure to attract, develop, retain and motivate qualified personnel could negatively impact our Board of Directors, and various factors may prevent us from paying dividends. Such factors include ourbusiness, financial position, capital requirements and liquidity, the existence of a stock repurchase program, state corporate and banking law restrictions,condition, results of operations and suchfuture prospects. Only a limited number of our employees, including our Chief Executive Officer, Chief Investment Officer and certain investment employees, have employment contracts. Certain key employees do not have employment contracts and generally can terminate their employment at any time. In order to retain or replace our key personnel, we may be required to increase compensation, which would decrease net income. Additionally, investment and sales professionals often maintain strong relationships with their clients, and their departure may cause us to lose client accounts, which could have a material impact on our revenues and results of operations.factors asregulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings, any of which may adversely affect our Boardresults of Directors may consider relevant. operations.a holding company,we expand the scope of our abilitybusiness and our client base, we must continue to pay dividends is dependent onmonitor and address any potential new conflicts between the dividendsinterests of our stockholders and incomethose of our clients. Our clients may withdraw funds if they perceive conflicts of interest between the investment decisions we receive fromsubsidiaries. Currently, our primary source of cash consists of dividends from Westwood Management or Westwood Trust. The payment of dividends by Westwood Management or Westwood Trust is subject to the discretion of their Boards of Directors and compliance with applicable laws, including, in particular, the provisions of the Texas Finance Code applicable to Westwood Trust. Westwood International currently is not generating income and is consequently unable to contribute cash to the payment of dividendsobligations to our shareholdersstockholders. For example, we may limit the growth of assets in or close strategies or otherwise take action to slow the flow of assets when we believe it is in the best interest of our clients, even though our assets under management and will likely require additional contributionsinvestment management fees may be negatively impacted. Similarly, we may establish or add new investment teams or expand operations into other geographic areas or jurisdictions if we believe such actions are in the best interest of capital until it begins generating operating income. See “Management’s Discussionour clients, even though our results of operations may be adversely affected in the short term. Although we believe such actions enable us to retain client assets and Analysismaintain our profit margins, if clients perceive a change in our investment or operational decisions favors a strategy to maximize short term results, they may withdraw funds, which could adversely affect our revenues and results of Financial Condition and Results of Operations.”against us, whichthat could have a material adverse effect on our business, financial condition and results of operations. We are highly dependent on communications and information systems and on third-party vendors for securities pricing information and updates from certain software. We may suffer a systems failure or interruption, whether caused by an earthquake, fire, other natural disaster, power or telecommunications failure, unauthorized access, act of God, act of war, or otherwise, and our back-up procedures and capabilities may be inadequate to eliminate the risk of extended interruptions in operations.on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.Act of 2002. Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. and are dependent on the operations and funds of our subsidiaries.revenue generatingrevenue-generating operations and no assets other than our ownership interests in Westwood Management, Westwood Trust and Westwood International. Accordingly, we are dependent on the cash flow generated by these operating subsidiaries and must rely on dividends or other intercompany transfers from our operating subsidiaries to generate the funds necessary to meet our obligations.Item 1B. Unresolved Staff Comments. Item 2. Properties. throughusing approximately 25,55540,000 square feet of leased office space located in Dallas, Texas pursuant to a lease with an initial term that expires in November 2021.2026. In addition, we lease approximately 5,0458,000 square feet of office space in Houston, Texas pursuant to a lease with an initial term that expires in December 2016, approximately 5,000 square feet of office space in Omaha, Nebraska pursuant to a lease with an initial term that expires in July 20142019 and approximately 4,0712,000 square fee of office space in Framingham, Massachusetts pursuant to a lease with an initial term that expires in April 2018. Westwood International conducts its principal operations using approximately 6,000 square feet of office space in Toronto, Ontario pursuant to a lease with an initial term that expires on September 29, 2013.in May 2017. We are evaluating office space locationscontinue to meet our needs beyond the initial term of the Toronto lease. We believeassess these facilities will be adequateto ensure their adequacy to serve our currently anticipated business needs.Item 3. Legal Proceedings. (“AGF”(together “AGF”) filed a lawsuit in the Ontario Superior Court of Justice against Westwood, certain Westwood employees and Warren International, LLC, an executive recruiting firm Warren International, LLC.firm. The action relates to the hiring of certain members of Westwood’s global and emerging markets investment team who were previously employed by AGF, including Ms. Patricia Perez-Coutts.AGF. AGF is alleging that the former employees breached certain obligations when they resigned from AGF, and that Westwood and Warren induced such breaches. AGF is seeking an unspecified amount of damages and punitive damages of $10 million (CAD) in the lawsuit. On November 5, 2012, Westwood issued a response to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood is seeking $1 million (CAD) in general damages, $10 million (CAD) in special damages, $1 million (CAD) in punitive damages, and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and Ms. Perez-Coutts,an employee of a Westwood subsidiary, alleging that Ms. Perez-Couttsthe employee made defamatory statements about AGF. In this second lawsuit, AGF is seeking $5 million (CAD) in general damages, $1 million (CAD) per defendant in punitive damages, unspecified special damages, interest and costs.Item 4. Mine Safety Disclosures. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. has tradedtrades on the New York Stock Exchange (the “NYSE”) under the symbol “WHG” since July 1, 2002.. At December 31, 2012,2015, there were approximately 175228 record holders of our common stock, although we believe that the number of beneficial owners of our common stock is substantially greater. The table below sets forthpresents the high and low saleclosing prices for theour common stock, as reported by the NYSE for the periods indicated. 2012 2011 High Low High Low $ 41.18 $ 36.22 $ 40.96 $ 34.85 39.20 34.15 41.35 34.13 39.80 35.25 40.51 30.33 40.92 38.28 38.60 31.11 2015 2014 High Low High Low For the Quarter Ended: March 31 $ 63.59 $ 58.67 $ 62.91 $ 53.62 June 30 64.07 55.90 63.40 54.41 September 30 62.30 50.37 62.40 51.72 December 31 61.10 51.76 67.84 55.74 Dividend per share
of common stock $ 0.40 0.37 0.37 0.37 $ 0.37 0.35 0.35 0.35 2015 2014 First Quarter $ 0.50 $ 0.44 Second Quarter 0.50 0.44 Third Quarter 0.50 0.44 Fourth Quarter 0.57 0.50 7, 20133, 2016 we declared a quarterly cash dividend of $0.40$0.57 per share on our common stock payable on April 1, 20132016 to stockholders of record on March 15, 2013.11, 2016. We intend to continue paying cash dividends in such amounts as our Board of Directors may determine to be appropriate. Any future payments of cash dividends will be at the discretion of the Board of Directors and subject to limitations under the Delaware General Corporation Law.20122015 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under theour Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan and the Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries, our only equity compensation planplans in effect at that time. The material terms of this plan were approved by our stockholders at our 2011 Annual Meeting and are discussed in Note 109 "Employee Benefits" of the financial statements included in this Form 10-K.Report. Number of
securities
to be
issued
upon
exercise of
outstanding
options,
warrants
and rights
(a) Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
(b) Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans(excluding
(excluding securities
reflected in
column (a))
(c) — $ — 773,000 468,000 — — — — $ — 773,000 468,000 20072010 with the total return of the Russell 2000 Index and the SNL Asset Manager Index. The SNL Asset Manager Index, is a composite of 33 publicly-traded44 publicly traded asset management companies.
Period ended 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Total Return $ 100.00 $ 78.23 $ 103.42 $ 118.96 $ 113.30 $ 131.97 31.97 % 100.00 66.21 84.20 106.82 102.36 119.09 19.09 100.00 47.52 77.10 88.75 76.76 98.48 (1.52 ) 
Index Period ended December 31, Cumulative Five-Year Total Return 2010 2011 2012 2013 2014 2015 Westwood Holdings Group, Inc. $ 100.00 $ 95.24 $ 110.93 $ 173.79 $ 179.01 $ 156.63 56.63 % Russell 2000 Index 100.00 95.82 111.49 154.78 162.35 155.18 55.18 % SNL Asset Manager Index 100.00 86.50 110.97 170.54 179.91 153.43 53.43 % 20072010 in our common stock, the Russell 2000 Index, and the SNL Asset Manager Index, including reinvestment of dividends. Our common stock is traded on the NYSE under the ticker symbol “WHG.”20122015 was $40.90$52.09 per share. Historical stock price performance is not necessarily indicative of future price performance.Item 6. Selected Financial Data. Year ended December 31,
(in thousands, except per share amounts) 2012 2011 2010 2009 2008 $ 77,495 $ 68,909 $ 55,313 $ 42,553 $ 46,456 57,469 45,800 37,592 30,235 29,921 20,026 23,109 17,721 12,318 16,535 7,936 8,423 6,441 4,423 5,992 12,090 14,686 11,280 7,895 10,543 $ 1.69 $ 2.11 $ 1.62 $ 1.10 $ 1.53 $ 1.65 $ 2.04 $ 1.58 $ 1.09 $ 1.52 $ 1.51 $ 1.42 $ 1.65 $ 1.23 $ 1.20 As of December 31, 2012 2011 2010 2009 2008 $ 63,723 $ 60,132 $ 45,044 $ 45,125 $ 31,650 96,615 90,597 72,628 59,886 50,847 76,551 70,757 60,677 47,218 38,794 $ 14,167 $ 13,079 $ 12,477 $ 10,174 $ 7,185 Year ended December 31,
(in thousands, except per share amounts) 2013 2011 Consolidated Statements of Income Data: Total revenues $ 130,936 $ 113,241 $ 91,825 $ 77,495 $ 68,909 Employee compensation and benefits $ 63,562 $ 52,847 $ 47,864 $ 43,698 $ 35,917 Employee compensation and benefits as a % of Total revenues 48.5 % 46.7 % 52.1 % 56.4 % 52.1 % Income before income taxes $ 42,220 $ 42,036 $ 28,185 $ 20,020 $ 22,273 Income before income taxes as a % of Total revenues 32.2 % 37.1 % 30.7 % 25.8 % 32.3 % Net income $ 27,105 $ 27,249 $ 17,837 $ 12,086 $ 14,155 Earnings per share – basic $ 3.49 $ 3.63 $ 2.43 $ 1.69 $ 2.03 Earnings per share – diluted $ 3.33 $ 3.45 $ 2.32 $ 1.65 $ 1.96 Cash dividends declared per common share $ 2.07 $ 1.82 $ 1.64 $ 1.51 $ 1.42 $ 46,496 $ 41,445 $ 30,027 $ 23,233 $ 25,647 Economic Earnings per common share $ 5.71 $ 5.24 $ 3.90 $ 3.18 $ 3.54 (1) The financial results of Woodway are included in our 2015 results from the acquisition date of April 1, 2015. Our 2015 results also include a pre-tax $1.0 million non-cash charge related to acceleration of stock based compensation expense for a particular grant and $807,000 tax expense for uncertain tax positions related to prior years. These items negatively impacted diluted earnings per share by $0.08 and $0.10, respectively. (2) Our 2014 Income before income taxes as a percentage of Total revenues improved as increases in Total revenues outpaced increases in expenses. (3) Our 2012 financial results were negatively impacted by start-up costs related to Westwood International, which was established in the second quarter of 2012. (4) See the definition of Economic Earnings and the reconciliation to Net Income in “Supplemental Financial Information” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Supplemental Financial Information.” As of December 31, 2015 2014 2013 2012 2011 Consolidated Balance Sheets Data (in thousands): Cash and investments $ 95,060 $ 97,751 $ 75,418 $ 63,723 $ 60,132 Total assets 181,336 139,874 116,050 96,617 90,902 Stockholders’ equity 133,967 110,007 88,663 76,553 71,062 $ 20,762 $ 20,168 $ 18,861 $ 14,102 $ 13,011 (1) Due to an immaterial error relating to the aggregation of Private Wealth assets under management ("AUM"), AUM was overstated, and assets under advisement ("AUA") was understated, for certain prior periods. Adjustments to correct the immaterial error have been made in this Report. Specifically, previously-reported AUM as of December 31, 2011, 2012, 2013 and 2014 were overstated by $68.0 million, $64.9 million, $70.0 million and $82.6 million, respectively, and have been adjusted in the above table accordingly. The corrections to AUM represent a 2% adjustment to Private Wealth AUM and less than a 1% adjustment to Total AUM as previously reported as of each of such dates. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Securities Exchange Act of 1934, as amended.Act. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results, our financial condition, and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others:our ability to identifythe composition and market services that appeal to our customers;the significant concentrationvalue of our revenuesassets under management;four of the investment management industry;customers;investments in foreign companies;our relationships with investment consulting firms;our relationships with current and potential customers;our ability to retain qualified personnel;competitionour relationships with investment consulting firms; andthe marketplace;downturns in financial markets;new legislation adversely affecting the financial services industries;interest rates;changes in our effective tax rate;our ability to maintain an effective systema small number of internal controls; andother risks as detailed from time to time in our SEC reports.“Risk“Item 1A. Risk Factors” and elsewhere in this Report. The forward-looking statements are based only on currently available information and speak only as of the date of this Report. We are not obligated and do not undertake an obligation 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 or otherwise.providesand Westwood International provide investment advisory services to corporate and public retirement plans, endowments and foundations,institutional clients, the Westwood FundsTMFunds®, other mutual funds, an Ireland-domiciled fund organized pursuant to the European Union’s Undertakings for Collective Investment in Transferable Securities (“UCITS”), individuals 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. Westwood International was established in the second quarter of 2012 and provides global equity and emerging markets investment advisory services to institutional clients, Westwood FundsTM and common trust funds sponsored by Westwood Trust. Our revenues are generally derived from fees based on a percentage of assets under management, and at December 31, 20122015 Westwood Management, Westwood TrustInternational and Westwood InternationalTrust collectively managed assets valued at approximately $14.2$20.8 billion.hasmembers have average investment experience of fifteen years while one third of our team has worked together at Westwood for over six years.WeWhile we continue to evolve our products, we believe that the appropriate foundation and products are now in place and believesuch that investors will recognize the value in these products, thereby generating new revenue streams for Westwood.20122012:2015:20122015 were $20.8 billion, a record $14.2 billion, an 8%3% increase compared to December 31, 2011;2014; average assets under management for 20122015 were $13.7$21.5 billion, a 6%9% increase compared to 2011.AsWe launched three new mutual funds during 2015, bringing the mutual funds now offered to a total of December 31, 2012,15.an asset-weighted basis, over 90%April 1, 2015, bringing Private Wealth assets to 26% of our investment strategies have outperformed their respective benchmarks since inception.•With the addition of three funds in late 2012, our Westwood FundsTM family of mutual funds now includes ten funds and ended the year with $1.6 billion in assets under management.Our Income Opportunity strategy, with its focus on current income and lower volatility, had net asset inflows of over $600 million and finished the year with $1.7 billion infirm-wide assets under management.We established Westwood International Advisors Inc., based in Toronto, to manage global equityOur U.S. Value Equity, Multi-Asset and emerging markets equityGlobal Convertibles strategies and assets under management have grown to $888 million as of December 31, 2012.$77.5$130.9 million, a 12%16% increase over the prior year2012,2015, the Board approved ana 14% increase in our quarterly dividend to $0.40$0.57 per share, or an annual rate of $1.60,$2.28, resulting in a dividend yield of 3.9% at4.4% using the year-end stock price of $40.90.We repurchased 97,724 sharesour common stock during the year for $3.8$95.1 million and have $10.0 million remaining under a stock repurchase program authorized by our Boardas of Directors in July 2012.December 31, 2015.•Our financial position remains strong with liquid cash and investments of $63.7 million as of December 31, 2012.Westwood Management’s and Westwood International’s advisoryAdvisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter, quarterly in arrears based on assets under management on the last day of the previous quarter just ended, or are based on a daily or monthly analysis of assets under management for the stated period. Westwood Management and Westwood InternationalWe recognize advisory fee revenues as services are rendered. A limited number of our clients have agreed toa contractual performance-based fees,fee component in their contracts, which generategenerates additional revenues if we outperform a specified index over a specific period of time. We record revenue for performance-based fees at the end of the measurement periods.period. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates,such payments relate, revenue related to those clients is fully recognized within the quarter. Consequently, there is not a significant amount ofquarter, and our consolidated financial statements contain no deferred revenue contained in our financial statements.to which payment relates, revenue is fully recognized within the quarter and consequently there isour consolidated financial statements do not contain a significant amount of deferred revenue contained in our financial statements.TM®.common trust funds sponsored by Westwood Trust.$1.1 billion,$600 million, or 8%3%, to $14.2$20.8 billion at December 31, 20122015 compared to $13.1$20.2 billion at December 31, 2011.2014. Quarterly average assets under management increased $786 million, or 6%$1.7 billion, up 8.6%, to $13.7$21.5 billion for 20122015 compared with $12.9$19.8 billion for 2011.$602 million,$1.3 billion, or 5%7%, to $13.1$20.2 billion at December 31, 20112014 compared to $12.5$18.9 billion at December 31, 2010.2013. Quarterly average assets under management increased $2.2$3.7 billion, or 20%up 23.0%, to $12.9$19.8 billion for 20112014 compared with $10.7$16.1 billion for 2010.2012, 20112015, 2014 and 2010: As of December 31,
(in millions) % Change 2012 2011 2010 2012 vs. 2011 2011 vs. 2010 $ 9,225 $ 8,735 $ 8,359 6 % 4 % 3,339 3,051 3,148 9 (3 ) 1,603 1,293 970 24 33 $ 14,167 $ 13,079 $ 12,477 8 % 5 % % Change 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Institutional $ 11,752 $ 12,471 $ 12,139 (6 )% 3 % 5,393 3,974 3,938 36 % 1 % Mutual Funds 3,617 3,723 2,784 (3 )% 34 % $ 20,762 $ 20,168 $ 18,861 3 % 7 % (1) Due to an immaterial error relating to the aggregation of Private Wealth AUM, AUM was overstated, and AUA was understated, for certain prior periods. Adjustments to correct the immaterial error have been made in this Report. Specifically, previously-reported AUM as of December 31, 2013 and December 31, 2014 were overstated by $70.0 million and $82.6 million, respectively, and have been adjusted in the above table accordingly. The corrections to AUM represent a 2% adjustment to Private Wealth AUM and less than a 1% adjustment to Total AUM as previously reported as of each of such dates. (2) AUM for 2015, 2014, and 2013 excludes approximately $336.8 million, $670.3 million, and $214.7 million of assets under advisement, respectively, related to model portfolios, for which we currently provide consulting advice but for which we do not have direct discretionary investment authority. During the fourth quarter of 2015, approximately $330 million of assets related to our market neutral income strategy transitioned from AUA to AUM. •Institutional includes separate accounts of corporate pension and profit sharing plans, public employee retirement funds, Taft Hartley plans, endowments, foundations and individuals; subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; and managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers.•Private Wealth includes assets for which Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements. Investment subadvisory services are provided for the common trust funds by Westwood Management, Westwood International and external, unaffiliated subadvisors. For certain assets in this category, Westwood Trust currently provides limited custody services for a minimal or no 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 we believe there is potential for these assets to convert to fee-generating managed assets during an inter-generational transfer of wealth at some future date. Also included are assets acquired in the McCarthy transaction, described in Note 6 of the financial statements included in this Form 10-K. Acquisitions representing institutional and high net worth clients for which Westwood provides investment management and advisory services.•Mutual Funds include the Westwood FundsTM, a family of mutual funds for which Westwood Management serves as advisor. Year Ended December 31, 2012 (in millions) Institutional Private Wealth Mutual Funds Total $ 8,735 $ 3,051 $ 1,293 $ 13,079 1,183 424 451 2,058 (1,949 ) (467 ) (292 ) (2,708 ) (766 ) (43 ) 159 (650 ) 1,256 331 151 1,738 490 288 310 1,088 $ 9,225 $ 3,339 $ 1,603 $ 14,167 (in millions) Institutional Total Beginning of period assets $ 12,471 $ 3,974 $ 3,723 $ 20,168 Client flows: 2,456 806 1,541 4,803 Outflows/closed accounts (2,305 ) (815 ) (1,509 ) (4,629 ) Net inflows (outflows) 151 (9 ) 32 174 Acquisition related — 1,583 — 1,583 Market depreciation (870 ) (155 ) (138 ) (1,163 ) Net change (719 ) 1,419 (106 ) 594 End of period assets $ 11,752 $ 5,393 $ 3,617 $ 20,762 (1) In the table above, we have revised the presentation of gross inflows and outflows for Institutional, Private Wealth and Mutual Fund AUM, as well as reclassified certain transactions for consistency. Prior periods have been revised to reflect the changes in Mutual Fund presentation; however, prior periods have not been revised for Institutional and Private Wealth presentation, as management believes these changes are not significant. (2) Due to an immaterial error relating to the aggregation of Private Wealth AUM, AUM was overstated, and AUA was understated, for certain prior periods. Adjustments to correct the immaterial error have been made in this report. Specifically, previously-reported AUM as of December 31, 2014 were overstated by $82.6 million and has been adjusted in the above table accordingly. The corrections to AUM represent a 2% adjustment to Private Wealth AUM and less than a 1% adjustment to Total AUM as previously reported. (3) Institutional inflows include approximately $330 million of assets related to our global convertibles strategy, which transitioned from AUA to AUM during the fourth quarter of 2015. 20122015 was primarily due to newthe acquisition of Woodway, which contributed $1.6 billion of assets under management, and net inflows of $2.1 billion and market appreciation of $1.7 billion,$174 million, partially offset by outflowsmarket depreciation of $2.7$1.2 billion. Inflows were driven primarily by inflows into institutional separate accounts subadvisory mandates,in our Emerging Markets Plus, Income Opportunity, MLP and SmallCap Value strategies and inflows into our Emerging Markets, MLP and SmallCap Value mutual funds, as well as the Westwood FundsTM and private wealth accounts.movement of an account in our market neutral income strategy from assets under advisement to assets under management during the fourth quarter of 2015. Outflows were primarily related to outflowswithdrawals and some account closingsrebalancing by institutional separate accountcertain clients in our LargeCap Value, SMidCap and subadvisory mandatesEmerging Markets strategies and outflows from private wealth accounts. Year Ended December 31, 2011 (in millions) Institutional Private Wealth Mutual Funds Total $ 8,359 $ 3,148 $ 970 $ 12,477 1,566 308 563 2,437 (1,133 ) (385 ) (254 ) (1,772 ) 433 (77 ) 309 665 (57 ) (20 ) 14 (63 ) 376 (97 ) 323 602 $ 8,735 $ 3,051 $ 1,293 $ 13,079 (in millions) Institutional Total Beginning of period assets $ 12,139 $ 3,938 $ 2,784 $ 18,861 Client flows: Inflows/new accounts 2,062 355 1,392 3,809 Outflows/closed accounts (2,655 ) (412 ) (721 ) (3,788 ) Net inflows (outflows) (593 ) (57 ) 671 21 Market appreciation 925 93 268 1,286 Net change 332 36 939 1,307 End of period assets $ 12,471 $ 3,974 $ 3,723 $ 20,168 (1) In the table above, we have revised the presentation of gross inflows and outflows for Institutional, Private Wealth and Mutual Fund AUM, as well as reclassified certain transactions for consistency. Prior periods have been revised to reflect the changes in Mutual Fund presentation; however, prior periods have not been revised for Institutional and Private Wealth presentation, as management believes these changes are not significant. (2) Due to an immaterial error relating to the aggregation of Private Wealth AUM, AUM was overstated, and AUA was understated, for certain prior periods. Adjustments to correct the immaterial error have been made in this report. Specifically, previously-reported AUM as of December 31, 2013 and December 31, 2014 were overstated by $70.0 million and $82.6 million, respectively, and have been adjusted in the above table accordingly. The corrections to AUM represent a 2% adjustment to Private Wealth AUM and less than a 1% adjustment to Total AUM as previously reported as of each of such dates. 20112014 was primarily due to new inflowsmarket appreciation of $2.4 billion, partially offset by outflows of $1.8$1.3 billion and market depreciation of $63 million.neutral net client flows. Inflows were driven primarily by inflows into institutional separate accounts subadvisory mandatesin our Emerging Markets strategies and the Westwood FundsTM.Income Opportunity mutual fund. Outflows were primarily related to outflowswithdrawals and some account closingsrebalancing by institutional separate accountcertain clients and subadvisory mandates and outflows from the Westwood FundsTM. Year Ended December 31, 2010 (in millions) Institutional Private Wealth Mutual Funds Total $ 7,599 $ 2,009 $ 566 $ 10,174 971 99 372 1,442 (1,518 ) (230 ) (157 ) (1,905 ) (547 ) (131 ) 215 (463 ) — 1,057 64 1,121 1,307 213 125 1,645 760 1,139 404 2,303 $ 8,359 $ 3,148 $ 970 $ 12,477 (in millions) Institutional Total Beginning of period assets $ 9,225 $ 3,274 $ 1,603 $ 14,102 Client flows: Inflows/new accounts 2,713 535 1,294 4,542 Outflows/closed accounts (2,094 ) (482 ) (493 ) (3,069 ) Net inflows 619 53 801 1,473 Market appreciation 2,295 611 380 3,286 Net change 2,914 664 1,181 4,759 End of period assets $ 12,139 $ 3,938 $ 2,784 $ 18,861 (1) In the table above, we have revised the presentation of gross inflows and outflows for Institutional, Private Wealth and Mutual Fund AUM, as well as reclassified certain transactions for consistency. Prior periods have been revised to reflect the changes in Mutual Fund presentation; however, prior periods have not been revised for Institutional and Private Wealth presentation, as management believes these changes are not significant. (2) Due to an immaterial error relating to the aggregation of Private Wealth AUM, AUM was overstated, and AUA was understated, for certain prior periods. Adjustments to correct the immaterial error have been made in this report. Specifically, previously-reported AUM as of December 31, 2012 and December 31, 2013 were overstated by $64.9 million and $70.0 million, respectively, and have been adjusted in the above table accordingly. The corrections to AUM represent a 2% adjustment to Private Wealth AUM and less than a 1% adjustment to Total AUM as previously reported as of each of such dates. 20102013 was primarily due to inflows of $4.5 billion and market appreciation of $1.6 billion, the acquisition of $1.1 billion of assets in the McCarthy transaction and new inflows of $1.4$3.3 billion, partially offset by outflows of $1.9$3.1 billion. Inflows were primarily driven primarily by additionalinflows into institutional accounts in our Emerging Markets strategies, inflows into the Westwood FundsTM, institutional separate accountsIncome Opportunity mutual fund and subadvisory mandates.inflows from certain clients in our Master Limited Partnership Infrastructure Renewal (“MLP”) strategy. Outflows were primarily related to withdrawals and rebalancing and some account closings by institutional separate accountcertain clients and outflows from subadvisory mandates and the Westwood FundsTM.In the second quarter of 2012, as part of our strategy to expand our research capabilities and product offerings, we established Westwood International, based in Toronto, Canada, to manage global and emerging markets equity strategies. Westwood International began providing investment management services during the third quarter of 2012 and ended the year with assets under management of $888 million. Westwood International had eleven full-time employees as of December 31, 2012. As Westwood International has only recently commenced operations, our Consolidated Statement of Comprehensive Income for the year ended December 31, 2012 includes $10.3 million in costs related to Westwood International’s operations and less than $2 million of revenues. Years ended December 31,
(in thousands) % Change 2012 2011 2010 2012 vs. 2011 2011 vs. 2010 $ 57,936 $ 54,246 $ 42,153 7 % 29 % 1,251 991 — 26 — 14,969 13,453 12,051 11 12 3,339 219 1,109 1,425 (80 ) 77,495 68,909 55,313 12 25 43,692 35,081 29,001 25 21 1,132 994 823 14 21 1,153 790 662 46 19 2,555 2,054 1,351 24 52 4,420 2,981 2,941 48 1 4,517 3,900 2,814 16 39 57,469 45,800 37,592 25 22 20,026 23,109 17,721 (13 ) 30 7,936 8,423 6,441 (6 ) 31 $ 12,090 $ 14,686 $ 11,280 (18 )% 30 % % Change 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Revenues Advisory fees: Asset-based $ 99,275 $ 88,473 $ 70,027 12 % 26 % Performance-based 2,698 3,806 2,561 (29 ) 49 Trust fees 28,795 20,525 18,367 40 12 Other revenues, net 168 437 870 (62 ) (50 ) Total revenues 130,936 113,241 91,825 16 23 Expenses Employee compensation and benefits 63,562 52,847 47,864 20 10 Sales and marketing 1,839 1,673 1,252 10 34 Westwood mutual funds 3,435 2,543 2,153 35 18 Information technology 5,732 3,469 2,882 65 20 Professional services 5,617 4,905 4,223 15 16 General and administrative 8,531 5,768 5,266 48 10 Total expenses 88,716 71,205 63,640 25 12 Income before income taxes 42,220 42,036 28,185 — 49 Provision for income taxes 15,115 14,787 10,348 2 43 Net income $ 27,105 $ 27,249 $ 17,837 (1 )% 53 % 20122015 Compared to Year Ended December 31, 20112014Revenue.In 2012 our totalRevenues. Total revenues increased by 12%$17.7 million, or 16%, to $77.5$130.9 million for fiscal 2015 compared with $68.9$113.2 million for fiscal 2014. The increase was attributable to a 12%, or $10.8 million, increase in 2011. Asset-basedasset-based advisory fees and a 40%, or $8.3 million, increase in Trust fees. Advisory-based fees increased by 7% to $57.9 million in 2012 from $54.2 million in 2011 due toas a result of higher average assets under management primarily reflecting market appreciation of assets. We earned a performance-basedand higher average advisory fee rates in 2015 compared to 2014. The Woodway acquisition contributed $7.7 million of $1.3 million in 2012 compared $1.0 million in 2011. Trust fees increased by 11% to $15.0 million in 2012 from $13.5 million in 2011 due to higher average assets under management primarily reflecting market appreciation of assets. Other revenues, which generally consist of interest and investment income, increased by $3.1 million to $3.3 million in 2012 compared with $219,000 in 2011 primarily due to a $2.2 millionthe increase in net realized gains, a $635,000 increase in unrealized gains and a $293,000 increase in dividend income,Trust fees. These increases were partially offset by a $34,000 decrease in interest income. The increase in realized gains was primarily due to the $1.9 million gain on saleperformance-based fees of 200,000 shares of Teton Advisors, Inc.$1.1 million.Benefits. Benefits. Employee compensation and benefits, which generally consist of salaries, incentive compensation, equity-based compensation expense and benefits,benefit costs increased by 25%$10.8 million, or 20%, to $43.7$63.6 million in fiscal 2015 compared with $35.1$52.8 million in 2011.fiscal 2014. This increase was primarily due to increases of $6.2$3.8 million in salary expense and incentive compensation, dueprimarily relating to additional hires at Westwood Holdings, Westwood Management and Westwood Trust, $3.5 million in restricted stock expense, including a $1.0 million non-cash charge related to acceleration of stock based compensation expense for a particular grant, and $3.1 million in compensation and benefits related to 27 Woodway employees. These increases were partially offset by a decrease in the amortization of long-term incentive awards for Westwood International employees, $2.3 million in salary expense primarily due to additional hires at Westwood Management and Westwood Trust, salaries related to Westwood International and $632,000 in performance-based restricted stock expense due to shares granted in February 2012.employees. We had 96168 full-time employees as of December 31, 20122015 compared to 80130 at December 31, 2011.2014.Marketing. Marketing. Sales and marketing costs consist of expenses associated with our marketing efforts, including travel and entertainment, direct marketing, and advertising costs. Sales and marketing costs increased by 14%10% to $1.1$1.8 million in 2012for fiscal 2015 compared with $1.0to $1.7 million in 2011for fiscal 2014, primarily due to increased direct marketing and travel expenses.Westwood Mutual Funds. Westwood Mutual Funds expenses generally consist ofincremental costs associated with our marketing, distribution, administration and acquisition efforts related to the Woodway acquisition.TM. Westwood Mutual Fundsmutual funds expenses increased 46%35% to $1.2$3.4 million in 2012for fiscal 2015 compared to $2.5 million for fiscal 2014. The launch of two new mutual funds during the fourth quarter of 2014 and the launch of three new mutual funds during the second quarter of 2015, along with $790,000 in 2011 primarily due to an increase of $219,000 inincreased overall shareholder servicing costs and higher subadvisor fees due to higher fundbased on a percentage of assets and an increase of $104,000 in subadvisor fees.under management, drove the increase.are generallyincreased 65%, to $5.7 million for fiscal 2015 compared with $3.5 million for fiscal 2014 due to increased research and support expenses, increased costs associated with proprietary investment research tools, computing hardware, software licenses, maintenanceimplementing a new information technology platform, and incremental support telecommunications and othercosts related costs. Information technology expense increased by 24% to $2.6 million in 2012 compared with $2.1 million in 2011 primarily due to an increase of $236,000 in software maintenance and licenses mainly for upgraded client portfolio accounting and performance reporting systems and an increase of $149,000 in research tools.the Woodway acquisition.generally consist of audit, external subadvisor expense, legal and other professional fees. Professional services expenses increased by 48%15% to $4.4$5.6 million in 2012for fiscal 2015 compared with $3.0to $4.9 million in 2011. The increase isfor fiscal 2014, primarily due to one-time recruiting and legal fees$0.7 million in transaction costs related to the hiring of Westwood International employees, increased legal fees and increased tax advisor expense. These increases were partially offset by decreased financial advisory expense due to the termination of subadvisors on international common trust fundsWoodway acquisition recognized in the fourth quarter of 2011 and the second quarter of 2012 and lower audit fee expense.2015.Administrative. General and administrative expenses generally consist of costs associated with the lease of our office space, insurance, amortization of intangible assets, office supplies, custody expense, investor relations, charitable contributions and other miscellaneous expenses. Administrative. General and administrative expenses increased by 16%48%, to $4.5$8.5 million in 2012for fiscal 2015 compared with $3.9$5.8 million in 2011. The increase isfor fiscal 2014, primarily due to increased rent expense due to a new lease for our Dallas office effective September 2011 and rent expense for our new Toronto office, non-marketing travel expensesan incremental $1.2 million in amortization of intangible assets related to Westwood International, increased state and local tax expense, increased office supplies expense and increased custody expenses. Partially offsetting these increases were decreases in training expenses and expensesthe Woodway acquisition, with the remainder of the increase related to our office relocation in 2011.other support items.Taxes. Taxes. Provision for income taxes decreased by 6%increased 2% to $7.9$15.1 million in 2012for fiscal 2015 compared with $8.4to $14.8 million in 2011.for fiscal 2014. The effective tax rate increased to 39.6% from 36.4%35.8% in 2011 primarily due2015 compared to 35.2% in 2014. The increase is related to a $1.0 million tax charge for uncertain tax positions related to current and prior years (net of federal benefit), partially offset by an increase in operating losses fromincome generated by Westwood International, which is taxed at a lower Canadian tax rate, and provision to return adjustments from our 2011 federal tax return.rate.20112014 Compared to Year Ended December 31, 20102013Revenue.Revenues. In 20112014 our total revenues increased by 25%23% to $68.9$113.2 million compared with $55.3$91.8 million in 2010.2013. Asset-based advisory fees increased by 29%26% to $54.2$88.5 million in 20112014 from $42.2$70.0 million in 20102013 due to higher average assets under management, primarilydue to assets acquired in the McCarthy transaction in November 2010 as well as net inflows of assets.market appreciation. We earned a performance-based advisory fee of $1.0$3.8 million in 20112014 compared to no performance-based fees$2.6 million in 2010.2013. Trust fees increased by 12% to $13.5$20.5 million in 20112014 from $12.1$18.4 million in 2010 due to higher average2013as a result of increased assets under management at Westwood Trust, primarily due to net inflows of assets.market appreciation. Other revenues, which generally consist of interest and investment income, decreased by 80%$0.5 million to $219,000$0.4 million in 20112014 compared with $1.1$0.9 million in 2010 2013primarily due to a $1.0 million decrease in unrealized gains, partially offset by a $124,000 increase in net realized gains.dividend income.21%10% to $35.1$52.8 million compared with $29.0$47.9 million in 2010.2013. This increase was primarily due to net increases of $3.1 million in incentive compensation due to increased pre-tax income, $1.6$2.1 million in salary expense, primarily duerelating to a full year of salary expense for our Omaha office in 2011 as well as additional hires at Westwood Management, Westwood Trust and Westwood International, $2.0 million in the Dallas office and $700,000 inperformance-based restricted stock expense due toand $1.8 million incentive compensation. These increases were partially offset by a higher numberdecrease in the amortization of shares granted in February 2011 and at a higher market price than previous grants.long-term incentive awards for Westwood International employees. We had 80130 full-time employees as of December 31, 20112014 compared to 77106 at December 31, 2010.2013.21%34% to $994,000$1.7 million in 20112014 compared with $823,000$1.3 million in 20102013 primarily due to increased referral fees on acquired assets and increased direct marketing expenses.fees.19%by 18% to $790,000$2.5 million in 20112014 compared with $662,000$2.2 million in 2010 2013,primarily due to an increase of $358,000increases in shareholder servicing and subadvisor fees due to higher fundbased on a percentage of assets partially offset by decreases in adjusting deferred acquisition liabilities to fair value fromunder management.The expense has remained consistent as a 2009 fund acquisition and in professional fees related to the reorganizationpercentage of the McCarthy Multi-Cap Stock Fund into the Westwood Dividend Growth Fund.total revenues.expensesexpense increased by 52%20% to $2.1$3.5 million in 20112014 compared with $1.4$2.9 million in 2010 2013primarily due to an increase of $478,000 in softwareincreased research expenses and maintenance and licenses mainly for upgraded client portfolio accounting and performance reporting systems and an increasesupport expenses.The expense has remained consistent as a percentage of $146,000 in research tools.total revenues.1%16% to $3.0$4.9 million in 20112014 compared with $2.9$4.2 million in 2010. The increase is 2013,primarily due to a $176,000 increaseincreases in auditsubadvisory fees related to additional audits required for investment vehicles that hold client assets and a $176,000 increase in advisory fees paid to external subadvisors due to growth in subadvised common trust funds sponsored by Westwood Trustother professional services expense, partially offset by a decrease of $187,000 in legal fees primarily related to the 2010 McCarthy acquisition and a decrease of $159,000 in other professional fees related to the McCarthy acquisition and other growth initiatives undertaken in 2010.tax advisory expenses.39%10% to $3.9$5.8 million in 20112014 compared with $2.8$5.3 million in 2010 primarily 2013due to increases of $343,000 in amortization of intangible assets acquired in 2010 and $276,000 in rent expense related to a full year of lease expense for our Omaha office and a new lease for our Dallas corporate office and $136,000 in directors fees related to a new director fee structure. Partially offsetting these increases were decreases in custody and depreciation expenses.various support services.31%43% to $8.4$14.8 million in 20112014 compared with $6.4$10.3 million in 2010 2013. The effective tax rate decreased to 35.2% in 2014 from 36.7% in 2013primarily due to higheroperating income before taxes.generated by Westwood International in the 2014 period, which are taxed at a lower Canadian tax rate, compared to operating losses generated by Westwood International in the 2013 period.are providing non-generallyprovide a non-U.S. generally accepted accounting principles (“non-GAAP”) performance measuresmeasure that we refer to as Economic Earnings and Economic Expenses.Earnings. We provide these measuresthis measure 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. ManagementOur management and the Board of Directors review Economic Earnings and Economic Expenses to evaluate our ongoing performance, allocate resources and review our dividend policy. We believe that thesethis non-GAAP performance measures,measure, while not substitutesa substitute for GAAP net income, and total expenses, areis useful for both management and investors to evaluatewhen evaluating our underlying operating and financial performance and our available resources. We do not advocate that investors consider thesethis non-GAAP measuresmeasure without considering financial information prepared in accordance with GAAP.and stock options, amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill. We define Economic Expenses as total expenses less non-cash equity-based compensation expense and amortization of intangible assets. Although depreciation on property and equipment is a non-cash expense, we do not add it back when calculating Economic Earnings or deduct it when calculating Economic Expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.2012,2015, our Economic Earnings decreasedincreased by 8%12% to $23.2$46.5 million compared with $25.3$41.4 million for the year ended December 31, 2011,2014, primarily due to increaseincreases in total Economic Expenses.and total expenses to Economic Expenses for the years presented: % Change (in thousands) For the years ended December 31, 2012 vs. 2011 vs. 2012 2011 2010 2011 2010 $ 12,090 $ 14,686 $ 11,280 (18 )% 30 % 10,515 9,969 9,269 5 8 472 498 155 (5 ) 222 154 189 59 (19 ) 222 $ 23,231 $ 25,342 $ 20,763 (8 ) 22 $ 57,469 $ 45,800 $ 37,592 25 22 (10,515 ) (9,969 ) (9,269 ) 5 8 (472 ) (498 ) (155 ) (5 ) 222 $ 46,482 $ 35,333 $ 28,168 32 % 25 % For the years ended December 31,
(in thousands, except share data) % Change 2015 2014 2013 2012 2011 2015 vs. 2014 2014 vs. 2013 2013 vs. 2012 2012 vs. 2011 Net Income $ 27,105 $ 27,249 $ 17,837 $ 12,086 $ 14,155 (1 )% 53 % 48 % (15 )% Add: Restricted stock expense 17,574 13,685 11,679 10,521 10,805 28 17 11 (3 ) Add: Intangible amortization 1,546 359 359 472 498 331 — (24 ) (5 ) Add: Tax benefit from goodwill amortization 271 152 152 154 189 78 — (1 ) (19 ) Economic Earnings $ 46,496 $ 41,445 $ 30,027 $ 23,233 $ 25,647 12 % 38 % 29 % (9 )% Economic Earnings per Share $ 5.71 $ 5.24 $ 3.90 $ 3.18 $ 3.54 9 % 34 % 23 % (10 )% As of December 31, 2012 2011 2010 $ 3,817 $ 5,264 $ 1,744 8,920 7,707 7,348 12,737 12,971 9,092 $ 59,906 $ 54,868 $ 43,300 For the years ended December 31, 2012 2011 2010 $ 13,780 $ 18,548 $ 18,277 1,636 (2,244 ) (5,662 ) (16,891 ) (12,784 ) (13,750 ) Balance Sheet Data 2015 2014 Assets: Cash and cash equivalents $ 22,740 $ 18,131 Accounts receivable 19,618 14,540 Total liquid assets 42,358 32,671 Investments $ 72,320 $ 79,620 Cash Flow Data 2015 2014 2013 Operating cash flows $ 55,208 $ 26,523 $ 21,705 Investing cash flows (25,084 ) (478 ) (1,201 ) Financing cash flows (22,139 ) (17,971 ) (13,301 ) 2012,2015 and December 31, 2014, we had no long-term debt. The changes in net cash provided by operating activities generally reflect the changes in earnings plus the effecteffects of non-cash items and changes in working capital. Changes in working capital, especially accounts receivable and accounts payable are generally the result offrom timing differences between collection of fees billed and payment of operating expenses.2012,2015, cash flow provided by operating activities, principally our investment advisory business, was $13.8aggregated $55.2 million compared to cash provided by operations of $18.5$26.5 million during 20112014 and $18.3$21.7 million during 2010.2013. The decreaseincrease of $4.8$28.7 million in 2015 was primarily due to decreased net incomecash transferred from our investment accounts and an increase in accounts receivable anddecreased net purchases of U.S. Treasury Bills, partially offset by increases in income taxes and compensation and benefits payable.working capital. The increase of $271,000$4.8 million from 20102013 to 20112014 was primarily due to increased net income and working capital, partially offset by an increase in accounts and compensation payables, partially offset by increased net purchases of U.S. Treasury Bills.Cash flow provided by investing activities during 2012 of $1.6 million was primarily duecash transferred to the sale of an available for sale investment. our investment accounts.20112015 of $2.2$25.1 million was primarily reflectedrelated to the purchaseacquisition of property and equipment and cash paid to acquire businesses.Woodway. Cash flow used in investing activities during 20102014 and 2013 of $5.7$0.5 million and $1.2 million, respectively, was primarily relateddue to cash paid to acquire businesses.$16.9$22.1 million, $12.8$18.0 million and $13.8$13.3 million during 2012, 20112015, 2014 and 2010,2013, respectively, primarily related to payment of cash dividends, restricted stock returned for payment of taxes and purchasepurchases of treasury stock,shares for our Canadian share award plan, partially offset by excess tax benefits related to vested restricted shares and proceeds from the issuance of stock upon option exercises.We held cash and investments of $63.7 million and $60.1 million at December 31, 2012 and December 31, 2011, respectively. At December 31, 2012 and 2011, working capital aggregated $58.5 million and $54.9 million respectively. As required by the Texas Finance Code, Westwood Trust maintains current assets in an amount equal to the required minimum restricted capital of $1.0 million, which is included in Investments in the accompanying consolidated balance sheets. We had no liabilities for borrowed money at December 31, 2012 or December 31, 2011, and our accounts payable were paid in the ordinary course of business for each of the periods then ended.Form 10-K.Report. We believe that current cash and short-term investment balances and cash generated from operations will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months.months and the payment of the contingent consideration related to the Woodway acquisition. However, there can be no assurance that we will not require additional financing within this time frame. AThe 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.Declaration Date Record Date Paid Date Dividend per Share Declared 2015: February 4, 2015 March 13, 2015 April 1, 2015 $0.50 April 29, 2015 June 12, 2015 July 1, 2015 $0.50 July 29, 2015 September 11, 2015 October 1, 2015 $0.50 October 28, 2015 December 15, 2015 January 4, 2016 $0.57 $2.07 Declaration Date Record Date Paid Date Dividend per Share Declared 2014: February 6, 2014 March 14, 2014 April 1, 2014 $0.44 April 17, 2014 June 13, 2014 July 1, 2014 $0.44 July 29, 2014 September 15, 2014 October 1, 2014 $0.44 October 23, 2014 December 15, 2014 January 2, 2015 $0.50 $1.82 20122015 (in thousands). Payments due in: Total Less than
1 year 1-3
years 4-5
years After 5
years $ 9,265 $ 1,345 $ 2,036 $ 1,958 $ 3,926 Accounting DevelopmentsIn May 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding the definition and requirements for the measurement of and disclosure about fair value. The new guidance results in a consistent definition of fair value and common requirements for the measurement and disclosure of fair value between U.S. GAAP and International Financial Reporting Standards. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Payments due in: Total $ 9,298 $ 1,636 $ 3,831 $ 3,831 $ — Operating lease obligations $ 15,560 $ 2,275 $ 3,802 $ 2,683 $ 6,800 (1) A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including (a) fixed or minimum quantities to be purchased; (b) fixed, minimum or variable price provisions; and (c) the approximate timing of the transaction. Our purchase obligations relate to obligations associated with implementing and operating new information technology platforms and outsourcing services. The above purchase obligations exclude agreements that are cancelable without significant penalty. The contractual obligations in the table above exclude contingent consideration of $9.0 million related to the Woodway acquisition. adopted this guidance in these financial statements. It diddo not have a material effect on our consolidated financial statements.In September 2011, the FASB issued new guidance regarding testing of goodwill for impairment, which allows entities to perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value in order to determine if quantitative testing is required. This optional qualitative assessment is intended to reduce the cost and complexity of annual goodwill impairment tests. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is allowed provided the entity has not yet performed its 2011 impairment test or issued its financial statements. This guidance will not have a material effect on our consolidated financial statements. Historically, actual resultsdiffered materiallyprovided 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 any of the Westwood VIEs.estimates.the third quarters of 2012, 20112015, 2014 and 2010,2013, we completed our annual impairment assessment as required by ASC 350 “Goodwillassessments and Other Intangible Assets”. Noconcluded no impairment losses were required. We perform our annual impairment assessment as of July 1 and would perform a reassessment 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. We updated our assessment at the end of 2012 and determined that no events occurred in the last half of 2012 that would indicate that these assets should be retested for impairment.customer listsclient relationships but also include valuations of trade names and non-compete agreements. 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 andimpairment. If we determine the carrying value exceeds fair value, we would record an impairment to remove the excess if their carrying valueamount that exceeded fair value.ThisThe estimated number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We update our estimated forfeitures quarterly. We amortize compensation cost is amortized on a straight-line basis over the applicable service period.Ourpositions.positions, and we are subject to audits by taxing authorities in each of the jurisdictions in which we operate. We adjust our income tax provision in the period in which we determine that actual outcomes will likely be different from our estimates. Changes in tax laws may result in changes to our tax position and effective tax rates. We classifyinclude penalties and interest on income-based taxes in the “General and administrative” line on our consolidated statements of comprehensive income.interest or penalties related toforeign income taxes as a component of income tax expense.Deferred income taxes reflect the expected future tax consequences of temporary differences between the financial statement and tax bases of our assets and liabilities as measured at enacted income tax rates. Our deferred taxes relate principally to stock-based compensation expense, which is deductible for tax purposes at the time restricted stock vests and stock options are exercised. previously paid on these earnings.a result of start-upDecember 31, 2015 and ongoing operating costs,2014, we have incurred net operating losses at Westwood International, our Canadian subsidiary. We have not recorded ana valuation allowance against the relatedon any deferred tax asset, as we currently anticipateassets. In the event that it is more-likely-than-not that we will generate sufficient taxable income at Westwood International to utilize these net operating losses. However, forecasting results involves making significant assumptions and estimations about future events. If those forecasts are incorrect, we could be required to record valuation allowances against the net operating loss deferred tax assets, which would reduce our net incomedoes not result in future periods. No U.S. income taxes wereyears, a valuation allowance may be required.these net losses.our Consolidated Financial Statements.Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We our corporate capital in various financial instruments, such asincluding United States treasury bills and equity mutual funds, and United States government agency obligations, all of which entail certainpresent inherent market risks. We do not currently participate in any hedging activities, nor do we currently utilize any derivative financial instruments. The following information describes the key aspects of certain financial instruments that involve market risks.Securities MarketsThe value of assets under management is affected by interest rates and fluctuations in securities markets. Since we derive a substantial portion of our revenues from investment advisory and trust fees based on the value of assets under management,the Canadian dollar relative to the United States dollar, as Westwood International operates in Toronto, Canada. For the year ended December 31, 2015, Westwood International represented 35.3% of our revenues may be adversely affected by changing interest rates or a declineconsolidated income before income taxes. Changes in the pricescurrency exchange rate result in cumulative translation adjustments included in “Accumulated other comprehensive loss” on our consolidated balance sheets and potentially result in transaction gains or losses, which are included in our earnings. The low and high currency exchange rates for a Canadian dollar into a United States dollar for the year ended December 31, 2015 were 0.7163 and 0.8613, respectively. A hypothetical 10% devaluation in the average quoted United States dollar-equivalent of securities generally.the Canadian dollar exchange rate during the year ended December 31, 2015 would have reduced our reported consolidated income before income taxes by approximately $1.5 million.Item 8. Financial Statements and Supplementary Data.Datafirm’s reportsfirms and our consolidated financial statements listed in the accompanying index are included in Item 15 of this Report. See “Index to Financial Statements” on page F-1.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.Item 9A. Controls and Procedures. Our are designed to ensure that information we are required to disclose 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. 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 annual report. Based on thisthat evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of December 31, 2012, our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2015 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, iswas (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms and that such information is(b) accumulated and communicated to our management, including the Company’sour Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Please refer to Westwood Holdings Group, Inc.’s Management Assessmentpage F-3the financial statements. Because of this Report.F-2.For41.fiscal yearquarterly period ended December 31, 2012,2015, there werehas been no changeschange in our internal control over financial reporting that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.By: /s/ Brian O. Casey Brian O. Casey, President & Chief Executive Officer /s/ Tiffany B. Kice Tiffany B. Kice, Chief Financial Officer /s/ Deloitte & Touche LLP Dallas, Texas February 25, 2016 Item 9B. Other Information. Item 10. Directors, Executive Officers and Corporate Governance. 20132016 Annual Meeting of Stockholders of Westwood Holdings Group, Inc., which is to be filed with the Securities and Exchange CommissionSEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Proxy Statement”). The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-KReport by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.Item 11. Executive Compensation. Form 10-KReport by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Form 10-KReport by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.Item 13. Certain Relationships and Related Transactions, and Director Independence. Form 10-KReport by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.Item 14. Principal Accounting Fees and Services. Form 10-KReport by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.Item 15. Exhibits, Financial Statement Schedules. Securities and Exchange CommissionSEC are either not required under the related instructions or are inapplicable.Exhibit Index to Exhibits filed herewith, which Exhibit Index to Exhibits is incorporated herein by reference.WESTWOOD HOLDINGS GROUP, INC. By: /s/ Brian O. Casey President, Chief Executive Officer and Director and Mark A. Wallace, or any one of them, its, his or her true and lawful attorney-in-fact and agent, for it, him or her and in its, his or her name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Report, and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as it, he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.SIGNATURESPursuant to the requirements of Section 13 or 15(d) 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.WESTWOOD HOLDINGS GROUP, INC.By:/s/ Brian O. CaseyBrian O. CaseyPresident & Chief Executive OfficerDated: February 28, 2013 /s/ Brian O. Casey Brian O. Casey President, & Chief Executive Officer (Principaland DirectorBrian O. Casey (Principal Executive Officer) Mark A. WallaceMark A. Wallace Chief Financial Officer (Principal Financial Officer)/s/ Craig WhittenCraig Whitten Controller(Principal Financial Officer and Treasurer (PrincipalPrincipal Accounting Officer)SusanRichard M. ByrneSusan M. Byrne Chairman of the Board of Directors Richard M. Frank /s/ Tom C. DavisTom C. DavisVice Chairman of the Board of Directors Susan M. Byrne /s/ Ellen H. Masterson Director Ellen H. Masterson /s/ Richard M. FrankRichard M. Frank Director /s/ Robert D. McTeerRobert D. McTeer/s/ Geoffrey R. Norman Director /s/ Geoffrey R. NormanGeoffrey R. Norman/s/ Martin J. Weiland Director /s/ Martin J. WeilandMartin J. Weiland/s/ Raymond E. Wooldridge Director /s/ Raymond E. Wooldridge Director Page F-2F-3sheetssheet of Westwood Holdings Group Inc. and subsidiaries (the "Company") as of December 31, 2015 and the related consolidated statements of comprehensive income, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit./s/ Deloitte & Touche LLP Dallas, Texas February 25, 2016 2012 and December 31, 2011,2014, and the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2012. We also have audited2014. These financial statements are the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizationsresponsibility of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Westwood Holdings Group, Inc.’s Management Assessment of Internal Control over Financial Reporting.Company's management. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.misstatement and whether effective internal control over financial reporting was maintained in all material respects. Ourmisstatement. An audit of the financial statements includedalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andas well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.2012 and 2011,2014, and the results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 2012,2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by COSO.Grant ThorntonDallas, TexasFebruary 28, 2013REPORT OF WESTWOOD HOLDINGS GROUP, INC.’S MANAGEMENT ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTINGTo the Board of Directors and Stockholders ofWestwood Holdings Group, Inc.:The management of Westwood Holdings Group, Inc. (“Westwood”) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Westwood’s internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.All internal control systems, no matter how well designed, contain inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.The management of Westwood assessed the effectiveness of Westwood’s internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based on our assessment, we believe that, as of December 31, 2012, Westwood’s internal control over financial reporting is effective based on those criteria.Westwood’s independent registered public accounting firm has issued an audit report on our assessment of Westwood’s internal control over financial reporting. This report appears on page F-2.By:/s/ Brian O. CaseyBrian O. Casey, President & Chief Executive Officer /s/ Mark A. Wallace/s/ Grant Thornton LLP Mark A. Wallace, Chief Financial OfficerDallas, TexasFebruary 25, 2016 February 28, 2013Dallas, Texas20122015 and 20112014 2012 2011 ASSETS $ 3,817 $ 5,264 8,920 7,707 59,906 54,868 3,362 3,142 1,365 1,501 77,370 72,482 11,255 11,255 1,696 — 4,149 4,621 2,145 2,239 $ 96,615 $ 90,597 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,636 $ 1,674 1,201 3,074 14,537 12,677 1,438 85 14 13 18,826 17,523 — 969 1,238 1,348 1,238 2,317 20,064 19,840 85 81 88,483 76,969 (18,502 ) (14,706 ) 30 1,940 6,455 6,473 76,551 70,757 $ 96,615 $ 90,597 2015 2014 ASSETS Current Assets: Cash and cash equivalents $ 22,740 $ 18,131 Accounts receivable 19,618 14,540 Investments, at fair value 72,320 79,620 Deferred income taxes — 4,060 Other current assets 2,926 2,413 Total current assets 117,604 118,764 Goodwill 27,144 11,255 Deferred income taxes 11,042 3,792 Intangible assets, net 23,354 3,430 Property and equipment, net of accumulated depreciation of $3,687 and $2,720 2,192 2,633 Total assets $ 181,336 $ 139,874 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 3,549 $ 2,334 Dividends payable 5,749 4,868 Compensation and benefits payable 20,264 18,504 Contingent consideration 9,023 — Income taxes payable 6,268 1,498 Total current liabilities 44,853 27,204 Accrued dividends 1,699 1,450 Deferred rent 817 1,213 Total long-term liabilities 2,516 2,663 Total liabilities 47,369 29,867 Commitments and contingencies (Note 13) Stockholders’ Equity: Common stock, $0.01 par value, authorized 25,000,000 shares, issued 9,425,309 and outstanding 8,630,687 shares at December 31, 2015; issued 9,010,255 and outstanding 8,308,460 shares at December 31, 2014 94 90 Additional paid-in capital 143,797 119,859 Treasury stock, at cost – 794,622 shares at December 31, 2015; 701,795 shares at December 31, 2014 (34,910 ) (29,028 ) Accumulated other comprehensive loss (4,688 ) (1,231 ) Retained earnings 29,674 20,317 Total stockholders’ equity 133,967 110,007 Total liabilities and stockholders’ equity $ 181,336 $ 139,874 (in thousands, except per share data) For the Years Ended December 31, 2012 2011 2010 $ 57,936 $ 54,246 $ 42,153 1,251 991 — 14,969 13,453 12,051 3,339 219 1,109 77,495 68,909 55,313 43,692 35,081 29,001 1,132 994 823 1,153 790 662 2,555 2,054 1,351 4,420 2,981 2,941 4,517 3,900 2,814 57,469 45,800 37,592 20,026 23,109 17,721 7,936 8,423 6,441 $ 12,090 $ 14,686 $ 11,280 (40 ) 1,014 (633 ) (1,900 ) — — (1,940 ) 1,014 (633 ) 30 — — �� (1,910 ) 1,014 (633 ) $ 10,180 $ 15,700 $ 10,647 $ 1.69 $ 2.11 $ 1.62 $ 1.65 $ 2.04 $ 1.58 7,145,701 6,970,382 6,606,281 7,338,104 7,208,515 6,795,351 See notes to consolidated financial statements.WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES2012, 20112015, 2014 and 20102013 2015 2014 2013 Revenues: Advisory fees Asset-based $ 99,275 $ 88,473 $ 70,027 Performance-based 2,698 3,806 2,561 Trust fees 28,795 20,525 18,367 Other revenues, net 168 437 870 Total revenues 130,936 113,241 91,825 Expenses: Employee compensation and benefits 63,562 52,847 47,864 Sales and marketing 1,839 1,673 1,252 Westwood mutual funds 3,435 2,543 2,153 Information technology 5,732 3,469 2,882 Professional services 5,617 4,905 4,223 General and administrative 8,531 5,768 5,266 Total expenses 88,716 71,205 63,640 Income before income taxes 42,220 42,036 28,185 Provision for income taxes 15,115 14,787 10,348 Net income $ 27,105 $ 27,249 $ 17,837 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (3,457 ) (974 ) (287 ) Other comprehensive loss (3,457 ) (974 ) (287 ) Total comprehensive income $ 23,648 $ 26,275 $ 17,550 Earnings per share: Basic $ 3.49 $ 3.63 $ 2.43 Diluted $ 3.33 $ 3.45 $ 2.32 Weighted average shares outstanding: Basic 7,756,647 7,512,348 7,331,874 Diluted 8,149,399 7,906,545 7,692,756 Westwood Holdings
Group, Inc.
Common Stock, Par Treasury
lated Retained Shares Amount Capital Stock Income Earnings Total 7,151,472 $ 73 $ 47,741 $ (6,026 ) $ 1,559 $ 3,871 $ 47,218 11,280 11,280 (633 ) (633 ) 368,100 4 (4 ) — 181,461 2 6,932 6,934 9,269 9,269 1,488 1,488 (12,369 ) (12,369 ) 16,500 — 213 213 (71,855 ) (2,723 ) (2,723 ) 7,645,678 $ 79 $ 65,639 $ (8,749 ) $ 926 $ 2,782 $ 60,677 14,686 14,686 1,014 1,014 207,995 2 (2 ) — 9,969 9,969 1,077 1,077 (10,995 ) (10,995 ) 22,150 286 286 (168,634 ) (5,957 ) (5,957 ) 7,707,189 $ 81 $ 76,969 $ (14,706 ) $ 1,940 $ 6,473 $ 70,757 12,090 12,090 (1,910 ) (1,910 ) 405,330 4 (4 ) — 10,515 10,515 793 793 (12,108 ) (12,108 ) 16,250 210 210 (97,724 ) (3,796 ) (3,796 ) 8,031,045 $ 85 $ 88,483 $ (18,502 ) $ 30 $ 6,455 $ 76,551 Total Shares Amount BALANCE, January 1, 2013 8,031,045 $ 85 $ 91,299 $ (18,502 ) $ 30 $ 3,641 $ 76,553 Net income 17,837 17,837 Other comprehensive loss (287 ) (287 ) Issuance of restricted stock, net of forfeitures 252,015 3 (3 ) — Stock based compensation expense 11,679 11,679 Reclassification of compensation liability to be paid in shares 120 120 Tax benefit related to stock based compensation 758 758 Dividends declared ($1.64 per share) (13,330 ) (13,330 ) Stock options exercised (20,251 ) (878 ) (878 ) Restricted stock returned for payment of taxes (86,392 ) (3,789 ) (3,789 ) BALANCE, December 31, 2013 8,176,417 $ 88 $ 103,853 $ (23,169 ) $ (257 ) $ 8,148 $ 88,663 Net income 27,249 27,249 Other comprehensive loss (974 ) (974 ) Issuance of restricted stock, net of forfeitures 231,642 2 (2 ) — Stock based compensation expense 13,685 13,685 Reclassification of compensation liability to be paid in shares 170 170 Tax benefit related to stock based compensation 2,153 2,153 Dividends declared ($1.82 per share) (15,080 ) (15,080 ) Purchases of treasury stock (11,476 ) (669 ) (669 ) Restricted stock returned for payment of taxes (88,123 ) (5,190 ) (5,190 ) BALANCE, December 31, 2014 8,308,460 $ 90 $ 119,859 $ (29,028 ) $ (1,231 ) $ 20,317 $ 110,007 Net income 27,105 27,105 Other comprehensive loss (3,457 ) (3,457 ) Issuance of common stock for acquisition 109,712 1 5,291 5,292 Issuance of restricted stock, net of forfeitures 305,342 3 (3 ) — Stock based compensation expense 17,574 17,574 Reclassification of compensation liability to be paid in shares 338 338 Tax benefit related to stock based compensation 1,831 1,831 Dividends declared ($2.07 per share) (17,748 ) (17,748 ) Purchases of treasury stock (21,818 ) (1,327 ) (1,327 ) Issuance of treasury stock under employee stock plans 20,375 (1,093 ) 1,093 — Restricted stock returned for payment of taxes (91,384 ) (5,648 ) (5,648 ) BALANCE, December 31, 2015 8,630,687 $ 94 $ 143,797 $ (34,910 ) $ (4,688 ) $ 29,674 $ 133,967 For the Years Ended December 31, 2012 2011 2010 $ 12,090 $ 14,686 $ 11,280 349 264 274 472 498 155 — (31 ) 156 (1,900 ) — — (344 ) 291 (694 ) 1 20 — 10,515 9,969 9,269 (1,817 ) (93 ) (350 ) (676 ) (805 ) (1,026 ) (7,692 ) (10,285 ) (714 ) (1,208 ) (359 ) (572 ) 61 (755 ) (18 ) (39 ) 381 (2,167 ) 1,846 3,308 2,343 2,147 989 838 (25 ) 470 (497 ) 13,780 18,548 18,277 — — (39,877 ) 1,900 — 39,257 — (816 ) (4,993 ) (264 ) (1,431 ) (49 ) — 3 — 1,636 (2,244 ) (5,662 ) (3,796 ) (5,957 ) (2,723 ) 676 805 1,026 210 286 213 (13,981 ) (7,918 ) (12,266 ) (16,891 ) (12,784 ) (13,750 ) 28 — — (1,447 ) 3,520 (1,135 ) 5,264 1,744 2,879 $ 3,817 $ 5,264 $ 1,744 $ 7,600 $ 7,502 $ 5,937 2015 2014 2013 Cash flows from operating activities: Net income $ 27,105 $ 27,249 $ 17,837 Depreciation 1,050 579 410 Amortization of intangible assets 1,546 359 359 Unrealized losses (gains) on trading investments 613 (75 ) 325 Stock based compensation expense 17,574 13,685 11,679 Deferred income taxes (3,285 ) (2,133 ) (937 ) Excess tax benefits from stock based compensation (1,455 ) (1,850 ) (696 ) Net sales (purchases) of investments – trading securities 6,684 (14,991 ) (4,993 ) Other (58 ) — — Changes in operating assets and liabilities: Accounts receivable (5,192 ) (369 ) (5,702 ) Other current assets (375 ) 70 (887 ) Accounts payable and accrued liabilities 1,174 353 450 Compensation and benefits payable 2,912 1,307 3,598 Income taxes payable 6,890 2,406 160 Other liabilities 25 (67 ) 102 Net cash provided by operating activities 55,208 26,523 21,705 Cash flows from investing activities: Acquisition of Woodway, net of cash acquired (24,133 ) — — Purchases of property, equipment and other (951 ) (478 ) (1,201 ) Net cash used in investing activities (25,084 ) (478 ) (1,201 ) Cash flows from financing activities: Purchases of treasury stock (1,327 ) (669 ) (878 ) Restricted stock returned for payment of taxes (5,648 ) (5,190 ) (3,789 ) Excess tax benefits from stock based compensation 1,455 1,850 696 Cash dividends paid (16,619 ) (13,962 ) (9,330 ) Net cash used in financing activities (22,139 ) (17,971 ) (13,301 ) Effect of currency rate changes on cash (3,376 ) (807 ) (156 ) Net increase (decrease) in cash and cash equivalents 4,609 7,267 7,047 Cash and cash equivalents, beginning of year 18,131 10,864 3,817 Cash and cash equivalents, end of year $ 22,740 $ 18,131 $ 10,864 Supplemental cash flow information: Cash paid during the year for income taxes $ 11,639 $ 14,418 $ 11,031 Common stock issued for acquisition $ 5,292 $ — $ — Non-cash accrued contingent consideration $ 9,023 $ — $ — Accrued dividends $ 7,448 $ 6,318 $ 5,201 2012, 20112015, 2014 and 2010“we”“the Company”, we”, “us” 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 its subsidiaries, Westwood Management Corp. (“and Westwood Advisors, LLC (together, “Westwood Management”), Westwood Trust (“Westwood Trust”) and Westwood International Advisors Inc. (“Westwood International”). Westwood Management providesand Westwood International provide investment advisory services to corporate retirement plans, public retirement plans, endowments and foundations,institutional clients, a family of mutual funds called the Westwood Funds®, other mutual funds, an Ireland-domiciled fund organized pursuant to the European Union’s Undertakings for Collective Investment in Transferable Securities (“UCITS”), individuals and clients of Westwood Trust. Westwood Trust provides institutions and high net worth individuals with trust and custodial services and participation in its sponsoredself-sponsored common trust funds. Westwood International provides investment advisory servicesfunds to institutional investors.institutions and high net worth individuals. 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 our revenues and results of operations.Commission.Aeither (a)(i) the total equity investment at risk is not sufficient to permitenable the entity to finance its ownactivities without subordinated financial support or (ii) the at-risk equity holders do not have the normal characteristics of a controlling financial interest. That is, the at-risk equity holders do not have the obligation to absorb losses, the right to receive residual returns and/or the right to direct the activities of the entity that most significantly impact the entity’s economic performance. An enterprise must consolidate all VIEs of which it is the primary beneficiary. We determine if a sponsored investment meets the definition of a VIE by considering whether the fund’s equity investment at risk is sufficient to finance its activities without additional subordinated financial support or (b)and whether the voting rightsfund’s at-risk equity holders absorb any losses, have the right to receive residual returns and have the right to direct the activities of the equity investorsentity most responsible for the entity’s economic performance. For VIEs that are not proportional to their obligations to absorbinvestment companies, the primary beneficiary of the VIE is the party that absorbs a majority of the expected losses or receiveof the VIE, receives a majority of the expected residual returns of the entity.assessdetermined that the UCITS Fund was a VIE as its at-risk equity holders do not have the ability to direct the activities of the UCITS Fund that most significantly impact the entity’s economic performance. The Company and its representatives have a majority control of the UCITS Fund’s Board of Directors and can influence the UCITS Fund’s management and affairs. The UCITS Fund’s Board of Directors maintains this control through its duties, which are stated in the UCITS Fund’s Memorandum, and Articles of Association, which have no expiration date. We concluded that the Company was not the primary beneficiary of the UCITS Fund because, even though it has the power to direct the activities of the UCITS Fund that most significantly impact the fund’s economic performance, it does not absorb a majority of the UCITS Fund’s expected losses and does not receive a majority of the UCITS Fund’s expected residual returns. Therefore, the results of the UCITS Fund are not included in the Company’s consolidated financial results.the entities in which we have an interest are VIEs and whetheror not we qualify as the primary beneficiary based on whether there is an obligation to absorb the majority of expected losses or a right to receive the majority of residual returns. Since all losses and returns are distributed to the shareholders of these VIEs, that we identify.are not the primary beneficiary and consequently these VIEs are not included in our consolidated financial statements. We do not consolidate any VIEs. See Note 12 forhave included the disclosures related to VIEs in Note 11 "Variable Interest Entities".U.S. generally accepted accounting principles (“GAAP”)GAAP 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. would pay us an additional fee if we outperform a specified index over a specific period of time. We record revenue for 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 services are performed. Since billing periods for most of our advance paying clients coincide with the calendar quarter to whichWESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)there is not ano significant amount of deferred revenue is contained in our consolidated financial statements. Deferred revenue is shown on the consolidated balance sheetsheets under the heading of “Other current“Accounts payable and accrued liabilities”. Other revenues generally consist of interest and investment income, andwhich are recognized as earned.Cash and Cash EquivalentsCash and cash equivalents consist of short-term, highly liquid investments with maturities of three months or less, other than pooled investment vehicles that are considered investments.InvestmentsClass A shares of Teton Advisors, Inc. (“Teton shares”), which we sold during 2012, were classified as available for sale. The Teton shares were carried at quoted market value with a 25% discount for lack of marketability. Unrealized gains and losses on the Teton shares were recorded through other comprehensive income. All other marketable securities are classified as trading securities and 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. We measure realized gains and losses on investments using the specific identification method.Fair Value of Financial InstrumentsWe determined the estimated fair values of our financial instruments using available information. The fair value amounts discussed in Notes 4 and 5 are not necessarily indicative of either the amounts realizable 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 of 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, money market funds, Westwood FundsTM mutual funds and Westwood Trust common trust fund shares, equals fair value based on prices quoted in active markets and, with respect to funds, the reported net asset value of the shares held. Market values of our money market holdings generally do not fluctuate.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation. Depreciation of furniture and equipment is provided over the estimated useful lives of the assets (from 3 to 11 years), and depreciation on leasehold improvements is provided over the lease term using the straight-line method. We capitalize leasehold improvements, furniture and fixtures, computer hardware and most office equipment purchases.Goodwill and Other Intangible AssetsGoodwill 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.We perform our annual impairment assessment as of July 1 of each year and would perform a reassessment if circumstances indicated a potential impairment between our annual assessment dates. No impairments have been recorded. We assess the fair value of our business units in connection with goodwill using a market multiple approach. We updated our assessment at the end of 2012 and determined that no events occurred in the last half of 2012 that indicated that these assets should be retested for impairment.Our intangible assets represent fair value as of the acquisition date of the acquired customer accounts, mutual fund assets, trade names and non-compete agreements 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. See Note 6.WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Income TaxesWe file a United States Federal income tax return as a consolidated group for Westwood and its subsidiaries based in the US. We file a Canadian income tax return for Westwood International Advisors Inc. Deferred income tax assets and liabilities are determined based on temporary 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 deferred tax assets and liabilities. Deferred taxes relate primarily to stock-based compensation expense and net operating losses at Westwood International Advisors Inc.We would record a valuation, when necessary, to reduce deferred tax assets to an amount that more likely than not will be realized. No valuation allowance has been recorded in our financial statements.Accounting DevelopmentsIn May 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding the definition and requirements for the measurement of and disclosure about fair value. The new guidance results in a consistent definition of fair value and common requirements for the measurement and disclosure of fair value between U.S. GAAP and International Financial Reporting Standards. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance in these financial statements. It did not have a material effect on our consolidated financial statements.In June 2011, the FASB issued new guidance regarding the presentation of comprehensive income. Under this new guidance, an entity must present the components of net income and comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the option to present other comprehensive income in the statement of shareholders’ equity. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance in our financial statements for the year ending December 31, 2011. It did not have a material effect on our consolidated financial statements.In September 2011, the FASB issued new guidance regarding the testing of goodwill for impairment. This new guidance allows entities to perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value in order to determine if quantitative testing is required. This qualitative assessment is optional and is intended to reduce the cost and complexity of annual goodwill impairment tests. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is allowed provided the entity has not yet performed its 2011 impairment test or issued its financial statements. This guidance will not have a material effect on our consolidated financial statements.Currency TranslationAssets and liabilities of our non-U.S. dollar functional currency subsidiary are translated at exchange rates as of the applicable reporting dates. Revenues and expenses are translated at average exchange rates during the periods indicated. The gains and losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are recorded through other comprehensive income.Long-term Compensation AgreementsWe entered into long-term compensation agreements with certain key employees of Westwood International. These agreements stipulate that cash sign on bonuses paid to these employees can be earned over multi-year periods. In certain circumstances, these payments will be forfeited to us if the employment of these individuals is terminated before completion of the contractual earning period. Obligations accrued under these agreements are included in “Compensation and benefits payable” on our Consolidated Balance Sheet.WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Accounting Standards Codification (“ASC”) No.ASC 718, Compensation-Stock Compensation (“ASC 718”). Under ASC 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. TheWe expense the fair value of stock-based compensation cost recordedawards granted to our employees and directors in our consolidated financial statements on a straight-line basis over the period that services are required to be provided in exchange for thesethe award (“requisite service period”), which is typically the period over which the award vests. Stock-based compensation is recognized only for awards that vest, and our periodic accrual of compensation cost is based on their grant-datethe estimated number of awards expected to vest. We measure the fair value asof compensation cost related to restricted stock awards based on the closing market price of our common stock on the grant date. For performance-based share awards, we assess actual performance versus the predetermined performance goals and record compensation expense once we conclude it is probable that we will meet the performance goals required by ASC 718. 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, the 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.are in excess ofexceed the expense previously recognized for reporting purposes are recorded in stockholder’s equity and reflected as a financing activity in our Consolidated StatementStatements of Cash Flows. If the tax benefit upon vesting is less than the expense previously recorded, the shortfall is recorded in stockholder’s equity. If the shortfall exceeds available windfall benefits in equity, they are recorded in our Consolidated StatementStatements of Comprehensive Income and as an operating activity on our Consolidated StatementStatements of Cash Flows.3. ACCOUNTS RECEIVABLE:majoritygains and losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are recorded through other comprehensive income.our accounts receivable balances consistassets and liabilities as measured at enacted income tax rates. Deferred income tax expense is generally the result of advisorychanges in deferred tax assets and trust fees receivable from customersliabilities. Deferred taxes relate primarily to incentive compensation and stock-based compensation expense.experiencedan adjustment to provisional amounts previously recognized during a later measurement period. Changes in provisional amounts recorded for acquired assets and liabilities are to be fully collectable. Accordinglyadjusted in the period the adjustment is known, with a corresponding adjustment booked to goodwill. The acquirer is no longer required to revise comparative information from prior years for the effect of changes in provisional amounts. For public business entities, the amendment is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption permitted. We have elected to early adopt this amendment in the current fiscal year. This amendment may impact our financial statements do not include an allowance for bad debt or any bad debt expense.Somedisclosure of our directors, executive officersthe Woodway acquisition, should we adjust the fair value of the acquired assets and their affiliates invest their personal funds directly in trust accounts that we manage. There were no amounts due from these accounts as ofliabilities during the year ended December 31, 20122016.2011.further align the presentation of deferred taxes with IFRS. The amendment requires that deferred tax assets and liabilities be classified as noncurrent in the classified balance sheet, where before they were required to be classified as current and noncurrent based on their nature. This amendment applies to all entities with deferred taxes. The amendment may be applied prospectively or retrospectively. For public business entities, the amendment is affective for interim periods and fiscal years 2012, 2011beginning after December 31, 2016, with early adoption permitted. We have elected to prospectively early adopt this amendment in the current fiscal year, and 2010, we recorded trust fees from these accounts of $314,000, $429,000 and $442,000, respectively.4. INVESTMENTS: and. All investments are carried at fair value. Our investment in Teton shares, which we sold in 2012 for a gain of $1.9 million, were accounted for as available for sale securities. All othervalue, and all investments are accounted for as trading securities. Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value $ 42,588 $ 1 $ — $ 42,589 1,856 — — 1,856 4,401 519 — 4,920 10,468 73 — 10,541 $ 59,313 $ 593 $ — $ 59,906 Cost December 31, 2015: U.S. Government and Government agency obligations $ 50,972 $ 15 $ (15 ) $ 50,972 Money market funds 9,179 — — 9,179 Equity funds 12,653 — (484 ) 12,169 Marketable securities $ 72,804 $ 15 $ (499 ) $ 72,320 Cost December 31, 2014: U.S. Government and Government agency obligations $ 66,761 $ 20 $ (8 ) $ 66,773 Money market funds 8,250 — — 8,250 Equity funds 4,477 223 (103 ) 4,597 Marketable securities $ 79,488 $ 243 $ (111 ) $ 79,620 Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value $ 35,499 $ 8 $ — $ 35,507 11,458 — — 11,458 — 2,999 — 2,999 3,161 248 (9 ) 3,400 1,503 1 — 1,504 $ 51,621 $ 3,256 $ (9 ) $ 54,868 statement under the heading “Other revenues” for the years indicated (in thousands): 2012 2011 2010 $ 2,467 $ 407 $ 104 (13 ) (182 ) (3 ) 2,454 225 101 891 82 37 27 61 104 — — — 514 221 189 344 (291 ) 694 2015 2014 2013 Realized gains $ 283 $ 156 $ 629 Realized losses (43 ) (50 ) (4 ) Net realized gains $ 240 $ 106 $ 625 Income tax expense from gains $ 84 $ 37 $ 225 Interest income – trading $ 143 $ 51 $ 28 Dividend income $ 284 $ 212 $ 541 Unrealized gains/(losses) $ (613 ) $ 75 $ (325 ) 5.As of December 31, 2015, corporate funds totaling $8.7 million were invested in the Westwood Funds® and Westwood Common Trust Funds and corporate funds aggregating $2.0 million were invested in a UCITS fund. See Note 11 "Variable Interest Entities".INSTRUMENTSNo. 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value as follows: and Level 1 Level 2 Level 3 Total $ 55,389 $ 4,517 $ — $ 59,906 $ 55,389 $ 4,517 $ — $ 59,906 $ 50,592 $ 1,277 $ — $ 51,869 — — 2,999 2,999 $ 50,592 $ 1,277 $ 2,999 $ 54,868 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Level 1 Level 2 Level 3 Total As of December 31, 2015 Investments in trading securities $ 69,260 $ 3,060 $ — $ 72,320 Contingent consideration — — (9,023 ) (9,023 ) $ 69,260 $ 3,060 $ (9,023 ) $ 63,297 As of December 31, 2014 Investments in trading securities $ 77,327 $ 2,293 $ — $ 79,620 $ 77,327 $ 2,293 $ — $ 79,620 a common trust fundfunds sponsored by Westwood Trust. Common trust funds are private investment vehicles comprised of commingled investments held in trusts that are valued using the Net Asset Value (“NAV”) calculated by us as administrator of the funds. The NAV is quoted on a private market that is not active; however,calculated using indirectly observed inputs, as the unit price is based on the market value of the underlying investments that are traded on an active market.sold allcan make withdrawals from the common trust funds on a daily basis, as needed for liquidity, and there are no restrictions on redemption as of our 200,000 Class A shares of Teton Advisors, Inc. in 2012. Prior to disposition, we usedDecember 31, 2015.determine theirthe initial measurement of the contingent consideration, changes in the fair value. value of the contingent consideration are recorded in Other revenues, net on the consolidated statements of comprehensive income. During the fourth quarter of 2015, the Company revised its estimate of the acquisition date Earn-Out Amount to $9.0 million and recorded $78,600 in other revenues.presents information regarding this investment. For the years ended Investments in available-for-sale securities (in thousands) 2012 2011 $ 2,999 $ 1,425 (1,900 ) (1,099 ) 1,574 $ — $ 2,999 6.represents the range of the unobservable inputs utilized in the fair value measurement of the contingent consideration classified as level 3:Valuation Technique Unobservable Input Range Weighted Average Rate Discounted Cash Flow Discount rate 6.0 % 6.0% AUM growth rate (7.5)% to 8.1% 0.9 % Contingent Consideration Beginning balance, December 31, 2014 $ — Acquisition of Woodway 9,102 Change in carrying value (79 ) Cash payments — Equity payments — Ending balance, December 31, 2015 $ 9,023 ASSETSOn November 18, 2010, we acquiredASSETS:businessacquisition of Woodway on April 1, 2015. The total Merger consideration consisted of (i) $30.6 million in cash and all related assets of McCarthy Group Advisors, L.L.C. (“McCarthy”), a Nebraska limited liability companystock, as described below, and registered investment advisor based in Omaha, Nebraska. The McCarthy business, now referred(ii) contingent consideration equal to as Westwood Trust-Omaha, was initially added to our Advisory segment. However, since then a significant portion of client assets have transitioned to Trust segment products and we expect this to continue. In addition, new client assets added by the Omaha office are generally invested in Trust segment products. This acquisition was made in order to increase assets in our private wealth and Westwood Trust operating units, increaseannualized revenue from the Westwood Funds throughpost-closing business of Woodway for the reorganizationtwelve-month period ending March 31, 2016 (the “Earn-Out Period”), adjusted for certain clients or accounts that have terminated, and capped at $15 million (the “Earn-Out Amount”). The Earn-Out Amount will be paid 54.84% in cash and 45.16% in shares of Westwood’s common stock, valued using the average closing price during the last 30 calendar days of the McCarthy Multi-Cap Stock FundEarn-Out Period. In relation to the Merger, Westwood entered into employment agreements with certain Woodway employees, which, among other things, provided for specified compensation and benefits for the Westwood Dividend Growth Fund, which was completedrelated employees.February 2011,cash and expand the Westwood Trust platform.At closing, we paid consideration totaling $12.0 million, comprisedissuance of 181,461109,712 shares of Westwood Holdings Group, Inc. common stock, valued at $5.3 million (discounted from $6.7 million due to certain required holding periods), and $5.0(ii) contingent consideration of $9.1 million, based on estimates and assumptions on the closing date of the acquisition, to be paid no later than 75 calendar days after the last day of the Earn-Out Period. The estimated fair value of the Earn-Out Amount was determined by using overall revenue growth projections combined with existing customer base lost revenue projections, both discounted and probability-weighted. The fair value measurement of the Earn-Out Amount was based primarily on significant inputs not observable in cash. Relatedthe market and thus represents a level 3 measurement as defined in ASC 820. See further discussion in Note 4 "Fair Value of Financial Instruments."this acquisition, we recorded goodwill of $7.4 million,the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of $4.2the acquisition date. As of December 31, 2015, consideration of $39.7 million and net working capital and property and equipmenthas been allocated using Woodway’s historical balance sheet at March 31, 2015 based on valuations of $0.4 million, which is detailed byacquired assets and assumed liabilities in a table below. connection with the acquisition.intangible assets purchased were primarily McCarthy’s customer accounts but also included allocations to trade-name and non-compete agreements, which together comprised approximately 7%allocation of the allocated purchase price. Pro forma resultsprice is as follows (in thousands):Cash and cash equivalents $ 1,205 Accounts receivable 936 Other current assets 253 15,889 21,334 Property and equipment 197 Accounts payable and accrued liabilities (61 ) Income tax payable (20 ) Purchase price $ 39,733 (i) The excess of the purchase price over the fair value amounts assigned to assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. (ii) The fair value of the acquired identifiable intangibles consists of the following (in thousands, except useful lives): Intangible Asset Fair Value Estimated Useful Lives Client relationships $ 20,391 15 years Non-compete agreements 257 3 years Trade name 686 5 years operations have not been presented because the resultsacquisition, the Company believed that its enhanced market position and future growth potential were the primary factors that contributed to a total purchase price that resulted in the recognition of operationsgoodwill. As of December 31, 2015, $6.8 million of the goodwill arising from the acquisition is expected to be deductible for tax purposes.2010, 20092015 and 2008,2014, respectively.McCarthy’s operations,$1.1 million of transaction costs. This unaudited pro forma information should not be relied upon as being necessarily indicative of the historical results that would not have been materially different from those reportedobtained if the Merger had actually occurred on that date, nor of the results that may be obtained in our Consolidated Statement of Income.The following tables present the assets and liabilities we acquired from McCarthy: Amount
($ thousands) $ 6,875 491 $ 7,366 $ 3,965 234 24 $ 4,223 Year Ended December 31, (in thousands) 2015 2014 Total revenues $ 133,628 $ 123,729 Net income $ 28,080 $ 29,429 Amount
($ thousands) $ 1,008 370 88 76 (753 ) (296 ) (101 ) $ 392 On November 16, 2009, we acquiredbusiness and substantially all the related assets of Baxter Financial Corporation related to its managementexcess of the Philadelphia Fund. In connection with thiscost of acquired assets over the fair value of the underlying identifiable assets at the date of acquisition. Changes in goodwill are as follows (in thousands): As of December 31, 2015 2014 Beginning balance $ 11,255 $ 11,255 15,889 — Ending balance $ 27,144 $ 11,255 Philadelphia Fund was reorganized into the Westwood LargeCap Value Fund. On November 21, 2011, we paid cash for the final deferred payment in the amount of $867,000.The goodwill we acquiredTrust segment.does provide a tax deduction. The changes inis tested for impairment at least annually. We completed our annual goodwill forimpairment assessment during the last two yearsthird quarter of 2015 and determined that no impairment loss was required. No impairments were as follows (in thousands): 2012 2011 $ 11,255 $ 11,281 — (26 ) $ 11,255 $ 11,255 20122015 and 20112014 (in thousands, except years): Weighted
Average
Amortization
Period
(years) Gross
Carrying
Amount Accumu-
lated
Amortiz-
ation Net
Carrying
Amount 14.2 $ 5,005 $ (857 ) $ 4,148 2.0 256 (256 ) — 2.3 26 (25 ) 1 $ 5,287 $ (1,138 ) $ 4,149 14.2 $ 5,005 $ (498 ) $ 4,507 2.0 256 (153 ) 103 2.3 26 (15 ) 11 $ 5,287 $ (666 ) $ 4,621 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2015 Client relationships 14.8 $ 25,396 $ (2,954 ) $ 22,442 Trade names 4.2 942 (358 ) 584 Non-compete agreements 2.9 283 (91 ) 192 Internally developed software 7.0 136 — 136 $ 26,757 $ (3,403 ) $ 23,354 2014 Client relationships 14.2 $ 5,005 $ (1,575 ) $ 3,430 Trade names 2.0 256 (256 ) — Non-compete agreements 2.3 26 (26 ) — $ 5,287 $ (1,857 ) $ 3,430 Consolidated Statementconsolidated statements of Income,comprehensive income, was $472,000, $498,000$1.5 million, $359,000 and $155,000$359,000 for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively.the intangible assets forover the next five years is as follows (in thousands): Estimated
Amortization
Expense $ 359 359 359 359 359 7. For the year ending December 31, 2016 $ 1,960 2017 1,960 2018 1,896 2019 1,875 2020 1,760 20122015 and 2011. As of December 31, 2012 2011 $ 1,321 $ 1,410 1,450 1,364 1,121 1,112 (1,747 ) (1,647 ) $ 2,145 $ 2,239 As of December 31, 2015 2014 Leasehold improvements $ 1,728 $ 2,274 Furniture and fixtures 1,804 1,516 Computer hardware and office equipment 2,116 1,563 Construction in progress 231 — Accumulated depreciation (3,687 ) (2,720 ) Net property and equipment $ 2,192 $ 2,633 Incomeincomeloss were as follows (in millions)thousands): As of December 31, 2012 2011 $ 30 $ — — 1,940 $ 30 $ 1,940 8. As of December 31, 2015 2014 Foreign currency translation adjustment, net of tax of $102 and $127 $ (4,688 ) $ (1,231 ) Accumulated other comprehensive loss $ (4,688 ) $ (1,231 ) follows: Years ended December 31, 2012 2011 2010 $ 26,850 $ 23,109 $ 17,721 (6,824 ) — — $ 20,026 $ 23,109 $ 17,721 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2015 2014 2013 United States $ 27,324 $ 36,104 $ 30,799 Canada 14,896 5,932 (2,614 ) Total $ 42,220 $ 42,036 $ 28,185 USU.S. Federal corporate tax rate of 35% to income before income taxes. Years ended December 31, 2012 2011 2010 $ 7,009 $ 8,088 $ 6,202 580 — — 305 353 295 42 (18 ) (56 ) $ 7,936 $ 8,423 $ 6,441 39.6 % 36.4 % 36.3 % Years ended December 31, 2015 2014 2013 Income tax provision computed at US federal statutory rate $ 14,777 35.0 % $ 14,712 35.0 % $ 9,864 35.0 % Canadian rate differential (1,287 ) (3.0 ) (520 ) (1.2 ) 222 0.7 Change in uncertain tax positions, net of federal benefit 1,059 2.5 — — — — State and local income taxes, net of federal benefit 465 1.1 442 1.1 386 1.4 Other, net 101 0.2 153 0.3 (124 ) (0.4 ) Total income tax expense $ 15,115 35.8 % $ 14,787 35.2 % $ 10,348 36.7 % Effective income tax rate 35.8 % 35.2 % 36.7 % “Provision for income taxes”“General and administrative” line on our income statement.consolidated statements of comprehensive income. We recorded $119,000 and $16,000 of penalties and interest of $0, $135in 2015 and $13,2122014, respectively. There were no penalties and interest in 2012, 2011 and 2010, respectively. Years ended December 31, 2012 2011 2010 $ 9,280 $ 7,944 $ 6,341 473 546 450 9,753 8,490 6,791 (2 ) (2 ) 3 (4 ) (65 ) (353 ) (1,811 ) — — (1,817 ) (67 ) (350 ) $ 7,936 $ 8,423 $ 6,441 Years ended December 31, 2015 2014 2013 Current taxes: US Federal $ 12,015 $ 16,230 $ 10,683 State and local 2,564 690 602 Foreign 3,821 — — Total 18,400 16,920 11,285 Deferred taxes: US Federal (3,331 ) (3,590 ) (240 ) State and local (156 ) (40 ) (5 ) Foreign 202 1,497 (692 ) Total (3,285 ) (2,133 ) (937 ) Total income tax expense $ 15,115 $ 14,787 $ 10,348 As of
December 31, 2012 2011 $ 3,903 $ 3,647 1,818 — 173 182 19 74 5,913 3,903 2012 2011 (391 ) (445 ) (253 ) (138 ) (211 ) (1,147 ) (855 ) (1,730 ) $ 5,058 $ 2,173 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of December 31, 2015 2014 Deferred tax assets: Share-based compensation expense $ 6,258 $ 5,210 Net operating loss — 166 Deferred rent 51 186 Compensation and benefits payable 5,222 3,280 Federal unrecognized tax benefit 607 — Other 166 112 Total deferred tax assets 12,304 8,954 Deferred tax liabilities: Property and equipment (233 ) (334 ) Intangibles (959 ) (645 ) Unrealized gains on investments (70 ) (123 ) Total deferred tax liabilities (1,262 ) (1,102 ) Net deferred tax assets $ 11,042 $ 7,852 December 31, 2012 2011 $ 3,362 $ 3,142 2,552 761 (856 ) (1,730 ) 1,696 (969 ) $ 5,058 $ 2,173 As of December 31, 2015 2014 $ — $ 6,268 — (2,208 ) — 4,060 Net non-current deferred tax assets 12,304 4,782 Net non-current deferred tax liabilities (1,262 ) (990 ) Net non-current deferred tax assets reflected on the balance sheets 11,042 3,792 Total net deferred tax assets $ 11,042 $ 7,852 we have Canadian net operating loss carry forwards of $1.8 million that are subject to limitation. These net operating loss carryforwards begin to expire in 2032. We believe that it is more likely than not that we will realize the benefit of our deferred2013 and 2014 tax assets. 2009 through 2011years are open for examination by the Internal Revenue Service, and various state and foreign jurisdiction tax years for federal income taxes.remain open to examination. We are not currently under audit by any taxing jurisdiction.9.Balance at January 1, 2015 $ — Additions for tax positions related to the current year 492 Additions for tax positions related to prior years 1,137 Balance at December 31, 2015 $ 1,629 $1.0$4.0 million. At December 31, 2012,2015, Westwood Trust had total stockholders’ equity of approximately $12.4 million, which is $11.4$8.9 million in excess of its minimum capital requirement.toof undivided profits, which is that part of equity capital equal to the balance of net profits, income, gains and losses since formation minus subsequent distributions to stockholders and transfers to surplus or capital under share dividends or appropriate Board resolutions. At the discretion of its boardBoard of directors,Directors, Westwood Trust has made quarterly and special dividend payments to us out of its undivided profits.beexceed current liabilities by at least $200,000 in excess of current liabilities.$100,000 CDN. At December 31, 20122015 Westwood International had combined cash and receivables that were $1.0$21.5 million CDN (or $15.5 million in U.S. Dollars using the exchange rate on December 31, 2015) in excess of its current liabilities, which satisfies this requirement.10. stock options and restricted shares to our employees and non-employee directors and offer 401(k) matching and profit sharing contributions to our employees.directors. 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 predecessor plans to the Plan) may not exceed 3,398,1004,398,100 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.stock. At December 31, 2012,2015, approximately 468,000678,900 shares remain available for issuance under the Plan. we recorded and the total income tax benefit recognized for stock-based compensation arrangements for the years indicated (in thousands): For the years ended
December 31, 2012 2011 2010 $ 10,515 $ 9,969 $ 9,269 4,230 3,872 3,497 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) For the years ended December 31, 2015 2014 2013 Service condition restricted stock expense $ 9,439 $ 7,580 $ 7,602 Performance-based restricted stock expense 7,403 5,718 3,842 Restricted stock expense under the Plan 16,842 13,298 11,444 Canadian Plan restricted stock expense 732 387 235 Total stock based compensation expense $ 17,574 $ 13,685 $ 11,679 Total income tax benefit recognized related to stock-based compensation $ 6,217 $ 5,764 $ 4,384 directors, which are subject to service conditions,directors. Employee shares generally vest over four years and to our Chief Executive Officer, Brian O. Casey, and certain other employees, which are subject to a service condition and performance goals.Director shares vest over one year. 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, an adjustment for restrictions on dividends 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 December 31, 2012, there was approximately $21.8 million of unrecognized compensation cost, which we expect to recognize over a weighted-average period of 2.0 years. In order to satisfy tax liabilities that employees will owe on their shares that vest, we may withhold a sufficient number of vested shares from employees on the date vesting occurs. We withheld 86,453 shares in 2012 for this purpose. Our two types of restricted stock grants are discussed below.Employee and non-employee director restricted share grantsFor the years ended December 31, 2012, 2011 and 2010, we granted restricted stock to employees and non-employee directors. The employees’ shares vest over four years and the directors’ shares vest over one year. 2012: Shares Weighted Average
Grant Date Fair
Value 561,070 $ 36.37 214,780 39.26 (206,375 ) 36.19 (9,450 ) 37.63 560,025 37.52 Restricted shares subject only to a service condition: Number of Shares Non-vested, January 1, 2015 496,457 $ 48.14 Granted 309,932 61.42 Vested (186,330 ) 41.85 Forfeited (39,590 ) 55.38 Non-vested, December 31, 2015 580,469 $ 56.76 Years ended December 31, 2012 2011 2010 $ 39.26 $ 36.64 $ 39.06 $ 8,115 $ 7,380 $ 7,026 Performance-based restricted share grants Years ended December 31, Restricted shares subject only to a service condition: 2015 2014 2013 Weighted-average grant date fair value $ 61.42 $ 58.70 $ 43.68 Fair value of shares vested (in thousands) $ 7,797 $ 7,236 $ 7,568 we grantedcertain key employees were provided agreements for grants of restricted shares to our Chief Executive Officer, Brian O. Casey, and certain other employees, that vest over five years, provideda five-year period subject to achieving annual performance goals established by the Compensation Committee of Westwood’s boardBoard of directors are met. For the year ended December 31, 2012, the officers became vested in the applicable percentage of their restricted shares since Westwood’s adjusted pre-tax income, as defined, for 2012 was at least $26,661,000, representing a compound annual growth rate of 7% over the adjusted pre-tax income for the year 2007.Directors. Each year the Compensation Committee establishes a specific goal for that year’s vesting of the restricted shares, which historically ishas been based upon Westwood’s adjusted pre-tax income, as defined. If the performance goal is not met in any year during the vesting period,The date that the Compensation Committee may establish aestablishes the annual goal for a subsequent vesting period, which, if achieved or exceeded, may result in full or partial vesting ofis considered to be the grant date and the fair value measurement date to determine expense on the shares that did not otherwise become vested in a prior year. In no event, under the current grants, will the maximum number of shares which may become vested over theare likely to vest. The vesting period exceed 175,000 shares inends when the caseCompensation Committee formally approves the performance-based restricted stock vesting based on the final calculation of our Chief Executive Officer or 200,000 shares inadjusted pre-tax income as derived from the case of certain other employees.Company’s audited financial statements. If a portion of the performance-based restricted shares dodoes not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to shares that do not vest is reversed. In March 2015, the Compensation Committee established the 2015 goal as adjusted pre-tax income of at least $46 million, representing a five-year compound annual growth rate of 10% over annual adjusted pre-tax income recorded in 2009. Adjusted pre-tax income is determined based on our audited financial statements and is equal to income before income taxes increased by expenses incurred for the year for (i) incentive compensation for all officers and employees, (ii) performance-based restricted stock awards, and (iii) mutual fund share incentive awards, excluding start-up, non-recurring, and similar expense items, at the Committee’s discretion. In the first quarter of 2015, we concluded that it was probable that we would be reversed.Restricted shares subject to service and performance conditions: Number of Shares Non-vested, January 1, 2015 101,313 $ 58.59 Granted 101,313 61.29 Vested (101,313 ) 58.59 Forfeited — — Non-vested, December 31, 2015 101,313 $ 61.29 Shares Weighted Average
Grant Date Fair
Value 105,000 $ 39.90 200,000 39.31 (75,000 ) 39.59 — — 230,000 $ 39.49 Years ended December 31, 2012 2011 2010 $ 39.31 $ — $ 39.90 $ 3,068 $ 3,107 $ 3,397 Because Years ended December 31, Restricted shares subject to service and performance conditions: 2015 2014 2013 Weighted-average grant date fair value $ 61.29 $ 58.59 $ 44.55 Fair value of shares vested (in thousands) $ 5,936 $ 4,143 $ 2,948 goal was met in 2012,goals for those years have not been set by the shares are vested in substance but require certification by our Compensation Committee at which timeand therefore no grant date has been established.for tax purposes. As a result, we estimate thatrecord expense based on the total fairexpected value of the award. After the award is earned, we record expense based on the value of the shares awarded and the percentage of the vesting period that vested in 2012 was approximately $3,068,000has transpired. Our liability under these awards may increase or decrease based on a share price of $40.90,changes in the closing price of our stock asvalue of the last business day of 2012.Stock OptionsOptions granted undermutual fund shares awarded, including reinvested income from the Plan had a maximum ten-year term and vested over a period of four years. Options exercised represent newly issued shares. There are no options currently outstanding or exercisable. A summarymutual funds during the vesting period. Upon vesting, participants receive the value of the statusmutual fund share awards adjusted for earnings or losses attributable to the underlying mutual funds. For the years ended December 31, 2015, 2014, and 2013, we recorded expense of Westwood’s outstanding stock options as$1.2 million, $863,000 and $1.8 million, respectively, related to mutual fund share incentive awards. As of December 31, 2012, 20112015 and 2010 is presented below. December 31, 2012 December 31, 2011 December 31, 2010 Underlying
Shares Weighted
Average
Exercise
Price Underlying
Shares Weighted
Average
Exercise
Price Underlying
Shares Weighted
Average
Exercise
Price 16,250 $ 12.90 38,400 $ 12.90 54,900 $ 12.90 — — — — — — (16,250 ) 12.90 (22,150 ) 12.90 (16,500 ) 12.90 — — — — — — — — 16,250 12.90 38,400 12.90 $ — $ 384,000 $ 1,039,000 The following table displays information for Westwood stock options exercised for the periods presented (in thousands): For the years ended 2012 2011 2010 $ 364 $ 542 $ 425 210 287 213 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Westwood Holdings Group, Inc. Savings Planprofit sharingprofit-sharing plan that was adopted in July 2002 and covers substantially all of our U.S. employees. Discretionary employer profit sharingprofit-sharing contributions become fully vested after six years of service by the participant. For the 401(k) portion of the plan, Westwood providedprovides a match of up to 6% of eligible compensation. These 401(k) matching contributions vest immediately.profit sharingprofit-sharing and 401(k) contributions for the periods presented (in thousands): Years ended December 31, 2012 2011 2010 $ 749 $ 582 $ 477 809 707 679 11. Years ended December 31, 2015 2014 2013 Profit-sharing contributions $ 965 $ 816 $ 674 401(k) matching contributions 1,319 928 871 and common stock equivalents. Common stock equivalents are comprisedplus the effect of any dilutive potential shares of restricted stock granted to employees and stock options awardsnon-employee directors. There were 323 and contingently issuable shares.Under ASC No. 620, Earnings Per Share (“ASC 620”), shares of unvested5,993 anti-dilutive restricted stock that contain non-forfeitable rights to dividends are treated as participating securities, which requires allocating a portion of net income to those shares as if they were a separate class of stock, which reduces net income available to common stockholders. Prior to the third quarter 2010, shares of unvested restricted stock contained non-forfeitable rights to dividendsDecember 31, 2015 and accordingly, were participating securities. In the third quarter of 2010, the Plan was modified such that dividends on unvested restricted shares no longer contain non-forfeitable rights to dividends, which removed the requirements to treat such shares as a separate class of stock and to allocate a portion of net income to such shares for the third quarter of 2010 and future periods.2014, respectively. There were no anti-dilutive restricted shares or options as of December 31, 2012, 2011 or 2010. 2013. Years ended December 31, 2012 2011 2010 $ 12,090 $ 14,686 $ 11,280 — — (576 ) $ 12,090 $ 14,686 $ 10,704 7,145,701 6,970,382 6,606,281 189,269 204,957 121,110 — 17,607 46,610 3,134 15,569 21,350 7,338,104 7,208,515 6,795,351 $ 1.69 $ 2.11 $ 1.62 $ 1.65 $ 2.04 $ 1.58 12. Years ended December 31, 2015 2014 2013 Net income $ 27,105 $ 27,249 $ 17,837 Weighted average shares outstanding – basic 7,756,647 7,512,348 7,331,874 Dilutive potential shares from unvested restricted shares 350,755 394,197 360,882 Dilutive potential shares from contingent consideration 41,997 — — Weighted average shares outstanding – diluted 8,149,399 7,906,545 7,692,756 Earnings per share: Basic $ 3.49 $ 3.63 $ 2.43 Diluted $ 3.33 $ 3.45 $ 2.32 ENTITIESFundsTMFunds®, a family of mutual funds, and to two collective investment trusts (“CITs”). Some clients of Westwood Management acquired in the McCarthy acquisition hold their investments in ten LLCs that were formed and sponsored byWESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)McCarthy.limited liability companies (“LLCs”). The CTFs, Westwood FundsTMFunds®, CITs and LLCs (“Westwood VIEs”) are considered VIEs because our clients, who hold the equity at risk, do not have direct or indirect ability through voting or similar rights to make decisions about the funds that may have a significant effect on their success.economic performance. We receive fees for managing assets in these entities commensurate with market rates.returns.returns or both. Since all losses and returns are distributed to the shareholders of the Westwood VIEs, we are not the primary beneficiary and consequently, the Westwood VIEs are not consolidated into our financial statements.WeFundsTMFunds®, the UCITS Fund, and the CTFs are accounted for as investments in accordance with our other investments described in Note. 4.Note 3 "Investments". We recognized fee revenue from the Westwood VIEs of approximately $30.3$56.4 million, $26.8$48.2 million and $18.0$36.2 million for the twelve months ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively.. As of December 31, 2012 Assets
Under
Management Corporate
Investment Risk
of
Loss $ 1,603 $ 10.9 $ 10.9 2,091 4.5 4.5 366 — — 255 — — As of December 31, 2015 Amount at Risk VIEs: Westwood Funds® $ 3,617 $ 6 $ 6 Common Trust Funds 2,885 3 3 Collective Investment Trusts 284 — — LLCs 133 — — UCITS Fund 615 2 2 All other assets: Private Wealth 2,375 Institutional 10,853 Total AUM $ 20,762 agreements.agreements with expiration dates that run through 2026. Rental expense for facilities and equipment leases for years ended December 31, 2012, 20112015, 2014 and 20102013 aggregated approximately $1,258,000, $979,000$2.0 million, $1.5 million and $682,000,$1.6 million, respectively, and is included in general and administrative and information technology expenses in the accompanying consolidated statements of comprehensive income.2012,2015, the future contractual rental payments for non-cancelablenoncancelable operating leases for each of the following five years and thereafter followare as follows (in thousands): $ 1,345 1,075 961 982 976 3,926 $ 9,265 Year ending: 2016 $ 2,275 2017 1,989 2018 1,812 2019 1,373 2020 1,310 Thereafter 6,800 Total payments due $ 15,559 (“AGF”(together “AGF”) filed a lawsuit in the Ontario Superior Court of Justice against Westwood, certain Westwood employees and Warren International, LLC, an executive recruiting firm Warren International, LLC.firm. The action relates to the hiring of certain members of Westwood’s global and emergingWESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)who were previously employed by AGF, including Ms. Patricia Perez-Coutts.AGF. AGF is alleging that the former employees breached certain obligations when they resigned from AGF and that Westwood and Warren induced such breaches. AGF is seeking an unspecified amount of damages and punitive damages of $10 million (CAD) in the lawsuit. On November 5, 2012, Westwood issued a response to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood is seeking $1 million (CAD) in general damages, $10 million (CAD) in special damages, $1 million (CAD) in punitive damages, and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and Ms. Perez-Coutts,an employee of a Westwood subsidiary, alleging that Ms. Perez-Couttsthe employee made defamatory statements about AGF. In this second lawsuit, AGF is seeking $5 million (CAD) in general damages, $1 million (CAD) per defendant in punitive damages, unspecified special damages, interest and costs.theour counterclaims, we are currently unable to estimate the ultimate aggregate amount of monetary gain, loss or financial impact of these actions and counterclaims. Defending these actions and pursuing these counterclaims may be expensive for us and time consuming for our personnel. While we do not currently believe these proceedings will have a material impact, adverse resolution of these actions and counterclaims could have a material adverse effect on our business, financial condition or results of operations.havereceived insurance proceeds of $714,000 and $379,000 during 2015 and 2014, respectively, and had recorded a receivable of $86,000$240,000 and $210,000 as of December 31, 2015 and 2014, respectively, which isrepresented our current minimum estimate of therelated incurred expenses incurred related to this lawsuit that we expect to recover under our insurance policies. This receivable is part of “Other current assets” on our consolidated balance sheet.We evaluateThe Company’s segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes. Our Chief Operating Decision Maker evaluates the performance of our segments based primarily on income before income taxes.fee revenues and economic earnings. Westwood Holdings Group, Inc., the parent company of Advisory and Trust, does not have revenues or employees and is the entity in which we record stock-basedtypical holding company expenses including employee compensation expense.Funds™Funds®, as well as investment subadvisory services to mutual funds and our Trust segment. Westwood Management and Westwood International, which provide investment advisory services to clients of similar type, are included in our Advisory segment.participation into our Advisory segment and sponsors common trust funds that it sponsors to institutions and high net worth individuals. Westwood Trust is included in our Trust segment.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. Advisory Trust Westwood
Holdings Eliminations Consolidated $ 62,524 $ 14,971 $ — $ — $ 77,495 5,858 16 — (5,874 ) — 539 2 — — 541 450 371 — — 821 27,413 2,631 (10,018 ) — 20,026 10,458 992 (3,514 ) — 7,936 91,619 13,657 — (8,661 ) 96,615 5,219 6,036 — — 11,255 228 36 — — 264 $ 55,450 $ 13,459 $ — $ — $ 68,909 4,624 17 — (4,641 ) — 280 2 — — 282 386 376 — — 762 31,090 1,988 (9,969 ) — 23,109 11,112 765 (3,454 ) — 8,423 76,444 14,150 3 — 90,597 5,219 6,036 — — 11,255 1,069 362 — — 1,431 $ 43,253 $ 12,060 $ — $ — $ 55,313 4,183 17 — (4,200 ) — 291 4 — — 295 307 122 — — 429 25,287 1,703 (9,269 ) — 17,721 8,931 665 (3,155 ) — 6,441 61,014 13,117 (1,503 ) — 72,628 5,245 6,036 ��� — 11,281 60 77 — — 137 (in thousands) Advisory Trust Eliminations Consolidated Year Ended December 31, 2015 Revenues: Net fee revenues from external sources $ 101,973 $ 28,795 $ — $ — $ 130,768 Net intersegment revenues 19,001 — — (19,001 ) — Net interest and dividend revenue 425 1 — — 426 Other revenue (341 ) 83 — — (258 ) Total revenues 121,058 28,879 — (19,001 ) 130,936 Expenses: Depreciation and amortization 773 1,724 99 — 2,596 Other operating expenses 63,658 25,882 15,581 (19,001 ) 86,120 Total expenses 64,431 27,606 15,680 (19,001 ) 88,716 Income (loss) before income taxes 56,627 1,273 (15,680 ) — 42,220 Income tax expense (benefit) 19,330 517 (4,732 ) — 15,115 Net income $ 37,297 $ 756 $ (10,948 ) $ — $ 27,105 Add: Restricted stock expense $ 11,877 $ 2,613 $ 3,084 $ — $ 17,574 Intangible amortization 161 1,385 — — 1,546 Deferred taxes on goodwill 38 233 — 271 Economic Earnings $ 49,373 $ 4,987 $ (7,864 ) $ — $ 46,496 Segment assets $ 183,004 $ 60,459 $ 8,816 $ (70,943 ) $ 181,336 Segment goodwill $ 5,219 $ 21,925 $ — $ — $ 27,144 Expenditures for long-lived assets $ 369 $ 180 $ 267 $ 815 Year Ended December 31, 2014 Revenues: Net fee revenues from external sources $ 92,279 $ 20,525 $ — $ — $ 112,804 Net intersegment revenues 13,527 — — (13,527 ) — Net interest and dividend revenue 261 2 — — 263 Other revenue 173 1 — — 174 Total revenues 106,240 20,528 — (13,527 ) 113,241 Expenses: Depreciation and amortization 603 302 33 — 938 Other operating expenses 51,265 19,867 12,662 (13,527 ) 70,267 Total expenses 51,868 20,169 12,695 (13,527 ) 71,205 Income (loss) before income taxes 54,372 359 (12,695 ) — 42,036 Income tax expense (benefit) 19,057 132 (4,402 ) — 14,787 Net income $ 35,315 $ 227 $ (8,293 ) $ — $ 27,249 Add: Restricted stock expense $ 9,074 $ 1,847 $ 2,764 $ — $ 13,685 Intangible amortization 161 198 — — 359 Deferred taxes on goodwill 38 114 — — 152 Economic Earnings $ 44,588 $ 2,386 $ (5,529 ) $ — $ 41,445 Segment assets $ 144,385 $ 18,133 $ 10,435 $ (33,079 ) $ 139,874 Segment goodwill $ 5,219 $ 6,036 $ — $ — $ 11,255 Expenditures for long-lived assets $ 226 $ 29 $ 223 $ — $ 478 Year Ended December 31, 2013 Revenues: Net fee revenues from external sources $ 72,588 $ 18,367 $ — $ — $ 90,955 Net intersegment revenues 10,402 14 — (10,416 ) — Net interest and dividend revenue 568 1 — — 569 Other revenue 301 — — — 301 Total revenues 83,859 18,382 — (10,416 ) 91,825 Expenses: Depreciation and amortization 468 301 — — 769 Other operating expenses 46,545 16,943 9,799 (10,416 ) 62,871 Total expenses 47,013 17,244 9,799 (10,416 ) 63,640 Income (loss) before income taxes 36,846 1,138 (9,799 ) — 28,185 Income tax expense (benefit) 13,738 408 (3,798 ) — 10,348 Net income $ 23,108 $ 730 $ (6,001 ) $ — $ 17,837 Add: Restricted stock expense $ 7,586 $ 1,803 $ 2,290 $ — $ 11,679 Intangible amortization 161 198 — — 359 Deferred taxes on goodwill 38 114 — — 152 Economic Earnings $ 30,893 $ 2,845 $ (3,711 ) $ — $ 30,027 Segment assets $ 114,871 $ 14,190 $ 6,354 $ (19,365 ) $ 116,050 Segment goodwill $ 5,219 $ 6,036 $ — $ — $ 11,255 Expenditures for long-lived assets $ 962 $ 239 $ — $ — $ 1,201 For the years ended December 31, 2015 2014 2013 Net Income $ 27,105 $ 27,249 $ 17,837 Add: Restricted stock expense 17,574 13,685 11,679 Add: Intangible amortization 1,546 359 359 Add: Tax benefit from goodwill amortization 271 152 152 Economic Earnings $ 46,496 $ 41,445 $ 30,027 Years ended December 31, (in thousands) 2015 2014 2013 Revenues by geographic location of client: U.S. $ 109,816 $ 94,955 $ 83,622 Canada 9,238 8,635 5,567 Europe 6,019 8,146 1,843 Asia 4,538 21 — Australia 1,325 1,484 793 Total $ 130,936 $ 113,241 $ 91,825 (in thousands) 2015 2014 Property and equipment, net, by geographic area: U.S. $ 1,806 $ 2,057 Canada 386 576 Total $ 2,192 $ 2,633 2012, 20112015, 2014 and 2010,2013, our fourten largest clients accounted for 12.6%, 14.3% and 12.2%over 20% of our fee revenue, respectively.revenue. No single customer accounted for 10% or more of our fee revenues in any of these years. Years ended December 31, (in thousands) 2012 2011 2010 $ 1,452 $ 1,772 $ 1,764 1,251 991 — 3.7 % 4.0 % 3.3 % *This client was not our largest client in 2010.WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, (in thousands) 2015 2014 2013 Advisory fees from Westwood Management’s largest client: Asset-based fees $ 2,109 $ 2,183 $ 1,729 Performance-based fees 2,206 3,806 2,561 Percent of fee revenue 3.3 % 5.3 % 4.7 % 7, 2013, we3, 2016, the Board of Directors declared a quarterly cash dividend of $0.40$0.57 per share on common stock payable on April 1, 20132016 to stockholders of record on March 15, 2013.22, 2013,23, 2016, we issued 188,124248,436 shares of restricted stock to employees. On February 22, 2013,23, 2016, shares of our stock closed at a price of $43.83$47.52 per share. The shares are subject to vesting conditions described in Note. 10Note 9 "Employee Benefits" of these consolidated financial statements.17. QUARTERLYDATA20122015 and 20112014 (in thousands, except per share amounts): Quarter First Second Third Fourth $ 17,864 $ 20,066 $ 18,941 $ 20,624 6,084 3,752 4,331 5,859 3,785 2,198 2,504 3,603 0.53 0.31 0.35 0.50 0.52 0.30 0.34 0.49 $ 17,009 $ 18,859 $ 16,048 $ 16,993 5,619 5,916 5,297 6,277 3,549 3,737 3,283 4,117 0.51 0.53 0.47 0.59 0.50 0.52 0.46 0.57 Quarter First Second Third Fourth 2015 Revenues $ 29,608 $ 37,311 $ 32,451 $ 31,566 Income before income taxes 8,378 14,752 10,502 8,588 Net income 5,610 9,795 7,013 4,687 Basic earnings per common share 0.74 1.25 0.90 0.60 Diluted earnings per common share 0.71 1.23 0.87 0.58 2014 Revenues $ 25,949 $ 30,905 $ 28,122 $ 28,265 Income before income taxes 8,613 13,356 10,592 9,475 Net income 5,562 8,591 7,118 5,978 Basic earnings per common share 0.74 1.14 0.95 0.79 Diluted earnings per common share 0.72 1.12 0.92 0.77 (1)(incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013)3.12.2 Reorganization Agreement and Agreement and Plan of Merger dated as of January 15, 2015 by and among Westwood Holdings Group, Inc., Westwood Trust, Woodway Financial Advisors, A Trust Company and the Shareholders of Woodway Financial Advisors, A Trust Company (incorporated by reference from the Form 8-K filed with the SEC on January 16, 2016) (10)(incorporated by reference from Amendment No. 2 to Registration Statement on Form 10/A filed with the SEC on April 30, 2002)3.2 (6)(incorporated by reference from the Form 8-K filed with the SEC on April 25, 2012) (3)(incorporated by reference from Amendment No. 2 to Registration Statement on Form 10/A filed with the SEC on April 30, 2002)10.1 (7)+(incorporated by reference from the Form S-8 filed with the SEC on July 1, 2009)10.2 (11)+(incorporated by reference from the Form 10-Q filed with the SEC on October 21, 2010)10.3 10.1.3+ Third Amendment to Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (incorporated by reference from the Registration Statement on Form S-8 with the SEC on April 29, 2015) (2)(incorporated by reference from Amendment No. 5 to Registration Statement on Form 10/A filed with the SEC on June 6, 2002)10.4 (4)(incorporated by reference from the Registration Statement on Form 10 filed with the SEC on February 8, 2002)10.5 (5)(incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004)10.6 (5)(incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004)10.7 (12)(incorporated by reference from the Form 10-K filed with the SEC on February 25, 2011)10.8 Twelfth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of August 17, 2012 (1)(incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013)10.3.5* Thirteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of October 9, 2014 10.9 Description of Exhibits 10.3.6* Fourteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of February 5, 2015 10.3.7* Fifteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of July 30, 2015 (4)(incorporated by reference from the Registration Statement on Form 10 filed with the SEC on February 8, 2002)10.10 (4)(incorporated by reference from the Registration Statement on Form 10 filed with the SEC on February 8, 2002)10.11 (1)(incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013)10.12 Form of Indemnification Agreement for Westwood Holdings Group, Inc. (5)+(incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004)10.13 Form of Indemnification Agreement for Westwood Management Corp. (5)+(incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004)10.14 (5)+(incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004)10.15
Executive Employment Agreement between Westwood Holdings Group, Inc. and Susan M. Byrne (8)+Mark Freeman (incorporated by reference from the Form 8-K filed with the SEC on March 12, 2014)10.16
10.11.1+First Amendment to Executive Employment Agreement dated as of April 2, 2015 between the Company and Brain O. Casey (incorporated by reference from the Form 8-K filed with the SEC on April 2, 2015)
10.12+ Executive Employment Agreement between Westwood Holdings Group, Inc. and Brian O. Casey (9)+(incorporated by reference from the Form 8-K filed with the SEC on December 18, 2015)10.17 Executive Employment Agreement between Westwood Holdings Group, Inc. and Mark Freeman (13)+10.18(9)+(incorporated by reference from the Form 8-K filed with the SEC on April 23, 2010)10.19
10.14+
Restricted Stock Agreement between Westwood Holdings Group, Inc. and Brian O. Casey (incorporated by reference from the Form 8-K filed with the SEC on April 2, 2015)
10.15+February 7, 2012 (13)+March 19, 2013 (incorporated by reference from the Form 8-K filed with the SEC on March 12, 2014)10.20
10.16+ January 14, 2013 (1)+March 7, 2014 (incorporated by reference from the Form 8-K filed with the SEC on March 12, 2014)
10.17+10.18+ Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (incorporated by reference from the Registration Statement on Form S-8 filed with the SEC on April 18, 2012) 10.19+ Consulting Agreement, dated as of March 17, 2015, between Westwood Holdings Group, Inc. and Susan Byrne (incorporated by reference from the Form 10-Q filed with the SEC on July 29, 2015) 16.1 Letter from Grant Thornton LLP, dated October 8, 2015 (incorporated by reference from the Form 8-K filed with the SEC on October 8, 2015) 10.21 ScheduleDescription of Director Compensation (1)Exhibits
21.1
Subsidiaries (1)(incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013)23.1
23.1*
Consent of Deloitte & Touche LLP
23.2*
Consent of Grant Thornton (1)LLP24.1
24.1*
Power of Attorney (included on first signature page) (1)31.1
31.1*
Certification of the Chief Executive Officer of Westwood required by Section 302 of the Sarbanes-Oxley Act of 2002 (1)31.2
31.2*
Certification of the Chief Financial Officer of Westwood required by Section 302 of the Sarbanes-Oxley Act of 2002 (1)32.1
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 (1)#32.2
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 (1)#
101.INS*
XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document(1)Filed herewith.(2)Incorporated by reference from Amendment No. 5 to Registration Statement on Form 10/A filed with the Securities and Exchange Commission on June 6, 2002.(3)Incorporated by reference from Amendment No. 2 to Registration Statement on Form 10/A filed with the Securities and Exchange Commission on April 30, 2002.(4)Incorporated by reference from the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 8, 2002.(5)Incorporated by reference from Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2003.(6)Incorporated by reference from Form 8-K filed with the Securities and Exchange Commission on April 25, 2012.(7)Incorporated by reference from Form S-8 filed with the Securities and Exchange Commission on July 1, 2009.(8)Incorporated by reference from Form 8-K filed with the Securities and Exchange Commission on July 28, 2006.(9)Incorporated by reference from Form 8-K filed with the Securities and Exchange Commission on April 23, 2010.(10)Incorporated by reference from Form 8-K filed with the Securities and Exchange Commission on May 7, 2008.(11)Incorporated by reference from Form 10-Q filed with the Securities and Exchange Commission on October 21, 2010.(12)Incorporated by reference from Form 10-K filed with the Securities and Exchange Commission for fiscal year ended December 31, 2010.(13)Incorporated by reference from Form 8-K filed with the Securities and Exchange Commission on February 10, 2012.+ Indicates management contract or compensation plan, contract or arrangement. # Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are furnished rather than filed with this Report.