SECURITIES AND EXCHANGE COMMISSION ____. (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) Current Assets: Cash and cash equivalents Accounts receivable Investments, at market value Deferred income taxes Other current assets Total current assets Goodwill Deferred income taxes Property and equipment, net of accumulated depreciation of $1,059 and $1,002 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 rent Total liabilities Stockholders’ Equity: Common stock, $0.01 par value, authorized 10,000,000 shares, issued 7,024,127 and outstanding 6,968,708 shares at March 31, 2008; issued 6,840,327 and outstanding 6,807,408 shares at December 31, 2007 Additional paid-in capital Treasury stock, at cost—55,419 shares at March 31, 2008; 32,919 shares at December 31, 2007 Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity REVENUES: Advisory fees—asset based Trust fees Other revenues, net Total revenues EXPENSES: Employee compensation and benefits Sales and marketing WHG mutual funds Information technology Professional services General and administrative Total expenses Income before income taxes Provision for income taxes Net income Earnings per share: Basic Diluted BALANCE, January 1, 2008 Net income Issuance of restricted stock Dividends declared ($0.30 per share) Restricted stock amortization Tax benefit related to equity compensation Purchase of treasury stock BALANCE, March 31, 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Unrealized (gains) and losses on investments Restricted stock amortization Deferred income taxes Excess tax benefits from stock-based compensation Net purchases of investments—trading securities Change in operating assets and liabilities: Accounts receivable Other current assets Accounts payable and accrued liabilities Compensation and benefits payable Income taxes payable Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of money market funds—available for sale Sales of money market funds—available for sale Purchase of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock Excess tax benefits from stock-based compensation Proceeds from exercise of stock options Cash dividends Net cash used in financing activities NET INCREASE IN CASH Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental cash flow information: Cash paid during the period for income taxes Issuance and (cancellation) of restricted stock Tax benefit allocated directly to equity AUM. A limited number of our clients have a performance-based fee component in their contract, which would pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance 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 most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in these financial statements. Deferred revenue is shown on the balance sheet under the heading of “Other current liabilities”. Other revenues generally consist of interest and investment income and unrealized gains and losses on our investments. These revenues are recognized as earned or as the services are performed. Net income Weighted average shares outstanding – basic Dilutive potential shares from stock options Dilutive potential shares from restricted shares Weighted average shares outstanding – diluted Earnings per share: Basic Diluted March 31, 2008: U.S. Government and Government agency obligations Funds: Money market Equity and fixed income Marketable securities December 31, 2007: U.S. Government and Government agency obligations Funds: Money market Equity and fixed income Marketable securities 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, 2008 Granted Vested Forfeited Non-vested, March 31, 2008 Restricted shares subject to service and performance conditions: Non-vested, January 1, 2008 Granted Vested Forfeited Non-vested, March 31, 2008 Because the performance goal was met in 2007, the shares subject to vesting were vested in substance, but required certification by the Compensation Committee, at which time a share price was determined for tax purposes. On February 27, 2008, the 2007 shares, which were expensed in 2007, were certified as vested and the total fair value of the shares was determined to be $2,674,000, utilizing a share price of $35.65, the closing price of our common stock as of the day of certification. required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in both the current and prior year second quarters related to these performance-based restricted stock grants. Options outstanding, January 1, 2008 Granted Exercised Forfeited/expired Options outstanding and exercisable, March 31, 2008 Three months ended March 31, 2008 Net revenues from external sources Net intersegment revenues Income before income taxes Segment assets Segment goodwill Three months ended March 31, 2007 Net revenues from external sources Net intersegment revenues Income before income taxes Segment assets Segment goodwill We derive our revenues from investment advisory fees, trust fees, and other revenues. Our advisory fees are generated by Westwood Management, which manages its subadvisory agreements. Advisory fees are calculated based on a percentage of assets under management, and are paid in accordance with the terms of the agreements. Westwood Westwood Management Separate Accounts Subadvisory WHG Funds Westwood Funds Managed Accounts Total Westwood Trust Commingled Funds Private Accounts Agency/Custody Accounts Total Total Assets Under Management Revenues Advisory fees—asset based Trust fees Other revenues, net Total revenues Expenses Employee compensation and benefits Sales and marketing WHG mutual funds Information technology Professional services General and administrative Total expenses Income before income taxes Provision for income taxes Net income depreciation of assets. Performance-based advisory fees were $80,000 for the three months ended June 30, 2008 compared to zero in the prior year quarter, as a result of a performance-based fee earned in the annual measurement period ended June 30, 2008. Trust fees increased by income partially offset these decreases. Dividend income in the second quarter 2008 includes a $200,000 dividend from Teton Advisors (formerly Gabelli Advisers). In addition, we do not adjust cash earnings for tax deductions related to restricted stock expense. For the six months ended June 30, 2008, cash earnings increased by 30% to $6.8 million compared with $5.2 million for he six months ended June 30, 2007, primarily due to a 23% increase in total revenues. Net Income Add: Restricted stock expense Cash earnings Total expenses Less: Restricted stock expense Cash expenses We utilize various financial instruments, which entail certain 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 have market risks. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. We do not believe the outcome of these proceedings will have a material impact on our financial position, operations or cash flow.xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934March 31,June 30, 2008.¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.DELAWARE 75-2969997 DELAWARE75-2969997200 CRESCENT COURT, SUITE 1200DALLAS, TEXAS75201(Address of principal executive office)(Zip Code)Registrant’sRegistrant's telephone number, including area code) Yes x No ¨Yes X No Large accelerated filer ¨o Accelerated filer Accelerated filer xNon-accelerated filer ¨ (Doo (Do not check if a smaller reporting company) Smaller reporting company ¨o Yes ¨ No xYes No X issuer’sissuer's common stock, par value $0.01 per share, outstanding as of AprilJuly 18, 2008: 6,968,708.PART I PAGE PAGEPART IFINANCIAL INFORMATIONItem 1. 1 2 3 4 5 Item 2. 12 Item 3. 20 17Item 4. 20 18PART II Item 1. 20 18Item 1A. 20 18Item 2.4.21 Unregistered Sales of Equity Securities and Use of Proceeds19Item 6. 21 19Signatures Signatures1922UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMarch 31,June 30, 2008 and December 31, 2007 March 31,
2008
(unaudited) December 31,
2007 ASSETS $ 4,042 $ 4,560 3,682 6,599 22,690 22,144 1,286 1,512 610 651 32,310 35,466 2,302 2,302 451 225 976 1,031 $ 36,039 $ 39,024 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 958 $ 1,024 2,091 1,702 1,798 4,848 484 1,505 11 11 5,342 9,090 554 588 5,896 9,678 70 68 29,503 27,770 (1,872 ) (1,070 ) 2,442 2,578 30,143 29,346 $ 36,039 $ 39,024 ASSETS Current Assets: $ 5,009 $ 4,560 4,169 6,599 23,038 22,144 2,006 1,512 1,501 651 35,723 35,466 2,302 2,302 267 225 935 1,031 $ 39,227 $ 39,024 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: $ 1,060 $ 1,024 2,091 1,702 2,679 4,848 996 1,505 12 11 6,838 9,090 Deferred rent 519 588 7,357 9,678 Stockholders’ Equity: 70 68 31,590 27,770 (1,872 ) (1,070 ) 2,082 2,578 31,870 29,346 Total liabilities and stockholders’ equity $ 39,227 $ 39,024 Three months ended
March 31, 2008 2007 $ 6,390 $ 4,583 2,748 2,376 (11 ) 394 9,127 7,353 4,662 3,709 137 121 35 35 261 233 448 400 571 516 6,114 5,014 3,013 2,339 1,058 832 $ 1,955 $ 1,507 $ 0.32 $ 0.26 $ 0.31 $ 0.25 2008 2007 2008 2007 REVENUES: $ 6,606 $ 5,003 $ 12,996 $ 9,586 80 - 80 2,677 2,516 5,425 4,892 288 438 277 832 9,651 7,957 18,778 15,310 EXPENSES: 5,352 4,266 10,014 7,975 195 147 332 268 106 66 141 101 266 249 527 482 439 379 887 779 695 609 1,266 1,125 7,053 5,716 13,167 10,730 Income before income taxes 2,598 2,241 5,611 4,580 Provision for income taxes 867 768 1,925 1,600 Net income $ 1,731 $ 1,473 $ 3,686 $ 2,980 Earnings per share: $ 0.29 $ 0.26 $ 0.61 $ 0.52 $ 0.27 $ 0.24 $ 0.58 $ 0.49 Three monthsSix Months Ended March 31,June 30, 2008 Westwood Holdings
Group, Inc.
Common Stock, Par Additional
Paid-In
Capital Treasury
Stock Retained
Earnings Total Shares Amount 6,807,408 $ 68 $ 27,770 $ (1,070 ) $ 2,578 $ 29,346 1,955 1,955 183,800 2 (2 ) — (2,091 ) (2,091 ) 1,209 1,209 526 526 (22,500 ) (802 ) (802 ) 6,968,708 $ 70 $ 29,503 $ (1,872 ) $ 2,442 $ 30,143 Shares Amount Capital Stock Earnings Total BALANCE, January 1, 2008 6,807,408 $ 68 $ 27,770 $ (1,070 ) $ 2,578 $ 29,346 Net income 3,686 3,686 Issuance of restricted stock 183,800 2 (2 ) - Dividends declared ($0.60 per share) (4,182 ) (4,182 ) Restricted stock amortization 3,151 3,151 Tax benefit related to equity compensation 623 623 Stock options exercised 3,750 - 48 48 Purchase of treasury stock (22,500 ) (802 ) (802 ) BALANCE, June 30, 2008 6,972,458 $ 70 $ 31,590 $ (1,872 ) $ 2,082 $ 31,870 For the three months ended
March 31, 2008 2007 $ 1,955 $ 1,507 57 63 193 (151 ) 1,209 898 — 255 (430 ) (147 ) (37 ) (280 ) 2,917 596 (37 ) (8 ) (66 ) (129 ) (3,050 ) (1,758 ) (495 ) (107 ) 74 (1 ) 2,290 738 (1,353 ) (1,227 ) 651 1,186 (32 ) (23 ) (734 ) (64 ) (802 ) (131 ) 430 147 — 122 (1,702 ) (996 ) (2,074 ) (858 ) (518 ) (184 ) 4,560 2,177 $ 4,042 $ 1,993 $ 1,554 $ 684 6,552 (59 ) 526 206 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: $ 3,686 $ 2,980 114 124 249 (20 ) 3,151 2,260 (536 ) (258 ) (450 ) (176 ) (69 ) (778 ) 2,430 357 (856 ) 102 36 (79 ) (2,169 ) (591 ) 114 476 (14 ) (3 ) 5,686 4,394 CASH FLOWS FROM INVESTING ACTIVITIES: (3,478 ) (3,986 ) 2,404 3,368 (66 ) (39 ) (1,140 ) (657 ) CASH FLOWS FROM FINANCING ACTIVITIES: (802 ) (131 ) 450 176 48 311 (3,793 ) (2,324 ) (4,097 ) (1,968 ) NET INCREASE IN CASH 449 1,769 Cash and cash equivalents, beginning of period 4,560 2,177 Cash and cash equivalents, end of period $ 5,009 $ 3,946 Supplemental cash flow information: $ 2,348 $ 1,381 6,552 (59 ) 623 282 (“AUM”("AUM"). Accordingly, fluctuations in financial markets and in the composition of AUM impact revenue and results of operations.March 31,June 30, 2008, and results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements are presented using the accrual basis of accounting and have been prepared in accordance with the instructions for the presentation of interim financial information as prescribed by the Securities and Exchange Commission (“SEC”) and, therefore, as permitted by SEC rules, do not contain certain information and footnote disclosures required by accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements should be read in conjunction with our consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2007. Refer to the accounting policies described in the notes to our annual financial statements, which were consistently followed in preparing this interim financial information. Operating results for the threesix months ended March 31,June 30, 2008 are not necessarily indicative of the results for the year ending December 31, 2008 or any future period.WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIESNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Unaudited)March 31,June 30, 2008 and 2007, respectively. Diluted earnings per share for these periods is computed based on the weighted average number of shares outstanding plus the effect of the dilutive impact of stock options and shares of restricted stock granted to employees and non-employee directors. Diluted earnings per common share is computed using the treasury stock method.STATEMENTS—STATEMENTS---(Continued) Three months ended March 31, 2008 2007 $ 1,955 $ 1,507 6,026,073 5,755,941 36,069 45,954 297,051 259,758 6,359,193 6,061,653 $ 0.32 $ 0.26 $ 0.31 $ 0.25 2008 2007 2008 2007 Net income $ 1,731 $ 1,473 $ 3,686 $ 2,980 Weighted average shares outstanding – basic 6,014,074 5,767,238 6,020,074 5,761,409 Dilutive potential shares from stock options 35,950 43,474 36,047 44,872 Dilutive potential shares from restricted shares 362,274 329,713 334,680 316,950 Weighted average shares outstanding – diluted 6,412,298 6,140,425 6,390,801 6,123,231 Earnings per share: $ 0.29 $ 0.26 $ 0.61 $ 0.52 $ 0.27 $ 0.24 $ 0.58 $ 0.49 Statement of Financial Accounting StandardsSFAS No. 123 Revised (“SFAS No. 123R”). Under SFAS No. 123R, stock-based compensation expense reflects the fair value of stock-based awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The compensation cost we record for these awards is based on their grant-date fair value as required by SFAS No. 123R.STATEMENTS—STATEMENTS---(Continued) Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Market
Value $ 1,958 $ 3 $ — $ 1,961 15,819 — — 15,819 4,875 35 4,910 $ 22,652 $ 38 $ — $ 22,690 $ 1,942 $ 1 $ — $ 1,943 15,117 — — 15,117 4,854 230 — 5,084 $ 21,913 $ 231 $ — $ 22,144 Cost June 30, 2008: $ 1,969 $ - $ - $ 1,969 16,191 - - 16,191 4,896 - (18 ) 4,878 $ 23,056 $ - $ (18 ) $ 23,038 December 31, 2007: $ 1,942 $ 1 $ - $ 1,943 15,117 - - 15,117 4,854 230 - 5,084 $ 21,913 $ 231 $ - $ 22,144 “Plan”"Plan") reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock and stock options. The total number of shares that may be issued under the Plan (including the predecessor plans to the Plan) may not exceed 1,948,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock and stock options. At March 31,June 30, 2008, approximately 241,000 shares remain available for issuance under the Plan. Three months ended March 31, 2008 2007 $ 1,209,000 $ 898,000 909,000 654,000 STATEMENTS—STATEMENTS---(Continued) 2008 2007 Total stock-based compensation expense $ 3,151,000 $ 2,260,000 Total income tax benefit recognized related to stock-based compensation 937,000 710,000 March 31,June 30, 2008, there was approximately $18.4$16.6 million of unrecognized compensation cost, which we expect to recognize over a weighted-average period of 2.62.5 years. In order to satisfy tax liabilities employees will owe on their vested shares, we may withhold a sufficient number of vested shares from employees on the date vesting occurs. For 2008, we estimateexpect the number of shares that could be withheld for this purpose couldto total approximately 74,00061,570 shares. Our two types of restricted stock grants are discussed below.threesix months ended March 31,June 30, 2008, we recorded $1.2$2.7 million of expense for these grants. The following table details the status and changes in our restricted stock grants that are subject only to a service condition for the three months ended March 31,June 30, 2008: Shares Weighted Average
Grant Date Fair
Value 523,175 $ 22.95 183,800 35.65 — — — — 706,975 26.25 Shares Non-vested, January 1, 2008 523,175 $ 22.95 Granted 183,800 35.65 Vested - - Forfeited - - Non-vested, June 30, 2008 706,975 26.25 STATEMENTS—STATEMENTS---(Continued) Non-vested, January 1, 2008 250,000 $ 18.81 Granted - - Vested - - Forfeited - - Non-vested, June 30, 2008 250,000 18.81 (Unaudited) Shares Weighted Average
Grant Date Fair
Value 250,000 $ 18.81 — — — — — — 250,000 18.81 We have not yet recorded expense forIn the sharessecond quarters of 2008 and 2007, we concluded that could vest in 2008 asit was probable that we have not concluded thatwould meet the performance goals will be met.outstanding and exercisable options werebecame fully expensed in 2007. The following table sets forth the summary of option activity under our stock option program for the threesix months ended March 31,June 30, 2008: Options Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term (years) Aggregate
Intrinsic
Value 77,300 $ 12.92 — — — — — — 77,300 12.92 4.25 $ 1,915,000 Options outstanding, January 1, 2008 77,300 $ 12.92 Granted - - Exercised (3,750 ) 12.90 Forfeited/expired - - Options outstanding and exercisable, June 30, 2008 73,550 12.93 4.00 $ 1,977,000 March 31,June 30, 2008 and 2007 was $0$83,000 and $95,000,$260,000, respectively. Options exercised represent newly issued shares.STATEMENTS—STATEMENTS---(Continued) Westwood
Management Westwood
Trust Westwood
Holdings Eliminations Consolidated (in thousands) $ 6,351 $ 2,776 $ — $ — $ 9,127 1,006 2 — (1,008 ) — 3,549 673 (1,209 ) — 3,013 28,052 4,833 3,154 — 36,039 1,790 512 — — 2,302 $ 4,938 $ 2,415 $ — $ — $ 7,353 911 1 — (912 ) — 2,681 556 (898 ) — 2,339 20,852 4,466 2,782 — 28,100 1,790 512 — — 2,302 ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) Three months ended June 30, 2008 $ 6,956 $ 2,695 $ - $ - $ 9,651 948 2 - (950 ) - 3,944 596 (1,942 ) - 2,598 31,023 4,531 3,673 - 39,227 1,790 512 - - 2,302 Three months ended June 30, 2007 $ 5,397 $ 2,560 $ - $ - $ 7,957 935 2 - (937 ) - 2,948 654 (1,361 ) - 2,241 23,817 4,513 3,237 - 31,567 1,790 512 - - 2,302 (in thousands) Six months ended June 30, 2008 $ 13,307 $ 5,471 $ - $ - $ 18,778 1,954 4 - (1,958 ) - 7,493 1,269 (3,151 ) - 5,611 31,023 4,531 3,673 - 39,227 1,790 512 - - 2,302 Six months ended June 30, 2007 $ 10,335 $ 4,975 $ - $ - $ 15,310 1,846 3 - (1,849 ) - 5,629 1,210 (2,259 ) - 4,580 23,817 4,513 3,237 - 31,567 1,790 512 - - 2,302 our ability to identify and successfully market services that appeal to our customers;the significant concentration of our revenues in four of our customers;■ our ability to identify and successfully market services that appeal to our customers; our relationships with investment consulting firms;our relationships with current and potential customers;■ the significant concentration of our revenues in four of our customers; our ability to retain qualified personnel;our ability to successfully develop and market new asset classes;■ our relationships with investment consulting firms; our ability to maintain our fee structure in light of competitive fee pressures;competition in the marketplace;■ our relationships with current and potential customers; downturn in the financial markets;the passage of legislation adversely affecting the financial services industries;■ our ability to retain qualified personnel; interest rates;changes in our effective tax rate;■ our ability to successfully develop and market new asset classes; our ability to maintain an effective system of internal controls; andthe other risks detailed from time to time in our SEC reports.■ our ability to maintain our fee structure in light of competitive fee pressures; ■ competition in the marketplace; ■ downturn in the financial markets; ■ the passage of legislation adversely affecting the financial services industries; ■ interest rates; ■ changes in our effective tax rate; ■ our ability to maintain an effective system of internal controls; and ■ the other risks detailed from time to time in our SEC reports. Revenuesclients’clients' accounts under investment advisory andManagement’sManagement's advisory fees are paid quarterly in advance based on the assets under management on the last day of the preceding quarter, quarterly in arrears based on the assets under management on the last day of the quarter just ended, or are based on a daily or monthly analysis of assets under management for the stated period. Westwood Management recognizes revenues as services are rendered. A limited number of our clients have a performance-based fee component in their contract, which couldwould pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance period. We recognized a performance-based fee in the second quarter of 2008 related to a client that has an annual performance period that ends in June. In addition, as of June 30, 2008, we were on track to earn a performance-based fee in 2008 as we did in the fourth quarter of 2007 from a client that has an annual performance period that ends in December. The exact amount of this fee will remain uncertain and cannot be recorded as revenue until the performance period ends on December 31, 2008. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in our financial statements.$1.3 billion, or 21%,$900 million to $7.5$7.7 billion at March 31,June 30, 2008, compared with $6.1$6.8 billion at March 31,June 30, 2007. Average assets under management for the firstsecond quarter of 2008 were $7.7$7.6 billion compared to $6.0$6.5 billion for the firstsecond quarter of 2007, an increase of 27%17%. The increase in period ending assets under management was principally attributable to asset inflows from new and existing clients and was partially offset by market depreciation of assets under management and the withdrawal of assets by certain clients. The following table sets forth Westwood Management’s and Westwood Trust’s assets under management as of March 31,June 30, 2008 and March 31, 2007: As of March 31,
(1) (in millions) %
Change 2008 2007 March 31, 2008 vs.
March 31, 2007 $ 3,647 $ 2,594 41 % 982 980 — 247 154 60 353 371 (5 ) 473 359 32 5,702 4,458 28 1,353 1,303 4 308 251 23 87 124 (30 ) 1,748 1,678 4 $ 7,450 $ 6,136 21 % (1)The above table excludes the SWS cash reserve funds for which Westwood Management served as investment advisor and Westwood Trust served as custodian. The SWS cash reserve funds were $0 and $177 million as of March 31, 2008 and 2007, respectively. These accounts were noted separately due to their unique nature within our business and because they were subject to significant fluctuations on a weekly basis. Westwood Management Separate Accounts $ 3,725 $ 3,047 22 % Subadvisory 1,068 1,042 3 WHG Funds 319 223 43 Westwood Funds 357 388 (8 ) Managed Accounts 493 401 23 Total 5,962 5,101 17 Westwood Trust Commingled Funds 1,395 1,355 3 Private Accounts 304 251 21 Agency/Custody Accounts 86 140 (39 ) Total 1,785 1,746 2 Total Assets Under Management $ 7,747 $ 6,847 13 % “Separate Accounts”"Separate Accounts" represent corporate pension and profit sharing plans, public employee retirement accounts, Taft Hartley plans, endowments, foundations and individuals. “Subadvisory”"Subadvisory" represents relationships where Westwood Management provides investment management services for funds offered by other financial institutions. “WHG Funds” represent the family of mutual funds for which Westwood Management serves as advisor. “Westwood Funds”"Westwood Funds" represent the family of mutual funds for which Westwood Management serves as subadvisor. “Managed Accounts”"Managed Accounts" represent relationships with brokerage firms and other registered investment advisors who offer Westwood Management’sManagement's products to their customers.“Commingled Funds”"Commingled Funds" represent funds that have been established to facilitate investment of fiduciary funds of multiple clients by combining assets into a single trust for taxable and tax-exempt entities. “Private Accounts”"Private Accounts" represent discretionary accounts where Westwood Trust acts as trustee or agent and has full investment discretion. “Agency/"Agency/Custody Accounts”Accounts" represent non-discretionary accounts in which Westwood Trust provides agent or custodial services, but does not act in an advisory capacity. For certain assets in this category, Westwood Trust provides limited custody services for a minimal or zero fee currently, 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 that is being held in custody for clients currently, but may transfer to fee-generating managed assets during an intergenerational transfer of wealth at some point in the future.March 31,June 30, 2008 is based upon data derived from the consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements, which are included elsewhere in this quarterly report. Three months ended
March 31, Three months ended
March 31, 2008 vs.
March 31, 2007 2008 2007 $ 6,390 $ 4,583 39 % 2,748 2,376 16 (11 ) 394 (103 ) 9,127 7,353 24 4,662 3,709 26 137 121 13 35 35 0 261 233 12 448 400 12 571 516 11 6,114 5,014 22 3,013 2,339 29 1,058 832 27 $ 1,955 $ 1,507 30 % % Change 2008 2007 2008 2007 June 30, 2007 June 30, 2007 Revenues Advisory fees Asset-based $ 6,606 $ 5,003 $ 12,996 $ 9,586 32 % 36 % Performance-based 80 - 80 - - - Trust fees 2,677 2,516 5,425 4,892 6 11 Other revenues 288 438 277 832 (34 ) (67 ) Total revenues 9,651 7,957 18,778 15,310 21 23 Expenses Employee compensation and benefits 5,352 4,266 10,014 7,975 25 26 Sales and marketing 195 147 332 268 33 24 WHG mutual funds 106 66 141 101 61 40 Information technology 266 249 527 482 7 9 Professional services 439 379 887 779 16 14 General and administrative 695 609 1,266 1,125 14 13 Total expenses 7,053 5,716 13,167 10,730 23 23 Income before income taxes 2,598 2,241 5,611 4,580 16 23 Provision for income taxes 867 768 1,925 1,600 13 20 Net income $ 1,731 $ 1,473 $ 3,686 $ 2,980 18 % 24 % March 31,June 30, 2008 compared to three months ended March 31,June 30, 200724%21% to $9.1$9.7 million for the three months ended March 31,June 30, 2008 compared with $7.4$8.0 million for the three months ended March 31,June 30, 2007. AdvisoryAsset-based advisory fees increased by 39%32% to $6.4$6.6 million for the three months ended March 31,June 30, 2008 compared with $4.6$5.0 million for the three months ended March 31,June 30, 2007, as a result of increased average assets under management by Westwood Management due to inflows from new and existing clients, partially offset by the withdrawal of assets by certain clients and the market16%6% to $2.7 million for the three months ended March 31,June 30, 2008 compared with $2.4$2.5 million for the three months ended March 31,June 30, 2007, as a result of increased average assets under management by Westwood Trust due to inflows from new and existing clients, offset in part by market depreciation of assets and the withdrawal of assets by certain clients. Other revenues, which generally consist of interest and investment income, decreased by 103%34% to ($11,000)$288,000 for the three months ended March 31,June 30, 2008 compared with $394,000$438,000 for the three months ended March 31,June 30, 2007. Other revenues are presented net and were negative this quarter due to unrealized losses related to our investments. Other revenues decreased primarily due to a decrease of $347,000$228,000 in realized and unrealized gains/losses on investments and a decrease of $59,000$81,000 in interest income. An increase of $159,000 in dividend and interest income.26%25% to $4.7$5.4 million for the three months ended March 31,June 30, 2008 compared with $3.7$4.3 million for the three months ended March 31,June 30, 2007. This increase was due primarily to an increase of approximately $311,000$580,000 in restricted stock expense due to additional restricted stock grants in July 2007 and February 2008, increased salary and benefits expense due to increased headcount and salary increases for certain employees, increased incentive compensation expense due to higher pretax income and increased 401(k) match expense related to increased salaries and incentive compensation. Beginning in 2008, restricted stock grants were awarded in the first quarter of the year in order to synchronize the payment of cash incentive bonus awards with the personal tax liability resulting from restricted stock vesting. In the second quarters of 2008 and 2007, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in both the current and prior year second quarters related to these performance-based restricted stock grants. We expect to recognize a similar amount in the third and fourth quarters of 2008 related to these performance-based restricted stock grants. The conclusion related to the 2008 expense is based, in part, on our belief that it is likely that we will recognize a performance-based fee in the fourth quarter of 2008 related to a client that has an annual performance period that ends in December. We had 57 full-time employees as of June 30, 2008 compared to 50 full-time employees as of June 30, 2007.expense.and benefits increased by 26% to $10.0 million for the six months ended June 30, 2008 compared with $8.0 million for the six months ended June 30, 2007. This increase was due primarily to an increase of approximately $891,000 in restricted stock expense due to additional restricted stock grants in July 2007 and February 2008, increased salary and benefits expense due to increased headcount and salary increases for certain employees, increased incentive compensation expense due to higher pretax income, increased 401(k) match expense related to increased salaries and incentive compensation expense, increased profit sharing expense and increased health insurance costs. Beginning in 2008, restricted stock grants were awarded in the first quarter of the year in order to synchronize the payment of cash incentive bonus awards with the personal tax liability resulting from restricted stock vesting. We had 5557 full-time employees as of March 31,June 30, 2008 compared to 4850 full-time employees as of March 31,June 30, 2007. Sales and marketing costs generally consist of costs associated with our marketing efforts, including travel and entertainment, direct marketing and advertising costs. Sales and marketing costs increased by 13%24% to $137,000$332,000 for the threesix months ended March 31,June 30, 2008 compared with $121,000$268,000 for the threesix months ended March 31,June 30, 2007. The increase is primarily the result of increasedincreases in direct marketing, travel and entertainment expenses.generally consist of costs associated with our marketing, distribution and administration efforts relatedincreased by 40% to $141,000 for the WHG Funds. WHG Mutual Funds expenses were $35,000 for each of the threesix months ended March 31,June 30, 2008 andcompared with $101,000 for the threesix months ended March 31,June 30, 2007. Decreased fund expense reimbursements due to a higher level of assets in the funds was offset by increased shareholder servicing fees related to the funds. Information technology expenses are generally costs associated with proprietary investment research tools, maintenance and support, computing hardware, software licenses, telecommunications and other related costs. Information technology costs increased by 12%9% to $261,000$527,000 for the threesix months ended March 31,June 30, 2008 compared with $233,000$482,000 for the threesix months ended March 31,June 30, 2007. The increase is primarily due to increased expenses for support services, software licenses and maintenance, support services, research tools quotations and hardware maintenance.quotations. Decreases in data fees, depreciationequipment rental expense and equipment rentaldepreciation expense partially offset these increases. Professional services expenses generally consist of costs associated with subadvisory fees, audit, legal and other professional services. Professional services expenses increased by 12%14% to $448,000$887,000 for the threesix months ended March 31,June 30, 2008 compared with $400,000$779,000 for the threesix months ended March 31,June 30, 2007. The increase is primarily due to higher advisory fees paid to external subadvisors due to increased average assets under management in international equity, growth and growthhigh-yield common trust funds sponsored by Westwood Trust and increased professional fees related to new products and human resources. Decreases in legal expenses partially offset these increases. General and administrative expenses generally consist of costs associated with the lease of our office space, investor relations, licenses and fees, depreciation, insurance, office supplies and other miscellaneous expenses. General and administrative expenses increased by 11%13% to $571,000$1.3 million for the threesix months ended March 31,June 30, 2008 compared with $516,000$1.1 million for the threesix months ended March 31,June 30, 2007. The increase is primarily due to increases in miscellaneous expenses, director’s fees, occupancy expenses, charitable contributions, and office supplies expense, investor relations expense and custody expense. These increases were partially offset by decreases in insurance expenses and licenses and fees.expense.27%20% to $1,058,000$1.9 million for the threesix months ended March 31,June 30, 2008 compared with $832,000$1.6 million for the threesix months ended March 31,June 30, 2007 as a result of increased income. The effective tax rate was 35.1%34.3% for the threesix months ended March 31,June 30, 2008 compared to 35.6%34.9% for the threesix months ended March 31,June 30, 2007.32%30% to $3.2$3.7 million for the three months ended March 31,June 30, 2008 compared with $2.4$2.8 million for the three months ended March 31,June 30, 2007 primarily due to a 24%21% increase in total revenues. Three Months Ended
March 31 %
Change 2008 2007 $ 1,955 $ 1,507 30 % 1,209 898 35 $ 3,164 $ 2,405 32 $ 6,114 $ 5,014 22 (1,209 ) (898 ) 35 $ 4,905 $ 4,116 19 % Three Months Ended June 30 2008 2007 Change Net Income $ 1,731 $ 1,473 18 % Add: Restricted stock expense 1,942 1,362 43 Cash earnings $ 3,673 $ 2,835 30 Total expenses $ 7,053 $ 5,716 23 Less: Restricted stock expense (1,942 ) (1,362 ) 43 Cash expenses $ 5,111 $ 4,354 17 % 2008 2007 Change Net Income $ 3,686 $ 2,980 24 % Add: Restricted stock expense 3,151 2,260 39 Cash earnings $ 6,837 $ 5,240 30 Total expenses $ 13,167 $ 10,730 23 Less: Restricted stock expense (3,151 ) (2,260 ) 39 Cash expenses $ 10,016 $ 8,470 18 % March 31,June 30, 2008, we had no long-term debt. The changes in net cash provided by operating activities generally reflect the changes in earnings plus the effect of non-cash items and changes in working capital. Changes in working capital, especially accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses.threesix months ended March 31,June 30, 2008, cash flow provided by operating activities, principally our investment advisory business, was $2.3$5.7 million. At March 31,June 30, 2008, we had working capital of $27.0$28.9 million. Cash flow used in investing activities during the threesix months ended March 31,June 30, 2008 of $734,000$1.1 million was related to net purchases of investments and purchases of fixed assets. Cash flow used in financing activities during the threesix months ended March 31,June 30, 2008 of $2.1$4.1 million was due to cash dividends paid to our stockholders and the purchase of treasury shares. Those cash uses were partially offset by tax benefits from stock-based compensation.at eachas of March 31, 2008 and December 31, 2007. Dividends payable were $2.0$2.1 million and $1.7 million as of March 31,June 30, 2008 and December 31, 2007, respectively. We had no liabilities for borrowed money at March 31,June 30, 2008.willdid not have a material impact on our financial statements.2008,2008. We did not make any fair value elections upon adoption and have determined that it willSFAS 159 did not have a material impact on our financial statements.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKCONTROLS AND PROCEDURESSecurities and Exchange Commission’sSEC’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 report. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of the end of the quarter just completed, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.LEGAL PROCEEDINGS
We face a number of significant risks and uncertainties in our business, which are detailed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and summarized in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties may affect our current position and future prospects, and should be considered carefully in evaluating us and an investment in our common stock.
stock. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The following table displays information with respect to the treasury shares we purchased during the three months ended March 31, 2008.
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | |||||
January 1 through January 31, 2008 | — | — | — | — | |||||
February 1 through February 29, 2008 | 22,500 | $ | 35.65 | — | — | ||||
March 1 through March 31, 2008 | — | — | — | — | |||||
Total | 22,500 | $ | 35.65 | — | — |
Note: The treasury shares were purchased fromAnnual Meeting of Stockholders of Westwood employees at the market close priceHoldings Group, Inc. was held on the date of purchaseApril 24, 2008 in order to assist our employees in satisfying their tax obligations from restricted shares that vested. We anticipate purchasing additional treasury shares in 2008, and potentially in subsequent years,Dallas, Texas, for the same purpose.
(a) | Election of directors. The stockholders elected the following directors to hold office until the next annual meeting or until their respective successors shall have been duly elected and qualified. |
Nominee | For | Withheld | ||
Susan M. Byrne | 6,717,032 | 76,204 | ||
Brian O. Casey | 6,767,637 | 25,599 | ||
Tom C. Davis | 6,767,630 | 25,606 | ||
Richard M. Frank | 6,752,717 | 40,519 | ||
Robert D. McTeer | 6,767,530 | 25,706 | ||
Frederick R. Meyer | 6,752,175 | 41,061 | ||
Jon L. Mosle, Jr. | 6,766,756 | 26,480 | ||
Geoffrey Norman | 6,752,291 | 40,945 | ||
Raymond E. Wooldridge | 6,752,430 | 40,806 |
(b) | The ratification of Grant Thornton LLP as our independent auditors for the year ending December 31, 2008. |
For | Against | Abstain | ||
6,785,275 | 7,050 | 911 |
(c) | Approval of Amendment to Amended and Restated Certificate of Incorporation to Increase Authorized Common Shares. |
For | Against | Abstain | ||
5,974,892 | 815,553 | 2,791 |
31.1 | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a) | |
31.2 | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) | |
32.1* | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2* | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are furnished rather than filed with this report. |
Dated: | WESTWOOD HOLDINGS GROUP, INC. | ||||||
By: | /s/ Brian O. Casey | ||||||
Brian O. Casey | |||||||
Chief Executive Officer | |||||||
By: | /s/ William R. Hardcastle, Jr. | ||||||
William R. Hardcastle, Jr. | |||||||
Chief Financial Officer | |||||||
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