What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-11 · 191 added, 105 removed, 536 unchanged (36% of the section changed)

4 unchanged sentences

(In thousands, except shares data)

March 31, 2020

June 30, 2020

December 31, 2019

34 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Investment management fees

13 unchanged sentences

Interest expense and other financing costs

Loss on debt extinguishment

Gain (loss) on debt extinguishment

Total other expense, net

9 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive (loss) income, net of tax

Net unrealized loss on cash flow hedges

Net unrealized (loss) income on foreign currency translation

Net unrealized gain (loss) on foreign currency translation

Total other comprehensive (loss) income, net of tax

18 unchanged sentences

Balance, March 31, 2020

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 2020

Treasury Stock

8 unchanged sentences

Cumulative effect of adoption of ASU 2016-01 and 2018-02

Other comprehensive income/(loss)

Other comprehensive income

Share-based compensation

1 unchanged sentence

Balance, March 31, 2019

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 2019

See the accompanying notes to the unaudited condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

18 unchanged sentences

Sales of trading securities

Purchases of available-for-sale securities

Sales of available-for-sale securities

Net cash used in investing activities

24 unchanged sentences

(“VCA”), which occurred on August 1, 2013.

Effective June 30, 2020, Victory Capital Advisers, Inc.

changed its name to Victory Capital Services, Inc.

On February 12, 2018, the Company completed the initial public offering (the “IPO”) of its Class A common stock, which trades on the NASDAQ under the symbol “VCTR.”

5 unchanged sentences

Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities.

Effective on or about June 30, 2020, Victory Capital Advisers, Inc.

is changing its name to Victory Capital Services, Inc.

VCA is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds.

VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds.

VCTA is registered with the SEC as a transfer agent for the USAA Funds.

5 unchanged sentences

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented.

Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three and six month periods ending June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation

7 unchanged sentences

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption.

COVID-19 did not have a material adverse effect on our reported results for our first quarter.

COVID-19 did not have a material adverse effect on our reported results for the three and six months ended June 30, 2020.

New Accounting Pronouncements

23 unchanged sentences

The effective date for calendar-year public business entities was January 1, 2019.

In November 2019, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard.

In June 2020, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard.

Due to the Company’s EGC status, we will adopt the New Lease Standard on January 1, 2022.

12 unchanged sentences

In accordance with the new revenue recognition standard requirements, the following table disaggregates our revenue by type and product:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

18 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

79 unchanged sentences

Additional products added to the Company’s investment platforms include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds.

The acquisition also added to the Company’s lineup of asset allocation portfolios and smart beta equity ETFs and provided the Company the rights to offer products and services using the USAA brand and the opportunity to offer its products to USAA members through a direct member channel.

Purchase Price

During the first quarter of 2020, the Company received a post-closing purchase price adjustment of $ 0.7 million in cash from the sellers related to net working capital adjustments.

We continue to evaluate the acquisition and purchase price accounting.

Total consideration paid through March 31, 2020 for the USAA AMCO Acquisition was $ 949.4 million, comprised of $ 851.3 million of cash paid at closing plus the acquisition date value of contingent payments due to sellers of $ 98.8 million less $ 0.7 million in net working capital adjustments settled in the first quarter of 2020.

No further adjustments were recorded through the end of the measurement period on June 30, 2020.

Total consideration paid through June 30, 2020 for the USAA AMCO Acquisition was $ 949.4 million, comprised of $ 851.3 million of cash paid at closing plus the acquisition date value of contingent payments due to sellers of $ 98.8 million less $ 0.7 million in net working capital adjustments settled in the first quarter of 2020.

A maximum of $ 150.0 million ($ 37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing.

To receive any contingent payment in respect of “non-managed money”-related assets for a given year, annual revenue from “non-managed money”-related assets must be at least 80 % of the revenue run-rate (as calculated under the Stock Purchase Agreement) of the USAA Adviser’s “non-managed money”-related assets under management as of the closing date, and to achieve the maximum contingent payment for a given year, such annual revenue must total at least 100 % of that closing date revenue run-rate.

Annual contingent

payments in respect of “non-managed money”-related assets are subject to certain “catch-up” provisions set forth in the USAA Stock Purchase Agreement.

payment for a given year, such annual revenue must total at least 100 % of that closing date revenue run-rate.

Annual contingent payments in respect of “non-managed money”-related assets are subject to certain “catch-up” provisions set forth in the USAA Stock Purchase Agreement.

The Company accounted for the acquisition in accordance with ASC 805, Business Combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the USAA AMCO Acquisition.

We used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.

The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.

The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $ 120.6 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes.

13 unchanged sentences

Total purchase price consideration

Includes $ 750.2 million for indefinite-lived investment advisory contracts, $ 19.1 million for indefinite-lived transfer agent contracts, $ 0.8 million for indefinite-lived distribution contracts, $ 38.2 million for definite-lived trade name assets and $ 0.4 million for definite-lived lease-related assets, all of which are recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the change in the goodwill balance from December 31, 2019 to March 31, 2020:

Includes $ 750.2 million for indefinite-lived investment advisory contracts, $ 19.1 million for indefinite-lived transfer agent contracts, $ 0.8 million for indefinite-lived distribution contracts, $ 38.2 million for definite-lived trade name assets and $ 0.4 million for definite-lived lease-related assets, all of which were recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the change in the goodwill balance from December 31, 2019 to June 30, 2020:

(in thousands)

As of March 31, 2020

As of June 30, 2020

Balance, beginning of period

2 unchanged sentences

Contingent Consideration

The fair value of contingent consideration payable to sellers at March 31, 2020 was estimated to be $ 113.2 million as compared to $ 118.7 million at December 31, 2019.

The decrease in the liability of $ 5.5 million in the first quarter of 2020 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The fair value of contingent consideration payable to sellers at June 30, 2020 was estimated to be $ 118.5 million as compared to $ 118.7 million at December 31, 2019.

The decrease in the liability of $ 0.2 million in the six months ended June 30, 2020 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The fair value of the USAA AMCO Acquisition contingent consideration payable was estimated using the real options method.

1 unchanged sentence

Significant assumptions and inputs include the “non-managed money” revenue projected annual growth rate, the market price of risk, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate.

As of March 31, 2020, the projected annual growth rate for “non-managed money” revenue was approximately 5 %.

As of June 30, 2020, the projected annual growth rate for “non-managed money” revenue was approximately 4 %.

The market price of risk and revenue volatility of approximately 7 % and 17 %, respectively, were based on data for comparable companies.

2 unchanged sentences

Actual and Pro Forma Results for USAA Acquired Companies

Revenue of the USAA Acquired Companies for the three months ended March 31, 2019, was as follows:

Revenue of the USAA Acquired Companies for the three and six months ended June 30, 2020, was as follows:

Three Months Ended

Six Months Ended

(in millions)

March 31, 2019

Net income attributable to the USAA Acquired Companies for the three months ended March 31, 2019 is impractical to determine as the Company does not prepare discrete financial information at that level.

June 30, 2020

Net income attributable to the USAA Acquired Companies for the three and six months ended June 30, 2020 is impractical to determine as the Company does not prepare discrete financial information at that level.

The following Unaudited Pro Forma Condensed Combined Statements of Operations are provided for illustrative purposes only and assume that the acquisition occurred on January 1, 2018.

4 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands, except per share amount)

March 31, 2019

June 30, 2019

Earnings per share of common stock

4 unchanged sentences

Acquisition-related costs

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

In connection with business combinations, asset purchases and changes in business strategy, the Company incurs costs integrating investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.

The following table presents the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Liability balance, beginning of period

Severance Expense - USAA AMCO

Integration costs - USAA AMCO

12 unchanged sentences

The table below shows liabilities measured at fair value on a recurring basis.

As of March 31, 2020

As of June 30, 2020

(in thousands)

8 unchanged sentences

Total Financial Liabilities

The Swap liability represents amounts owed as of March 31, 2020 under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020.

The Swap liability represents amounts owed as of June 30, 2020 under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020.

The Swap effectively fixes the interest rate at 3.465 % on $ 450 million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026.

The fair value of the Swap was included in other liabilities on the unaudited Condensed Balance Sheets at March 31, 2020.

The fair value of the Swap is included in other liabilities on the unaudited Condensed Consolidated Balance Sheets at June 30, 2020.

Pricing was determined based on a third party, model-derived valuation in which all significant inputs are observable in active markets (Level 2).

1 unchanged sentence

The contingent consideration arrangement liabilities represent the USAA AMCO Acquisition estimated earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

Refer to Note 4, Acquisitions, for further details related to the contingent consideration arrangement.

Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the USAA AMCO Acquisition earn-out payment liability include the “non-managed money” revenue projected growth rate, revenue volatility, market price of risk and discount rate.

An increase in market price of risk, discount rate and revenue volatility results in a lower fair value for the earn-out payment liability, while an increase in the projected growth rate for “non-managed money” revenue results in a higher

fair value for the earn-out payment liability.

price of risk and discount rate.

Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the USAA AMCO Acquisition.

Changes in the fair value of the liability, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2019 and March 31, 2020, respectively.

The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2019 and June 30, 2020, respectively.

(in thousands)

2 unchanged sentences

USAA AMCO change in fair value measurement

Balance, March 31, 2020

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2019 to March 31, 2020.

Balance, June 30, 2020

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2019 to June 30, 2020.

The Company recognizes transfers at the end of the reporting period.

The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities.

The fair value of our long-term debt at March 31, 2020 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates.

The fair value of our long-term debt at June 30, 2020 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates.

As a result, Level 2 inputs are utilized to determine the fair value of our long‑term debt.

2 unchanged sentences

The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares and collective trust funds that it sponsors (the “Victory Collective Funds”), to be related parties as a result of our advisory relationship.

The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCA have with the Victory Funds and the USAA Funds and has invested a portion of its balance sheet cash in the USAA Treasury Money Market Fund and earns interest on the amount invested in this fund.

The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and the USAA Funds and has invested a portion of its balance sheet cash in the USAA Treasury Money Market Fund and earns interest on the amount invested in this fund.

We also receive investment management fees from the VictoryShares and Victory Collective Funds under VCM’s advisory contracts with these funds and administrative fees from the VictoryShares.

7 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

7 unchanged sentences

Accounts payable and accrued expenses (fund reimbursements)

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Fund administration and distribution fees

Related party other (expense) income

Interest income and other (expense) income

As of March 31, 2020 and December 31, 2019, the Company held both available-for-sale securities and trading securities.

Available-for-sale investments consist entirely of seed capital investments in certain Victory Funds.

Related party other income (expense)

Interest income and other income (expense)

As of June 30, 2020 and December 31, 2019, the Company held both available-for-sale securities and trading securities.

Available-for-sale investments consist entirely of seed capital investments in certain Victory Funds and USAA Funds.

Trading securities are held under a deferred compensation plan and include Victory Funds, USAA Funds and third party mutual funds.

3 unchanged sentences

(in thousands)

As of March 31, 2020

As of June 30, 2020

As of December 31, 2019

Unrealized and realized gains and losses on available‑for‑sale investments are recognized in the unaudited Condensed Consolidated Statements of Operations as interest income and other income (expense).

There were no sales of available-for-sale investments in the three months ended March 31, 2020 and 2019.

Unrealized and realized gains and losses on available‑for‑sale investments are recognized in the accompanying unaudited Condensed Consolidated Statements of Operations as “Interest income and other income (expense).” Proceeds from sales and realized gains and losses from available-for-sale securities in the periods ended June 30, 2020 and 2019 were as follows:

(in thousands)

For the three months ended June 30, 2020

For the three months ended June 30, 2019

(in thousands)

For the six months ended June 30, 2020

For the six months ended June 30, 2019

Trading Securities

2 unchanged sentences

(in thousands)

As of March 31, 2020

As of June 30, 2020

As of December 31, 2019

Unrealized and realized gains and losses on trading securities are recorded in i nterest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

Proceeds from sales and realized gains and losses from trading securities in the periods ended March 31 , 20 20 and 201 9 were as follows:

Unrealized and realized gains and losses on trading securities are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

Proceeds from sales and realized gains and losses from trading securities in the periods ended June 30, 2020 and 2019 were as follows:

(in thousands)

For the three months ended March 31, 2020

For the three months ended March 31, 2019

The effective tax rate for the three months ended March 31, 2020 and 2019 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation, certain non-deductible expenses and for 2020, expense related to increasing the liability for unrecorded state tax benefits.

For the three months ended March 31, 2020 and 2019, the provision for income taxes was $ 16.8 million and $ 4.8 million, or 22.7 % and 24.9 %, of pre-tax income respectively.

The effective tax rate for the three months ended March 31, 2020 was lower than the effective tax rate for the same period in 2019 due mainly to higher excess tax benefits on share-based compensation.

No valuation allowance was recorded for deferred tax assets in the period ended March 31, 2020 and 2019.

During the three months ended March 31, 2020, the Company recorded a liability for $ 0.3 million ($ 0.2 million net of federal benefit) for unrecognized tax benefits.

The gross unrecognized tax benefits and interest and penalties of $ 2.2 million and $ 2.9 million at March 31, 2020 and December 31, 2019, respectively, are included in other liabilities in the unaudited Condensed Consolidated Balance Sheets.

For the three months ended June 30, 2020

For the three months ended June 30, 2019

(in thousands)

For the six months ended June 30, 2020

For the six months ended June 30, 2019

The effective tax rate for the three and six months ended June 30, 2020 and 2019 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses.

For the three months ended June 30, 2020 and 2019, the provision for income taxes was $ 14.5 million and $ 4.5 million, or 24.5 % and 23.7 %, of pre-tax income respectively.

For the six months ended June 30, 2020 and 2019, the provision for income taxes was $ 31.3 million and $ 9.3 million, or 23.5 % and 24.3 % of pre-tax income, respectively.

The effective tax rate for the three months ended June 30, 2020 was higher than the effective tax rate for the same period in 2019 due to lower excess tax benefits on share-based compensation partially offset by a lower state tax rate.

The effective tax rate for the six months ended June 30, 2020 was lower than the effective tax rate for the same period in 2019 due mainly to higher excess tax benefits on share-based compensation and a lower state tax rate.

No valuation allowance was recorded for deferred tax assets in the periods ended June 30, 2020 and 2019.

At June 30, 2020, the Company had no liability for gross unrecognized tax benefits.

It had a $ 0.2 million liability for interest and penalties on previously unrecognized gross tax benefits, which is included in “Other liabilities” in the accompanying unaudited Condensed Consolidated Balance Sheets.

The Company expects that the amount of unrecognized tax benefits will change in the next 12 months;

however, this change is not expected to have a material impact on the consolidated financial statements.

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three months ending March 31, 2020 and 2019.

however, the Company does not expect the change to have a material impact on its consolidated financial statements .

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three and six months ending June 30, 2020 and 2019.

(in thousands)

Beginning balance

Beginning balance, January 1

Additions based on tax positions related to current period

Reductions related to settlement of tax matters

Ending balance

Ending balance, March 31

Additions based on tax positions related to current period

Reductions related to settlement of tax matters

Ending balance, June 30

2020 Debt Repricing

4 unchanged sentences

The applicable margin on LIBOR under the Repriced Term Loans is 2.50 %, compared to 3.25 % under the Existing Term Loans.

The following table summarizes the components of l ong-term debt under the 2019 Credit Agreement in the unaudited Condensed Consolidated Balance Sheets at March 31 , 20 20 and December 31, 201 9 :

The following table summarizes the components of long-term debt under the 2019 Credit Agreement in the unaudited Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0 % of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00.

As of March 31, 2020, there were no outstanding borrowings under the revolving credit facility and we were in compliance with our financial performance covenant.

A total of $ 38.0 million of the outstanding term loans under the 2019 Credit Agreement was repaid in the first quarter of 2020.

Refer to Note 15, Subsequent Events, for information related to term loan activity subsequent to March 31, 2020.

As of June 30, 2020, there were no outstanding borrowings under the revolving credit facility and we were in compliance with our financial performance covenant.

A total of $ 71.3 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the first six months of 2020.

The Company repaid $ 38.0 million in outstanding term loans in the first three months of 2020 and recorded a $ 1.0 million loss on debt extinguishment.

During the three months ended June 30, 2020, the Company repaid or repurchased and retired $ 33.3 million of outstanding term loans and recorded a $ 0.1 million gain on debt extinguishment.

Refer to Note 15, Subsequent Events, for information related to term loan activity subsequent to June 30, 2020.

2020 Swap Transaction

2 unchanged sentences

Interest Expense

As of March 31, 2020, the term loans under the 2019 Credit Agreement had an interest period of one month and an interest rate of 4.02 %.

Including the impact of amortization of debt issuance costs and original issue discount described herein, the effective yield for term loans under the 2019 Credit Agreement as of March 31, 2020 was 4.45 %.

The following table summarizes the components of interest expense and other financing costs in the unaudited Condensed Consolidated Statements of Operations for the periods ended March 31, 2020 and 2019:

For the Three Months

Ended March 31,

As of June 30, 2020, the term loans under the 2019 Credit Agreement had an interest period of three months and an interest rate of 3.94 %.

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Amortization of debt discount

Interest rate swap (income) expense

Shares Rollforward

10 unchanged sentences

Balance, March 31, 2020

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 2020

Shares of Common Stock Issued

8 unchanged sentences

Balance, March 31, 2019

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 2019

Share Repurchase Program

The share repurchase program authorized in 2018 for $ 15.0 million of the Company’s Class A common stock was completed in September 2019.

In August 2019, the Company’s Board of Directors authorized the Company to repurchase up to an additional $ 15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions (“2019 Share Repurchase Program”).

The share repurchase programs authorized in 2018 and 2019, each for $ 15.0 million of the Company’s Class A common stock were completed in September 2019 and June 2020, respectively.

In May 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $ 15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions (“2020 Share Repurchase Program”).

The amount and timing of the purchases under the 2020 Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions.

The 2020 Share Repurchase Program can be suspended or discontinued at any time.

As of March 31, 2020, a total of 1,925,185 shares of Class A common stock had been repurchased under the initial share repurchase program and the 2019 Share Repurchase Program at a total cost of $ 25.9 million for an average price of $ 13.46 per share.

As of March 31, 2020, $ 4.1 million was available for future repurchases.

The 2019 Share Repurchase Program expires on December 31, 2020.

As of June 30, 2020, a total of 2,382,053 shares of Class A common stock had been repurchased under authorized share repurchase programs at a total cost of $ 33.1 million for an average price of $ 13.90 per share.

As of June 30, 2020, $ 11.9 million was available for future purchases.

The 2020 Share Repurchase Program expires when $ 15 million shares of Class A common stock are repurchased or on December 31, 2021.

Quarterly Dividends

Dividends paid during the three months ended March 31, 2020 included $ 3.4 million for the March 2020 quarterly dividend and $ 0.1 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

During the three months ended June 30, 2020, the Company paid a quarterly dividend of $ 3.4 million.

Dividends paid during the six months ended June 30, 2020 included $ 6.8 million for the March and June 2020 quarterly dividends and $ 0.2 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

Share‑Based Compensation

Current Period Activity

During the three months ended March 31, 2020, the Company issued restricted stock awards for 276,981 shares of common stock, of which awards for 3,238 shares were fully vested on the grant date and awards for 273,743 shares vest based on service over a three year period.

Stock option award and restricted stock award activity during the three months ended March 31, 2020 and 2019 was as follows:

During the three months ended June 30, 2020, the Company issued restricted stock awards for 20,394 shares of common stock, of which awards for 15,741 shares were fully vested on the grant date and awards for 4,653 shares vest based on service over a three year period.

For the six months ended June 30, 2020, the Company issued restricted stock awards for 297,833 shares of common stock, of which awards for 18,979 shares were fully vested on the grant date and awards for 278,854 shares vest based on service over a three year period.

Stock option award and restricted stock award activity during the six months ended June 30, 2020 and 2019 was as follows:

Shares Subject to Stock Option Awards

Three Months Ended March 31,

Six Months Ended June 30,

Outstanding at beginning of period

1 unchanged sentence

Restricted Stock Awards

Three Months Ended March 31,

Six Months Ended June 30,

Avg wtd grant-

5 unchanged sentences

Dividend Payments

At March 31, 2020 and December 31, 2019, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $ 1.2 million and $ 1.3 million, respectively, which was not recorded as a liability as of the balance sheet date.

At June 30, 2020 and December 31, 2019, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $ 1.3 million, which was not recorded as a liability as of the balance sheet date.

A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

Share-Based Compensation Expense

The Company recorded $ 6.0 million and $ 1.5 million of share-based compensation expense in the three months ended March 31, 2020 and 2019, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

The Company recorded $ 3.9 million and $ 3.8 million of share-based compensation expense in the three months ended June 30, 2020 and 2019, respectively, and $ 9.9 million and $ 5.3 million of share-based compensation in the six months ended June 30, 2020 and 2019, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three months ended March 31, 2020 and 2019:

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

(in thousands except per share amounts)

3 unchanged sentences

Earnings per share

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 31 thousand and 1.4 million for the three months ended March 31, 2020 and 2019, respectively.

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 0.6 million and 0.8 million for the three months ended June 30, 2020 and 2019, respectively, and 45 thousand and 1.6 million for the six months ended June 30, 2020 and 2019, respectively.

Holders of non-vested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.

Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss by component for the three months ended March 31, 2020 and 2019.

The following table presents changes in accumulated other comprehensive loss by component for the six months ended June 30, 2020 and 2019.

Available-for-

2 unchanged sentences

Other comprehensive loss before reclassification and tax

Reclassifications, before tax

Net current period other comprehensive loss

Balance, March 31, 2020

Balance, June 30, 2020

Balance, December 31, 2018

2 unchanged sentences

Cumulative effect of adoption of ASU 2016-01 and 2018-02

Balance, March 31, 2019

Balance, June 30, 2019

Interest Rate Swaps

On March 27, 2020, the Company entered into the Swap to manage interest rate risk associated with a portion of its floating-rate long-term debt.

The Swap has a notional amount of $ 450 million.

The Company will pay interest at a fixed rate of interest of 3.465 % and receive interest that varies with the three-month LIBOR rate.

The Company does not purchase or hold any derivative instruments for trading or speculative purposes.

Under the terms of the Swap, the Company pays interest at a fixed rate of interest and receive interest that varies with the three-month LIBOR rate.

The notional value, fixed rate of interest and expiration date of the Swap as of June 30, 2020 was $ 450 million – 3.465 % – July 1, 2026 .

Refer to Note 5, Fair Value Measurements, for additional disclosures regarding fair value measurements.

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument.

1 unchanged sentence

These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged.

The Swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis.

For the three months ended June 30, 2020 and since inception, the Swap was deemed to be highly effective.

The Swap is designated as a cash flow hedge.

Accordingly, the Swap is measured at fair value with mark-to-market gains or losses deferred and included in accumulated other comprehensive income (loss), net of tax, to the extent the hedge is determined to be effective.

Gains or losses from the Swap will be reclassified to interest expense in the same period during which the hedged transaction affects earnings.

At March 31, 2020, the fair value of the interest rate swap was $ 6.3 million, which was included in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affects earnings.

The amount receivable from the Swap counterparty at June 30, 2020 of $ 0.5 million is recorded in other assets on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at June 30, 2020 (in thousands):

June 30, 2020

Notional Amount

Balance Sheet Location

Interest rate swap

Other liabilities

The following table summarizes the effects of the Swap in the unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (in thousands):

Loss Recognized in AOCI, Net of Tax

Three Months Ended

Six Months Ended

Interest rate swap

Gain Reclassified from AOCL into Interest Expense and Other Financing Costs

Three Months Ended

Six Months Ended

Interest rate swap

SUBSEQUENT EVENTS

Subsequent to March 31, 2020, the Company established a trading account to purchase its outstanding term loans in the open market and has bought back $ 31 million of outstanding term loans for a total debt reduction of $ 217 million since July 1, 2019.

On May 11, 2020 , our Board of Directors declared a quarterly cash dividend of $ 0.05 per share on Victory common stock.

The dividend is payable on June 25, 2020 , to stockholders of record on June 10, 2020 .

Subsequent to June 30, 2020, we reduced outstanding term loan principal by $ 20.5 million through repayments and open market term loan debt repurchases and retirements, for a total debt reduction of $ 239.8 million since July 1, 2019.

On August 5, 2020 , our Board of Directors declared a quarterly cash dividend of $ 0.06 per share on Victory common stock, a 20 % increase over the second quarter 2020.

The dividend is payable on September 25, 2020 , to stockholders of record on September 10, 2020 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements