| Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2018 |
| Significant Accounting Policies | |
| Basis of Presentation | Basis of Presentation
The Company prepares its consolidated financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).
All dollar amounts, except per share data in the text and tables herein, are stated in thousands unless otherwise indicated. |
| Retroactive Adjustments for Common Stock Split | Retroactive Adjustments for Common Stock Split
The Company's Board of Directors and stockholders approved a 175.194 for 1 stock split of the Company's common stock on February 1, 2018. All common share and common per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this stock split (see Notes 13, 14 and 17). |
| Principles of Consolidation | Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.
The Company evaluates entities in which it invests and investment funds that it sponsors to determine whether the Company has a controlling financial interest in these entities and is required to consolidate them. A controlling financial interest generally exists if 1) the Company holds greater than 50% voting interest in entities controlled through voting interests or if 2) the Company has the ability to direct significant activities of a fund not controlled through voting interests (a variable interest entity or VIE) and the obligation to absorb losses of and/or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company's involvement with non‑consolidated sponsored investment funds that are considered VIEs include providing investment advisory services, fund administration and distribution services and/or holding a minority interest. At December 31, 2018, 2017 and 2016, the Company's investments in and maximum risk of loss related to unconsolidated sponsored VIE investment funds totaled $ 12.9 million, $ 10.9 million and $ 5.6 million respectively which are included in available‑for‑sale securities and trading securities in the consolidated balance sheets. The Company has not provided financial support to these entities outside the ordinary course of business, which includes assuming operating expenses of funds for competitive or contractual reasons through fee waivers and fund expense reimbursements. The Company does not consolidate the sponsored investment funds in which it had an equity investment as it holds a minority interest, does not direct significant activities of these funds and does not have the right to receive benefits nor the obligation to absorb losses that could potentially be significant to these funds.
During 2018, the Company’s involvement with other non‑consolidated VIEs included an equity method investment and put and call option arrangements with Cerebellum. The put and call option arrangements ended in the first quarter of 2018. The Company’s maximum risk of loss associated with Cerebellum totaled $9.0 million and $6.0 million at December 31, 2018 and December 31, 2017, respectively, which includes the $9.0 million investment at December 31, 2018 and as of December 31, 2017, $5.0 million investment and $1.0 million exposure under the put option for the purchase of additional equity. See Note 12.
The Company applies the equity method of accounting to investments where it does not hold a controlling equity interest but has the ability to exercise significant influence over operating and financial matters. In the event that management identifies an other than temporary decline in the estimated fair value of an equity method investment to an amount below its carrying value, the investment is written down to its estimated fair value. |
| Use of Estimates and Assumptions | Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may ultimately differ from those estimates and the differences may be material. |
| Revenue Recognition | Revenue Recognition
Investment Management Fees
Investment management fees are accrued as earned and are calculated as a contractual percentage of assets under management and advisement (AUM) and vary as levels of AUM change from inflows, outflows and market movement and with number of days in a reporting period. Any investment management fees collected in advance are deferred and recognized as income over the period earned.
Waivers of investment management fees from affiliated funds are included in investment management fees in the consolidated statements of operations. In 2018, 2017 and 2016, the amount of waivers of investment management fees from affiliated funds was immaterial.
Performance‑based investment management fees, which includes fees payable under fulcrum fee arrangements, are accrued only when the performance period is complete, the amount of revenue is no longer subject to adjustment and collectability is reasonably assured. Performance-based investment management fees are recorded in investment management fees in the consolidated statements of operations. In 2018 and 2017, the Company recognized $1.9 million and $1.2 million of performance-based investment management fees, respectively. In 2016 the Company recognized an immaterial amount of performance‑based investment management fees.
Fund Administration Fees
Fund administration fees are accrued on a monthly basis and are determined based on the contractual rate applied to average daily net assets of the Victory Funds for which administration services are provided. The Company is the primary obligor and has the ability to select the service provider and establish pricing and therefore, records fund administration fees and expenses on a gross basis.
The fair value of AUM of the Victory Funds is primarily determined using quoted market prices or independent third‑party pricing services or broker price quotes. In limited circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and other vehicles for which a quotation or price evaluation is not readily available from a pricing service. For the periods presented, a de minimis amount of the AUM was priced in this manner.
Fund Distribution Fees
The Company’s introducing broker-dealer VCA adopted ASU 2014-09 on January 1, 2018 and updated the following policies.
(a) Revenue Recognition
VCA receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds. There are no direct costs incurred to obtain these contracts. Direct costs incurred to fulfill services under the distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares.
Revenue is measured in an amount that reflects the consideration to which VCA expects to be entitled in exchange for providing distribution services. Distribution fees are generally calculated as a percentage of average net assets in the Victory Funds. VCA’s performance obligation is satisfied when control of the services is transferred to customers, which is upon investor subscription or redemption.
Based on the nature of the calculation, the revenue for these services is accounted for as variable consideration, and is subject to factors outside of VCA’s control including investor behavior and activity and market volatility and is recognized as these uncertainties are resolved.
VCA may recognize distribution fee revenue in the current period that pertains to performance obligations satisfied in prior periods, as it represents variable consideration and is recognized as uncertainties are resolved.
VCA has contractual arrangements with third parties to provide certain distribution services. Management considers whether VCA is acting as the principal service provider or as an agent to determine whether its revenue should be recorded based on the gross amount payable by the Victory Funds or net of payments to third-party service providers, respectively. VCA is considered a principal service provider if it controls the service that is transferred to the customer. VCA is considered an agent when it arranges for the service to be provided by another party and does not control the service. Substantially all of VCA’s revenue is recorded gross of payments made to third parties.
VCA’s distribution fee revenue totaled $37.3 million, $43.5 million and $32.7 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is recorded in fund administration and distribution fees on the consolidated statements of operations.
(b) Prepaid C Share Commissions
VCA may pay upfront sales commissions to dealers and institutions that sell Class C shares of the participating Victory Funds at the time of such sale. Upfront sales commission payments with respect to Class C shares equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When VCA makes an upfront payment to a dealer or institution for the sale of Class C shares, VCA capitalizes the cost of such payment, which is recorded in prepaid expenses on the consolidated balance sheets, and amortizes the cost over a 12 month period, the estimated period of benefit. |
| Distribution and Other Asset Based Expenses | Distribution and Other Asset‑Based Expenses
Distribution and other asset‑based expenses include broker dealer distribution, platform distribution, sub‑administration, and sub‑advisory expenses. These expenses are accrued on a monthly basis and are generally calculated as a percentage of AUM and vary as levels of AUM change from inflows, outflows and market movement and with the number of days in the month.
Also included in distribution and other asset‑based expenses are middle office expenses. Middle office expenses are accrued on a monthly basis and vary with changes in mutual fund, institutional and wrap separate account AUM levels, the number of accounts and volume of account transaction activity. |
| Restructuring and Integration Costs | Restructuring and Integration Costs
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. In the case of business combinations, these costs are incurred after the closing date.
These costs include severance‑related expenses related to one‑time benefit arrangements and contract termination costs. A liability for restructuring costs is recognized only after management has developed a formal plan to which it has committed. The costs included in the restructuring liability are those costs that are either incremental or incurred as a direct result of the plan, or are the result of a continuing contractual obligation with no continuing economic benefit to the Company, or a penalty incurred to cancel the contractual obligation. Severance expense is recorded when management has committed to a plan for a reduction in workforce, the plan has been communicated to employees and it is unlikely that there will be significant changes to the plan.
Contract termination liabilities are recorded for contract termination costs when the Company terminates a contract or stops using the product or service covered by the contract. Contract termination liabilities are recognized and measured at fair value. Contract termination costs are recorded in restructuring and integration costs in the consolidated statements of operations. A rollforward of restructuring and integration liabilities for 2018, 2017 and 2016 appears below.
(in millions)
2018
2017
2016
Liability balance, beginning of period
$
0.1
$
7.4
$
5.0
Severance expense
RS Investments
—
0.5
7.4
Other
0.7
0.3
—
Contract termination expense
RS Investments
—
5.0
2.4
Integration costs
—
0.4
0.2
Restructuring and integration costs
0.7
6.2
10.0
Settlement of liabilities
(0.7)
(13.5)
(7.6)
Liability balance, end of period
$
0.1
$
0.1
$
7.4
Accrued expenses
$
0.1
$
0.1
$
6.9
Other liabilities
—
—
0.5
Liability balance, end of period
$
0.1
$
0.1
$
7.4 |
| Cash and Cash Equivalents | Cash and Cash Equivalents
Cash and cash equivalents consist of cash at banks, money market accounts and funds and short‑term liquid investments with original maturities of three months or less at the time of purchase. For the Company and certain subsidiaries, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits. |
| Investments | Investments
Available‑For‑Sale Securities
Available‑for‑sale securities include investments in affiliated mutual funds and are recorded in available‑for‑sale securities in the consolidated balance sheets. Investments in available‑for‑sale securities are carried at fair value. Changes in fair value are recognized as a component of other comprehensive income/(loss) until the securities are sold. Unrealized holdings gains or losses (to the extent such losses are considered temporary) are reported net of deferred tax as a separate component of accumulated other comprehensive income/(loss) until realized. Upon disposition, the gain or loss on the security is reclassified from other comprehensive income/(loss) to other income/(expense) in the consolidated statements of operations. The cost of securities sold is determined using the specific identification method. Dividend income is accrued on the declaration date and is included in other income in the consolidated statements of operations. Transactions are recorded on a trade‑date basis.
The Company periodically reviews each individual security that is in an unrealized loss position to determine if the impairment is other‑than‑temporary. Factors that are considered in determining whether other‑than‑temporary declines in value have occurred include the severity and duration of the unrealized loss and the Company's ability and intent to hold the security for a length of time sufficient to allow for recovery of such unrealized losses. Impairment charges are recorded in other income (expense) in the consolidated statements of operations. No impairments were recognized as a result of such review in the years ended December 31, 2018, 2017 and 2016.
Trading Securities
Trading securities include investments in affiliated and third party mutual funds held in a rabbi trust under a deferred compensation plan. Trading securities are recorded at fair value in the consolidated balance sheets. Changes in value in trading securities are recognized by the Company in other income/(expense) in the consolidated statements of operations.
The Company's available‑for‑sale and trading securities are valued through the use of quoted market prices available in an active market, which is the net asset value of the funds. |
| Derivative Financial Instruments | Derivative Financial Instruments
The Company evaluates financial instruments and other contracts to determine if the arrangement meets the characteristics of a derivative under ASC 815 and the criteria to use hedge accounting.
Hedging instruments
Derivatives are recorded as other assets and other liabilities on the balance sheet and are measured at fair value. To qualify for hedge accounting, the derivative must be deemed to be highly effective in offsetting the designated changes in the hedged item. If the Company's derivatives qualify as cash flow hedges, the effective portion of fluctuations in the fair value of the derivatives are recorded in accumulated other comprehensive income/(loss) and reclassified, as adjustments to interest expense, as the underlying hedged item impacts the consolidated statements of operations.
The change in fair value of the ineffective portion of the derivative, if any, is recognized immediately in the consolidated statements of operations. If a cash flow hedge is terminated or is no longer considered to be effective, hedge accounting is discontinued prospectively. If the derivative continues to exist, future changes in fair value are accounted for in the consolidated statements of operations unless the derivative is re‑designated in a new qualifying hedge relationship.
For the period from December 2014 to December 2017, the Company used interest rate cap derivatives to manage interest rate risk related to a portion of its long-term debt. The Company assessed ongoing effectiveness for these interest rate cap derivatives, which were designated as cash flow hedges, based on total changes in the cap's cash flows and by reviewing whether there had been any changes in the critical terms of the cap or transaction being hedged or any adverse changes in the counterparty's credit. No hedge ineffectiveness was recorded in the years ended December 31, 2017 and 2016. The Company’s interest rate cap derivatives expired on December 31, 2017. |
| Property and Equipment | Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is computed using the straight‑line method over the estimated useful lives of the related assets, generally three to ten years. Improvements to leased property are amortized on a straight‑line basis over the lesser of the useful life of the improvements or the term of the applicable lease. When assets are sold or retired, the related cost and accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in other income (expense) in the consolidated statements of operations. Gains and losses resulting from the sale or disposal of assets as part of a restructuring plan are included in restructuring and integration costs in the consolidated statements of operations. The cost of repairs and maintenance are expensed as incurred. Equipment and leasehold improvements are tested for impairment whenever changes in facts or circumstances indicate that the carrying amount of an asset may not be recoverable. |
| Segment Reporting | Segment Reporting
The Company operates in one business segment that provides investment management services and products to institutional and intermediary clients. The Company's determination that it has one operating segment is based on the fact that the Chief Operating Decision Maker reviews the Company's financial performance on an aggregate level. |
| Goodwill | Goodwill
Goodwill represents the excess cost of the acquisition over the fair value of net assets acquired in a business combination. For goodwill impairment testing purposes, the Company has determined that there is only one reporting unit.
The Company tests goodwill for impairment on an annual basis, or more frequently if facts and circumstances indicate that goodwill may be impaired. Factors that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the Company's use of the acquired assets in a business combination or strategy for the Company's overall business, and significant negative industry or economic trends. The Company conducts the annual impairment assessment as of October 1st. The Company uses a qualitative approach to test for potential impairment of goodwill. If, after considering various factors, management determines that it is more likely than not that goodwill is impaired, a two‑step process to test for and measure impairment is performed which begins with an estimation of the fair value of the Company by considering discounted cash flows. The assumptions used to estimate fair value include management's estimates of future growth rates, operating cash flows, discount rates and terminal value. These assumptions and estimates can change in future periods based on market movement and factors impacting the expected business performance. Changes in assumptions or estimates could materially affect the determination of the fair value of the Company. If the present value of future expected cash flows falls below the recorded book value of equity, the Company's goodwill would be considered impaired. |
| Intangible Assets | Intangible Assets
Intangible assets acquired by the Company outside of a business combination are initially recognized and measured based on the Company's cost to acquire the intangible assets. If a group of assets is acquired, the cost is allocated to individual assets based on their relative fair value. Intangible assets acquired in a business combination are initially recognized and measured at fair value. In valuing these assets, the Company makes assumptions regarding useful lives and projected growth rates, and significant judgment is required.
Definite‑lived intangible assets represent the value of acquired customer relationships in institutional separate accounts, collective funds, intermediary wrap separate account (wrap SMA) and unified managed account/model (UMA) programs. Definite‑lived intangible assets also include intellectual property, advisory contracts that do not have a sufficient history of annual renewal, definite-lived trade name assets and non‑competition agreements.
The Company amortizes definite‑lived identifiable intangible assets on a straight‑line basis over a period that is shorter than the asset's economic life as the pattern of economic benefit cannot be reliably determined. Management periodically evaluates the remaining useful lives and carrying values of the intangible assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and reductions in underlying operating cash flows. Should there be an indication of a change in the useful life or impairment in value of the definite‑lived intangible assets, the Company compares the carrying value of the asset to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. The Company writes off the cost and accumulated amortization balances for all fully amortized intangible assets.
Indefinite‑lived intangible assets include trade names and contracts for advisory and distribution services where the Company expects to, and has the ability to continue to manage these funds indefinitely, the contracts have annual renewal provisions, and there is a high likelihood of continued renewal based on historical experience. Trade names are considered indefinite‑lived intangible assets when they are expected to generate cash flows indefinitely.
Indefinite‑lived intangible assets are reviewed for impairment annually as of October 1st using a qualitative approach which requires that positive and negative evidence collected as a result of considering various factors be weighed in order to determine whether it is more likely than not that an indefinite‑lived intangible asset is impaired. In addition, periodically management reconsiders whether events or circumstances indicate that a change in the useful life may have occurred.
Indicators of a possible change in useful life monitored by management include a significant decline in the level of managed assets, changes to legal, regulatory or contractual provisions of the renewable investment advisory contracts and reductions in underlying operating cash flows. The Company estimates the fair value of the indefinite‑lived intangible asset and compares it to the book value of the asset to determine whether an impairment charge is necessary. Impairment is indicated when the carrying value of the intangible asset exceeds its fair value. |
| Investment Management Fees Receivable and Fund Administration and Distribution Fees Receivable | Investment Management Fees Receivable and Fund Administration and Distribution Fees Receivable
Investment management fees receivable include investment management fees due from the Victory Funds and VictoryShares and investment management fees due from non-affiliated parties. Fund administration and distribution fees receivable include fund administration and fund distribution fees due from the Victory Funds and VictoryShares.
Provision for credit losses on these receivables is made in amounts required to maintain an adequate allowance to cover anticipated losses. All investment management fees receivable and fund administration and distribution fees receivable were determined to be collectible as of December 31, 2018, 2017 and 2016, and accordingly, no reserve for credit losses and no provision for credit losses were recognized as of and for the years ended December 31, 2018, 2017 and 2016. |
| Other Receivables | Other Receivables
Other receivables primarily include income and other taxes receivable and amounts due to the Company under a contract with a third party acquired in the RS Acquisition. All amounts included in other receivables were determined to be collectible as of December 31, 2018, 2017 and 2016. |
| Share Based Compensation | Share‑Based Compensation
Compensation expense related to share‑based payments is measured at the grant date based on the fair value of the award. The fair value of each option granted is estimated using the Black‑Scholes option valuation model. The Black‑Scholes option valuation model incorporates assumptions as to dividend yield, expected volatility, an appropriate risk‑free interest rate and the expected life of the option. The fair value of restricted share awards with service based vesting conditions and performance based vesting conditions is based on the market price of our stock on the date of grant. The fair value of restricted share awards subject to market conditions is estimated based on a probability-weighted expected value analysis. Compensation expense is recognized on a straight‑line basis over the total vesting period of the award for the service portion of restricted share awards and stock option awards. Compensation expense is recognized on an accelerated basis over the derived service period for awards that vest based on market conditions and on an accelerated basis over the requisite service period for awards with performance conditions if it is probable that the performance conditions will be satisfied. Compensation expense is adjusted for actual forfeitures in the period the forfeiture occurs. The corresponding credit for restricted share and stock option compensation expense is recorded to additional paid in capital. |
| Earnings per share | Earnings Per Share
The calculation of basic earnings per share is based on the weighted average number of shares of the Company’s common stock, Class A common stock and Class B common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share, but adjusts for the dilutive effect of the potential issuance of incremental shares of all classes of the Company’s common stock. The Company had vested and unvested stock options and unvested restricted stock grants outstanding during the periods presented and applies the treasury stock method to these securities in its calculation of diluted earnings per share. The treasury stock method assumes that the proceeds of exercise are used to purchase common stock at the average market price for the period. The Company does not have any participating securities that would require the use of the two‑class method of computing earnings per share. |
| Deferred Financing Fees | Deferred Financing Fees
The costs of obtaining term loan financing are capitalized in long‑term debt in the consolidated balance sheets and amortized to interest expense and other financing costs in the consolidated statements of operations over the term of the respective financing using the effective interest method. The costs of obtaining revolving line of credit financing are capitalized in other assets in the consolidated balance sheets and amortized to interest expense and other financing costs in the consolidated statements of operations on a straight‑line basis over the term of the facility. |
| Debt Modification | Debt Modification
Gains and losses on debt modifications that are considered extinguishments are recognized in current earnings. Debt modifications that are not considered extinguishments are accounted for prospectively through yield adjustments, based on the revised terms. Legal fees and other costs incurred with third parties that are directly related to debt modifications are expensed as incurred and generally are included in general and administrative expense in the consolidated statements of operations. In 2018, the Company expensed $1.9 million in costs related to debt modifications upon entering into the Existing Credit Agreement. In 2017, the Company expensed $1.2 million in costs related to debt modifications upon the issuance of Incremental Term Loan 3 to fund the 2017 Special Dividend and an additional $1.0 million in costs related to debt modifications upon the 2017 Debt Refinancing. During 2016, the Company expensed $0.8 million in costs related to debt modifications upon the issuance of Incremental Term Loan 2 to finance the RSIM acquisition, which were included in acquisition-related costs in the consolidated statements of operations. The analysis as to whether a modification of debt is an extinguishment or modification is performed on a creditor‑by‑creditor basis. See Note 10 for information on debt refinancings and modifications. |
| Leases | Leases
The Company currently leases office space and equipment under various leasing arrangements. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Leases are classified as either capital leases or operating leases, as appropriate. Lease agreements that are classified as operating leases may contain renewal options, rent escalation clauses or other inducements provided by the landlord. Rent expense is accrued to recognize lease escalation provisions and inducements provided by the landlord, if any, on a straight‑line basis over the lease term commencing when the Company obtains the right to control the use of the leased property. Rent expense is included in general and administrative expense in the consolidated statements of operations. |
| Treasury Stock | Treasury Stock
Acquisitions of treasury stock are recorded at cost. Treasury stock held is reported as a deduction from stockholders' equity in the consolidated balance sheets. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a specific‑identification basis. Additional paid‑in capital from treasury stock transactions is increased as the Company reissues treasury stock for more than the cost of the shares. If the Company issues treasury stock for less than its cost, additional paid‑in capital from treasury stock transactions is reduced to no less than zero. Once this account is at zero, any further required reductions are recorded to retained deficit in the consolidated balance sheets. |
| Foreign Currency Transactions | Foreign Currency Transactions
The financial statements of RSSI, RSHK and RSUK, which operate outside of the United States (U.S.), are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in other comprehensive income/(loss) (OCI), which were immaterial in amount at December 31, 2018, 2017 and 2016.
Transactions denominated in currencies other than the functional currency are recorded using the exchange rate on the date of the transaction. Exchange differences arising on the settlement of financial assets and liabilities are recorded in other income/(expense) in the consolidated statements of operations. Foreign exchange gains and losses for the years ended December 31, 2018, 2017 and 2016 were immaterial. |
| Income Taxes | Income Taxes
Income taxes are accounted for using the assets and liability method as required by ASC 740, Income Taxes (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities are generally attributable to indefinite‑lived intangible assets and depreciation. Deferred tax assets are generally attributable to definite‑lived intangible assets, stock compensation, deferred compensation and federal, state and foreign loss carryforwards and the benefit of uncertain tax positions. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company assesses whether a valuation allowance should be established against its deferred income tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. The assessment considers, among other matters, the nature, frequency and severity of recent operating results, forecasts of future profitability, the duration of statutory carry back and carry forward periods and the Company's experience with tax attributes expiring unused. Changes in circumstance could cause the Company to revalue its deferred tax balances with the resulting change impacting the consolidated statements of operations in the period of the change.
The Company records income tax liabilities pursuant to ASC 740, which prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de‑recognition, classification of interest and penalties, accounting in interim periods, disclosure and transition. For tax positions meeting a "more‑likely‑than‑not" threshold, the amount recognized in the financial statements is the largest amount of benefit greater than 50% likely of being sustained. The more‑likely‑than‑not threshold must continue to be met in each reporting period to support continued recognition of the benefit. The Company's accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as income taxes.
Certain income tax effects of the Tax Cuts and Jobs Act enacted in December 2017 ("Tax Act") were reflected in the Company’s financial results in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which provides SEC staff guidance regarding the application of ASC Topic 740 in the reporting period in which the Tax Act became law. See also Note 9 for further detail. |
| Loss Contingencies | Loss Contingencies
The Company continuously reviews any investor, client, employee or vendor complaints and pending or threatened litigation. The Company evaluates the likelihood that a loss contingency exists under the criteria of applicable accounting standards through consultation with legal counsel and records a loss contingency, inclusive of legal costs, if the contingency is probable and reasonably estimable at the date of the financial statements. |
| Business Combinations | Business Combinations
The Company accounts for business combinations under the acquisition method of accounting and allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values are determined in accordance with the guidance in ASC 820 based on valuations performed by the Company and independent valuation specialists. |
| Contingent and Deferred Payment Arrangements | Contingent and Deferred Payment Arrangements
The Company periodically enters into contingent and/or deferred payment arrangements in connection with its business combinations. Liabilities under contingent and deferred payment arrangements are recorded in consideration payable for acquisition of business in the consolidated balance sheets. In contingent payment arrangements, the Company agrees to pay additional consideration to the sellers based on future performance, such as future net revenue levels. The Company estimates the fair value of these potential future obligations at the time a business combination is consummated and records a liability in the consolidated balance sheet at estimated fair value. In deferred payment arrangements, the Company records a liability in the consolidated balance sheet for the estimated fair value, which is the present value, of the future payments as of the acquisition date.
If the Company's expected payments under contingent payment obligations subsequently change, the obligation is reduced or increased in the current period resulting in a gain or loss, respectively. Gains and losses resulting from changes to expected payments under contingent payment obligations are reflected in change in value of consideration payable for acquisition of business in the consolidated statements of operations.
The Company accretes deferred payment obligations to their expected payment amounts over the period covered by the arrangement. Accretion expense related to deferred payment obligations is reflected in interest expense and other financing costs in the consolidated statements of operations and totaled $0.5 million, $0. 6 million and $0.7 million in 2018, 2017 and 2016, respectively. |
| Equity Award Modifications | Equity Award Modifications
When changes are made to the terms of an equity award that result in a change in the fair value of the equity award immediately before and after the change, the Company applies modification accounting, treating the change as an exchange of the original award for a new award. The calculation of the incremental value associated with the modified award is based on the excess of the fair value of the modified award over the fair value of the original award measured immediately before its terms are modified. |
| Reclassifications | Reclassifications
Certain reclassification adjustments have been made to conform prior periods’ consolidated financial statements and notes to the consolidated financial statements to the current year presentation for comparative purposes. This includes the presentation of treasury stock as Class B treasury stock at December 31, 2017 on the consolidated balance sheets. |
| Adoption of New Accounting Standards and Recent Accounting Pronouncements | Adoption of New Accounting Standards
ASU 2016-09 Compensation – Stock Compensation (Topic 718) was issued by the FASB in March 2016 to reduce the cost and complexity of reporting on employee share-based payments and to address the tax reporting, forfeitures, and expected term related to equity awards. ASU 2016-09 eliminates the requirement that excess tax benefits be realized through a reduction in income taxes payable before the benefits can be recognized.
The Company adopted ASU 2016-09 on January 1, 2018 using a modified retrospective transition method. A one-time credit to retained earnings of $1.3 million was recorded as the cumulative-effect adjustment for excess tax benefits not previously recognized and to adjust compensation cost on equity awards outstanding at January 1, 2018 as if the Company had previously accounted for forfeitures as they occurred.
With the adoption of ASU 2016-09, the Company now recognizes the income tax effects of share-based compensation in income tax expense, which may cause significant fluctuations in the reported amount of income tax expense in the consolidated statements of operations and the effective tax rate as restricted shares vest and stock options are exercised. In addition, upon adoption of ASU 2016-09, the Company made the election to account for forfeitures of equity awards as they occur. The Company elected to adopt the amendment related to the cash flow presentation of excess tax benefits prospectively and prior periods have not been adjusted.
ASU 2017-09 was issued by the FASB in May 2017 to clarify when changes in the terms or conditions of a share-based payment award qualify for accounting treatment as a modification. The Company adopted ASU 2017-09 on January 1, 2018 and will apply the new guidance prospectively to awards modified after January 1, 2018. The adoption had no significant impact on the Company’s consolidated financial statements for the year ended December 31, 2018.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606, as amended), which supersedes existing revenue recognition guidance. ASU 2014-09 and all subsequent amendments related to ASU 2014-09 (the “new revenue guidance") requires the following steps when recognizing revenue: 1) identify the contract with the customer 2) identify performance obligations in the contract 3) determine the transaction price 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when or as performance obligations are satisfied. The new revenue guidance requires additional disclosures related to the nature, amount, timing and uncertainty of revenue from customer contracts. ASU 2014-09 may be adopted by using one of two methods 1) retrospective application to each prior reporting period presented or 2) a modified retrospective approach, requiring the standard be applied only to the most current period presented, with the cumulative effect of initially applying the standard recognized at the date of initial application. The new revenue guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, for non-emerging growth companies, and for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, for the Company.
The Company's implementation assessment included the identification of revenue within the scope of the guidance, as well as the review of terms and conditions of a sample of revenue contracts covering a broad range of vehicles and products. The Company adopted ASU 2014-09 effective January 1, 2019, using the modified retrospective approach, and no cumulative effect adjustment was required to be recorded. The Company determined that the new guidance did not have a material impact on the timing of recognition of the Company’s revenue. The most significant impact from adopting the new guidance was a change to a net presentation of certain fund expense reimbursements which were previously presented on a gross basis. These fund expense reimbursements totaled $12.9 million in 2018 and were recorded in distribution and other asset-based expenses in the consolidated statements of operations. Effective January 1, 2019, fund expense reimbursements are recorded in investment management fees on the consolidated statements of operations.
The Company’s introducing broker-dealer VCA adopted the new revenue guidance effective January 1, 2018. VCA receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds. There are no direct costs incurred to obtain these contracts. Direct costs incurred to fulfill services under the distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares. There was no change to how VCA records revenue from contracts with customers and accounts for costs incurred to fulfill services under distribution contracts from adoption of the new revenue guidance.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities". This update requires equity securities to be measured at fair value and changes in the fair value of equity securities to be recognized in net income. The update is effective for fiscal years beginning after December 15, 2017 for non-emerging growth companies and for fiscal years beginning after December 31, 2018 for the Company. The Company adopted ASU 2016-01 on January 1, 2019, and the adoption had an immaterial impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 is amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20, which FASB issued in January 2018, July 2018, July 2018 and December 2018, respectively (collectively, the amended ASU 2016-02). The amended ASU 2016-02 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. The amended ASU 2016-02 retains a distinction between finance leases (i.e. capital leases under current GAAP) and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current GAAP. The amended ASU 2016-02 also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. A modified retrospective transition approach is used when adopting the amended ASU 2016-02, which includes a number of optional practical expedients that entities may elect to apply. The amended ASU will be effective for fiscal years beginning after December 15, 2018 for non-emerging growth companies and for fiscal years beginning after December 15, 2019 for the Company. The Company is currently evaluating the impact on its financial statements of adopting this standard.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments". The update provides guidance on certain cash flow statement classifications that were previously unclear or lacked specific guidance. The classifications addressed in the update include debt extinguishment costs, contingent consideration payments made after a business combination, and distributions received from equity method investees. The update is effective for fiscal years beginning after December 15, 2017 for non-emerging growth companies and for fiscal years beginning after December 15, 2018 for the Company. The Company is in the process of analyzing how the new rules will impact financial reporting.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and other (Topic 350), Simplifying the Test for Goodwill Impairment”. The standard eliminates Step 2 from the goodwill impairment test. Under the amended guidance, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss cannot exceed the total amount of goodwill allocated to the reporting unit. The new guidance is effective for the Company’s fiscal year that begins after December 15, 2020 and requires a prospective approach to adoption. Early adoption is permitted for interim or annual goodwill impairment tests. Upon adoption, the new guidance will impact the Company’s consolidated financial statements and related disclosures only in the event there is goodwill impairment.
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". ASU 2018-02 allows companies to reclassify tax effects stranded in accumulated other comprehensive income/(loss) as a result of tax reform to retained earnings/(deficit). The guidance is effective for the Company’s fiscal year beginning January 1, 2019. Early adoption is permitted. The Company adopted ASU 2018-02 on January 1, 2019, and the adoption had an immaterial impact on the Company’s consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05 incorporating guidance from SEC Staff Accounting Bulletin (SAB) 118 into Accounting Standards Codification 740 on income taxes. SAB 118 addresses situations where companies are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) in the period of enactment. See Note 9 for more information on the Company’s accounting for the income tax effects of the Tax Act.
On October 4, 2018, as part of Rule 3-04 of Regulation S-X, the SEC published amended rules requiring an analysis of changes in stockholders’ equity for the current and comparative quarter and year to date periods in financial statements included in quarterly reports on Form 10-Q. The new rule took effect on November 5, 2018. To provide transition relief, the SEC’s Division of Corporation Finance issued a Compliance and Disclosure Interpretation stating that the SEC staff will not object if a filer’s first presentation of the changes in stockholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. The Company will begin including an analysis of changes in stockholders’ equity for the current and comparative quarter in its financial statements included on Form 10-Q for the quarter ending March 31, 2019. |
