On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition, acquiring 100% of the outstanding common stock of the USAA Acquired Companies and the USAA Mutual Fund Business. The USAA AMCO Acquisition expands and diversifies the Company’s investment platform, particularly in the fixed income and solutions asset classes, and increases the Company’s size and scale. 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 distribution channel.

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. 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.

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. 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. The goodwill arising from the acquisition primarily results from expected future earnings and cash flows, as well as the synergies created by the integration of the USAA Acquired Companies within our organization.

The following table summarizes the estimated amounts of identified acquired assets and liabilities assumed as of the acquisition date:

(in thousands)
Cash and cash equivalents	$	17,473
Investment management fees receivable		25,353
Fund administration and distribution fees receivable		4,779
Other receivables and prepaid expenses		299
Property and equipment		1,165
Other intangible assets⁽¹⁾		808,670
Goodwill		120,643
Accounts payable and accrued expenses		(5,575	)
Accrued compensation and benefits		(5,907	)
Payable to members and custodians		(17,473	)
Contingent consideration payable to sellers		(98,800	)
Total purchase price consideration	$	850,627

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

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. Revenue related to “non-managed money” assets was simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which were then discounted from the expected payment dates at the relevant cost of debt. 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 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. As the contingent consideration represents a subordinate, unsecured claim of the Company, we have assessed a discount rate of approximately 5.3%, which incorporates adjustments for credit risk and the subordination of the contingent consideration. Total estimated undiscounted earn out payments ranged from $130 million to $150 million, the maximum amount payable to sellers.

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

	Unaudited		Unaudited
	Three Months Ended		Six Months Ended
(in millions)	June 30, 2020		June 30, 2020
Revenue	$	104.0	$	221.3

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. This unaudited information should not be relied upon as indicative of historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.

The historical consolidated financial information of Victory and the USAA Acquired Companies have been adjusted to give effect to unaudited pro forma events that are directly attributable to the transaction, factually supportable and expected to have continuing impact on the combined results. These amounts have been calculated after adjusting the results of the USAA Acquired Companies to reflect additional interest expense, distribution costs, share-based compensation expense, income taxes and intangible asset amortization that would have been expensed assuming the fair value adjustments had been applied on January 1, 2018. In addition, Victory’s and the USAA Acquired Companies’ results were adjusted to remove incentive compensation, legal fees and mutual fund proxy costs directly attributable to the acquisition.

	Unaudited		Unaudited
	Three Months Ended		Six Months Ended
(in thousands, except per share amount)	June 30, 2019		June 30, 2019
Revenue	$	212.9	$	417.9
Net income	$	16.9	$	30.1

Earnings per share of common stock
Basic	$	0.25	$	0.45
Diluted	$	0.23	$	0.41

Weighted average number of shares outstanding
Basic		67,661		67,631
Diluted		73,666		73,086

Costs related to acquisitions are summarized below and include legal and filing fees, advisory services, mutual fund proxy voting costs and other one-time expenses related to the transactions. These costs are included in acquisition-related costs in the unaudited Condensed Consolidated Statements of Operations.

	Acquisition-related costs
	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2020			2019		2020			2019
USAA AMCO Acquisition	$	12		$	2,222	$	(112	)	$	4,808
Other		(35	)		565		20			756
Total acquisition-related costs	$	(23	)	$	2,787	$	(92	)	$	5,564

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 and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020			2019			2020			2019
Liability balance, beginning of period	$	2.5		$	0.1		$	3.0		$	0.1
Severance Expense - USAA AMCO		0.9			1.4			0.9			1.4
Integration costs - USAA AMCO		1.7			0.4			2.7			0.4
Total restructuring and integration costs		2.6			1.8			3.6			1.8
Settlement of liabilities		(2.3	)		(0.4	)		(3.8	)		(0.4	)
Liability balance, end of period	$	2.8		$	1.5		$	2.8		$	1.5