RE/MAX HOLDINGS, INC., 10-Q filed on 3/15/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2017
Feb. 28, 2018
Entity Registrant Name RE/MAX Holdings, Inc.  
Entity Central Index Key 0001581091  
Document Period End Date Sep. 30, 2017  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Fiscal Year Focus 2017  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Current Reporting Status No  
Entity Filer Category Large Accelerated Filer  
Common Class A    
Entity Common Stock, Shares Outstanding   17,696,991
Common Class B    
Entity Common Stock, Shares Outstanding   1
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
Sep. 30, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 83,936,000 $ 57,609,000
Accounts and notes receivable, current portion, less allowances of $6,247 and $5,535, respectively 19,002,000 19,419,000
Income taxes receivable 1,747,000  
Other current assets 5,357,000 4,186,000
Total current assets 110,042,000 81,214,000
Property and equipment, net of accumulated depreciation of $12,865 and $12,196, respectively 2,993,000 2,691,000
Franchise agreements, net 99,634,000 109,140,000
Other intangible assets, net 9,207,000 9,811,000
Goodwill 123,013,000 126,633,000
Deferred tax assets, net 101,649,000 105,770,000
Other assets, net of current portion 1,548,000 1,894,000
Total assets 448,086,000 437,153,000
Current liabilities:    
Accounts payable 449,000 855,000
Accounts payable to affiliates 83,000 145,000
Accrued liabilities 15,302,000 13,268,000
Income taxes payable 401,000 379,000
Deferred revenue and deposits 17,470,000 16,306,000
Current portion of debt 2,350,000 2,350,000
Current portion of payable pursuant to tax receivable agreements 6,135,000 13,235,000
Total current liabilities 42,190,000 46,538,000
Debt, net of current portion 227,094,000 228,470,000
Payable pursuant to tax receivable agreements, net of current portion 85,850,000 85,574,000
Deferred tax liabilities, net 151,000 133,000
Other liabilities, net of current portion 20,064,000 15,729,000
Total liabilities 375,349,000 376,444,000
Commitments and contingencies (note 13)
Stockholders' equity:    
Additional paid-in capital 450,317,000 448,713,000
Retained earnings 22,675,000 16,005,000
Accumulated other comprehensive income (loss), net of tax 439,000 (28,000)
Total stockholders' equity attributable to RE/MAX Holdings, Inc. 473,433,000 464,692,000
Non-controlling interest (400,696,000) (403,983,000)
Total stockholders' equity 72,737,000 60,709,000
Total liabilities and stockholders' equity 448,086,000 437,153,000
Common Class A    
Stockholders' equity:    
Common stock 2,000 2,000
Total stockholders' equity 2,000 2,000
Common Class B    
Stockholders' equity:    
Common stock
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2017
Dec. 31, 2016
Accounts Receivable, allowance $ 6,247 $ 5,535
Property and equipment, accumulated depreciation $ 12,865 $ 12,196
Common Class A    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 180,000,000 180,000,000
Common stock, shares issued 17,696,991 17,652,548
Common stock, shares outstanding 17,696,991 17,652,548
Common Class B    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 1,000 1,000
Common stock, shares issued 1 1
Common stock, shares outstanding 1 1
v3.8.0.1
Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenue:        
Continuing franchise fees $ 23,049 $ 20,938 $ 69,298 $ 59,691
Annual dues 8,592 8,321 25,148 24,271
Broker fees 12,125 10,517 32,914 28,102
Franchise sales and other franchise revenue 5,611 5,783 19,065 19,704
Brokerage revenue       112
Total revenue 49,377 45,559 146,425 131,880
Operating expenses:        
Selling, operating and administrative expenses 31,832 20,539 79,263 62,866
Depreciation and amortization 4,286 3,889 15,678 11,482
Loss (gain) on sale or disposition of assets, net 451 (11) 426 85
Total operating expenses 36,569 24,417 95,367 74,433
Operating income 12,808 21,142 51,058 57,447
Other expenses, net:        
Interest expense (2,598) (2,121) (7,414) (6,493)
Interest income 145 32 195 118
Foreign currency transaction gains (losses) 273 (115) 289 69
Loss on early extinguishment of debt       (136)
Total other expenses, net (2,180) (2,204) (6,930) (6,442)
Income before provision for income taxes 10,628 18,938 44,128 51,005
Provision for income taxes (3,091) (4,632) (10,883) (12,176)
Net income 7,537 14,306 33,245 38,829
Less: net income attributable to non-controlling interest (note 3) 3,702 7,520 16,968 20,290
Net income attributable to RE/MAX Holdings, Inc. $ 3,835 $ 6,786 $ 16,277 $ 18,539
Weighted average shares of Class A common stock outstanding        
Cash dividends declared per share of Class A common stock     $ 0.54 $ 0.45
Common Class A        
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock        
Basic $ 0.22 $ 0.38 0.92 1.05
Diluted $ 0.22 $ 0.38 $ 0.92 $ 1.05
Weighted average shares of Class A common stock outstanding        
Basic 17,696,991 17,645,696 17,685,683 17,622,298
Diluted 17,737,786 17,691,641 17,726,447 17,666,740
Cash dividends declared per share of Class A common stock $ 0.18 $ 0.15 $ 0.54 $ 0.45
v3.8.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 7,537 $ 14,306 $ 33,245 $ 38,829
Change in cumulative translation adjustment 536 (147) 999 417
Other comprehensive income (loss), net of tax 536 (147) 999 417
Comprehensive income 8,073 14,159 34,244 39,246
Less: comprehensive income attributable to non-controlling interest 3,987 7,442 17,500 20,513
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax $ 4,086 $ 6,717 $ 16,744 $ 18,733
v3.8.0.1
Consolidated Statements of Stockholders' Equity - 9 months ended Sep. 30, 2017 - USD ($)
Additional paid-in capital
(Accumulated deficit) retained earnings
Accumulated other comprehensive income
Non-controlling interest
Common Class A
Common Class B
Total
Balances, January 1, 2017 at Dec. 31, 2016 $ 448,713,000 $ 16,005,000 $ (28,000) $ (403,983,000) $ 2,000   $ 60,709,000
Beginning balance, Shares at Dec. 31, 2016         17,652,548 1  
Net income   16,277,000   16,968,000     33,245,000
Distributions to non-controlling unitholders       (14,213,000)     (14,213,000)
Equity-based compensation expense and related dividend equivalents, value 2,161,000 (53,000)       $ 0 2,108,000
Equity-based compensation expense and related dividend equivalents, shares         58,426    
Dividends to Class A common stockholders   (9,554,000)     $ (9,554,000)   (9,554,000)
Change in accumulated other comprehensive income     467,000 532,000     999,000
Payroll taxes related to net settled restricted stock units (816,000) 0         (816,000)
Payroll taxes related to net settled restricted stock units (in shares)         (13,983)    
Other 259,000           259,000
Ending balance, Value at Sep. 30, 2017 $ 450,317,000 $ 22,675,000 $ 439,000 $ (400,696,000) $ 2,000   $ 72,737,000
Ending balance, Shares at Sep. 30, 2017         17,696,991 1  
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash flows from operating activities:    
Net income $ 33,245,000 $ 38,829,000
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 15,678,000 11,482,000
Bad debt expense 836,000 1,177,000
Loss on sale or disposition of assets and sublease, net (3,859,000) (85,000)
Loss on early extinguishment of debt   136,000
Equity-based compensation expense 2,161,000 1,812,000
Deferred income tax expense 3,919,000 3,244,000
Fair value adjustments to contingent consideration 250,000  
Payments pursuant to tax receivable agreements (7,296,000) (1,344,000)
Other 888,000 802,000
Changes in operating assets and liabilities (100,000) (7,183,000)
Net cash provided by operating activities 53,440,000 49,040,000
Cash flows from investing activities:    
Purchases of property, equipment and software (1,733,000) (3,229,000)
Proceeds from sale of property and equipment   12,000
Capitalization of trademark costs (48,000) (35,000)
Acquisitions, net of cash acquired of $0 and $131, respectively   (17,869,000)
Other investing activity, net   54,000
Net cash used in investing activities (1,781,000) (21,067,000)
Cash flows from financing activities:    
Payments on debt (1,763,000) (14,220,000)
Distributions paid to non-controlling unitholders (14,213,000) (14,094,000)
Dividends and dividend equivalents paid to Class A common stockholders (9,607,000) (7,932,000)
Payments on capital lease obligations (9,000) (72,000)
Proceeds from exercise of stock options   101,000
Payment of payroll taxes related to net settled restricted stock units (816,000) (360,000)
Net cash used in financing activities (26,408,000) (36,577,000)
Effect of exchange rate changes on cash 1,076,000 373,000
Net increase (decrease) in cash and cash equivalents 26,327,000 (8,231,000)
Cash and cash equivalents, beginning of year 57,609,000 110,212,000
Cash and cash equivalents, end of period 83,936,000 101,981,000
Supplemental disclosures of cash flow information:    
Cash paid for interest 7,477,000 6,195,000
Net cash paid for income taxes 8,619,000 9,492,000
Schedule of non-cash investing and financing activities:    
Note receivable received as consideration for sale of brokerage operations assets   150,000
Capital lease for property and equipment   33,000
Increase in accounts payable for capitalization of trademark costs and purchases of property, equipment and software $ 310,000 89,000
Contingent consideration issued in a business acquisition   $ 6,300,000
v3.8.0.1
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Consolidated Statements of Cash Flows    
Cash acquired $ 0 $ 131
v3.8.0.1
Business and Organization
9 Months Ended
Sep. 30, 2017
Business and Organization  
Business and Organization

1. Business and Organization

RE/MAX Holdings, Inc. (“RE/MAX Holdings”) was formed as a Delaware corporation on June 25, 2013. On October 7, 2013, RE/MAX Holdings completed an initial public offering (the “IPO”) of its shares of Class A common stock. RE/MAX Holdings’ only business is to act as the sole manager of RMCO, LLC (“RMCO”). As of September 30, 2017, RE/MAX Holdings owns 58.49% of the common membership units in RMCO, while RIHI, Inc. (“RIHI”) owns the remaining 41.51% of common membership units in RMCO. RE/MAX Holdings and its consolidated subsidiaries, including RMCO, are referred to hereinafter as the “Company.” 

The Company is a franchisor in the real estate industry, franchising real estate brokerages globally under the RE/MAX brand (“RE/MAX”) and mortgage brokerages within the United States (“U.S.”) under the Motto Mortgage brand. RE/MAX, founded in 1973, has over 115,000 agents operating in over 7,000 offices and a presence in more than 100 countries and territories. Motto Mortgage (“Motto”), founded in 2016, is the first nationally franchised mortgage brokerage in the U.S. The Company sold certain operating assets and liabilities of its owned brokerage offices during 2015 and the first quarter of 2016 to existing RE/MAX franchisees (See Note 5, Acquisitions and Dispositions). Since then, the Company is 100% franchised, no longer operates any real estate brokerage offices and no longer recognizes brokerage revenue (which consisted of fees assessed by the Company’s owned brokerages for services provided to their affiliated real estate agents). While the Company operates through both RE/MAX and Motto, due to the immateriality of revenue earned by Motto, the Company discloses only one reportable segment.

The Company’s revenue is derived as follows:

·

Continuing franchise fees which consist of fixed contractual fees paid monthly by regional franchise owners and franchisees based on the number of RE/MAX agents in the respective franchised region or office and the number of Motto offices (no significant continuing franchise fees were generated by Motto during the periods presented);

·

Annual dues from RE/MAX agents;

·

Broker fees, which consist of fees paid by regional RE/MAX franchise owners and franchisees for real estate commissions paid by customers when an agent sells a home;

·

Franchise sales and other franchise revenue which consist of fees from initial sales and renewals of RE/MAX and Motto franchises, regional franchise fees, preferred marketing arrangements, approved supplier programs and event-based revenue from training and other programs; and

·

Brokerage revenue prior to the sale of the Company’s brokerage offices in January 2016.

v3.8.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2017
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2016, which was derived from the audited consolidated financial statements at that date, and the unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and with Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements are presented on a consolidated basis and include the accounts of RE/MAX Holdings and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of September 30, 2017 and December 31, 2016, the results of its operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, cash flows for the nine months ended September 30, 2017 and 2016, and changes in its stockholders’ equity for the nine months ended September 30, 2017. Interim results may not be indicative of full year performance. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

During 2016, the Company completed the acquisitions of six independent regions. Their results of operations, cash flows and financial positions are included in the consolidated financial statements from their respective dates of acquisition. See Note 5, Acquisitions and Dispositions for additional information.

Reclassifications

Certain items in the accompanying condensed consolidated financial statements as of December 31, 2016 have been reclassified to conform to the current year’s presentation. These reclassifications did not affect the Company’s consolidated results of operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

As of September 30, 2017, RE/MAX Holdings owns 58.49% of the common membership units in RMCO and, as its managing member, RE/MAX Holdings controls RMCO’s operations, management and activities. As a result, RE/MAX Holdings consolidates RMCO and records a non-controlling interest in the accompanying Condensed Consolidated Balance Sheets and records net income attributable to the non-controlling interest and comprehensive income attributable to the non-controlling interest in the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, respectively.

New Accounting Pronouncements Not Yet Adopted

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which adjusts the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard is to be applied either in the period of adoption or retrospectively to each period effected by the Tax Cuts and Jobs Act. The Company plans to adopt this ASU on January 1, 2019. As of December 31, 2017, the Company completed the majority of its accounting for the tax effects of the Tax Cuts and Jobs Act. The Company believes the amendments of ASU 2018-02 will not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests beginning January 1, 2020 for the Company and is required to be adopted using a prospective approach. Early adoption is allowed for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.

Also in January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim reporting periods within those years, beginning January 1, 2018 for the Company and is required to be adopted using a prospective approach. Early adoption is permitted for transactions not previously reported in issued financial statements. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies classification for certain cash receipts and cash payments on the consolidated statement of cash flow. ASU 2016-15 is effective for fiscal years, and interim reporting periods within those years, beginning January 1, 2018 for the Company. The standard requires a retrospective transition method for each period presented. Under the new guidance, the contingent consideration payments related to the purchase of Full House Mortgage Connection, Inc. (“Full House”) will be classified as financing outflows up to the $6,300,000 acquisition date fair value and any cash payments paid in excess of the acquisition date fair value will be classified as operating outflows. (See Note 5, Acquisitions and Dispositions). The Company expects no other material impact on its financial statements and related disclosures upon the adoption of this standard.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and liabilities that arise from all leases on the consolidated balance sheets. ASU 2016-02 is required to be adopted by the Company on January 1, 2019. Early adoption is permitted in any interim or annual reporting period. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has not yet determined the effect of the standard on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), with several subsequent amendments, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The Company adopted this standard on January 1, 2018. The Company will use the modified retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016 and 2017, in the year of adoption. Additionally, a cumulative effect adjustment will be recorded to the opening balance sheet as of the first day of fiscal year 2016, the earliest period presented.  The adoption of the new guidance will change the timing of recognition of franchise sales and franchise renewal revenue. Currently, the Company recognizes revenue upon completion of a sale or renewal. Under the new guidance, franchise sales and renewal revenue, which are included in “Franchise Sales and Other Franchise Revenue” in the Consolidated Statements of Income, will be recognized over the contractual term of the franchise agreement. The impact to both “Franchise Sales and Other Franchise Revenue” and “Operating Income” in the Consolidated Statements of Income for 2017 from this change will be a decrease of less than $2,000,000. However, the Consolidated Balance Sheet as of December 31, 2017 will be adjusted in the first quarter of 2018 to reflect an increase in “Deferred revenue and deposits” of approximately $26,000,000. The commissions related to franchise sales will be recorded as a contract asset and be recognized over the contractual term of the franchise agreement. Currently, the Company expenses the commissions upon franchise sale completion. The impact from this change to “Selling, operating and administrative expenses” and “Operating Income” in the Consolidated Statements of Income for 2017 is immaterial and the Consolidated Balance Sheet as of December 31, 2017 will be adjusted in the first quarter of 2018 to reflect an increase in “Total assets” of approximately $4,000,000. The Company does not expect the adoption of the standard to have a material impact on other revenue streams.     

v3.8.0.1
Non-controlling Interest
9 Months Ended
Sep. 30, 2017
Noncontrolling Interest  
Non-controlling Interest

3. Non-controlling Interest

RE/MAX Holdings is the sole managing member of RMCO and operates and controls all of the business affairs of RMCO. The ownership of the common units in RMCO is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

December 31, 

 

 

 

2017

 

 

2016

 

 

    

Shares

    

Ownership %

    

 

Shares

    

Ownership %

 

Non-controlling unitholders ownership of common units in RMCO

 

12,559,600

 

41.51

%

 

12,559,600

 

41.57

%

RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO)

 

17,696,991

 

58.49

%

 

17,652,548

 

58.43

%

Total common units in RMCO

 

30,256,591

 

100.00

%

 

30,212,148

 

100.00

%

The weighted average ownership percentages for the applicable reporting periods are used to calculate the net income attributable to RE/MAX Holdings. A reconciliation of “Income before provision for income taxes” to “Net Income attributable to RE/MAX Holdings, Inc.” and “Net Income attributable to non-controlling interest” in the accompanying Condensed Consolidated Statements of Income for the periods indicated is detailed as follows (in thousands, except for percentages):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

2017

 

 

2016

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

Weighted average ownership percentage of RMCO (a)

 

58.49

%

 

41.51

%

 

100.00

%

 

 

58.42

%

 

41.58

%

 

100.00

%

Income before provision for income taxes

$

6,180

 

$

4,448

 

$

10,628

 

 

$

11,025

 

$

7,913

 

$

18,938

 

Provision for income taxes (b)(c)

 

(2,345)

 

 

(746)

 

 

(3,091)

 

 

 

(4,239)

 

 

(393)

 

 

(4,632)

 

Net income

$

3,835

 

$

3,702

 

$

7,537

 

 

$

6,786

 

$

7,520

 

$

14,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

2017

 

 

2016

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

 

RE/MAX Holdings, Inc.

 

Non-controlling interest

 

Total

 

Weighted average ownership percentage of RMCO (a)

 

58.47

%

 

41.53

%

 

100.00

%

 

 

58.39

%

 

41.61

%

 

100.00

%

Income before provision for income taxes

$

25,763

 

$

18,365

 

$

44,128

 

 

$

29,742

 

$

21,263

 

$

51,005

 

Provision for income taxes (b)(c)

 

(9,486)

 

 

(1,397)

 

 

(10,883)

 

 

 

(11,203)

 

 

(973)

 

 

(12,176)

 

Net income

$

16,277

 

$

16,968

 

$

33,245

 

 

$

18,539

 

$

20,290

 

$

38,829

 


(a)

The weighted average ownership percentage of RMCO differs slightly from the allocation of income before provision for income taxes between RE/MAX Holdings and the non-controlling interest as there are certain relatively insignificant expenses recorded at RE/MAX Holdings.    

(b)

The provision for income taxes attributable to RE/MAX Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. However, it also includes its share of taxes imposed directly on RE/MAX, LLC and its consolidated subsidiaries (“RE/MAX, LLC”), a wholly-owned subsidiary of RMCO, related primarily to tax liabilities in certain foreign jurisdictions.    

(c)

The provision for income taxes attributable to the non-controlling interest represents its share of taxes imposed on RE/MAX, LLC related primarily to tax liabilities in certain foreign jurisdictions.

 

Distributions and Other Payments to Non-controlling Unitholders

Under the terms of RMCO’s fourth amended and restated limited liability company operating agreement (the “New RMCO, LLC Agreement”), RMCO makes cash distributions to non-controlling unitholders. The distributions paid or payable to or on behalf of non-controlling unitholders are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

 

2017

 

2016

Tax and other distributions

 

$

7,430

 

$

8,442

Dividend distributions

 

 

6,783

 

 

5,652

Total distributions to non-controlling unitholders

 

$

14,213

 

$

14,094

On November 1, 2017, the Company declared a distribution to non-controlling unitholders of $2,261,000, which was paid on November 29, 2017.  On February 21, 2018, the Company declared a distribution to non-controlling unitholders of $2,512,000, which is payable on March 21, 2018.

Payments Pursuant to the Tax Receivable Agreements

As of September 30, 2017, the Company reflected a total liability of $91,985,000 representing the payments due to RIHI and Oberndorf Investments LLC (“Oberndorf”) under the terms of the tax receivable agreements (the “TRAs”) (see current and non-current portion of “Payable pursuant to tax receivable agreements” in the accompanying Condensed Consolidated Balance Sheets).

As of September 30, 2017, the Company estimates that amounts payable pursuant to the TRAs within the next 12-month period will be approximately $6,135,000, which is related to RE/MAX Holdings’ 2016 federal and state tax returns. To determine the current amount of the payments due to RIHI and Oberndorf, the Company estimated the amount of taxable income that RE/MAX Holdings generated as well as the amount of the specified deductions subject to the TRAs which were realized by RE/MAX Holdings in its federal and state tax returns. This amount was then used as a basis for determining the Company’s increase in estimated tax cash savings as a result of such deductions on which 85% is owed as a current TRA obligation (i.e. payable within 12 months of the Company’s year-end). These calculations are performed pursuant to the terms of the TRAs. The Company paid $7,296,000 and $1,344,000 pursuant to the terms of the TRAs during the nine months ended September 30, 2017 and 2016, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Given this date of enactment, the financial statements for the period ended September 30, 2017 do not reflect the impact of this legislation. The law includes significant changes to the U.S. corporate tax system, including a federal corporate rate reduction from 35% to 21%. During the fourth quarter of 2017, the period in which the Tax Cuts and Jobs Act was enacted, the deferred tax asset was reduced for the impact of the lower rate, resulting in a charge to “Provision for income taxes” of $40,900,000. Correspondingly, the TRA liability was also reduced for the rate change, resulting in a benefit to operating income of $32,700,000. The net effect on net income was $8,200,000, with the entirety of this impact allocated to RE/MAX Holdings as U.S. federal and most state income taxes do not apply to the non-controlling interest.

v3.8.0.1
Earnings Per Share and Dividends
9 Months Ended
Sep. 30, 2017
Earnings Per Share and Dividends  
Earnings Per Share and Dividends

4. Earnings Per Share and Dividends

Earnings Per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options and restricted stock units.

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in thousands, except share and per share information):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

2017

    

2016

Numerator

 

 

 

 

 

 

 

 

   

 

 

 

Net income attributable to RE/MAX Holdings, Inc.

 

$

3,835

 

$

6,786

 

$

16,277

 

$

18,539

Denominator for basic net income per share of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,696,991

 

 

17,645,696

 

 

17,685,683

 

 

17,622,298

Denominator for diluted net income per share of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding

 

 

17,696,991

 

 

17,645,696

 

 

17,685,683

 

 

17,622,298

Add dilutive effect of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 —

 

 

 —

 

 

 —

 

 

6,714

Restricted stock units

 

 

40,795

 

 

45,945

 

 

40,764

 

 

37,728

Weighted average shares of Class A common stock outstanding, diluted

 

 

17,737,786

 

 

17,691,641

 

 

17,726,447

 

 

17,666,740

Earnings per share of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock, basic

 

$

0.22

 

$

0.38

 

$

0.92

 

$

1.05

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock, diluted

 

$

0.22

 

$

0.38

 

$

0.92

 

$

1.05

There were no anti-dilutive shares for the three and nine months ended September 30, 2017 and 2016. The one share of Class B common stock outstanding does not share in the earnings of RE/MAX Holdings and is therefore not a participating security. Accordingly, basic and diluted net income per share of Class B common stock has not been presented.

Dividends

Dividends declared and paid quarterly per share on all outstanding shares of Class A common stock were as follows (in thousands, except share and per share information):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2017

 

2016

 

 

Date paid

 

Per share

 

Amount paid to Class A stockholders

 

Amount paid to non-controlling unitholders

 

Date paid

 

Per share

 

Amount paid to Class A stockholders

 

Amount paid to non-controlling unitholders

Dividend declared during quarter ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

March 22, 2017

 

$

0.18

 

$

3,184

 

$

2,261

 

March 23, 2016

 

$

0.15

 

$

2,638

 

$

1,884

June 30

 

May 31, 2017

 

 

0.18

 

 

3,185

 

 

2,261

 

June 2, 2016

 

 

0.15

 

 

2,647

 

 

1,884

September 30

 

August 30, 2017

 

 

0.18

 

 

3,185

 

 

2,261

 

August 31, 2016

 

 

0.15

 

 

2,647

 

 

1,884

 

 

 

 

$

0.54

 

$

9,554

 

$

6,783

 

 

 

$

0.45

 

$

7,932

 

$

5,652

On November 1, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.18 per share on all outstanding shares of Class A common stock, which was paid on November 29, 2017 to shareholders of record at the close of business on November 15, 2017. On February 21, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.20 per share on all outstanding shares of Class A common stock, which is payable on March 21, 2018 to stockholders of record at the close of business on March 7, 2018.

v3.8.0.1
Acquisitions and Dispositions
9 Months Ended
Sep. 30, 2017
Acquisitions and Dispositions  
Acquisitions and Dispositions

5. Acquisitions and Dispositions

Acquisitions

RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc.

On December 15, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Georgia, Inc. (“RE/MAX of Georgia”), RE/MAX of Kentucky/Tennessee, Inc. (“RE/MAX of Kentucky/Tennessee”), and RE/MAX of Southern Ohio, Inc. (“RE/MAX of Southern Ohio”), collectively (“RE/MAX Regional Services”) including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and in Southern Ohio for cash consideration of $50,400,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company funded the acquisition by refinancing its then outstanding credit facility (See Note 8, Debt) and using cash from operations.

RE/MAX of New Jersey, Inc.

On December 1, 2016, RE/MAX, LLC acquired certain assets and assumed certain liabilities of RE/MAX of New Jersey, Inc. (“RE/MAX of New Jersey”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New Jersey for cash consideration of $45,000,000. RE/MAX, LLC acquired these assets and liabilities in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

The Company finalized its accounting for the acquisitions of RE/MAX Regional Services and RE/MAX of New Jersey during the three months ended September 30, 2017. Adjustments recorded during the measurement-period are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. The Company does not revise or adjust any prior period information. In finalizing the accounting for these acquisitions, adjustments were made during the three months ended September 30, 2017 to the condensed consolidated balance sheet to decrease “Goodwill” by $4,200,000 with a corresponding increase to “Franchise agreements, net” of $4,200,000. The Company recognized a reduction in depreciation and amortization expense of $765,000 during the three months ended September 30, 2017 in connection with these measurement adjustments.

Full House Mortgage Connection, Inc.

Motto Franchising, LLC (“Motto Franchising”), a wholly-owned subsidiary of RE/MAX, LLC, was formed and developed to franchise mortgage brokerages. On September 12, 2016, Motto Franchising acquired certain assets of Full House, a franchisor of mortgage brokerages that created concepts used to develop Motto, for initial cash consideration of $8,000,000. Motto Franchising, as a franchisor, grants each franchisee a license to use the Motto Mortgage brand, trademark, promotional and operating materials and concepts. The Company used cash generated from operations to initially fund the acquisition. Additional cash consideration may be required based on future revenues generated. The contingent purchase consideration and its subsequent valuation is more fully described in Note 9, Fair Value Measurements

The following table summarizes the consideration at acquisition (in thousands):

 

 

 

Cash consideration

$

8,000

Contingent purchase consideration (See note 9)

 

6,300

Total purchase price

$

14,300

RE/MAX of Alaska, Inc.

On April 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Alaska, Inc. (“RE/MAX of Alaska”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of Alaska for cash consideration of $1,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

RE/MAX of New York, Inc.

On February 22, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New York, Inc. (“RE/MAX of New York”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New York for cash consideration of $8,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

The following table summarizes the allocation of the purchase price to the fair value of assets acquired and liabilities assumed for the aforementioned acquisitions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RE/MAX Regional Services

 

RE/MAX of New Jersey

 

Full House

 

RE/MAX of Alaska

 

RE/MAX of New York

 

Total

Cash and cash equivalents

 

$

 -

 

$

335

 

$

 -

 

$

 -

 

$

131

 

$

466

Franchise agreements

 

 

30,700

 

 

29,700

 

 

 -

 

 

529

 

 

5,000

 

 

65,929

Non-compete agreement

 

 

 -

 

 

 -

 

 

2,500

 

 

 -

 

 

 -

 

 

2,500

Other assets

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

340

 

 

340

Goodwill

 

 

19,700

 

 

15,300

 

 

11,800

 

 

971

 

 

3,029

 

 

50,800

Other liabilities

 

 

 -

 

 

(335)

 

 

 -

 

 

 -

 

 

 -

 

 

(335)

Total purchase price

 

$

50,400

 

$

45,000

 

$

14,300

 

$

1,500

 

$

8,500

 

$

119,700

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, Full House, RE/MAX of Alaska and RE/MAX of New York had occurred on January 1, 2016. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results, including additional amortization expense associated with the valuation of the acquired franchise agreements. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be obtained in the future (in thousands, except per share information).

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2016

 

September 30, 2016

Total revenue

$

48,781

 

$

141,073

Net income attributable to RE/MAX Holdings, Inc. (a)

$

7,090

 

$

18,165

Basic earnings per common share

$

0.40

 

$

1.03

Diluted earnings per common share

$

0.40

 

$

1.03


(a)

Nine months ended September 30, 2016 includes the net impact of $1,000,000 in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 8, Debt for a discussion of the credit facility.    

Dispositions

STC Northwest, LLC d/b/a RE/MAX Northwest Realtors

On January 20, 2016, the Company sold certain operating assets and liabilities related to three owned brokerage offices located in the U.S., of STC Northwest, LLC d/b/a RE/MAX Northwest Realtors, a wholly owned subsidiary of the Company. The Company recognized a loss on the sale of the assets and the liabilities transferred of approximately $90,000 during the first quarter of 2016, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying Condensed Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees and broker fees.

Sacagawea, LLC d/b/a RE/MAX Equity Group

On December 31, 2015, the Company sold certain operating assets and liabilities related to 12 owned brokerage offices located in the U.S., of Sacagawea, LLC d/b/a/ RE/MAX Equity Group (“RE/MAX Equity Group”), a wholly owned subsidiary of the Company.  During the third quarter of 2017 the Company recognized a loss of approximately $463,000 as a revised estimate of the final settlement on certain provisions of the asset sale agreement which is reflected in the “Loss (gain) on sale or disposition of assets, net” in the accompanying Condensed Consolidated Statements of Income.

 

v3.8.0.1
Intangible Assets and Goodwill
9 Months Ended
Sep. 30, 2017
Intangible Assets and Goodwill  
Intangible Assets and Goodwill

6. Intangible Assets and Goodwill

The following table provides the components of the Company’s intangible assets, other than goodwill (in thousands, except weighted average amortization period in years):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Average

 

As of September 30, 2017

 

As of December 31, 2016

 

 

Amortization

 

Initial

 

Accumulated

 

Net

 

Initial

 

Accumulated

 

Net

 

 

Period

 

Cost

 

Amortization

 

Balance

 

Cost

 

Amortization

 

Balance

Franchise agreements

 

12.1

 

$

197,977

 

$

(98,343)

 

$

99,634

 

$

224,167

 

$

(115,027)

 

$

109,140

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software (a)

 

4.5

 

$

13,902

 

$

(8,177)

 

$

5,725

 

$

13,207

 

$

(7,154)

 

$

6,053

Trademarks

 

14.1

 

 

3,153

 

 

(1,921)

 

 

1,232

 

 

3,102

 

 

(1,782)

 

 

1,320

Non-compete

 

10.0

 

 

2,500

 

 

(250)

 

 

2,250

 

 

2,500

 

 

(62)

 

 

2,438

Total other intangible assets

 

7.6

 

$

19,555

 

$

(10,348)

 

$

9,207

 

$

18,809

 

$

(8,998)

 

$

9,811


(a)

As of September 30, 2017 and December 31, 2016, capitalized software development costs of $782,000 and $356,000, respectively, were information technology infrastructure projects not yet complete and ready for their intended use and thus were not subject to amortization.

Amortization expense for the three months ended September 30, 2017 and 2016 was $4,066,000 and $3,666,000, respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $15,055,000 and $10,836,000, respectively. Amounts for the three and nine months ended September 30, 2017 include the measurement period adjustment of $765,000. Refer to Note 5, Acquisitions and Dispositions for additional information.

As of September 30, 2017, the estimated future amortization expense for the next five years related to intangible assets is as follows (in thousands):

 

 

 

 

As of September 30, 2017:

 

 

 

Remainder of 2017

 

$

4,031

2018

 

 

15,685

2019

 

 

15,522

2020

 

 

15,293

2021

 

 

14,786

 

 

$

65,317

The following table presents changes to goodwill for the period from January 1, 2017 to September 30, 2017 (in thousands):

 

 

 

 

Balance, January 1, 2017

    

$

126,633

Change in purchase price allocations for 2016 acquisitions

 

 

(3,865)

Effect of changes in foreign currency exchange rates

 

 

245

Balance, September 30, 2017

 

$

123,013

 

v3.8.0.1
Accrued Liabilities
9 Months Ended
Sep. 30, 2017
Accrued Liabilities.  
Accrued Liabilities

 

7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

    

September 30, 

 

December 31, 

 

 

2017

 

2016

Accrued payroll and related employee costs

 

$

5,205

 

$

7,035

Accrued taxes

 

 

1,219

 

 

1,554

Accrued professional fees

 

 

1,894

 

 

1,382

Other(a)

 

 

6,984

 

 

3,297

 

 

$

15,302

 

$

13,268

 


(a)

Other accrued liabilities include a $4,500,000 payable in connection with the February 13, 2018 settlement resulting from the litigation matter concerning the Company’s 2013 acquisition of the net assets of Tails, Inc. (“Tails”), as discussed in Note 13, Commitments and Contingencies.

v3.8.0.1
Debt
9 Months Ended
Sep. 30, 2017
Debt  
Debt

8. Debt

Debt, net of current portion, consists of the following (in thousands):

 

 

 

 

 

 

 

 

    

September 30, 

 

December 31, 

 

 

2017

 

2016

2016 Senior Secured Credit Facility

    

$

232,650

 

$

234,412

Less unamortized debt issuance costs

 

 

(1,854)

 

 

(2,076)

Less unamortized debt discount costs

 

 

(1,352)

 

 

(1,516)

Less current portion

 

 

(2,350)

 

 

(2,350)

 

 

$

227,094

 

$

228,470

Maturities of debt are as follows (in thousands):

 

 

 

As of September 30, 2017:

 

 

Remainder of 2017

$

588

2018

 

2,350

2019

 

2,350

2020

 

2,350

2021

 

2,350

Thereafter

 

222,662

 

$

232,650

Senior Secured Credit Facility

On December 15, 2016, RE/MAX, LLC, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto (the “2016 Senior Secured Credit Facility”), which amended and restated a prior credit agreement (the “2013 Senior Secured Credit Facility”). The 2016 Senior Secured Credit Facility consists of a $235,000,000 term loan facility which matures on December 15, 2023 and a $10,000,000 revolving loan facility which, if drawn, must be repaid on December 15, 2021. Borrowings under the term loans and revolving loans, if any outstanding, accrue interest at LIBOR (as long as LIBOR is not less than the floor of 0.75%) plus a maximum applicable margin of 2.75%. As of September 30, 2017, the interest rate was 4.08%.

Mandatory principal payments of approximately $588,000 are due quarterly until the facility matures on December 15, 2023. RE/MAX, LLC may make optional prepayments on the term loan facility at any time without penalty; however, no such optional prepayments were made during the nine months ended September 30, 2017.

Under the 2013 Senior Secured Credit Facility, RE/MAX, LLC was required to make additional principal payments out of excess cash flow. RE/MAX, LLC made an excess cash flow prepayment of $12,727,000 on March 31, 2016. RE/MAX, LLC accounted for the mandatory principal excess cash flow prepayment as an early extinguishment of debt and recorded a loss during the nine months ended September 30, 2016 of $136,000 related to unamortized debt discount and issuance costs.

Under the 2016 Senior Secured Credit Facility no additional mandatory prepayment and commitment reduction is required if the total leverage ratio as defined by the 2016 Senior Secured Credit Facility as of the last day of such fiscal year is less than 2.75 to 1.0. RE/MAX, LLC’s total leverage ratio was less than 2.75 to 1.0 as of September 30, 2017, and RE/MAX, LLC does not expect to make an excess cash flow principal prepayment within the next 12-month period.

As of September 30, 2017, RE/MAX, LLC had no revolving loans outstanding under our 2016 Senior Secured Credit Facility. Whenever amounts are drawn under the revolving line of credit, the 2016 Senior Secured Credit Facility requires compliance with a leverage ratio and an interest coverage ratio. A commitment fee of 0.5% per annum accrues on the amount of unutilized revolving line of credit.

v3.8.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2017
Fair Value Measurements  
Fair Value Measurements

9. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, the Company follows a three-tier fair value hierarchy, which is described in detail in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2016. 

A summary of the Company’s liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of December 31, 2016

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

6,650

 

$

 -

 

$

 -

 

$

6,650

 

$

6,400

 

$

 -

 

$

 -

 

$

6,400

The Company is required to pay additional purchase consideration totaling eight percent of gross revenues generated by Motto each year for the ten years following the acquisition date with no limitation as to the maximum payout. The consideration is payable following each anniversary, beginning October 1, 2017 and ending September 30, 2026. The acquisition date fair value of the contingent purchase consideration represents the forecasted discounted cash payments that the Company expects to pay Full House with respect to the acquired business. The Company measures this liability each reporting period and recognizes changes in fair value, if any, in earnings of the Company. Any changes are included in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income. Increases or decreases in the fair value of the contingent purchase consideration can result from changes in discount rates as well as the timing and amount of forecasted cash payments derived from anticipated gross revenues.

The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs for the period from January 1, 2017 to September 30, 2017 (in thousands):

 

 

 

 

 

 

Fair Value of Contingent Consideration Liability

Balance at January 1, 2017

 

$

6,400

Fair value adjustments

 

 

250

Balance at September 30, 2017

 

$

6,650

The Company assesses categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels I,  II and III during the nine months ended September 30, 2017. 

The following table summarizes the carrying value and fair value of the 2016 Senior Secured Credit Facility as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2017

 

2016

 

    

Carrying Amount

    

Fair Value     Level 2

    

Carrying Amount

    

Fair Value     Level 2

Senior Secured Credit Facility

    

$

229,444

 

$

233,522

 

$

230,820

 

$

233,240

 

v3.8.0.1
Income Taxes
9 Months Ended
Sep. 30, 2017
Income Taxes  
Income Taxes

 

10. Income Taxes

RE/MAX Holdings is subject to U.S. federal and state income taxation on its allocable portion of the income of RMCO.  The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 is based on an estimate of the Company’s annualized effective income tax rate. The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a series of limited liability companies which are not themselves subject to federal income tax. Accordingly, the portion of the Company’s subsidiaries’ earnings attributable to the non-controlling interest are not subject to U.S. federal and state income tax as the income is passed through to the non-controlling interest holders. The “Provision for income taxes” is comprised of a provision for income taxes attributable to RE/MAX Holdings and to entities other than RE/MAX Holdings. The provision for income taxes attributable to RE/MAX Holdings is primarily comprised of U.S. federal and state income taxes on its proportionate share of the pass-through income from RMCO. However, it also includes its share of taxes imposed directly on RE/MAX, LLC, related primarily to tax liabilities in certain foreign jurisdictions. The provision for income taxes attributable to the non-controlling interest represents its share of taxes imposed on RE/MAX, LLC related to tax liabilities primarily in certain foreign jurisdictions.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of Sept