3. Impacts of Adopting New Revenue Recognition

Changes in Revenue Recognition Policies

The Company adopted the new revenue standard (Topic 606) on January 1, 2018. The Company applied the new revenue standard retrospectively and has recast the 2017 and 2016 financial statements as though the new revenue standard had been applied in all periods presented. The adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue and related commissions paid on franchise sales and renewals, as discussed below.

Franchise sales is comprised of revenue from the sale or renewal of franchises. The Company previously recognized revenue at the time of sale. Under the new revenue standard, the franchise sale initial fees are considered to be a part of the license of symbolic intellectual property, which is now recognized over the contractual term of the franchise agreement, which is typically 5 years for RE/MAX and 7 years for Motto franchise agreements. Correspondingly, the commissions related to franchise sales are recorded as an asset (the current portion in “Other current assets” and long-term portion in “Other assets, net of current portion”) and are recognized over the contractual term of the franchise agreement in “Selling, operating and administrative expenses”. Previously, such commissions were expensed as incurred.

The following tables summarize the impacts of the new revenue standard adoption on the Company’s financial statements (in thousands, except per share information):

Consolidated Balance Sheet


	Impact of Changes in Accounting Policies
	As of December 31, 2017
	As previously reported		Adjustments		As adjusted
Accounts and notes receivable, current portion, net	$	21,304	$	(1,020)	$	20,284
Income taxes receivable		870		93		963
Other current assets		6,924		1,050		7,974
Deferred tax assets, net		59,151		3,690		62,841
Other assets, net of current portion		1,563		2,460		4,023
Income taxes payable		133		(36)		97
Deferred revenue		18,918		6,350		25,268
Deferred revenue, net of current		—		20,228		20,228
Retained earnings		16,027		(7,627)		8,400
Accumulated other comprehensive income, net of tax		515		(56)		459
Non-controlling interest		398,348		12,586		410,934

Consolidated Statement of Income


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2017
	As previously reported		Adjustments		As adjusted
Franchise sales and other revenue	$	24,667	$	(2,215)	$	22,452
Selling, operating and administrative expenses		107,268		(322)		106,946
Provision for income taxes (a)		55,576		1,471		57,047
Net income (a)		35,179		(3,364)		31,815
Net income attributable to non-controlling interest		22,364		(787)		21,577
Net income attributable to RE/MAX Holdings, Inc.		12,815		(2,577)		10,238
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock:
Basic		0.72		(0.14)		0.58
Diluted		0.72		(0.14)		0.58

(a)

Includes an adjustment in 2017 to the deferred tax asset arising from deferred revenue under Topic 606 due to the drop in the U.S. tax rates from 35% to 21% under the Tax Cuts and Jobs Act.


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2016
	As previously reported		Adjustments		As adjusted
Franchise sales and other revenue	$	25,131	$	(660)	$	24,471
Selling, operating and administrative expenses		88,213		(176)		88,037
Provision for income taxes		15,273		(106)		15,167
Net income		47,226		(378)		46,848
Net income attributable to non-controlling interest		24,830		(203)		24,627
Net income attributable to RE/MAX Holdings, Inc.		22,396		(175)		22,221
Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock:
Basic		1.27		(0.01)		1.26
Diluted		1.27		(0.01)		1.26

Consolidated Statement of Comprehensive Income


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2017
	As previously reported		Adjustments		As adjusted
Net income	$	35,179	$	(3,364)	$	31,815
Change in cumulative translation adjustment		1,074		(37)		1,037
Comprehensive income		36,253		(3,401)		32,852
Comprehensive income attributable to non-controlling interest		22,895		(787)		22,108
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax		13,358		(2,614)		10,744


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2016
	As previously reported		Adjustments		As adjusted
Net income	$	47,226	$	(378)	$	46,848
Change in cumulative translation adjustment		165		(19)		146
Comprehensive income		47,391		(397)		46,994
Comprehensive income attributable to non-controlling interest		24,918		(203)		24,715
Comprehensive income attributable to RE/MAX Holdings, Inc., net of tax		22,473		(194)		22,279

Consolidated Statement of Cash Flows


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2017
	As previously reported		Adjustments		As adjusted
Net income	$	35,179	$	(3,364)	$	31,815
Deferred income tax expense		46,494		1,471		47,965
Accounts and notes receivable, current portion		(2,924)		99		(2,825)
Other current and noncurrent assets		(2,414)		(310)		(2,724)
Other current and noncurrent liabilities		1,583		1,232		2,815
Deferred revenue and deposits, current portion		2,610		872		3,482


	Impact of Changes in Accounting Policies
	Year Ended December 31, 2016
	As previously reported		Adjustments		As adjusted
Net income	$	47,226	$	(378)	$	46,848
Deferred income tax expense		3,473		(106)		3,367
Other current and noncurrent assets		362		(176)		186
Other current and noncurrent liabilities		(2,616)		660		(1,956)

Disaggregated Revenue

In the following table, segment revenue is disaggregated by geographical area for the years ended December 31, 2018, 2017 and 2016 (in thousands):


	Year Ended December 31,
			2017		2016
	2018		As adjusted*		As adjusted*
U.S.	$	170,496	$	160,537	$	145,488
Canada		23,771		23,189		22,071
Global		10,237		9,431		8,079
Total RE/MAX Franchising		204,504		193,157		175,638
Other		8,122		557		4
Total	$	212,626	$	193,714	$	175,642

*See above within Note 3, Revenue for more information.

In the following table, segment revenue is disaggregated by Company-owned or Independent Regions in the U.S. and Canada for the years ended December 31, 2018, 2017 and 2016 (in thousands):


	Year Ended December 31,
			2017		2016
	2018		As adjusted*		As adjusted*
Company-owned Regions	$	133,925	$	125,092	$	103,756
Independent Regions		46,289		44,799		47,498
Global and Other		24,290		23,266		24,384
Total RE/MAX Franchising		204,504		193,157		175,638
Other		8,122		557		4
Total	$	212,626	$	193,714	$	175,642

*See above within Note 3, Revenue for more information.

Transaction Price Allocated to the Remaining Performance Obligations

The following table includes estimated revenue by year, excluding certain other immaterial items, expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):


	2019		2020		2021		2022		2023		Thereafter		Total
Annual dues	$	15,877	$	—	$	—	$	—	$	—	$	—	$	15,877
Franchise sales		7,415		6,116		4,706		3,171		1,652		4,500		27,560
Total	$	23,292	$	6,116	$	4,706	$	3,171	$	1,652	$	4,500	$	43,437

Using the transition requirements of the new standard, the Company has elected not to disclose the amount of the transaction price allocated to the remaining performance obligations or when the Company expects to recognize that amount as revenue for the years ended December 31, 2017 and 2016.