Immaterial Corrections to Prior Period Financial Statements

9 Months Ended

Sep. 30, 2021

Immaterial Corrections to Prior Period Financial Statements

Immaterial Corrections to Prior Period Financial Statements

13. Immaterial Corrections to Prior Period Financial Statements

During the third quarter of 2021, in analyzing the purchase accounting with respect to the acquisition of INTEGRA, the Company determined that a portion of the acquisition purchase price was attributable to a loss on the settlement of the pre-existing master franchise agreements in which the pre-acquisition royalty rates paid by INTEGRA were below the current market rate. This is in contrast to prior Independent Region acquisitions where the Company allocated the entire purchase price to acquired assets, primarily goodwill and other identifiable intangible assets. The Company has determined this same conclusion applied to certain other Independent Regions acquired between 2007 and 2017 where the region paid a royalty rate below the market rate as of the acquisition date. In these circumstances, the Company failed to recognize a loss on settlement of the master franchise contract in the year of acquisition, which caused overstated goodwill and identifiable intangible assets and generally overstated levels of intangible asset amortization expense subsequent to acquisition. The control deficiencies that led to these errors were deemed to constitute a material weakness in the Company’s internal control over financial reporting.

Accordingly, management is correcting the relevant consolidated financial statements and related footnotes for the unaudited three and nine month period ended September 30, 2020 within these condensed consolidated financial statements. Management has evaluated the materiality of these misstatements based on an analysis of quantitative and

qualitative factors and concluded they were not material to the prior period financial statements, individually or in aggregate.

The following table reflects the impact of the immaterial correction on the Company’s previously reported consolidated financial statements (in thousands, except per share information):

	Three Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2020
	As previously				As previously
	reported		As Adjusted		reported		As Adjusted
Depreciation and amortization	$	6,850	$	6,730	$	19,572	$	19,154
Operating income (loss)	$	10,815	$	10,935	$	31,260	$	31,678
Income (loss) before provision for income taxes	$	8,775	$	8,895	$	24,485	$	24,903
Provision for income taxes	$	(2,051)	$	(2,057)	$	(6,547)	$	(6,584)
Net income (loss)	$	6,724	$	6,838	$	17,938	$	18,319
Less: net income (loss) attributable to non-controlling interest	$	3,171	$	3,221	$	8,265	$	8,436
Net income (loss) attributable to RE/MAX Holdings, Inc.	$	3,553	$	3,617	$	9,673	$	9,883
Net income (loss) attributable to RE/MAX Holdings, Inc. per share of Class A common stock, basic	$	0.20	$	0.20	$	0.53	$	0.55
Net income (loss) attributable to RE/MAX Holdings, Inc. per share of Class A common stock, diluted	$	0.19	$	0.20	$	0.53	$	0.54