1. Business and Organization

RE/MAX Holdings, Inc. (“RE/MAX Holdings”) was formed as a Delaware corporation on June 25, 2013 and was capitalized on July 8, 2013. On October 7, 2013, RE/MAX Holdings completed an initial public offering (the “IPO”) of 11,500,000 shares of Class A common stock at a public offering price of $22.00 per share. A portion of the proceeds received by RE/MAX Holdings from the IPO was used to acquire the business assets of HBN, Inc. (“HBN”) and Tails, Inc. (“Tails”) and the remaining proceeds were used to purchase common membership units in RMCO, LLC (“RMCO”) following the reorganization transactions described below. After the completion of the IPO, RE/MAX Holdings’ owns 39.56% of the common membership units in RMCO. RE/MAX Holdings’ only business is to act as the sole manager of RMCO and, in that capacity, RE/MAX Holdings operates and controls all of the business and affairs of RMCO. As a result, RE/MAX Holdings consolidates RMCO, and because RE/MAX Holdings and RMCO are entities under common control, such consolidation has been reflected for all periods presented. RE/MAX Holdings and its consolidated subsidiaries, including RMCO, are referred to hereinafter as “the Company.”

The Company is one of the world’s leading franchisors of residential and commercial real estate services throughout the United States (“U.S.”) and globally. The Company also operates real estate brokerage services businesses in the U.S. (“Company Owned Brokerages”). The Company’s revenue is derived from continuing franchise fees, annual dues from agents, broker fees, franchise sales and other franchise revenue (which consist of fees from initial sales of and renewals of franchises, regional franchise fees, preferred marketing arrangements, approved supplier programs and event-based revenue from training and other programs) and brokerage revenue (which consists of fees assessed by the Company’s owned brokerages for services provided to their affiliated real estate agents). A franchise grants the broker-owner a license to use the RE/MAX brand, trademark, promotional and operating materials and concepts.

Certain transactions and agreements associated with the IPO are set forth below:

Reorganization Transactions

In connection with the completion of the IPO, RMCO’s Third Amended and Restated Limited Liability Company Agreement (the “Old RMCO, LLC Agreement”), dated as of February 1, 2013 was amended and restated and RMCO’s Fourth Amended and Restated Limited Liability Company Agreement (the “New RMCO, LLC Agreement”) was executed. The New RMCO, LLC Agreement, among other things, modified RMCO’s capital structure as follows (collectively referred to hereinafter as the “Reorganization Transactions”):

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RMCO’s existing Class A preferred membership interest was converted into (i) a new preferred membership interest that reflected RMCO’s preferred equity holder’s liquidation preference of $49,850,000 and (ii) a common interest in the form of new Common Units (“Common Units”) that reflected RMCO’s preferred equity holders pro-rata share of the residual equity value of RMCO on the IPO date. RMCO’s existing Class B common unitholders also exchanged their ownership interest in RMCO for Common Units on a one-for-one basis;

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RMCO effectuated a 25 for 1 split of the then existing number of outstanding Common Units so that one Common Unit of RMCO could be acquired with the net proceeds received in the Company’s IPO from the sale of one share of RE/MAX Holdings’ Class A common stock, after the deduction of underwriting discounts and commissions and prior to the payment of estimated offering expenses;

—	RE/MAX Holdings became a member and the sole manager of RMCO following the purchase of Common Units of RMCO, as described below;

·	Previously outstanding and unexercised options to acquire Common Units of RMCO were split 25 for 1 and then substituted for 787,500 options to acquire shares of RE/MAX Holdings’ Class A common stock; and

—	RIHI was granted the right to redeem each of its Common Units of RMCO for, at RE/MAX Holdings’ option, newly issued shares of RE/MAX Holdings’ Class A common stock on a one-for-one basis or for a cash payment equal to the market price of one share of RE/MAX Holdings’ Class A common stock.

Initial Public Offering

The IPO closed on October 7, 2013, and RE/MAX Holdings raised a total of $253,000,000 in gross proceeds from the sale of 11,500,000 shares of Class A common stock at $22.00 per share, or $235,922,500 in net proceeds after deducting $17,077,500 of underwriting discounts and commissions.

RE/MAX Holdings used $27,305,000 of the proceeds from the IPO to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisitions of the business assets of HBN and Tails. Immediately following the acquisitions of the business assets of HBN and Tails, RE/MAX Holdings contributed such assets to RMCO in exchange for 1,330,977 Common Units of RMCO reflecting the $22.00 public offering price per share of RE/MAX Holdings’ Class A common stock, less underwriting discounts.

RE/MAX Holdings then used the remaining $208,617,500 of the proceeds received from the IPO to purchase 10,169,023 Common Units of RMCO. Of the $208,617,500 of proceeds received by RMCO from RE/MAX Holdings, $11,000,000 was reserved by RMCO to pay for expenses incurred related to the IPO transaction, including $5,972,000 directly related to the issuance of stock. RMCO used the remaining $197,617,500 of proceeds to pay a $49,850,000 liquidity preference associated with the preferred membership interest in RMCO held by Weston Presidio V, L.P. (“Weston Presidio”) and then to redeem common units of RMCO from Weston Presidio and RIHI, Inc. (“RIHI”) at a price per Common Unit equal to the public offering price per share of RE/MAX Holdings’ Class A common stock, less underwriting discounts.

Tax Receivable Agreements

RE/MAX Holdings entered into separate tax receivable agreements (“TRAs”) with Weston Presidio and RIHI (collectively, the “Historical Owners”), that provide for the payment by RE/MAX Holdings to the Historical Owners of RMCO of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RE/MAX Holdings actually realizes, or in some circumstances is deemed to realize, as a result of an increase in its share of tax basis in RMCO’s tangible and intangible assets, including increases attributable to payments made under the TRAs, and deductions attributable to imputed and actual interest that accrues in respect of such payments. These tax benefit payments are not necessarily conditioned upon one or more of the Historical Owners maintaining a continued ownership interest in either RMCO or RE/MAX Holdings. RE/MAX Holdings expects to benefit from the remaining 15% of cash savings, if any, that it may actually realize, which has been reflected as an increase in “Additional paid-in capital.” The provisions of the separate TRAs that RE/MAX Holdings entered into with each of its Historical Owners were substantially identical. As of December 31, 2013, no amounts had been paid pursuant to the TRAs.

Management Services Agreement

In connection with the completion of the IPO, RMCO entered into a management services agreement with RE/MAX Holdings pursuant to which RE/MAX Holdings agrees to provide certain specific management services to RMCO. In exchange for the services provided, RMCO reimburses RE/MAX Holdings for compensation and other expenses of RE/MAX Holdings’ officers and employees and for certain out-of-pocket costs. RMCO also provides administrative and support services to RE/MAX Holdings, such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The management services agreement further provides that employees of RE/MAX Holdings may participate in RMCO’s benefit plans, and that RMCO’s employees may be entitled to compensation in the form of equity awards issued by RE/MAX Holdings. RMCO indemnifies RE/MAX Holdings for any losses arising from its performance under the management services agreement, except that RE/MAX Holdings indemnifies RMCO for any losses caused by willful misconduct or gross negligence.

Basis of Presentation

As RE/MAX Holdings and RMCO were under the common control of RIHI at the time of the Reorganization Transactions, the transfer of control to RE/MAX Holdings was accounted for as a transaction among entities under common control, which resulted in the following impacts to the consolidated financial statements:

—	Balance Sheets—The assets, liabilities and equity of RMCO and RE/MAX Holdings have been consolidated and carried forward at their historical carrying values;

—	Statements of Income—The Consolidated Statements of Income include the historical Consolidated Statements of Income of RMCO consolidated with the Statement of Income of RE/MAX Holdings;

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Statements of Redeemable Preferred Units and Stockholders' Equity/Members’ Deficit—Prior to the Reorganization Transactions and IPO, RMCO and its subsidiaries were organized as a group of Limited Liabilities Companies. Weston Presidio’s and RIHI’s ownership interest in RMCO is reflected as redeemable preferred units and members’ deficit prior to the IPO. As a result of the Reorganization Transactions and IPO, RIHI retained a portion of its interest in RMCO directly through the ownership of RMCO Common Units and these interests are included within non-controlling interest subsequent to the IPO; and

—	Statements of Cash Flows—The Statements of Cash Flows include the historical Statements of Cash Flows of RMCO consolidated with the Statement of Cash Flows of RE/MAX Holdings.