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Description of Business, Basis of Presentation and Recent Accounting Pronouncements (Policies)
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12 Months Ended |
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Dec. 31, 2013
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| Accounting Policies [Abstract] | |
| Description of business |
Description of business Marcus and Millichap Real Estate Investment Services, Inc. (“MMREIS”) was incorporated in 1976 in the state of Delaware and prior to the completion of its initial public offering (the “IPO”), MMREIS was majority-owned by Marcus & Millichap Company (“MMC”) and all of the Company’s preferred and common stock outstanding was held by MMC and its affiliates or officers and employees of MMREIS. In June 2013, in preparation for the spin-off of its real estate investment services business, or the Spin-Off, MMC formed Marcus & Millichap, Inc., (the “Company”, “Marcus & Millichap”, or “MMI”). On October 30, 2013 and prior to the IPO, the stockholders of MMREIS contributed all of their outstanding shares to the Company, in exchange for MMI common stock, and MMREIS became MMI’s wholly-owned subsidiary. Thereafter, on October 31, 2013, MMC distributed 80.0% of the shares of MMI common stock to MMC’s shareholders and exchanged the remaining portion of its shares of MMI common stock for cancellation of indebtedness. On November 5, 2013, the Company completed its IPO of 6,900,000 shares of common stock at a price to the public of $12.00 per share. The Company’s shares, which commenced trading on October 31, 2013, are traded on the New York Stock Exchange. See Note 7 – “Stockholders’ Equity” for additional information. The Company is a brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. |
| Basis of Presentation |
Basis of Presentation The Company’s consolidated financial statements for the years ended December 31, 2013, 2012 and 2011 have been prepared in accordance with US generally accepted accounting principles (“GAAP”). In accordance with ASC 805-50-30-6, Business Combinations, since MMI and MMREIS were affiliates under common control, the assets and liabilities of MMREIS were recorded at carryover basis at the Spin-Off date. The historical financial statements of MMREIS, as the Company’s predecessor, have been presented as the historical financial statements of the Company for all periods prior to the Spin-Off from the beginning of the earliest period presented. |
| Consolidation |
Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. |
| Use of Estimates |
Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| Concentration of Credit Risk |
Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, due from affiliates, and receivables. Cash is placed with high-credit quality financial institutions. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents. The Company historically has not experienced any losses in its cash and cash equivalents or due from affiliates. The Company maintains allowances for estimated credit losses based on management’s assessment of the likelihood of collection. As of December 31, 2013 and 2012, no individual accounted for 10% or more of commissions or notes receivable. The Company derives its revenues from a broad range of real estate investors, owners, and users in the United States and Canada, none of which individually represents a significant concentration of credit risk. For the twelve months ended December 31, 2013 and 2012, no individual customer represented 10% or more of total revenues. The Company performs ongoing credit evaluations of its customers and debtors and requires collateral on a case-by-case basis. |
| Reclassifications |
Reclassifications Certain prior-period amounts in these notes to consolidated financial statements have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported consolidated results of operations or stockholders’ equity. |
| Segment Reporting |
Segment Reporting ASC 280, Segment Reporting, establishes standards for reporting information on operating segments in interim and annual financial statements. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses whose separate financial information is available and is evaluated regularly by the Chief Operating Decision Maker (CODM) or decision making group, to perform resource allocations and performance assessments. The CODM is the Chief Executive Officer and Chief Financial Officer. The CODM reviews financial information presented on an office by- office basis for purposes of making operating decisions, assessing financial performance and allocating resources. Based on the evaluation of the Company’s financial information, management believes that the Company’s offices represent individual operating segments with similar economic characteristics that meet the criteria for aggregation into a single reportable segment for financial statement purposes. The Company’s financing operations also represent an individual operating segment, which does not meet the thresholds to be presented as a separate reportable segment. |
| Recent accounting pronouncements |
Recent accounting pronouncements There are no recently issued accounting standards which are not yet effective that the Company believes would materially impact its consolidated financial statements. |
| Cash and Cash Equivalents |
Cash and Cash Equivalents The Company considers cash and cash equivalents to include short-term, highly liquid investments with maturities of three months or less when purchased. At December 31, 2013 and 2012, a significant portion of the balance of cash and cash equivalents was held with three financial institutions. Management believes the likelihood of realizing material losses from the excess of cash balances over federally insured limits is remote. Prior to June 30, 2013, the majority of the cash generated and used in the Company’s operations was held in bank accounts with one financial institution that were included in a sweep arrangement with MMC. Pursuant to a treasury management service agreement with that financial institution, the cash was swept daily into MMC’s money market account. The Company collected interest income from MMC at the same interest rate as MMC earned on the money market account. Historically, other than for a 2-week period around MMC’s March 31 fiscal year end, the Company had a receivable from MMC for the cash that was swept. When the sweep arrangement was not in effect, during the week before and the week after March 31, the Company’s cash balances remained in the Company’s bank accounts. As of June 30, 2013, the sweep arrangement with MMC was permanently terminated. |
| Commissions Receivable, Net |
Commissions Receivable, Net Commissions receivable consist primarily of commissions earned for which payment has not yet been received as well as current receivables from agents. The Company establishes an allowance for doubtful accounts based on the specific-identification of potentially uncollectible accounts. |
| Property and Equipment, Net |
Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. The Company uses the straight-line method for depreciation and amortization. Depreciation and amortization are provided over estimated useful lives ranging from three to seven years. The Company leases certain equipment under capital lease arrangements. The assets and liabilities under capital leases are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease. Assets under capital leases are depreciated using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. The Company evaluates its fixed assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the carrying amount of property and equipment is recoverable and, therefore, no impairment loss has been recorded for the years ended December 31, 2013, 2012 or 2011. |
| Other Assets |
Other Assets Other assets consist primarily of security deposits, due from sales agents and commission notes receivable. Security deposits relate to lease deposits made in connection with operating leases. Due from sales agents includes notes receivable from agents and other receivables from agents. The notes receivable from agents, along with interest, are typically collected from future commissions and are generally due in one to five years. As of December 31, 2013 and 2012, the weighted average interest rate for notes receivable from agents was approximately 2% and 6%, respectively. Any cash receipts on notes are applied first to unpaid principal balance prior to any income being recognized. In connection with real estate brokerage activities, the Company may accept a portion of its commission in the form of a commission note receivable. The Company establishes an allowance for doubtful accounts based on the specific-identification of potentially uncollectible accounts or commissions notes receivable in accordance with ASC 310, Receivables. Additionally, accounts and commissions notes receivable that are not specifically identified as being impaired are reviewed for impairment in accordance with ASC 450, Contingencies based on consideration of historical experience. |
| Deferred Rent Obligation |
Deferred Rent Obligation Some of the Company’s operating leases contain periods of free or reduced rent or contain predetermined fixed increases in the minimum rent amount during the lease term. For these leases, the Company recognizes rent expense on a straight-line basis over the term of the lease, generally between five to ten years, including periods of free rent, and records the difference between the amount charged to rent expense and the rent paid as a deferred rent obligation. As of December 31, 2013 and 2012, deferred rent totaled $3.7 million and $3.2 million, respectively, and is included in other liabilities and accounts payable and accrued expenses in the accompanying consolidated balance sheets. |
| Revenue Recognition |
Revenue Recognition The Company generates real estate brokerage commissions by acting as a broker for real estate owners or investors seeking to buy or sell commercial properties. Revenues from real estate brokerage commissions are recognized when there is persuasive evidence of an arrangement, all services have been provided, the price is fixed and determinable and collectability is reasonably assured. The Company generates financing fees from securing financing on purchase transactions as well as fees earned from refinancing its clients’ existing mortgage debt. Financing fee revenues are recognized at the time the loan closes and there are no remaining significant obligations for performance in connection with the transaction. Other revenues include fees generated from consulting and advisory services, as well as referral fees from other real estate brokers. Revenues from these services are recognized as they are performed and completed. |
| Advertising Costs |
Advertising Costs Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2013, 2012 and 2011 was $1.0 million, $0.7 million and $0.5 million, respectively. Advertising costs are included in selling, general, and administrative expense in the accompanying consolidated statements of income. |
| Income Taxes |
Income Taxes Prior to the IPO, the Company was part of a consolidated federal income tax return and various combined and consolidated state tax returns that were filed by MMC. The Company and MMC had a tax-sharing agreement whereby the Company provided for income taxes in its consolidated statements of income using an effective tax rate of 43.5%. In addition, all deferred tax assets and liabilities were recorded by MMC. As part of the spin-off, the Company’s tax sharing agreement with MMC was terminated effective October 31, 2013 and MMC transferred its allocable net deferred tax assets totaling $26.6 million to the Company, which resulted in a deemed capital contribution. Subsequent to the Spin-Off, the Company files as a stand-alone tax entity and income taxes are accounted for under the asset and liability method in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”). Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in the income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The change to a stand-alone entity for tax purposes may result in material changes to the Company’s income tax provision in future years. ASC 740 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more likely than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized. Management has analyzed the Company’s inventory of tax positions taken with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction), and has concluded that no uncertain tax positions are required to be recognized in the Company’s consolidated financial statements.
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| Fair Value Measurement |
ASC 820, Fair Value Measurement (“ASC 820”) establishes the accounting guidance for fair value measurements that applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Under the accounting guidance, the Company makes fair value measurements that are classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability, or Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Investments held in a rabbi trust account are carried at fair value and considered to be in the Level 1 classification. |
| Fair Value of Financial Instruments |
Fair Value of Financial Instruments The Company’s financial instruments, including such items in the consolidated financial statement captions as cash and cash equivalents, commissions receivable, net, accounts payable and accrued expenses and commissions payable, are carried at cost, which approximates fair value based on their immediate or short-term maturities and terms, which approximate current market rates and considered to be in the Level 1 classification. As the Company’s obligations under notes payable to former stockholders and certain employee and agent notes receivable bear fixed interest rates that approximate the rates currently offered to the Company for similar debt instruments, the Company has determined that the carrying value on these instruments approximates fair value. As the Company’s obligations under SARs Liability (included in deferred compensation and commissions caption) bear variable interest rates, the Company has determined that the carrying value approximates the fair value. These are considered to be in the Level 1 classification. |
| Stock-Based Compensation |
Stock-Based Compensation Prior to the IPO MMREIS historically issued stock options and stock appreciation rights, or SARs, to key employees through a book value, stock-based compensation award program (the “Program”). The Program allowed for employees to exercise stock options in exchange for shares of unvested restricted common stock. The Program also allowed employees to exercise options through the issuance of notes receivable, which were recourse to the employee. The grant price and repurchase price of stock-based awards at the grant date and repurchase date were fixed as determined by a valuation formula using book value, as defined by the agreements between MMREIS and the employees. The stock awards generally vested over a three to five-year period. Under these plans, MMREIS retained the right to repurchase shares if certain events occurred, which included termination of employment. In these circumstances, the plan document provided for repurchase proceeds to be settled in the form of a note payable to (former) shareholders or cash, which was settled over a fixed period. While MMREIS had entered into the agreements to repurchase the stock and settle the SARs held by employees upon termination of their employment (subject to certain conditions as specified in the agreements), MMC had historically assumed the obligation to make payments to the former shareholders. While MMREIS recognized the compensation expense associated with these share-based payment arrangements, the liability had historically been assumed by MMC through a deemed contribution, which then has paid the former shareholders over time. The accounting for the stock options and SARs awards, including MMC’s assumption of MMREIS repurchase obligations, is discussed below. |
| Earnings Per Share |
Earnings Per Share The Company computes earnings per share in accordance with ASC 260, Earnings Per Share (ASC 260). ASC 260 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and should be included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Certain of the Company’s restricted stock awards are considered participating securities because they contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest. Earnings per share information has not been presented for periods prior to the IPO, as the holders of MMREIS Series A Redeemable Preferred Stock were entitled to receive discretionary dividends, payable in preference and priority to any distribution on MMREIS common stock. Since MMREIS typically distributed its earnings to the Series A Preferred stockholders on a quarter-in-arrears basis, earnings per share information for MMREIS common stock was not meaningful. Earnings per share is calculated using net income attributable to Marcus and Millichap, Inc. subsequent to initial public offering on October 31, 2013.
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