Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.21.2
Revenue Recognition
 6 Months Ended
Jun. 30, 2021
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
3. REVENUE RECOGNITION
Deferred revenues
Deferred revenues, or contract liabilities, generally represent payments or consideration received in advance for goods or services that the Company has not yet provided to the customer. Deferred revenues as of June 30, 2021 and December 31, 2020 are as follows:
June 30, 2021 December 31, 2020
Deferred initial franchise fee revenues
 $ 143  $ 136 
Deferred loyalty program revenues
 76  75 
Deferred other revenues
 21  18 
Total
 $ 240  $ 229 

Deferred initial franchise fees represent payments received in advance from prospective franchisees upon the signing of a franchise agreement and are generally recognized to revenue within 12 years. Deferred loyalty revenues represent the portion of loyalty program fees charged to franchisees, net of redemption costs, that have been deferred and will be recognized over time based upon loyalty point redemption patterns.

As a result of the negative impact that the coronavirus pandemic (“COVID-19”) had on travel demand in 2020, the Company’s assumptions related to redemptions, including estimated member redemption rate, member redemption pattern, and the estimated cost to satisfy such redemptions, changed. Accordingly, the Company recognized a $16 million cumulative adjustment, which resulted in an increase to loyalty revenues during the second quarter of 2020. Such increase is included within marketing, reservation and loyalty and other revenues on the Condensed Consolidated Statement of Income/(Loss) during the three and six months ended June 30, 2020.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The consideration received from a customer is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The following table summarizes the Company’s remaining performance obligations for the twelve-month periods set forth below:
7/1/2021 - 6/30/2022 7/1/2022 - 6/30/2023 7/1/2023 - 6/30/2024

Thereafter

Total
Initial franchise fee revenues
 $ 23  $ 9  $ 8  $ 103  $ 143 
Loyalty program revenues
 44  22  8  2  76 
Other revenues
 13  1  1  6  21 
Total
 $ 80  $ 32  $ 17  $ 111  $ 240 
Disaggregation of net revenues
The table below presents a disaggregation of the Company’s net revenues from contracts with customers by major services and products for each of the Company’s segments:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Hotel Franchising
Royalties and franchise fees
 $ 115  $ 59  $ 190  $ 144 
Marketing, reservation and loyalty
 119  82  204  187 
License and other fees
 20  21  40  42 
Other
 29  20  58  52 
Total Hotel Franchising
 283  182  492  425 
Hotel Management
Royalties and franchise fees
 7  2  10  10 
Marketing, reservation and loyalty
 —  —  —  1 
Owned hotel revenues
 21  2  34  23 
Management fees
 9  4  16  15 
Cost reimbursements
 85  66  155  192 
Other
 1  2  2  1 
Total Hotel Management
 123  76  217  242 
Net revenues
 $ 406  $ 258  $ 709  $ 667 

Capitalized contract costs
The Company incurs certain direct and incremental sales commissions costs in order to obtain hotel franchise and management contracts. Such costs are capitalized and subsequently amortized beginning upon hotel opening over the first non-cancellable period of the agreement. In the event an agreement is terminated prior to the end of the first non-cancellable period, any unamortized cost is immediately expensed. In addition, the Company also capitalizes costs associated with the sale and installation of property management systems to its franchisees, which are amortized over the remaining non-cancellable period of the franchise agreement. As of June 30, 2021 and December 31, 2020, capitalized contract costs were $33 million, of which $7 million for both periods was included in other current assets and $26 million for both periods, was included in other non-current assets on its Condensed Consolidated Balance Sheets.